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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 16, 2000
REGISTRATION NO. 333-93335
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 3
TO
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)
<TABLE>
<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. [ ]
------------------------
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 FEBRUARY 16, 2000
PROSPECTUS
4,250,000 SHARES
[NET.GENESIS LOGO]
COMMON STOCK
This is an initial public offering of common stock by net.Genesis Corp. We
are selling 4,250,000 shares of common stock. We estimate that the initial
public offering price will be between $11.00 and $13.00 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
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<S> <C> <C>
Initial public offering price............................... $ $
Underwriting discounts and commissions......................
Proceeds to net.Genesis, before expenses....................
</TABLE>
We have granted the underwriters an option for a period of 30 days to
purchase up to 637,500 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.
CHASE H&Q DEUTSCHE BANC ALEX. BROWN
------------------
U.S. BANCORP PIPER JAFFRAY
, 2000.
<PAGE> 3
[NET.GENESIS LOGO]
<PAGE> 4
INSIDE FRONT COVER:
Graphic depiction of the functions net.Analysis software performs for
net.Genesis customers.
Top left corner has net.Genesis company logo and the following text: "We offer
e-customer software solutions that enable companies to understand, analyze and
improve their online businesses."
Right side graphic depicts four human figures representing visitors to
net.Analysis customers' web sites. Graphic immediately to the right depicts
individual computers accessing a customer's web site, with arrows linking to and
from the web site.
Graphic next to the right consists of three vertical boxes, with arrows pointing
from the boxes to the right. The top box contains the following phrases arranged
in three rows:
- Clickstream Behavior
- Purchasing Activity
- Customer Information
The middle box contains the words "Web Applications". The bottom box contains
the words "Offline Information".
The arrows to the right of the three boxes point to a larger box immediately to
the right depicting the net.Analysis Software, representing the types of data
that can be collected by net.Analysis.
Three arrows stem from the right of the net.Analysis Software box pointing to
three additional boxes, linked together inside a larger rectangle. The rectangle
is labeled "End Users". The three boxes within the rectangle are labeled
"Marketing," "Sales" and "Support," depicting different groups of end-users
within the customer's organization.
To the right of the "End Users" rectangle, the following words appear:
"Critical Questions for Online Businesses
- What are the profiles of our best customer segments?
- Which banner ads 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?"
An arrow links the above text back to the graphic depiction of a customer's web
site.
<PAGE> 5
TABLE OF CONTENTS
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PAGE
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<S> <C>
Prospectus Summary.......................................... 3
Risk Factors................................................ 7
Use of Proceeds............................................. 20
Dividend Policy............................................. 20
Capitalization.............................................. 21
Dilution.................................................... 22
Selected Financial Data..................................... 23
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 25
Business.................................................... 34
Management.................................................. 51
Transactions with Related Parties........................... 61
Principal Stockholders...................................... 63
Description of Capital Stock................................ 65
Shares Eligible for Future Sale............................. 68
Underwriting................................................ 70
Legal Matters............................................... 72
Experts..................................................... 72
Where You Can Find More Information......................... 72
Index to Financial Statements............................... F-1
</TABLE>
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[This page intentionally left blank]
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PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this
prospectus. 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 provide software and professional services that help our customers
understand, analyze and improve their online businesses. Our net.Analysis
software enables companies to collect, store, organize and analyze detailed
information about the online behavior of customers and other visitors on their
web sites. Through net.Analysis, our customers can also import and analyze
information about these e-customers that is available from other online and
offline software systems and databases. Our professional services organization
provides strategic analytic consulting and product integration and installation
services. This combined software and services solution enables companies to:
- better tailor and target their marketing initiatives
- restructure their web sites to facilitate electronic commerce, or
e-commerce
- provide more relevant and cost-effective content
- improve web site design
- better allocate advertising and partnership resources
- better plan their investments in web site hardware and software
As use of the Internet has grown, companies have invested in a variety of
software applications and services to develop and support their web sites and
improve the online experience of their e-customers. In the face of increasing
competition, online businesses are seeking to improve their ability to attract,
serve and retain customers and more effectively communicate and conduct
e-commerce with them. To achieve these objectives, companies must understand the
needs and web site behavior of their e-customers. Companies must also understand
the costs and benefits of each of their web initiatives, such as online
marketing campaigns, e-commerce efforts, web site content, advertising and other
promotional sponsorships, and their investments in web site hardware and
software. Complicating matters, companies often desire to understand the
behavior of their e-customers in the context of their traditional offline
businesses.
Our net.Analysis software helps companies achieve these objectives by
collecting information about the online behavior of e-customers on their web
sites, such as the web pages they viewed most often, the banner advertisements
they clicked on, how they navigated through the site, how they purchased
products and services, and why they may have abandoned the site. With
net.Analysis' reporting capabilities, companies can select the data they wish to
analyze, segment that data according to criteria they establish, and use it to
analyze the online behavior of selected categories of e-customers.
net.Analysis enables companies to organize this information, which we call
e-customer intelligence, in ways that help them understand and improve their
online businesses. For example, a company can use our software to identify the
characteristics of its best e-customers and to analyze trends in their online
activity. This can help the company evaluate the cost-effectiveness of its
e-commerce efforts, promotional campaigns or investments in content. With
net.Analysis, a company can also import customer information from its other
online and offline software systems and databases and correlate this information
with information about customers' online behavior to learn, for example, whether
e-customers buy from the company's offline retail establishments or respond to
the company's direct mail or other offline marketing initiatives. This ability
to form a
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unified view of e-customer behavior in the context of the company's entire
business is a valuable asset for many companies.
We have designed net.Analysis to perform reliably in complex web site
environments and to manage tens of millions to over 100 million hits per day. We
have also designed net.Analysis to be compatible with Microsoft Windows NT and
Unix, two widely used operating systems, and third-party software applications
and to simplify the development of add-on analytic applications.
Our professional services organization has extensive experience using
net.Analysis to analyze and understand e-customer behavior, and uses this
expertise to help companies develop web-based performance measurements 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. In 1999, some of our
largest customers included Barnes & Noble, Bell Atlantic, Charles Schwab, Delta
Airlines, EarthWeb, Egreetings Network, Fidelity Investments, The Gap, General
Electric, Intraware, NextPlanetOver Online, Travelscape.com and Universal
Studios, none of which accounted for more than 10% of our total revenues in
1999. 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
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THE OFFERING
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<S> <C>
Common stock offered by net.Genesis................. 4,250,000 shares
Common stock to be outstanding after this
offering.......................................... 20,459,832 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 January 26, 2000. This number includes
12,867,683 shares that we will issue upon conversion of our outstanding
preferred stock upon completion of this offering and 85,843 shares that we
expect to issue upon the exercise of a warrant before the completion of this
offering. It excludes:
- 209,804 shares issuable upon exercise of other warrants that will remain
outstanding after this offering, which have an exercise price of $2.45
per share
- 2,060,680 shares issuable upon exercise of options outstanding as of
January 26, 2000, which have a weighted average exercise price of $2.79
per share
- 2,371,500 additional shares reserved as of January 26, 2000 for future
issuance under our stock-based compensation plans
------------------------------
Except where we state otherwise, the information we present in this
prospectus reflects
- a three-for-four reverse split of our common stock effected on February
2, 2000
- 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
- no exercise of the underwriters' option to purchase additional shares in
this offering
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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 4,250,000 shares of common stock at an assumed initial public
offering price of $12.00 per share, after deducting estimated
underwriting discounts and commissions and estimated offering expenses
that we will pay
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
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1997 1998 1999
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<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Product revenue.......................................... $ 845 $ 937 $ 3,788
Service revenue.......................................... 164 631 2,747
------- ------- --------
Total revenue.............................................. 1,009 1,568 6,535
Gross profit............................................... 369 575 3,199
Total operating expenses................................... 3,419 6,459 19,213
Loss from operations....................................... (3,050) (5,884) (16,014)
Net loss................................................... (3,110) (5,773) (16,012)
Dividends and accretion of redeemable preferred stock...... (337) (660) (1,912)
Net loss available to common stockholders.................. (3,447) (6,433) (17,924)
Basic and diluted net loss available to common stockholders
per share................................................ $ (8.11) $(10.82) $ (13.72)
Shares used in computing basic and diluted net loss
available to common stockholders per share............... 425 595 1,307
Unaudited pro forma basic and diluted net loss per common
share.................................................... $ (1.33)
Shares used in computing unaudited pro forma basic and
diluted net loss per common share........................ 11,996
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------------
PRO FORMA
ACTUAL AS ADJUSTED
-------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 9,643 $56,453
Working capital............................................. 7,353 54,163
Total assets................................................ 17,792 64,602
Long-term portion of capital lease obligations and long-term
debt...................................................... 1,892 1,892
Redeemable convertible preferred stock...................... 36,575 --
Total stockholders' equity (deficit)........................ (27,147) 56,238
</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 and
net.Analysis are registered trademarks that we own. CartSmarts, Design for
Analysis, DFA, net.Dashboard, net.Instrument, net.Stream and ReportSite are
trademarks that we own. This prospectus also contains trademarks and trade names
of other companies.
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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 businesses depend 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 $3.1 million in 1997, $5.8 million in 1998
and $16.0 million in 1999. As a result of ongoing operating losses, we had an
accumulated deficit of $30.8 million at December 31, 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 software
- the timing of sales and delivery of our products and services
- the timing of customer implementations of our products
- the mix of revenue derived from our products and services
- 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
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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. In
addition, commissions for our sales personnel are generally based on the orders
we book rather than the revenue we recognize in the quarter and could therefore
increase in an amount disproportionate to the increase in revenue. 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 Bell Atlantic and E*Trade each accounted for more than
10% of our total revenue.
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
software. In addition, we believe that, for many of our potential customers, the
purchase of our software and services 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 software and other 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 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."
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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.
INCREASED COOPERATION AND CONSOLIDATION AMONG OUR COMPETITORS COULD ENABLE
THEM TO OFFER MORE COMPETITIVE PRODUCTS, WHICH COULD LEAD TO REDUCED SALES OF
NET.ANALYSIS AND RELATED SERVICES
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
capabilities that could adversely affect demand for our software and services.
We also expect that industry consolidation will increase competition. For
example, Vignette, a company with which we have a strategic technology
relationship, offers software that enables businesses to better manage their
online relationships by personalizing their web sites. Vignette recently
announced its agreement to acquire DataSage, a company that offers software that
collects real-time information on online customer interactions. With the
acquisition, Vignette will augment its ability to provide real-time reporting
and analysis of customer behavior. These additional capabilities may make its
products more competitive with net.Analysis. Similarly, Accrue recently acquired
Marketwave and NeoVista Software, and as a result can offer a wider selection of
products to its customers. Accordingly, it is possible that alliances among our
competitors, new competitors or companies that result from combinations 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 THROUGH INTERNET-ORIENTED
SYSTEMS INTEGRATORS, RESELLERS, ORIGINAL EQUIPMENT MANUFACTURERS AND
APPLICATION SERVICE PROVIDERS, 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
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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 risk 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 reduce our
cash flows and harm our financial condition.
OUR FAILURE TO UPGRADE OUR PRODUCTS AND INTRODUCE NEW PRODUCTS TO MEET MARKET
REQUIREMENTS, SUCH AS DEMAND FOR THE ABILITY OF OUR SOFTWARE TO HANDLE
INCREASING TRAFFIC ON WEBSITES, 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 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 rapid 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 software could diminish.
Similarly, widespread adoption of technology that enables web site visitors to
conceal their web site activities could seriously impair the capabilities 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 1999, we derived approximately
50% of our total revenue from sales of products and services to customers that
had made purchases from us before 1999. 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, compatibility, 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 SYSTEMS AND RESOURCES AND
COULD SERIOUSLY HARM US
Our failure to properly manage the expansion of our business could
seriously harm us. Our business has recently experienced a period of significant
and rapid expansion that has placed, and continues to place, a significant
strain on our management, operating systems and resources. For example, Brian
Zanghi, our Executive Vice President and Chief Operating Officer, joined us in
January 2000, and several other members of our management team joined us in
1999. During 1999, the number of our employees grew from 64 to 150, 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 implement and improve our
operating systems, including our administrative, financial, customer
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service and operational systems, procedures and controls. We are currently
implementing 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.
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 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, we could be unable to meet
customer demand for our services, which could cause customer dissatisfaction and
lost sales. Our headquarters are 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 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. We have limited name
recognition, and 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 budget for creating and maintaining brand awareness
among potential customers. If 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.
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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 and 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 make acquisitions. 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
capabilities, features and services. 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, businesses, 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
- we may encounter difficulties in integrating acquired 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.
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, particularly in Europe and Asia. We have limited
experience in developing localized versions of our software products and in
marketing, selling and distributing our software and services internationally.
To date, our only offices outside the United States are located in London,
England. To
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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 trademarks net.Genesis and net.Analysis in the United States
and claim trademark rights in CartSmarts, Design for Analysis, DFA,
net.Dashboard, net.Instrument, 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, and we may be unsuccessful in
obtaining that protection, or our efforts to obtain that protection may be
opposed by others. For example, we have been advised that our application to
register the mark net.Genesis in the European Union has been opposed by a large
Spanish insurance company that owns a number of marks incorporating the word
"Genesis." 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 technology or
develop competing technologies. If this occurs, our business and prospects would
be materially and adversely affected.
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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 that apply to our methods of doing business may have been issued or may
be issued in the future. 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
YEAR 2000 PROBLEMS COULD HAVE AN ADVERSE EFFECT ON OUR OPERATIONS
We are subject to potential Year 2000 problems affecting our internal
systems, the systems of our suppliers and our customers. If any of these were
not corrected for Year 2000 problems, our operations could be materially
impacted. We conducted a review and examination of these systems and a summary
of our results is included elsewhere in this prospectus.
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 typically become incorporated in our
customers' web site hardware and software systems, which vary greatly in
composition and complexity. As a result, we cannot anticipate and plan for the
configuration of every customer's system, and our products may not work properly
in every installation or may disrupt the proper functioning of other
applications within that system. 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.
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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 SOFTWARE,
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 software such as ours is available or beneficial and may
choose to allocate their resources elsewhere, including to 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 software, and, in particular, adopt our
product. 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
user demand for faster access. 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 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 software. 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.
THE CAPABILITIES 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
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
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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 SOFTWARE 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
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.
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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
20,459,832 shares of common stock outstanding and 2,270,484 shares subject to
outstanding options and warrants. In general, the 4,250,000 shares sold in this
offering will be freely tradable without restriction or further registration
under the federal securities laws. The remaining 16,209,832 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 Chase
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Securities Inc., 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 40% OF OUR
OUTSTANDING COMMON STOCK
Immediately after this offering, our directors and executive officers and
their affiliates will collectively control approximately 40% 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 $9.25
higher than the pro forma net tangible book value per share of our common stock,
based on an assumed public offering price of $12.00 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
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these outstanding options and warrants are later 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 includes forward-looking statements about market data
relating to the Internet and to us. These statements are based on estimates
contained in studies published by International Data Corporation, a market
research firm. International Data Corporation arrived at those estimates by
using methodologies and assumptions chosen by it. For example, International
Data Corporation's estimate of growth in Internet commerce revenue, appearing
below in "Business -- Industry Background," is based on extrapolation by
International Data Corporation from historical data collected by them from
surveys and interviews, including data about:
- the installed base for personal computers and other Internet access
devices
- the number of users per device
- the amount of time spent on the web
- the value of user purchases on the web
- the number of sites on the web
If the methodologies and assumptions, such as those described above, that
International Data Corporation used to make these estimates prove to be
incorrect, actual results could differ from the estimates. There can be no
assurance that the market for Internet commerce will grow at the rate projected
by International Data Corporation. Failure of this market to grow at the
estimated rate could seriously harm our business and could cause the price of
our common stock to decline.
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USE OF PROCEEDS
We estimate that the net proceeds from our sale of the 4,250,000 shares of
common stock we are offering will be approximately $46.4 million, based on an
assumed initial public offering price of $12.00 per share, after deducting
estimated underwriting discounts and commissions and estimated offering expenses
that we will pay. Our estimated net proceeds will be approximately $53.5 million
if the underwriters fully exercise their over-allotment option.
The principal purposes of this offering are to obtain additional capital,
to create a public market for our common stock and to facilitate future access
to public equity markets. As of the date of this prospectus, we have not
allocated the net proceeds of this offering for specific uses. We intend to use
our net proceeds for working capital and general corporate purposes. The actual
amounts expended for specific purposes will vary significantly depending on a
number of factors, including cash generated from operations, if any, changes in
the competitive landscape, demands of customers, and the extent and timing of
our entry into target markets. We may also use a portion of the net proceeds for
acquisitions of businesses, products and technologies that complement 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> 25
CAPITALIZATION
The following table summarizes our capitalization as of December 31, 1999:
- on an actual basis, reflecting a charter amendment filed on February 2,
2000 to effect a three-for-four reverse split of our common stock
- 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 85,843 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 authorize a class of undesignated preferred stock
- our sale of 4,250,000 shares of common stock at an assumed initial
public offering price of $12.00 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>
DECEMBER 31, 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...................................................... $ 1,892 $ 1,892
-------- --------
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........................ 36,575 --
-------- --------
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
and no shares issued or outstanding, pro forma as
adjusted............................................... -- --
Common stock, $0.001 par value; 100,000,000 shares
authorized; 3,141,883 shares issued and outstanding,
actual; 20,345,409 shares issued and outstanding, pro
forma as adjusted...................................... 3 20
Additional paid-in capital................................ 6,606 91,691
Deferred compensation..................................... (5,723) (5,723)
Note receivable from stockholder.......................... (96) (96)
Accumulated deficit....................................... (30,838) (30,838)
Accumulated other comprehensive income.................... 1,184 1,184
-------- --------
Total stockholders' equity (deficit)................... (27,147) 56,238
-------- --------
Total capitalization.............................. $ 11,320 $ 58,130
======== ========
</TABLE>
The information in the foregoing table excludes:
- 209,804 shares issuable upon exercise of other warrants outstanding as
of December 31, 1999, which have an exercise price of $2.45 per share
- 1,696,597 shares issuable upon exercise of options outstanding as of
December 31, 1999, which have a weighted average exercise price of
$1.49 per share
- 2,850,000 additional shares reserved as of December 31, 1999 for
future issuance under our 1999 Stock Incentive Plan and our 1999
Employee Stock Purchase Plan
21
<PAGE> 26
DILUTION
Our pro forma net tangible book value as of December 31, 1999 was
approximately $9.4 million, or $0.59 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
4,250,000 shares of common stock at an assumed initial public offering price of
$12.00 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 December 31, 1999 would have been $55.9
million, or $2.75 per share. This amount represents an immediate increase in pro
forma net tangible book value to our existing stockholders of $2.16 per share
and an immediate dilution to new investors of $9.25 per share. The following
table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $12.00
Pro forma net tangible book value per share as of December
31, 1999.................................................... $0.59
Increase per share attributable to new investors.......... 2.16
-----
Adjusted pro forma net tangible book value per share after
this offering............................................. 2.75
------
Dilution per share to new investors......................... $ 9.25
======
</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
December 31, 1999 would have been $63.0 million, or $3.00 per share,
representing an immediate increase in pro forma net tangible book value to our
existing stockholders of $2.41 per share and an immediate dilution to new
investors of $9.00 per share.
The following table summarizes as of December 31, 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 an assumed initial public offering price of $12.00 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............ 16,095,409 79.1% $37,044,142 42.1% $2.30
New investors.................... 4,250,000 20.9 51,000,000 57.9
---------- ----- ----------- ------
Total....................... 20,345,409 100.0% $88,044,142 100.0%
========== ===== =========== ======
</TABLE>
The preceding discussion and tables assume no exercise of any stock options
or warrants outstanding as of December 31, 1999, except as stated above. As of
December 31, 1999, there were outstanding options to purchase a total of
1,696,597 shares of common stock at a weighted average exercise price of $1.49
per share and warrants, other than that described above, to purchase a total of
209,804 shares of common stock at an exercise price of $2.45 per share. To the
extent any of these options or warrants are exercised, there will be further
dilution to new investors.
22
<PAGE> 27
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, 1997, 1998 and 1999 and the balance sheet data as of December
31, 1998 and 1999 from our financial statements audited by
PricewaterhouseCoopers LLP, which appear elsewhere in this prospectus. We
derived the statement of operations data for the years ended December 31, 1995
and 1996 and the balance sheet data as of December 31, 1995, 1996 and 1997 from
our financial statements audited by PricewaterhouseCoopers LLP, which do not
appear in this prospectus. Our historical results are not necessarily indicative
of operating results to be expected in the future.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1995 1996 1997 1998 1999
------ ------- ------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Product revenue........................ $ 151 $ 481 $ 845 $ 937 $ 3,788
Service revenue........................ 140 102 164 631 2,747
------ ------- ------- ------- --------
Total revenue............................ 291 583 1,009 1,568 6,535
------ ------- ------- ------- --------
Cost of revenue:
Cost of product revenue................ 15 105 91 232 219
Cost of service revenue................ 34 119 549 761 3,117
------ ------- ------- ------- --------
Total cost of revenue.................... 49 224 640 993 3,336
------ ------- ------- ------- --------
Gross profit............................. 242 359 369 575 3,199
------ ------- ------- ------- --------
Operating expenses:
Sales and marketing.................... 159 1,563 1,271 3,045 10,479
Research and development............... 327 1,192 1,410 2,266 4,713
General and administrative............. 78 381 738 1,148 3,490
Stock-based compensation............... -- 10 -- -- 531
------ ------- ------- ------- --------
Total operating expenses................. 564 3,146 3,419 6,459 19,213
------ ------- ------- ------- --------
Loss from operations..................... (322) (2,787) (3,050) (5,884) (16,014)
Other income (loss)...................... 8 171 (60) 111 2
------ ------- ------- ------- --------
Net loss................................. $ (314) $(2,616) $(3,110) $(5,773) $(16,012)
------ ------- ------- ------- --------
Dividends and accretion of redeemable
preferred stock........................ -- (118) (337) (660) (1,912)
------ ------- ------- ------- --------
Net loss available to common
stockholders........................... $ (314) $(2,734) $(3,447) $(6,433) $(17,924)
====== ======= ======= ======= ========
Basic and diluted net loss available to
common stockholders per share.......... $(8.61) $(21.37) $ (8.11) $(10.82) $ (13.72)
====== ======= ======= ======= ========
Shares used in computing basic and
diluted net loss available to common
stockholders per share................. 37 128 425 595 1,307
====== ======= ======= ======= ========
Unaudited pro forma basic and diluted net
loss per common share.................. $ (1.33)
========
Shares used in computing unaudited pro
forma basic and diluted net loss per
common share........................... 11,996
========
</TABLE>
23
<PAGE> 28
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------
1995 1996 1997 1998 1999
------ ------ ------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................ $1,413 $ 650 $ 253 $ 2,261 $ 9,643
Working capital.......................... 1,383 2,449 866 1,688 7,353
Total assets............................. 1,522 3,489 1,642 3,866 17,792
Long-term portion of capital lease
obligations and long-term debt......... 3 112 -- -- 1,892
Redeemable convertible preferred stock... -- 4,082 5,856 13,566 36,575
Total stockholders' equity (deficit)..... 1,454 1,767 (4,712) (11,081) (27,147)
</TABLE>
24
<PAGE> 29
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 software that enables companies to
understand and improve their online businesses. We license net.Analysis to
customers for a fee and also provide related maintenance and support services.
In addition, we provide professional consulting services. These services include
analytic consulting, product implementation, application integration,
customization of e-customer analysis reporting and training.
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, non-exclusive and non-transferable 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 97-2,
"Software Revenue Recognition," which we adopted in 1998. 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, collection is probable and
there are no uncertainties with respect to customer acceptance. If uncertainties
exist, we defer revenue until the customer accepts the product or service.
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 the software. In instances where these criteria have not been
met, both the license
25
<PAGE> 30
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 recognize professional services fees as
we perform the services.
Customers typically purchase maintenance and support agreements annually.
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 December 31, 1999, had an
accumulated deficit of $30.8 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.
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
$388,000 in 1999. We will amortize $5.7 million of stock-based compensation,
plus the additional amounts recorded in connection with stock options granted
after December 31, 1999, ratably over the remaining vesting periods of the
options, generally four years or less, which will affect our reported results of
operations through 2003. All of these amounts appear on our statements of
operations as stock-based compensation.
26
<PAGE> 31
RESULTS OF OPERATIONS
The following table expresses our operating data as percentages of total
revenue for each period indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Product revenue........................................ 83.8% 59.7% 58.0%
Service revenue........................................ 16.2 40.3 42.0
------ ------ ------
Total revenue............................................ 100.0 100.0 100.0
------ ------ ------
Cost of revenue:
Cost of product revenue................................ 9.0 14.8 3.4
Cost of service revenue................................ 54.4 48.5 47.7
------ ------ ------
Total cost of revenue.................................... 63.4 63.3 51.0
------ ------ ------
Gross profit............................................. 36.6 36.7 49.0
------ ------ ------
Operating expenses:
Sales and marketing.................................... 126.0 194.2 160.3
Research and development............................... 139.8 144.5 72.1
General and administrative............................. 73.2 73.2 53.4
Stock-based compensation............................... -- -- 8.1
------ ------ ------
Total operating expenses................................. 339.0 411.9 293.9
------ ------ ------
Loss from operations..................................... (302.4) (375.2) (244.9)
Other income (loss)...................................... (5.9) 7.1 0.0
------ ------ ------
Net loss................................................. (308.3%) (368.1%) (244.9)%
====== ====== ======
</TABLE>
Comparison of 1998 and 1999
Total Revenue. Total revenue increased by $4.9 million, or 317%, to $6.5
million for 1999 from $1.6 million for 1998. No customer accounted for 10% or
more of our total revenue in 1999.
Product Revenue. Product revenue increased by $2.9 million, or 304%, to
$3.8 million for 1999 from $937,000 for 1998. Substantially all of the growth in
product revenue was due to an increase of approximately 300% in the average
dollar size of licenses, attributable to larger implementations and price
increases. Product revenue as a percentage of total revenue decreased to 58% for
1999 from 60% for 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 $2.1 million, or 335%, to
$2.7 million for 1999 from $631,000 for 1998. Approximately $1.6 million of the
increase in the dollar amount of service revenue was attributable to increased
implementation and consulting services in connection with increased product
license sales. The balance of the increase was attributable to greater sales of
maintenance contracts associated with higher dollar value sales of net.Analysis
licenses. We expect that the recent percentage growth rates of our service
revenue will not be sustainable in the future.
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 decreased by $12,000, or 5%, to $220,000 for 1999 from
$232,000 for 1998. The decrease was attributable to a decrease in license fees
27
<PAGE> 32
for third-party software purchased for resale by us as part of our net.Analysis
product. Cost of product revenue as a percentage of product revenue declined to
6% for 1999 from 25% for 1998. This decrease was attributable to the
above-mentioned decrease in license fees for third-party software.
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 $2.4 million, or 310%, to
$3.1 million for 1999 from $761,000 for 1998. Substantially all of the increase
was attributable 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 exceeding our
service revenue. Cost of service revenue as a percentage of service revenue
decreased to 113% for 1999 from 121% for 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 $7.5 million, or 244%, to $10.5 million for 1999 from $3.0 million
for 1998. Approximately $4.1 million of the increase was due to increased
personnel in our sales and marketing departments. Approximately $1.7 million of
the increase was due to increased commissions earned by sales personnel on
higher dollar sales. The balance of the increase was attributable to 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 160% for 1999
from 194% for 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. Sales and marketing expenses for the
three months ending March 31, 2000 will also include a charge of approximately
$143,000, excluding stock-based compensation of $351,000, which amounts are
attributable to a separation agreement entered into in January 2000 with our
former Vice President, Worldwide Sales and Service. See
"Management -- Separation Agreement."
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 $2.4 million, or
108%, to $4.7 million for 1999 from $2.3 million for 1998. Approximately $1.9
million of the increase was attributable to increased staffing and associated
support for software engineers required to expand and enhance our product
offerings. The balance of the increase was attributable to increased consulting
costs related to the development and enhancement of our products. Research and
development expenditures are charged to operations as incurred. Research and
development expenses as a percentage of total revenue declined to 72% for 1999
from 145% for 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 $2.4 million,
or 204%, to $3.5 million for 1999 from $1.1 million for 1998. Approximately
$900,000 of the increase was the result of increased staffing and associated
expenses necessary to manage and support our growth. Approximately $700,000 of
the increase was attributable to increased professional service fees. General
and administrative expenses as a percentage of total revenue declined to 53% for
1999 from 73% for 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.
28
<PAGE> 33
Stock-based Compensation. We incurred stock-based compensation expense of
$531,000 for 1999. The expense includes $143,000 related to extension of options
in connection with employee severance. It also includes $388,000 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 $5.7 million
will be amortized ratably over the remaining vesting periods of the options, and
will affect periods ending after December 31, 1999. We also expect to record a
charge for stock-based compensation of approximately $351,000 during the three
months ending March 31, 2000 in connection with the separation agreement entered
into in January 2000 with our former Vice President, Worldwide Sales and
Service.
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 decreased by $108,000 from $111,000 in 1998 to $3,000 for
1999 due to higher interest expense incurred on larger average outstanding
borrowings during 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. Substantially all of the increase in product
revenue was due 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. Approximately
$360,000 of this growth was due to expanded implementation and consulting
service offerings. The balance of the increase was due to greater sales of
maintenance contracts associated with higher dollar sales of net.Analysis
licenses.
Cost of Product Revenue. Cost of product revenue increased by $141,000, or
155%, to $232,000 for 1998 from $91,000 for 1997. Approximately $110,000 of the
increase was attributable to increased license fees for third-party software
purchased for resale by us as part of our net.Analysis product. The balance of
the increase was attributable to increases in unit volume. 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. Approximately $320,000 of the
increase was a result of an increase in the number of our professional services
personnel. The balance of the increase was attributable to increased
professional services costs. 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.
Approximately $1.0 million of the increase was due to increased headcount in our
sales and marketing departments, and approximately $600,000 of the increase was
due to increased marketing communications expenditures associated with our
products and services. The balance of the increase was due to increased
commissions earned by sales personnel on higher dollar sales.
29
<PAGE> 34
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. Approximately $590,000 of the increase was related to increased staffing
and associated support costs for software engineers required to expand and
enhance our product and services offerings. The balance of the increase was
attributable to increased consulting costs related to the development and
enhancement of our product 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.
Approximately $250,000 of the increase was due to increased staffing and
associated expenses necessary to manage and support our growth. The balance of
the increase was attributable to increases in office expenses, outside services
and other general and administrative expenses.
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.
Quarterly Results of Operations
The following tables present our unaudited quarterly results of operations
for the eight quarters ended December 31, 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 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, DEC. 31,
1998 1998 1998 1998 1999 1999 1999 1999
-------- -------- --------- -------- -------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Product revenue................ $ 191 $ 156 $ 190 $ 400 $ 468 $ 676 $ 1,127 $ 1,517
Service revenue................ 42 168 220 202 354 458 790 1,145
----- ------- ------- ------- ------- ------- ------- -------
Total revenue.................... 233 324 410 602 822 1,134 1,917 2,662
----- ------- ------- ------- ------- ------- ------- -------
Cost of revenue:
Cost of product revenue........ 23 25 28 156 31 43 25 120
Cost of service revenue........ 63 80 193 425 417 527 896 1,277
----- ------- ------- ------- ------- ------- ------- -------
Total cost of revenue............ 86 105 221 581 448 570 921 1,397
----- ------- ------- ------- ------- ------- ------- -------
Gross profit..................... 147 219 189 21 374 564 996 1,265
----- ------- ------- ------- ------- ------- ------- -------
Operating expenses:
Sales and marketing............ 274 460 1,111 1,200 1,600 1,865 2,602 4,412
Research and development....... 340 495 694 739 789 981 1,257 1,686
General and administrative..... 182 306 267 392 497 499 1,051 1,443
Stock-based compensation....... -- -- -- -- 13 36 223 259
----- ------- ------- ------- ------- ------- ------- -------
Total operating expenses:........ 796 1,261 2,072 2,331 2,899 3,381 5,133 7,800
----- ------- ------- ------- ------- ------- ------- -------
Loss from operations............. (649) (1,042) (1,883) (2,310) (2,525) (2,817) (4,137) (6,535)
----- ------- ------- ------- ------- ------- ------- -------
Other income (loss).............. 8 5 61 38 (53) (71) 18 108
----- ------- ------- ------- ------- ------- ------- -------
Net loss......................... $(641) $(1,037) $(1,822) $(2,272) $(2,578) $(2,888) $(4,119) $(6,427)
===== ======= ======= ======= ======= ======= ======= =======
</TABLE>
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<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1998 1998 1998 1998 1999 1999 1999 1999
-------- -------- --------- -------- -------- -------- --------- --------
(AS PERCENTAGES OF TOTAL REVENUE)
<S> <C> <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% 57.0%
Service revenue............. 18.0 51.8 53.7 33.5 43.1 40.4 41.2 43.0
------ ------ ------ ------ ------ ------ ------ ------
Total revenue................. 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
------ ------ ------ ------ ------ ------ ------ ------
Cost of revenue:
Cost of product revenue..... 9.8 7.7 6.8 26.0 3.7 3.8 1.3 4.5
Cost of service revenue..... 26.9 24.7 47.2 70.5 50.8 46.5 46.8 48.0
------ ------ ------ ------ ------ ------ ------ ------
Total cost of revenue......... 36.7 32.4 54.0 96.5 54.5 50.3 48.1 52.5
------ ------ ------ ------ ------ ------ ------ ------
Gross profit.................. 63.3 67.6 46.0 3.5 45.5 49.7 51.9 47.5
------ ------ ------ ------ ------ ------ ------ ------
Operating expenses:
Sales and marketing......... 117.9 142.2 270.8 199.4 194.5 164.5 135.7 165.7
Research and development.... 146.1 152.8 169.0 122.7 95.9 86.4 65.6 63.4
General and
administrative........... 78.3 94.6 65.1 65.2 60.5 44.0 54.8 54.2
Stock-based compensation.... -- -- -- -- 1.6 3.2 11.6 9.7
------ ------ ------ ------ ------ ------ ------ ------
Total operating expenses:..... 342.3 389.6 504.9 387.3 352.5 298.1 267.7 293.0
------ ------ ------ ------ ------ ------ ------ ------
Loss from operations.......... (279.0) (322.0) (458.9) (383.8) (307.0) (248.4) (215.8) (245.5)
Other income (loss)........... 3.5 1.4 14.7 6.2 (6.4) (6.3) .9 4.1
------ ------ ------ ------ ------ ------ ------ ------
Net loss...................... (275.5)% (320.6)% (444.2)% (377.6)% (313.4)% (254.7)% (214.9)% (241.4)%
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
We have experienced substantial fluctuations in our quarterly results of
operations and we expect those fluctuations to continue. 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 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. In the fourth quarter of 1999, our sales and
marketing expenses increased significantly as a result of increased commissions
earned by our sales personnel for orders significantly above their quotas.
Because our 1999 compensation plans for our sales personnel were generally based
on the orders we booked rather than the revenue we recognized, commission costs
increased in an amount disproportionate to the increase in revenue in the
quarter. For the reasons described above, 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 December 31, 1999. To a lesser extent, we have financed our operations
through debt and lease financing. As of December 31, 1999, we had $9.6 million
in cash and cash equivalents and $7.4 million in working capital.
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As of December 31, 1999, we had cash and cash equivalents totaling $9.6
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 1999.
Our operating activities resulted in net cash used of $2.7 million for
1997, $5.1 million for 1998 and $13.0 million for 1999, primarily due to
operating losses.
Our investing activities resulted in net cash used of $3.9 million for
1999, primarily due to capital expenditures. Our investing activities resulted
in net cash provided of $960,000 for 1997 and $132,000 for 1998.
Our financing activities resulted in net cash provided of $24.3 million for
1999, primarily due to our sale of preferred stock in June 1999 and issuance of
long-term debt. Our financing activities resulted in net cash provided of $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 December 31, 1999,
we had $2.7 million outstanding under the term loan agreement and $476,000
outstanding under the equipment line. In order to make additional borrowings
under these loan arrangements, we must maintain certain financial reporting and
other covenants. We were in compliance with these covenants as of December 31,
1999.
Capital expenditures totaled $111,000 for 1997, $776,000 for 1998 and $3.6
million for 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.
As of December 31, 1999, we had net operating loss carryforwards of $25.5
million and research and development credit carryforwards of $586,000. The net
operating loss and credit carryforwards will expire at various dates through
2019, 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 STATUS
The "year 2000" issue refers generally to the problems that some software
may have in determining the correct century for the year, which may result in
failures or the creation of
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erroneous results. Many currently installed computer systems and software
products originally could not reliably distinguish dates beginning on January 1,
2000 from earlier dates. It is possible that some companies' software and
computer systems have not been upgraded or replaced in order to correctly
process dates beginning in 2000.
To date, we are not aware that any year 2000 issues have affected our
business. Nonetheless, it may be too early to conclude that year 2000 issues
will not adversely affect our operations. Our business depends on the operation
of numerous systems that could be affected by year 2000 related problems. Those
systems include:
- 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.
Any year 2000 problems that affect these systems could adversely affect our
operations. We did not undertake a study of our customers' year 2000 readiness
nor did we undertake a study of the environments in which our software may be
deployed. Our testing and review procedures may not have been adequate to
identify all potential year 2000 issues with these systems. With regard to our
software products and services, our testing of net.Analysis version 4.0 and
later releases revealed no year 2000 issues that have not been remedied. 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 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 did not incur any material expenditures in connection with identifying
or evaluating year 2000 compliance issues. We neither developed nor intend to
develop a year 2000 contingency plan.
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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BUSINESS
We provide software and professional services that help our customers
understand, analyze and improve their online businesses. Our net.Analysis
software enables companies to collect, store, organize and analyze detailed
information about the online behavior of customers and other visitors on their
web sites. Through net.Analysis, our customers can also import and analyze
information about these e-customers available from other online and offline
software systems and databases. Our professional services organization provides
strategic analytic consulting and product integration and installation services.
This combined software and services solution enables companies to better tailor
and target their marketing initiatives, restructure their web sites to
facilitate e-commerce, provide more relevant and cost-effective content, improve
web site design, better allocate advertising and partnership resources, and
better plan their investments in web site hardware and software.
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 Hardware and Software
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.
Continued competition among e-commerce businesses for e-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
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<PAGE> 39
result, many web sites have become complex systems comprised of multiple,
geographically 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 web site hardware and software. 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 the behavior of their e-customers in the context of their
traditional offline businesses.
To gain an understanding of their 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 e-customer
behavior. 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? what 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 our web site? which ones? how?
- which web pages do visitors view the most often? is this content
cost-effective?
- how do our employees use 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?
- do we have enough hardware and software to support our web site traffic?
what are the most common failures? if our web site traffic grows, what
additional hardware and software should we buy?
To answer these questions and develop actionable business plans, companies
need an easy-to-use system that gathers comprehensive e-customer intelligence.
Businesses also need professional consulting services to help them identify the
e-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
e-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 be able to judge the success of
those
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initiatives. Most companies also require a system that is compatible with their
other web-based software applications, that will perform reliably 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 e-customer intelligence software that enables our customers to
collect store, organize and analyze information about the online activity of
visitors to their web sites. We also offer a range of related professional
services. Together, our software and related services provide our customers with
the following benefits:
Comprehensive Customer Information. With net.Analysis, companies can build
a comprehensive database of e-customer intelligence. net.Analysis collects and
stores extensive near real-time and historical information about the online
activity of customers, down to the level of each individual mouse-click. With
its net.Instrument module, net.Analysis also enables a company to import
customer information from third-party web applications and databases, as well as
information gathered by offline software, such as transaction histories, call
center logs, customer profiles and marketing campaign data. Once net.Analysis
has imported this other data, net.Analysis can organize and correlate this
information with other information in the net.Analysis database. This integrated
database provides a company with a comprehensive view of its online customers,
and grows more valuable over time as it accumulates increasingly detailed
information about the company's customers and their characteristics, preferences
and behavior.
Powerful Analytical Capabilities. net.Analysis provides powerful
analytical capabilities and flexible reporting options designed to serve the
business needs of different groups within a company, such as marketing
executives, information technology professionals or other business managers.
net.Analysis helps companies identify trends in customer behavior and purchasing
patterns and thereby assess and improve their marketing, advertising and
e-commerce initiatives. Users 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 presents data in a series of
interactive charts that can be expanded or narrowed to encompass more or less
data, enabling users to drill down to a level as specific as individual
customers' demographic profiles or their paths through a web site, or
clickstreams. 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.
Compatibility with Other Software Applications. net.Analysis has an open
and extensible architecture, meaning that it is designed to be integrated with
third-party software applications and databases. This open architecture makes it
easier for companies to gather information from a broad range of data sources
and to incorporate net.Analysis into complex web sites. This flexible
architecture makes our software attractive to companies seeking e-customer
intelligence software that will integrate with their other web applications and
existing offline systems. net.Analysis also supports multiple operating
platforms, including Microsoft Windows NT and Unix. 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
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 others.
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High Performance, 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 perform reliably in complex web site environments
managing tens of millions to over 100 million hits per day. net.Analysis uses
sophisticated data collection techniques and algorithms to maintain its
performance speed, even when used to analyze data from large web sites hosted on
multiple servers in different locations. For example, a leading Internet media
provider relies on net.Analysis to produce daily reports that integrate customer
activity across 12 separate web sites that generate millions of hits per day. In
addition, because net.Analysis frequently operates in complex, integrated web
environments where other software applications may fail, we have built into
net.Analysis backup, recovery and alert mechanisms to preserve data during
failures and ensure its reliability as a business-critical application.
Strategic E-Customer Intelligence Services. We provide professional
consulting services to help companies 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 companies in understanding their business needs, developing
web-based criteria for evaluating the performance of their online businesses,
and designing web site modifications and developing customized analyses and
reports to address their particular requirements.
We believe our software and service offerings enable our customers to
achieve significant benefits in the following areas:
- better targeted and tailored marketing initiatives. net.Analysis
provides rich behavioral profiles of different segments of online
visitors, enabling marketing professionals to tailor online and offline
marketing initiatives such as online promotions, e-mail campaigns, direct
mail and other promotional efforts.
- more effective efforts to generate e-commerce. With net.Analysis,
companies can understand the web usage behavior and purchasing patterns
of their best online customers. That information enables them to target
their content, features and online marketing campaigns to those customers
and to prospects that resemble those customers. Also, companies can
understand which marketing campaigns are ineffective and find ways to
improve them.
- more relevant and cost-effective content. By giving detailed information
on the relative popularity of products, services and content,
net.Analysis gives online business managers information they can use to
improve the content of their web sites and intranets or alter it to
attract different customers. 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 planning of investments in web site hardware and
software. 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.
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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 software and services 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 software 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.
Deepen Penetration into Installed Base of Customers. As of December 31,
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 1999, we
derived approximately 50% of our total revenue from sales of products and
services to customers that had made purchases from us before 1999. 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 web-based performance
measurements. 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
product and service offerings and provide additional marketing and distribution
channels. We have established strategic relationships with a number of companies
to offer software 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.
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We intend to build upon our existing relationships and establish additional
strategic technology relationships with leading online commerce software
providers.
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 web-based performance criteria 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 highly scalable, reliable and functional e-customer intelligence
software for high-traffic e-commerce web sites and other complex web
environments. 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
(released October 1999) A software application that collects Pricing varies based on the
and stores web site and e-customer platform supported and increases
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 High-performance data importing Included in net.Analysis 4.5
software 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 software 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 Supports the following relational
details of each web site interaction databases:
and other customer data as well as -- Oracle
summaries of 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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<PAGE> 45
<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 measurements 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 Marketed primarily to customers that Billed primarily on a time-
Consulting Services 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 A variety of consulting services, FastPath is billed on a fixed- price
Services 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. net.Analysis collects and analyzes valuable information
about the behavior of visitors to the user's web site, such as which web sites
the visitors came from, what behavior they demonstrated on the site, how much
time they spent in various sections of the site, whether or not
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<PAGE> 46
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.
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 high-performance data importing software 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 prepare
summaries of detailed clickstream data, 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 intelligence, including both online and offline
information, which can become a valuable information asset. The net.Analysis
DataStore contains both complete transaction data as well as summaries of that
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.
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
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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 modules enable a company to produce a wide variety of reports with
varying levels of detail to satisfy the wide-ranging web site analysis needs of
individuals throughout the company. 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 customers 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 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
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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 companies in
understanding their business needs, developing web-based performance
measurements, 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.
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
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<PAGE> 49
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.
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 31, 1999, our customers included the following companies, each of which
has accounted for at least $15,000 of our total revenue recognized in both 1998
and 1999:
<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 Monster.com
Into Networks (formerly Sallie Mae NextPlanetOver Online
Arepa) SunAmerica ShopLink.com
Intraware VISA International SmarterKids.com
Lexmark StoreRunner
Lotus Development PUBLISHING, ENTERTAINMENT & Tavolo
MapInfo MEDIA ToyTime.com
PixelPark GmbH -------------------------- Travelscape.com
Sybase
Symantec 365 Corporation OTHER
Tele-Communications ADVO ------
BBC News Online
TRADITIONAL RETAIL EarthWeb Delta Air Lines
------------------- First Call General Electric
Barnes & Noble PlanetOut Goodyear
Follett R.R. Donnelly & Sons Olympus America
The Gap Red Herring PCS Health Systems
Micro Warehouse Universal Studios
Sears Canada Walt Disney
ZineZone
</TABLE>
In 1999, no customer accounted for 10% or more of our total revenue. The
customers listed above accounted for an aggregate of approximately 72% of our
total revenue in 1998 and 1999.
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TECHNOLOGY
We believe that net.Analysis excels in areas essential to complex,
high-traffic online businesses: scalability and performance, analytic
capabilities, compatible design and reliability.
Highly Scalable Data Import Software Design. 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. We built our software around
our net.Stream technology, a highly scalable data import software design that
collects continuous streams of data regarding web site activity. The software
collects data from web server log files, network packet sniffers and web server
plug-ins. net.Analysis consolidates all the information 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 by search engines.
net.Analysis then transforms the imported data into meaningful information for
subsequent analysis.
net.Analysis applies a number of rules for sorting and grouping web-related
data 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 analyze groups of
similar data regarding web site behavior, while maintaining the underlying
information on the details of each user interaction. This method improves the
overall response time for queries of the database during an analysis. We
designed net.Analysis to take advantage of the benefits of each database
platform that it supports.
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 our 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 and search engine
keywords and respond to banner advertising.
Standard, Compatible Design. We have built net.Analysis using a
standards-based, compatible design that allows customers to easily manage
net.Analysis and integrate it with their existing hardware and software.
net.Analysis supports 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.
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We have designed net.Analysis to combine and correlate data from a
company's other databases and applications with data regarding the behavior of
its online customers. This capability extends the power of net.Analysis in two
ways. First, it allows net.Analysis to flexibly interact with the company's
existing hardware and software and enhances the value of the company'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 compatible design, 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 software
application on which companies, including large-scale enterprises with vast
amounts of data to manage, can rely in their everyday business decisionmaking.
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 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 design
elements makes net.Analysis suited to serve as a business-critical component of
a company's information technology system.
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
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.
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.
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.
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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.
DoubleClick is an authorized reseller of our
software.
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 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. IBM is an
authorized reseller of our software.
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 January 15, 2000, our sales force consisted of 40 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
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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 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 professionals 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 software and other 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. 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
software and services. For example,
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Vignette recently acquired DataSage. 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
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 January 15, 2000, we had 160 full-time employees, including 40 in
sales, 39 in engineering, 34 in professional services and technical support, 25
in general and administrative, and 22 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 January 26, 2000:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Executive Officers and Directors
Lawrence S. Bohn..................... 48 Chairman of the Board, President and Chief Executive
Officer
Brian Zanghi......................... 40 Executive Vice President and Chief Operating Officer
John Delea........................... 38 Chief Financial Officer, Vice President, Finance and
Administration, and Treasurer
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......................... 48 Vice President, Product Strategy and Development
Kathleen L. Biro(1).................. 47 Director
Ted R. Dintersmith(1)................ 47 Director
Robert N. Goldman(2)................. 50 Director
Rory T. O'Driscoll(2)................ 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. Mr. Bohn became our Chairman of the Board in
January 2000. 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,
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.
Brian Zanghi has served as our Executive Vice President and Chief Operating
Officer since January 2000. Mr. Zanghi previously served as Executive Vice
President at Instinctive Technologies, a web collaboration software company,
from November 1998 to December 1999. Mr. Zanghi also served as President of PC
Docs from April 1998 to September 1998 and as its Director and then Vice
President of Sales from January 1995 to April 1998. Mr. Zanghi received a B.A.
in economics from Assumption College.
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,
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<PAGE> 56
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 the Holy Cross.
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 served as our Director
in International Sales and was responsible for building our sales and marketing
presence outside North America. From December 1993 to June 1996, 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. Mr. George was
previously employed by Xerox Corporation, where he served as Sales Team Manager
from January 1993 to December 1993 and as Senior Account Manager from October
1989 to December 1992. 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 L. Biro has served as our director since April 1999. Ms. Biro has
also served as Vice Chairman, President and a director of Digitas Inc. (formerly
Strategic Interactive Group and Bronnercom LLC), an Internet professional
services firm, since December 1999. She co-founded Strategic Interactive Group,
a developer of Internet marketing strategies, and served as its Chief Executive
Officer from April 1995 to December 1999. From May 1991 to April 1995, Ms. Biro
served as Senior Vice President/Marketing Director at Bronner Slosberg Humphrey,
a direct marketing and customer base management agency. Ms. Biro also serves as
a director of Be Free, an Internet
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<PAGE> 57
performance 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.
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. 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
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<PAGE> 58
- Ted R. Dintersmith and Kathleen L. Biro will be the Class III directors
and will serve until our annual stockholders' meeting in 2002
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, Rory T. O'Driscoll 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 L. 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 its 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 L. Biro to
our board, we granted her an option on April 12, 1999 to purchase 18,750 shares
of common stock at an exercise price of $0.67 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 those shares each quarter thereafter until fully vested.
Each non-employee director will receive an option to purchase 18,750 shares
of our common stock 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 3,750
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
18,750 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.
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<PAGE> 59
EXECUTIVE COMPENSATION
Compensation Earned
The following table summarizes the compensation earned during 1999 by our
named executive officers, who consist of our chief executive officer and four
other current and former executive officers who earned more than $100,000 in
salary and bonus during that year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
AWARDS
ANNUAL ------------
COMPENSATION SECURITIES
----------------------- UNDERLYING
NAME AND PRESENT PRINCIPAL POSITION(S) SALARY($) BONUS($) OPTIONS(#)
- -------------------------------------- --------- -------- ------------
<S> <C> <C> <C>
Lawrence S. Bohn.................................... $164,853 $ 68,452 --
Chairman of the Board, President and Chief Executive
Officer
John Delea.......................................... 114,922 59,482 22,500
Chief Financial Officer, Vice President, Finance
and Administration, and Treasurer
Anne Estabrook...................................... 123,300 32,488 161,250
Vice President, Marketing
David George........................................ 89,990 74,811 30,000
Vice President, Business Development
Roger Hodskins...................................... 126,211 142,641 --
Former Vice President, Worldwide Sales and Service
</TABLE>
In 1999, 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. Mr. Hodskins resigned from his
employment with us effective January 31, 2000.
Option Grants
The following table provides information regarding stock options granted to
the named executive officers during 1999.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------
PERCENT OF POTENTIAL REALIZABLE
TOTAL VALUE AT ASSUMED ANNUAL
NUMBER OF OPTIONS RATES OF STOCK PRICE
SECURITIES GRANTED TO APPRECIATION FOR OPTION
UNDERLYING EMPLOYEES EXERCISE 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...... -- -- -- -- -- --
John Delea............ 22,500 1.7% $5.33 12/06/09 $ 75,420 $191,130
Anne Estabrook........ 75,000 5.7 0.16 01/11/09 7,547 19,125
30,000 2.3 1.00 06/03/09 18,867 47,812
56,250 4.3 5.33 12/06/09 188,550 477,824
David George.......... 30,000 2.3 2.00 10/19/09 37,734 95,625
Roger Hodskins........ -- -- -- -- -- --
</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.
However, each executive officer may exercise his or her options at any time upon
entering into a stock restriction and repurchase agreement containing an
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<PAGE> 60
identical vesting schedule. See "Transactions with Related Parties--Acceleration
of Stock Option Vesting for Executive Officers."
The percentage of total options is based on an aggregate of 1,308,337
options that we granted during 1999 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.
Option Exercises and Holdings
The following table provides information regarding exercises of stock
options during 1999 and exercisable and unexercisable options held on December
31, 1999 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
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL YEAR- IN-THE-MONEY OPTIONS
SHARES 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......... 607,500 $7,192,800 -- -- -- --
John Delea............... 150,000 1,776,000 112,500 -- $1,215,600 --
Anne Estabrook........... 120,000 1,422,825 86,250 -- 705,000 --
David George............. 120,000 1,427,888 30,000 -- 300,000 --
Roger Hodskins........... 105,000 1,243,200 -- -- -- --
</TABLE>
The value realized upon exercise of an option equals the difference between
the fair market value of our common stock on the date of exercise, minus the per
share exercise price, multiplied by the number of shares purchased. The value of
unexercised in-the-money options equals the difference between the fair market
value of our common stock on December 31, 1999, minus the per share exercise
price, multiplied by the number of shares underlying the option. Accordingly,
solely for purposes of this table we have assumed that the fair market value of
our common stock throughout 1999 was $12.00 per share, the assumed initial
public offering price. In 1999, 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 987,606 shares of common stock for issuance under the
plan. In July 1998, we amended the
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<PAGE> 61
plan to increase the number of shares authorized for issuance under the plan to
3,000,000. In September 1999, we amended the plan to increase the number of
shares authorized for issuance under the plan to 3,750,000. On January 26, 2000,
options to purchase a total of 1,582,180 shares of common stock were outstanding
under the 1995 plan. These options had a weighted average exercise price of
$1.58 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
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 2,625,000 shares of our common stock and authorizes an
additional 375,000 shares of our common stock on each of the first three
anniversaries of the date of adoption of the plan. On January 26, 2000, options
to purchase a total of 478,500 shares of common stock were outstanding 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. No participant may receive awards for
over 750,000 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
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<PAGE> 62
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.
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 225,000 shares of our common stock
and authorizes an additional 52,500 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.
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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.
Mr. Bohn used the $51,750 signing bonus we paid him under the employment
agreement to purchase, on a restricted basis, 776,250 shares of our common stock
at a price of approximately $0.07 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 the stock restriction and repurchase agreement, 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.
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
- 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.
SEPARATION AGREEMENT
On January 14, 2000, we entered into a separation agreement with Roger
Hodskins, our former Vice President, Worldwide Sales and Service. Under the
agreement, Mr. Hodskins resigned his employment, effective January 31, 2000. We
agreed to continue to pay Mr. Hodskins his current base salary until at least
August 1, 2000, with a possible extension until November 1, 2000 if Mr. Hodskins
has not obtained alternative employment by that time. We also agreed to pay Mr.
Hodskins additional amounts equal to one-half of his maximum bonus for 1999. Mr.
Hodskins is entitled to participate in our insurance and other employee benefit
programs until July 31, 2000. We also agreed that the shares of restricted stock
that Mr. Hodskins purchased from us would continue to vest until August 5, 2000.
59
<PAGE> 64
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> 65
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 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 C SERIES D SERIES F CONSIDERATION
- ----------- --------- --------- -------- -------------
<S> <C> <C> <C> <C>
Charles River Partnership VII................ 1,005,520 1,500,000 261,050 $3,169,446
Affiliates of Bessemer Venture Partners...... 902,400 1,266,667 261,044 2,837,867
Affiliates of OneLiberty Ventures............ -- 2,625,000 261,044 4,016,666
Sean O'Sullivan Revocable Living Trust....... 274,914 20,834 -- 162,458
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
776,250 shares of our common stock for approximately $0.07 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
approximately $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 607,500 shares of
our common stock at an exercise price of $0.16 per share. This option was
accelerated as described below. We loaned 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 607,500 shares of common stock that Mr. Bohn
purchased.
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<PAGE> 66
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 $0.16 430,315 607,500 24 months
Chairman of the Board, President and
Chief Executive Officer
John Delea............................... 01/07/00 $0.16 60,000 90,000 12 months
Chief Financial Officer, Vice
President, Finance and Administration,
and Treasurer
Anne Estabrook........................... 05/30/99 $0.07 16,875 22,500 12 months
Vice President, Marketing 05/30/99 $0.16 97,500 97,500 12 months
David George............................. 05/30/99 $0.07 40,806 78,750 12 months
Vice President, Business Development 05/30/99 $0.16 23,203 41,250 12 months
Matthew Cutler........................... 09/17/99 $0.16 101,250 135,000 12 months
Chief E-Business Intelligence Officer
Eric Richard............................. 09/17/99 $0.16 92,812 123,750 12 months
Chief Technology Officer
Roger Hodskins........................... 06/19/98 $0.07 105,000 105,000 24 months
Former Vice President, Worldwide Sales 09/01/99 $0.16 78,750 105,000 24 months
and Service
Christopher Paul......................... 06/02/99 $0.07 72,187 78,750 12 months
Former Vice President, Engineering 06/02/99 $0.16 105,000 105,000 12 months
</TABLE>
On June 22, 1999, John Delea, our Chief Financial Officer, exercised an
option to purchase 150,000 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. In addition to the options
exercised as indicated above, Mr. Delea has options to purchase an additional
22,500 shares of common stock, Ms. Estabrook has options to purchase an
additional 86,250 shares of common stock and Mr. George has options to purchase
an additional 52,500 shares of common stock, which each may exercise at any time
upon entering 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 124,687 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> 67
PRINCIPAL STOCKHOLDERS
The following table provides information about the beneficial ownership of
our common stock as of January 26, 2000, 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 January 26, 2000 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 16,123,989 shares of common stock outstanding as of January 26,
2000, including shares into which our outstanding preferred stock will convert
upon completion of this offering, and 20,459,832 shares of common stock that
will be outstanding after completion of this offering, including 85,843 shares
that we expect to issue upon the exercise of a warrant before the 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
January 26, 2000. 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)...................... 2,362,562 -- 2,362,562 14.7% 11.5%
Charles River Partnership VII.............. 2,362,562 -- 2,362,562 14.7 11.5
1000 Winter Street
Waltham, MA 02154
Stephen J. Ricci(2)........................ 2,164,532 -- 2,164,532 13.4 10.6
Affiliates of OneLiberty Ventures(3)....... 2,164,532 -- 2,164,532 13.4 10.6
150 CambridgePark Drive
10th Floor
Cambridge, MA 02140
Affiliates of Bessemer Venture
Partners(4).............................. 2,080,698 -- 2,080,698 12.9 10.2
1400 Old Country Road
Suite 407
Westbury, NY 11590
Lawrence S. Bohn(5)........................ 1,383,750 -- 1,383,750 8.6 6.8
Rory O'Driscoll(6)......................... 1,355,421 -- 1,355,421 8.4 6.7
Bank of America Ventures................... 1,355,421 -- 1,355,421 8.4 6.7
950 Tower Lane
Suite 700
Foster City, CA 94404
John Delea(7).............................. 240,000 22,500 262,500 1.6 1.3
Roger Hodskins(8).......................... 210,000 -- 210,000 1.3 1.0
Anne Estabrook(9).......................... 120,000 86,250 206,250 1.3 1.0
David George(10)........................... 120,000 52,500 172,500 1.0 *
Robert N. Goldman.......................... 22,821 14,536 37,357 * *
</TABLE>
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<PAGE> 68
<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>
Kathleen L. Biro........................... -- -- -- -- --
All current executive officers and
directors as a group (13 persons)........ 7,769,086 725,161 8,494,247 50.4% 40.1%
</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 2,061,459 shares beneficially held by OneLiberty Fund, IV and
103,073 shares beneficially held by OneLiberty Advisors IV, L.P.
(4) Includes 819,821 shares beneficially held by Bessec Ventures IV L.P.,
819,820 shares beneficially held by Bessemer Venture Partners IV L.P. and
77,057 shares beneficially held by BVP IV Special Situations L.P. Also
includes 363,999 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 75,000 shares held by the Justin Bohn Trust and 75,000 shares held
by the Ariel Bohn Trust. Of the outstanding shares held by Mr. Bohn, 663,058
shares do not vest until after 60 days after January 26, 2000 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. Delea, 45,000 shares do not vest until
after 60 days after January 26, 2000 and are subject to our right to
repurchase them if Mr. Delea's employment is terminated.
(8) Of the outstanding shares held by Mr. Hodskins, we will have the right to
repurchase 98,437 shares on or after August 5, 2000 pursuant to his
separation and other agreements with us. See "Management -- Separation
Agreement."
(9) Of the outstanding shares held by Ms. Estabrook, 82,969 shares do not vest
until after 60 days after January 26, 2000 and are subject to our right to
repurchase them if Ms. Estabrook's employment is terminated.
(10) Of the outstanding shares held by Mr. George, 40,954 shares do not vest
until after 60 days after January 26, 2000 and are subject to our right to
repurchase them if Mr. George's employment is terminated.
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<PAGE> 69
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 January 26, 2000, there were 16,123,989 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 156 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 0.75 shares of common stock. See "Transactions with Related Parties --
Sales of Preferred Stock" for a description of purchases of our preferred stock
by our directors, executive officers and 5% stockholders.
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 209,804 shares at an exercise
price of $2.45 per share. These warrants will expire three years after
completion of this offering. We also have outstanding a warrant to purchase
85,843 shares at an exercise price of $4.43. 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
12,259,455 shares of common stock and warrants to purchase 209,804 shares of
common stock, or their permitted transferees, will
65
<PAGE> 70
be entitled to certain rights with respect to registration of their shares, or
"registrable securities," under the Securities Act.
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
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<PAGE> 71
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
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.
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<PAGE> 72
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 20,459,832 shares of common
stock, assuming no exercise of any other outstanding options or warrants after
January 26, 2000. Of these shares, the 4,250,000 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 16,209,832 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 16,057,509 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, Chase Securities Inc. 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...................... 4,578 Shares eligible for sale under Rule
144(k)
90 days after effective date........... 61,902 Additional shares eligible for sale
under Rules 144 and 701
180 days after effective date.......... 16,057,509 All shares subject to lock-up
agreements released; additional shares
eligible for sale under Rules 144 and
701
More than 181 days after effective 85,843
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
204,598 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
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<PAGE> 73
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.
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 and reserved for
issuance under our stock plans as of January 26, 2000, the registration
statement would cover approximately 4,321,556 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 12,259,455
shares of common stock and warrants to purchase 209,804 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.
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<PAGE> 74
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement, the
underwriters named below, through their representatives, Chase Securities Inc.,
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>
Chase Securities Inc........................................
Deutsche Bank Securities Inc................................
U.S. Bancorp Piper Jaffray Inc..............................
---------
Total.................................................. 4,250,000
=========
</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 637,500 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 that we will pay to the underwriters. The underwriting discount
was determined based on an arms' length negotiation between the representatives
of the underwriters and us. 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,
70
<PAGE> 75
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.
Chase Securities Inc. and its affiliates beneficially own an aggregate of
349,360 shares of our common stock. Chase Securities Inc. also holds a warrant
to purchase 85,843 shares of common stock that will expire upon the effective
date of this offering. We expect Chase Securities Inc. to exercise this warrant
before that date.
Substantially all of our stockholders holding in the aggregate 16,057,509
shares of common stock, and including all of our executive officers and
directors, have agreed that they will not, without the prior written consent of
Chase Securities Inc., 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 Chase Securities Inc., 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 Chase
Securities Inc., any additional options shall not be exercisable during the
180-day period.
At our request, the underwriters have reserved up to 340,000 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.
71
<PAGE> 76
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, 1998 and 1999, and for each of
the three years in the period ended December 31, 1999, 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.
72
<PAGE> 77
net.GENESIS CORP.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-2
Balance Sheets as of December 31, 1998 and 1999............. F-3
Statements of Operations for the years ended December 31,
1997, 1998 and 1999....................................... F-4
Statements of Changes in Stockholders' Equity (Deficit) for
the years ended December 31, 1997, 1998 and 1999.......... F-5
Statements of Cash Flows for the years ended December 31,
1997, 1998 and 1999....................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 78
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, 1998 and 1999, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1999 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
January 24, 2000, except for Note 8,
as to which the date is February 2, 2000
F-2
<PAGE> 79
net.GENESIS CORP.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
--------------------------- DECEMBER 31,
1998 1999 1999
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 2,260,820 $ 9,643,346 $ 9,643,346
Restricted cash........................................... 55,000 403,500 403,500
Short-term investments and marketable securities.......... -- 1,183,878 1,183,878
Accounts receivable, net of allowances for doubtful
accounts of $143,800 and $451,140 at December 31, 1998
and 1999, respectively.................................. 706,317 2,457,268 2,457,268
Prepaid expenses and other current assets................. 46,870 136,746 136,746
------------ ------------ ------------
Total current assets.................................... 3,069,007 13,824,738 13,824,738
Fixed assets, net........................................... 797,153 3,697,125 3,697,125
Other assets................................................ -- 269,856 269,856
------------ ------------ ------------
Total assets............................................ $ 3,866,160 $ 17,791,719 $ 17,791,719
============ ============ ============
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of capital lease obligations.............. -- 162,492 162,492
Current portion of long-term debt......................... 9,083 1,162,741 1,162,741
Accounts payable.......................................... 90,523 800,199 800,199
Accrued expenses.......................................... 956,312 2,962,766 2,962,766
Deferred revenue.......................................... 325,282 1,383,441 1,383,441
------------ ------------ ------------
Total current liabilities............................... 1,381,200 6,471,639 6,471,639
Long-term portion of capital lease obligations.............. -- 322,915 322,915
Long-term debt.............................................. -- 1,569,310 1,569,310
------------ ------------ ------------
Total liabilities....................................... 1,381,200 8,363,864 8,363,864
------------ ------------ ------------
Redeemable convertible preferred stock...................... 13,566,336 36,574,858 --
------------ ------------ ------------
Commitments and contingencies (Note 11)
Stockholders' equity (deficit):
Convertible preferred stock, Series A-1, $.001 par value;
200,000 shares authorized, issued and outstanding at
December 31, 1998 and 1999; none issued and outstanding
pro forma (unaudited)................................... 49,006 49,006 --
Convertible preferred stock, Series A-2, $.001 par value;
101,430 shares authorized, issued and outstanding at
December 31, 1998 and 1999; none issued and outstanding
pro forma (unaudited)................................... 137,349 137,349 --
Convertible preferred stock, Series A-3, $.001 par value;
624,000 shares authorized, issued and outstanding at
December 31, 1998 and 1999; none issued and outstanding
pro forma (unaudited)................................... 1,530,502 1,530,502 --
Common stock, $.001 par value; 100,000,000 shares
authorized; 1,504,790,
3,141,883, 16,009,566 issued and outstanding at December
31, 1998 and 1999, and pro forma (unaudited),
respectively............................................ 1,505 3,142 16,010
Additional paid-in capital.................................. 115,053 6,606,214 44,885,061
Deferred compensation....................................... (5,722,554) (5,722,554)
Note receivable from stockholder............................ (96,390) (96,390)
Accumulated deficit......................................... (12,914,791) (30,838,150) (30,838,150)
Accumulated other comprehensive income...................... -- 1,183,878 1,183,878
------------ ------------ ------------
Total stockholders' equity (deficit).................... (11,081,376) (27,147,003) 9,427,855
------------ ------------ ------------
Total liabilities, redeemable convertible preferred
stock and stockholders' equity (deficit)............. $ 3,866,160 $ 17,791,719 $ 17,791,719
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 80
net.GENESIS CORP.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1997 1998 1999
----------- ----------- ------------
<S> <C> <C> <C>
Revenue:
Product revenue.................................... $ 844,983 $ 936,796 $ 3,788,412
Service revenue.................................. 163,721 631,296 2,746,808
----------- ----------- ------------
Total revenue................................. 1,008,704 1,568,092 6,535,220
----------- ----------- ------------
Cost of revenue:
Cost of product revenue.......................... 90,924 231,843 219,494
Cost of service revenue (excluding stock-based
compensation of $52,525 for the year ended
December 31, 1999)............................ 548,867 760,868 3,116,670
----------- ----------- ------------
Total cost of revenue......................... 639,791 992,711 3,336,164
----------- ----------- ------------
Gross profit....................................... 368,913 575,381 3,199,056
----------- ----------- ------------
Operating expenses:
Sales and marketing (excluding stock-based
compensation of $170,001 for the year ended
December 31, 1999)............................ 1,271,105 3,045,347 10,478,661
Research and development (excluding stock-based
compensation of $287,288 for the year ended
December 31, 1999)............................ 1,409,959 2,266,022 4,712,853
General and administrative (excluding stock-based
compensation of $21,475 for the year ended
December 31, 1999)............................ 738,383 1,147,571 3,490,244
Stock-based compensation......................... -- -- 531,289
----------- ----------- ------------
Total operating expenses...................... 3,419,447 6,458,940 19,213,047
----------- ----------- ------------
Loss from operations............................... (3,050,534) (5,883,559) (16,013,991)
Other income (loss):
Interest income.................................. 56,925 117,339 447,444
Interest expense................................. (17,962) (10,754) (465,083)
Loss on disposal of fixed assets................. (101,420) -- (20,000)
Other income..................................... 2,678 4,138 40,149
----------- ----------- ------------
Net loss........................................... $(3,110,313) $(5,772,836) $(16,011,481)
----------- ----------- ------------
Dividends and accretion of redeemable preferred
stock............................................ (336,973) (659,990) (1,911,878)
Net loss available to common stockholders.......... $(3,447,286) $(6,432,826) $(17,923,359)
----------- ----------- ------------
Basic and diluted net loss available to common
stockholders per share........................... $ (8.11) $ (10.82) $ (13.72)
=========== =========== ============
Shares used in computing basic and diluted net loss
available to common stockholders per share....... 425,180 594,606 1,306,514
Unaudited pro forma basic and diluted net loss per
common share..................................... (1.33)
Shares used in computing unaudited pro forma basic
and diluted net loss per common share............ 11,995,664
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 81
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, 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....................
Repurchase of restricted common stock........
Deferred compensation related to grants of
stock options...............................
Stock-based compensation.....................
Accrual of cumulative dividends on Series B,
Series C, Series D, and Series F preferred
stock and accretion to redemption value.....
Unrealized gain on short-term investments and
marketable securities.......................
Net loss.....................................
Comprehensive loss...........................
------- ------- ------- -------- ------- ----------
BALANCE AT DECEMBER 31, 1999................. 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, 1996................. 601,579 $ 602 $ 49,293
Forfeiture of common stock................... (49,049) (49) 49
Exercise of stock options.................... 1,766 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................. 554,296 555 52,637
Issuance of common stock..................... 776,250 776 50,974
Exercise of stock options.................... 174,244 174 11,442
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................. 1,504,790 1,505 115,053
Exercise of stock options.................... 1,761,801 1,762 251,630 (96,390)
Repurchase of restricted common stock........ (124,708) (125) (14,312)
Deferred compensation related to grants of
stock options............................... 6,110,430 (6,110,430)
Stock-based compensation..................... 143,413 387,876
Accrual of cumulative dividends on Series B,
Series C, Series D, and Series F preferred
stock and accretion to redemption value.....
Unrealized gain on short-term investments and
marketable securities.......................
Net loss.....................................
Comprehensive loss...........................
--------- ------ ---------- ----------- --------
BALANCE AT DECEMBER 31, 1999................. 3,141,883 $3,142 $6,606,214 $(5,722,554) $(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, 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.................... 157,002
Repurchase of restricted common stock........ (14,437)
Deferred compensation related to grants of
stock options...............................
Stock-based compensation..................... 531,289
Accrual of cumulative dividends on Series B,
Series C, Series D, and Series F preferred
stock and accretion to redemption value..... (1,911,878) (1,911,878)
Unrealized gain on short-term investments and
marketable securities....................... $1,183,878 1,183,878 $ 1,183,878
Net loss..................................... (16,011,481) (16,011,481) (16,011,481)
------------
Comprehensive loss........................... $(14,827,603)
------------ ---------- ------------ ============
BALANCE AT DECEMBER 31, 1999................. $(30,838,150) $1,183,878 $(27,147,003)
============ ========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 82
net.GENESIS CORP.
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1997 1998 1999
----------- ----------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................... $(3,110,313) $(5,772,836) $(16,011,481)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................ 194,646 256,739 747,861
Loss on disposal of fixed assets..................... 101,420 -- 20,000
Non-cash interest expense............................ -- -- 83,163
Stock-based compensation expense..................... -- -- 531,289
Increase (decrease) resulting from changes in
operating assets and liabilities:
Accounts receivable............................... (39,896) (592,683) (1,750,951)
Prepaid expenses and other assets................. 179,036 (12,369) (359,732)
Deferred revenue.................................. 22,912 270,287 1,058,159
Accounts payable.................................. (150,559) 77,478 709,676
Accrued expenses.................................. 83,467 635,117 2,006,454
----------- ----------- ------------
Net cash used in operating activities........... (2,719,287) (5,138,267) (12,965,562)
----------- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets............................ (111,180) (775,555) (3,589,688)
Purchases of short-term investments.................. (949,073) -- --
Proceeds from sales of short-term investments........ 2,007,466 962,291 --
Proceeds from sale of fixed assets................... 12,790 -- --
Restricted cash...................................... -- (55,000) (348,500)
----------- ----------- ------------
Net cash provided by (used in) investing
activities................................... 960,003 131,736 (3,938,188)
----------- ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale and leaseback of fixed assets..... -- -- 443,507
Principal payments of capital lease obligations...... -- -- (36,247)
Proceeds from issuance of debt....................... -- -- 3,000,000
Repayment of debt.................................... (133,055) (99,914) (104,791)
Issuance of common stock............................. -- 51,750 --
Proceeds from issuance of redeemable convertible
preferred stock, net of issuance costs............ 1,437,140 7,050,566 20,841,242
Proceeds from exercise of stock options.............. 3,297 11,616 157,002
Repurchase of restricted common stock................ -- -- (14,437)
----------- ----------- ------------
Net cash provided by financing activities....... 1,307,382 7,014,018 24,286,276
----------- ----------- ------------
Net increase (decrease) in cash and cash equivalents... (451,902) 2,007,487 7,382,526
Cash and cash equivalents, beginning of year........... 705,235 253,333 2,260,820
----------- ----------- ------------
Cash and cash equivalents, end of year................. $ 253,333 $ 2,260,820 $ 9,643,346
=========== =========== ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Dividends and accretion of preferred stock........... $ 336,973 $ 659,990 $ 1,911,878
Interest paid........................................ $ 18,691 $ 10,755 $ 346,714
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Additions to capital lease obligations for sale and
leaseback of fixed assets......................... -- -- 443,507
Convertible preferred stock warrants issued and
recorded as debt discount......................... -- -- 255,402
Purchased of fixed assets through capital leases..... -- -- 78,145
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 83
net.GENESIS CORP.
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF THE BUSINESS AND BASIS OF FINANCIAL STATEMENTS
net.Genesis provides software and professional services that help its
customers understand, analyze and improve their online businesses. Its
net.Analysis software enables companies to collect, store, organize and analyze
detailed information about the online behavior of customers and other visitors
on their web sites. 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:
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 .75-for-1 basis to approximately 12,867,683 shares of
the Company's common stock assuming an offering price of greater than $8.85 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 December 31, 1999.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the 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 December 31, 1998 and 1999, the Company's cash
equivalents consisted of certificates of deposit and money market funds totaling
approximately $1,860,000 and $8,754,487, 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, 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. Realized
gains and losses on sales of securities for the years ended December 31, 1997,
1998, and 1999 were not significant.
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.
F-7
<PAGE> 84
net.GENESIS CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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, collection is probable and there are no
uncertainties with respect to customer acceptance. If uncertainties exist,
revenue is deferred until such time as the customer accepts the product or
service. 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 the software. In instances where the aforementioned 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 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 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, accounts payable, accrued expenses, capital lease obligations and
debt, approximate their fair values at December 31, 1998 and 1999.
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, 1999, accounts
receivable from one customer accounted for approximately 11% of total accounts
receivable.
F-8
<PAGE> 85
net.GENESIS CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
During the year ended December 31, 1998, revenue from each of two customers
accounted for approximately 11% of total revenue. During the years ended
December 31, 1997 and 1999, no customer accounted for more than 10% 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,
--------------------------------------
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
United States................................ $ 813,577 $1,194,639 $6,053,009
Europe....................................... 176,299 338,162 361,603
Australia.................................... 18,828 35,291 63,108
Other........................................ -- -- 57,500
---------- ---------- ----------
Total........................................ $1,008,704 $1,568,092 $6,535,220
========== ========== ==========
</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 Marketed." No software
development costs were capitalized during 1997, 1998 or 1999 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 $93,000, $49,000 and $130,720 for the years ended December 31,
1997, 1998, and 1999, 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
F-9
<PAGE> 86
net.GENESIS CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 $3,992, $42,215 and $307,340 in 1997, 1998 and 1999, respectively, and
write-offs against the allowances were $14,774, $0 and $0 in 1997, 1998 and
1999, respectively.
4. FIXED ASSETS
Fixed assets consist of the following:
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
USEFUL LIFE ---------------------------
IN YEARS 1998 1999
----------- ---------- -------------
<S> <C> <C> <C>
Furniture and fixtures......................... 5 $ 67,747 $ 416,856
Computer equipment and software................ 3 1,220,707 4,075,534
Leasehold improvements......................... 5 18,713 462,610
-- ---------- ----------
1,307,167 4,955,000
Less -- accumulated depreciation............... 510,014 1,257,875
---------- ----------
$ 797,153 $3,697,125
========== ==========
</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. The value ascribed by
management to these warrants was $32,235 and was computed using the
Black-Scholes model with the following assumptions: Series E redeemable
convertible preferred stock fair value of $1.84 per share; warrant exercise
price of $1.84 per share; dividend yield of 0%; risk-free interest rate of
F-10
<PAGE> 87
net.GENESIS CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5.02%; expected term of 5 years (life of the warrants); and 50% volatility.
There is $411,168 outstanding on the lease line at December 31, 1999. The future
minimum lease payments as of December 31, 1999 are $475,885.
During 1999, the Company sold and immediately leased back certain equipment
under the lease line. Total computer equipment of $443,507 was purchased under
the lease line. Amortization of property and equipment under the lease line
totaled $84,723 during the year ended December 31, 1999 and is included in
depreciation expense. Interest expense relating to the lease line totaled
$24,629 for the year ended December 31, 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 December 31,
1999, the Company had $2,904,292 outstanding under the agreement.
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 these warrants was $223,167 and was
computed using the Black-Scholes model with the following assumptions: Series E
redeemable convertible preferred stock fair value of $1.84 per share; warrant
exercise price of $1.84 per share; dividend yield of 0%; risk free interest rate
of 5.02%; expected term of 5 years (life of the warrants); and 50% volatility.
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.
In February 1996, the Company entered into a Credit Agreement for an
equipment term loan providing for eligible borrowings of up to $250,000.
Eligible borrowings under the term loan were based on accounts receivable and
other assets and determined according to a formula defined in the Credit
Agreement. At December 31, 1998 and 1999, the Company had $9,083 and $0,
respectively, outstanding under the equipment term loan.
6. ACCRUED EXPENSES
A summary of accrued expenses consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1999
-------- ----------
<S> <C> <C>
Accrued bonus............................................... $256,500 $ 721,006
Accrued sales commissions................................... 26,557 800,000
Accrued payables............................................ 431,329 711,592
Accrued vacation............................................ 112,000 410,000
Accrued other............................................... 129,926 320,168
-------- ----------
$956,312 $2,962,766
======== ==========
</TABLE>
F-11
<PAGE> 88
net.GENESIS CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. 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, pursuant to the terms of the Series F Preferred Stock
agreement, the Company issued, to the placement agent for the Series F Preferred
Stock, 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. Dividends and issuance
costs associated with the Preferred Stock are being accreted over the redemption
period.
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> 89
net.GENESIS CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1999
----------- -----------
<S> <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 December 31, 1999; at
issuance cost plus accumulated accretion and
dividends.............................................. $ -- $21,874,764
Redeemable convertible preferred stock, Series E, $.001
par value; 858,333 shares authorized at December 31,
1998; 279,739 shares authorized at December 31, 1999;
none issued and outstanding at December 31, 1998 and
1999................................................... -- --
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 1999;
at issuance cost plus accumulated accretion and
dividends.............................................. 7,327,800 7,823,400
Redeemable convertible preferred stock, Series C, $.001
par value; 3,000,000 shares authorized; 2,928,316
shares issued and outstanding at December 31, 1998 and
1999; at issuance cost plus accumulated accretion and
dividends.............................................. 1,596,871 1,699,627
Redeemable convertible preferred stock, Series B, $.001
par value; 776,718 shares authorized; 776,717 issued
and outstanding at December 31, 1998 and 1999; at
issuance cost plus accumulated accretion and
dividends.............................................. 4,641,665 4,921,665
----------- -----------
Total redeemable convertible preferred stock...... $13,566,336 $36,574,858
=========== ===========
</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 .75 shares 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 $8.85.
Dividends
Dividends on the Series A Preferred Stock are payable when and if declared
by the Board of Directors. Through December 31, 1999, 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, Series D,
Series E and Series F Preferred Stock were $921,665, $235,468, $743,400, $0 and
$898,333 at December 31, 1999, respectively.
F-13
<PAGE> 90
net.GENESIS CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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.
8. 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-for-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.
In December 1999, the Company increased the number of authorized shares of
common stock from 24,000,000 to 100,000,000 shares.
In January 2000, the Company authorized a 3-for-4 reverse split of its
common stock. As a result, all references to common stock share and per share
amounts, including options and warrants to purchase common stock, have been
retroactively restated to reflect the reverse split.
The Company has reserved 14,564,294 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 December 31,
1999.
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
F-14
<PAGE> 91
net.GENESIS CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 1999, approximately 719,534 and 1,267,626 shares of common stock,
respectively, are subject to repurchase.
9. STOCK OPTIONS
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 to 3,000,000.
In September 1999, the Company increased the number of options available
for grant under the Plan from 3,000,000 to 3,750,000.
Transactions under the 1995 Stock Option Plan for the years ended December
31, 1997, 1998, and 1999 are summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
---------- --------
<S> <C> <C>
Outstanding -- December 31, 1996............................ 197,970 $1.87
Granted................................................... 1,171,608 .39
Exercised................................................. (1,766) 1.87
Canceled.................................................. (478,914) 1.57
----------
Outstanding -- December 31, 1997............................ 888,898 .08
Granted................................................... 2,659,800 .15
Exercised................................................. (174,244) .07
Canceled.................................................. (1,044,683) .08
----------
Outstanding -- December 31, 1998............................ 2,329,771 .15
Granted................................................... 1,327,087 1.95
Exercised................................................. (1,761,801) .15
Canceled.................................................. (198,460) .36
----------
Outstanding -- December 31, 1999............................ 1,696,597 1.49
</TABLE>
As of December 31, 1997, 1998 and 1999, 41,448, 320,638 and 170,525 options
were exercisable, respectively, under the Plan. The weighted average fair value
of options granted, all with exercise prices equal to the fair market value of
the Company's common stock at the date of grant, during 1997 and 1998 was $.11
and $.04, respectively. The weighted average fair value of options granted, all
with exercise prices below the fair market value of the Company's common stock
at the date of grant, was $4.92 during 1999.
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
F-15
<PAGE> 92
net.GENESIS CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
the Company's common stock, such stock options were not providing the incentive
intended. Accordingly, in September 1997, options to purchase 351,165 shares of
common stock with an exercise price of $1.87 per share were canceled and
reissued at a price of $.07 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, 1999:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF REMAINING NUMBER OF
OPTIONS CONTRACTUAL LIFE OPTIONS
EXERCISE PRICE OUTSTANDING (YEARS) EXERCISABLE
- -------------- ----------- ---------------- -----------
<S> <C> <C> <C>
$0.07......................................... 110,114 7.93 20,623
$0.16......................................... 422,821 8.65 140,874
$0.67......................................... 139,125 9.27 8,203
$1.00......................................... 183,375 9.39 0
$1.33......................................... 400,087 9.58 0
$1.87......................................... 825 6.41 825
$2.00......................................... 196,500 9.79 0
$5.33......................................... 243,750 9.92 0
--------- ---- -------
1,696,597 9.24 170,525
========= ==== =======
</TABLE>
During the year ended December 31, 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,
------------------------------------------
1997 1998 1999
----------- ----------- ------------
<S> <C> <C> <C>
Net loss
As reported................................ $(3,110,313) $(5,772,836) $(16,011,481)
Pro forma................................ (3,144,083) (5,822,306) (16,380,613)
Basic and diluted net loss available to
common stockholders per share
As reported.............................. $ (8.11) $ (10.82) $ (13.72)
Pro forma................................ (8.19) (10.91) (14.00)
</TABLE>
F-16
<PAGE> 93
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,
-----------------------------
1997 1998 1999
------- ------- -------
<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.
1999 Stock Incentive Plan
In December 1999, the Company adopted its 1999 stock incentive plan and
reserved 2,625,000 shares of common stock for issuance under the plan. As of
December 31, 1999, no options or other awards 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.
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 225,000 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.
F-17
<PAGE> 94
net.GENESIS CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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.
As of December 31, 1999 no stock has been issued under the plan.
10. INCOME TAXES
Deferred tax assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------
1997 1998 1999
----------- ----------- ------------
<S> <C> <C> <C>
Net operating loss carryforwards........... $ 2,013,000 $ 4,401,000 $ 10,518,000
Research and development credit
carryforwards.............................. 173,000 270,000 493,000
Other temporary differences................ 150,000 295,000 917,000
----------- ----------- ------------
Gross deferred tax assets................ 2,336,000 4,966,000 11,928,000
Deferred tax asset valuation allowance..... (2,336,000) (4,966,000) (11,928,000)
----------- ----------- ------------
$ -- $ -- $ --
=========== =========== ============
</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, 1999, the Company has federal and state net operating loss
and research and development tax credit carryforwards of approximately
$25,541,000 and $586,000, respectively, available to reduce future federal and
state income taxes payable. These net operating loss carryforwards and credits
expire through 2019.
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 may be 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-18
<PAGE> 95
net.GENESIS CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
11. 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, 1999 are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
YEAR ENDING DECEMBER 31, LEASES LEASES
- ------------------------ ---------- --------
<S> <C> <C>
2000................................................. $1,130,161 $193,196
2001................................................. 954,260 229,182
2002................................................. 836,540 108,308
2003................................................. 835,262 18,267
2004................................................. 556,557 13,700
---------- --------
$4,312,780 $562,653
==========
Less amounts representing interest................... (77,246)
--------
Present value of minimum lease payments.............. $485,407
========
</TABLE>
Future minimum lease payments under operating leases have not been reduced
for future sublease rental income of approximately $768,000.
Rental expense under operating leases for the years ended December 31,
1997, 1998 and 1999 was $200,966, $268,681 and $658,278, 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 $34,500, $149,500 and $120,800 was incurred for the
years ended December 31, 1997, 1998 and 1999, respectively.
F-19
<PAGE> 96
net.GENESIS CORP.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
12. NET LOSS PER COMMON SHARE
The following is a calculation of net loss per share:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1997 1998 1999
----------- ----------- ------------
<S> <C> <C> <C>
Historical:
Net loss.................................................... $(3,110,313) $(5,772,836) $(16,011,481)
Dividends and accretion of redeemable preferred stock..... (336,973) (659,990) (1,911,878)
----------- ----------- ------------
Net loss available to common stockholders................. (3,447,286) (6,432,826) (17,923,359)
----------- ----------- ------------
Weighted average shares................................. 574,116 1,105,260 2,443,419
Weighted average unvested common shares subject
to repurchase......................................... (148,936) (510,654) (1,136,905)
----------- ----------- ------------
Total weighted average shares............................. 425,180 594,606 1,306,514
----------- ----------- ------------
Net loss available to common stockholders per share:
Basic and diluted....................................... $ (8.11) $ (10.82) $ (13.72)
=========== =========== ============
Pro Forma:
Net loss.................................................. $(16,011,481)
------------
Weighted average common shares, basic and diluted......... 1,306,514
Conversion of convertible preferred
stock................................................... 10,689,150
------------
Total weighted average shares............................... 11,995,664
============
Pro forma net loss per share:
Basic and diluted......................................... $ (1.33)
============
</TABLE>
Options to purchase shares of the Company's common stock totaling 888,898,
2,329,771 and 1,696,597 at December 31, 1997, 1998, and 1999 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.
13. 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, 1999, the Company has made no contributions to
the 401(k) plan.
F-20
<PAGE> 97
BACK COVER:
net.Genesis company logo appears at the top of the page.
Below the logo appears a circle with a smaller circle at its center. The words
"net.Analysis" appear inside the smaller circle. The portion of the larger
circle which surrounds the net.Analysis circle is divided into three segments,
which are labeled "Training and Support," "Strategic Analytic Consulting
Services," "Product Implementation and Application Integration Services."
<PAGE> 98
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4,250,000 SHARES
[NET.GENESIS LOGO]
COMMON STOCK
----------------
PROSPECTUS
----------------
CHASE H&Q
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> 99
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 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 liable to us or to any of our stockholders for
monetary damages arising out of that director's breach
II-1
<PAGE> 100
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 January 26, 1997, we have issued and sold unregistered securities as
described below.
From January 26, 1997 through the date of this registration statement, we
issued options to purchase a total of 5,582,545 shares of our common stock to
our employees and options to purchase 37,500 shares of our common stock to our
directors and consultants.
From January 26, 1997 through the date of this registration statement, we
issued and sold an aggregate of 2,052,320 shares of common stock to our
employees, directors and consultants upon exercise of options previously granted
to them, at per share prices ranging from approximately $0.07 to $0.16. We
realized aggregate proceeds of $290,429 from these sales.
On May 28, 1998, we issued and sold 776,250 shares of common stock to our
President and Chief Executive Officer, Lawrence S. Bohn, for proceeds of
$51,750, or approximately $0.07 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. Chase Securities Inc. acted as our placement agent for this offering. In
consideration for their services, we paid Chase Securities Inc.
II-2
<PAGE> 101
$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)
**3.6 Certificate of Amendment to the Certificate of Incorporation
of net.Genesis Corp. dated February 2, 2000
**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 Chase Securities Inc.
+10.15 Software License Agreement dated as of October 5, 1999
between net.Genesis Corp. and MicroStrategy Incorporated
</TABLE>
II-3
<PAGE> 102
<TABLE>
<C> <S>
**10.16 Separation Agreement dated January 14, 2000 between
net.Genesis Corp. and Roger Hodskins
10.17 Series D Convertible Preferred Stock Purchase Agreement
dated June 25, 1998 between net.Genesis and the persons
named therein
10.18 Series F Convertible Preferred Stock Purchase Agreement
dated June 10, 1999 between net.Genesis and the persons
named therein
23.1 Consent of PricewaterhouseCoopers LLP
**23.2 Consent of Foley, Hoag & Eliot LLP (included in Exhibit 5.1)
**24.1 Power of Attorney
**27.1 Financial Data Schedule for 1998
**27.2 Financial Data Schedule for 1999
</TABLE>
- ------------------------------
** Previously filed.
+ Portions of this Exhibit are omitted. Filed under application for
confidential treatment of the omitted 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> 103
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 February 16, 2000.
NET.GENESIS CORP.
BY: /s/ JOHN DELEA
------------------------------------
John Delea
Chief Financial Officer,
Vice President, Finance and
Administration,
Treasurer and Secretary
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 February 16, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
* Chairman of the Board, President and
- --------------------------------------------------- Chief Executive Officer
Lawrence S. Bohn (Principal Executive Officer)
/s/ JOHN DELEA Chief Financial Officer, Vice President, Finance
- --------------------------------------------------- and Administration, Treasurer and Secretary
John Delea (Principal Accounting and Financial Officer)
* Director
- ---------------------------------------------------
Kathleen L. Biro
* Director
- ---------------------------------------------------
Ted R. Dintersmith
* Director
- ---------------------------------------------------
Robert N. Goldman
* Director
- ---------------------------------------------------
Rory O'Driscoll
* Director
- ---------------------------------------------------
Stephen J. Ricci
*By: /s/ JOHN DELEA
---------------------------------------------
John Delea, Attorney-in-Fact
</TABLE>
II-5
<PAGE> 104
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)
**3.6 Certificate of Amendment to the Certificate of Incorporation
of net.Genesis Corp. dated February 2, 2000
**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 Chase Securities Inc.
+10.15 Software License Agreement dated as of October 5, 1999
between net.Genesis Corp. and MicroStrategy Incorporated
**10.16 Separation Agreement dated January 14, 2000 between
net.Genesis Corp. and Roger Hodskins
10.17 Series D Convertible Preferred Stock Purchase Agreement
dated June 25, 1998 between net.Genesis and the persons
named therein
10.18 Series F Convertible Preferred Stock Purchase Agreement
dated June 10, 1999 between net.Genesis and the persons
named therein
23.1 Consent of PricewaterhouseCoopers LLP
</TABLE>
<PAGE> 105
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------- EXHIBIT DESCRIPTION
<C> <S>
**23.2 Consent of Foley, Hoag & Eliot LLP (included in Exhibit 5.1)
**24.1 Power of Attorney
**27.1 Financial Data Schedule for 1998
**27.2 Financial Data Schedule for 1999
</TABLE>
- ------------------------------
** Previously filed.
+ Portions of this Exhibit are omitted. Filed under application for
confidential treatment of the omitted portions pursuant to Rule 406.
<PAGE> 1
EXHIBIT 1.1
NET.GENESIS CORP.
4,250,000 SHARES(1)
COMMON STOCK
UNDERWRITING AGREEMENT
----------------------
_____ __, 2000
HAMBRECHT & QUIST LLC
DEUTSCHE BANK SECURITIES, INC.
U.S. BANCORP PIPER JAFFRAY INC.
c/o Hambrecht & Quist LLC
One Bush Street
San Francisco, CA 94104
Ladies and Gentlemen:
net.Genesis Corp., a Delaware corporation (herein called the Company),
proposes to issue and sell 4,250,000 shares of its authorized but unissued
Common Stock, $.001 par value (herein called the Common Stock) (said 4,250,000
shares of Common Stock being herein called the Underwritten Stock). The Company
proposes to grant to the Underwriters (as hereinafter defined) an option to
purchase up to 637,500 additional shares of Common Stock (herein called the
Option Stock and with the Underwritten Stock herein collectively called the
Stock). The Common Stock is more fully described in the Registration Statement
and the Prospectus hereinafter mentioned.
The Company hereby confirms the agreements made with respect to the
purchase of the Stock by the several underwriters, for whom you are acting,
named in Schedule I hereto (herein collectively called the Underwriters, which
term shall also include any underwriter purchasing Stock pursuant to Section
3(b) hereof). You represent and warrant that you have been authorized by each of
the other Underwriters to enter into this Agreement on its behalf and to act for
it in the manner herein provided.
1. REGISTRATION STATEMENT. The Company has filed with the Securities and
Exchange Commission (herein called the Commission) a registration statement on
Form S-1 (No. 333-93335), including the related preliminary prospectus, for the
registration under the Securities Act of 1933, as amended (herein called the
Securities Act) of the Stock. Copies of such registration statement and of each
amendment thereto, if any, including the related preliminary prospectus (meeting
the requirements of Rule 430A of the rules and regulations of the Commission)
heretofore filed by the Company with the Commission have been delivered to you.
- --------
(1) Plus an option to purchase from the Company up to 637,500 additional
shares to cover over-allotments.
<PAGE> 2
The term Registration Statement as used in this agreement shall mean such
registration statement, including all exhibits and financial statements, all
information omitted therefrom in reliance upon Rule 430A and contained in the
Prospectus referred to below, in the form in which it became effective, and any
registration statement filed pursuant to Rule 462(b) of the rules and
regulations of the Commission with respect to the Stock (herein called a Rule
462(b) registration statement), and, in the event of any amendment thereto after
the effective date of such registration statement (herein called the Effective
Date), shall also mean (from and after the effectiveness of such amendment) such
registration statement as so amended (including any Rule 462(b) registration
statement). The term Prospectus as used in this Agreement shall mean the
prospectus relating to the Stock first filed with the Commission pursuant to
Rule 424(b) and Rule 430A (or if no such filing is required, as included in the
Registration Statement) and, in the event of any supplement or amendment to such
prospectus after the Effective Date, shall also mean (from and after the filing
with the Commission of such supplement or the effectiveness of such amendment)
such prospectus as so supplemented or amended. The term Preliminary Prospectus
as used in this Agreement shall mean each preliminary prospectus included in
such registration statement prior to the time it becomes effective.
The Registration Statement has been declared effective under the Securities
Act, and no post-effective amendment to the Registration Statement has been
filed as of the date of this Agreement. The Company has caused to be delivered
to you copies of each Preliminary Prospectus and has consented to the use of
such copies for the purposes permitted by the Securities Act.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
(a) The Company hereby represents and warrants as follows:
(i) The Company has been duly incorporated and is validly existing a
corporation in good standing under the laws of the jurisdiction of its
incorporation, has full corporate power and authority to own or lease its
properties and conduct its business as described in the Registration Statement
and the Prospectus and as being conducted, and is duly qualified as a foreign
corporation and in good standing in all jurisdictions in which the character of
the property owned or leased or the nature of the business transacted by it
makes qualification necessary (except where the failure to be so qualified would
not have a material adverse effect on the business, properties, financial
condition or results of operations of the Company).
(ii) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, there has not been any material
adverse change, or any development which the Company has a reasonable basis to
believe may result in a prospective material adverse change, in the business,
properties, financial condition or results of operations of the Company whether
or not arising from transactions in the ordinary course of business, other than
as set forth in the Registration Statement and the Prospectus, and since such
dates, except in the ordinary course of business, the Company has not entered
into any material transaction not referred to in the Registration Statement and
the Prospectus.
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(iii) The Registration Statement and the Prospectus comply, and on the
Closing Date (as hereinafter defined) and any later date on which Option Stock
is to be purchased, the Prospectus will comply, in all material respects, with
the provisions of the Securities Act and the rules and regulations of the
Commission thereunder; on the Effective Date, the Registration Statement did not
contain any untrue statement of a material fact and did not omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein not misleading; and, on the Effective Date the Prospectus did
not and, on the Closing Date and any later date on which Option Stock is to be
purchased, will not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading;
provided, however, that none of the representations and warranties in this
subparagraph (iii) shall apply to statements in, or omissions from, the
Registration Statement or the Prospectus made in reliance upon and in conformity
with information herein or otherwise furnished in writing to the Company by or
on behalf of the Underwriters for use in the Registration Statement or the
Prospectus.
(iv) The Stock, when issued and sold to the Underwriters as provided
herein, will be duly and validly issued, fully paid and nonassessable and
conforms to the description thereof in the Prospectus. No further approval or
authority of the shareholders or the Board of Directors of the Company will be
required for the issuance and sale of the Stock as contemplated herein. The
information set forth under the caption "Capitalization" in the Prospectus is
true and correct in all material respects, and the capital stock of the Company
conforms in all material respects to the description thereof contained in the
Prospectus. The shares of capital stock of the Company outstanding prior to the
issuance of the Underwritten Stock and Option Stock, if any, have been duly
authorized and are validly issued, fully paid and nonassessable. No preemptive
rights of, or rights of refusal in favor of, stockholders exist with respect to
the Stock, or the issue and sale thereof. Neither the filing of the Registration
Statement nor the offering or sale of the Stock as contemplated by this
Agreement gives rise to any rights, other than those which have been waived or
satisfied, for or relating to the registration of any shares of Common Stock.
Except as described in the Prospectus, there are no contracts, agreements or
understanding between the Company and any person granting such person the right
to require the Company to file a registration statement under the Securities Act
with respect to any securities of the Company owned or to be owned by such
person or to require the Company to include such securities in the securities
registered pursuant to the Registration Statement or in any securities being
registered pursuant to any other registration statement filed by the Company
under the Securities Act. Except as described in the Prospectus, there are no
outstanding subscriptions, rights, warrants, options, calls, convertible
securities, commitments of sale or liens or other rights entitling any person to
purchase or otherwise to acquire from the Company any shares of the capital
stock of, or other ownership interest, in the Company.
(v) Prior to the Closing Date the Stock to be issued and sold by the
Company will be authorized for listing by the Nasdaq National Market upon
official notice of issuance.
(vi) The Commission has not issued any order preventing or suspending the
use of any Preliminary Prospectus or Prospectus relating to the proposed
offering of the Stock and has not instituted or threatened instituting
proceedings for that purpose.
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(vii) The financial statements of the Company, together with the related
notes and schedules as set forth in the Registration Statement, present fairly
in all material respects the financial position and the results of operations of
the Company at the indicated dates and for the indicated periods. Such financial
statements and related notes and schedules have been prepared in accordance with
generally accepted accounting principles consistently applied throughout the
periods involved, and all adjustments necessary for a fair presentation of
results for such periods have been made. The summary and selected financial data
contained in the Registration Statement present fairly the information shown
therein and have been compiled on a basis consistent with the financial
statements presented therein and the books and records of the Company. The
Company had no subsidiaries as of December 31, 1999.
(vii) PricewaterhouseCoopers, LLP, who have certified certain of the
financial statements filed with the Commission as part of the Registration
Statement, are independent public accountants as required by the Securities Act
and the rules and regulations of the Commission thereunder.
(ix) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurance that: (a) transactions are executed
in accordance with management's general or specific authorizations; (b)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset accountability; (c) access to assets is permitted only in
accordance with management's general or specific authorization; and (d) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(x) There is no action, suit, claim or proceeding pending or, to the
knowledge of the Company, threatened against the Company or any of its officers
or properties before any court, government agency or body, or otherwise, that
(a) reasonably would be expected to have a material adverse effect, (b)
reasonably would be expected to prevent consummation of the transactions
contemplated hereby or (c) is required to be disclosed in the Registration
Statement and not otherwise disclosed. There are no statutes, regulations,
contracts or documents of the Company that are required to be described in the
Prospectus that have not been fairly and accurately described in all material
respects in the Prospectus. There are no contracts or documents of the Company
that are required to be filed as exhibits to the Registration Statement that
have not been so filed. The contracts described in the Prospectus are in full
force and effect on the date hereof, and neither the Company nor, to the
Company's knowledge, any other party is in material breach of or default under
any of such contracts.
(xi) The Company has filed all tax returns required to be filed and has
paid or is contesting in good faith (and for which adequate reserves have been
provided) all taxes shown thereon as due. All tax liabilities (including those
being contested in good faith) for the periods covered by the financial
statements of the Company that are included in the Registration Statement have
been adequately provided for in such financial statements.
(xii) Each approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body necessary in connection with the execution and delivery by the
Company of this Agreement and the consummation of the
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transactions herein contemplated and has been obtained or made and is in full
force and effect, except for any additional steps as may be necessary (a) for
the Underwriters to obtain the approval of the National Association of
Securities Dealers, Inc. (herein called the NASD) or (b) to qualify the Stock
for public offering by the Underwriters under state securities or blue sky laws.
(xiii) Neither the Company is, and with the giving of notice or lapse of
time or both will be, in violation of or in default under its charter or bylaws
or under any agreement, lease, contract, indenture or other instrument or
obligation to which it is a party or by which it, or any of its properties, is
bound and which default would have a material adverse effect. The execution and
performance of this Agreement and the consummation of the transactions herein
contemplated including, but not limited to, the issuance and sale of Stock by
the Company does not and will not: (a) conflict with, or result in a breach or
violation of, any of the terms or provisions of, or constitute, either by itself
or upon notice or the passage of time or both, a default under, any agreement,
lease, contract, indenture or other instrument or obligation to which the
Company or is a party or by which the Company or any of its properties is bound
or may be affected, except where such breach, violation or default would not
have a material adverse effect, (b) violated any of the provisions of the
Certificate of Incorporation or Bylaws of the Company in effect as of the
Closing Date and any later date upon which the Option Stock is purchased, (c) to
the knowledge of the Company, violate any statute, law, regulation, ordinance or
court decree applicable to the Company or of any regulatory, administrative or
governmental body or agency having jurisdiction over the Company or any of its
properties or assets, or (d) result in the creation or imposition of any lien,
charge or encumbrance upon any assets or properties of the Company.
(xiv) The Company is operating in compliance with all statutes, laws,
regulations, ordinances and court decrees applicable to its respective business
and operations, except where any such non-compliance would not have a material
adverse effect. The Company has not violated any law or regulation relating to
the protection of human health and safety, the environment, or hazardous or
toxic substances or wastes, pollutants or contaminants, or relating to
discrimination in the hiring, promotion or pay of, or to the wages and hours of,
employees, except for such violations as in the aggregate would not result in a
material averse effect.
(xv) The Company has good and marketable title to all property (real or
personal) described in the Prospectus as being owned by it that is material to
the business of the Company, free and clear of all liens, claims, security
interests or other encumbrances that would materially interfere with the conduct
of the business of the Company (except such as are described in the Registration
Statement and the Prospectus or in a document filed as an exhibit to the
Registration Statement). All the property described in the Prospectus as being
held under lease by the Company is held by it under valid, subsisting and
enforceable leases.
(xvi) The Company owns, or possess valid and enforceable licenses to, all
patents, patent rights, inventions, copyrights, know-how (including trade
secrets and other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures), trademarks, service marks and trade names
("Intellectual Property") currently employed by the Company in connection with
the business now operated by it, except where the failure to own or possess such
Intellectual Property would not, singly or in the aggregate, have a material
adverse effect on the
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business, prospects, financial condition or results of operation of the Company.
The Company has not received any notice of a claim, nor is aware of facts which
would form a reasonable basis for any such claim, that: (i) challenges the
Company's rights in or to any Intellectual Property; (ii) challenges the
validity or scope of any Intellectual Property; (iii) any third party has or
will be able to establish any rights in the Intellectual Property, except for
the ownership rights of the owners of the Intellectual Property which is
licensed to the Company or the rights of parties to whom the Company has granted
licenses of such Intellectual Property; (iv) the Intellectual Property infringes
or otherwise violates any patent, copyright, trade secret, trademark or other
proprietary right of any third party; or (v) there is infringement of the
Intellectual Property by any third party, which, in the case of any such claim
specified in clauses (i), (ii), (iii), (iv) or (v) above, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding, would
have a material adverse effect on the business, prospects, financial condition
or results of operations of the Company. The Company has agreements in place
with each employee, consultant or other person or party engaged by the Company
for the assignment to the Company of all intellectual property and exploitation
rights in the work performed and the protection of the trade secrets and
confidential information of the Company and of third parties which have been
developed by such person for or on behalf of the Company.
Without limiting the generality of the foregoing paragraph: (i) the Company
has duly registered with all required authorities the domain name of its sites
on the World Wide Web ("Domain Names") located at www.netgen.com (the
"Website"), and is the sole and exclusive owner of and possesses all rights
necessary to use the Domain Names; (ii) the Company has the sole and exclusive
right to operate the Website and to use, market, develop, sell, license,
display, distribute, publish and transmit all information, content, software and
other materials available at the Website; (iii) the Website, the Company's
operation thereof, the Domain Names or any of the information, content, software
or other materials available at any Website infringes upon, violates or
constitutes a misappropriation of any Intellectual Property or other right of
any other person or entity or of any applicable law or regulation; and (iv) no
other person has any interest in, or right or claim to, any Website or any part
thereof.
(xvii) Except as described in the Prospectus: (a) all of the products of
the Company (including products currently under development) will record, store,
process, calculate and present calendar dates falling on and after (and if
applicable, spans of time including) January 1, 2000, and will calculate any
information dependent on or relating to such dates in the same manner, and with
the same functionality, data integrity and performance, as the products record,
store, process, calculate and present calendar dates on or before December 31,
1999, or calculate any information dependent on or relating to such dates
(herein collectively called Year 2000 Compliant); (b) all of the products of the
Company (1) will lose no functionality with respect to the introduction of
records containing dates falling on or after January 1, 2000 and (2) will be
interoperable with other products used and distributed by the Company that may
deliver records to products of the Company or receive records from products of
the Company, or interact with the products of the Company, including back-up and
archived data; and (c) all of the internal computer and technology products and
systems of the Company is Year 2000 Compliant.
(xviii) The Company has full legal right, power and authority to enter into
this Agreement and perform the transactions contemplated hereby. This Agreement
has been duly authorized, executed and delivered by the Company and is a valid
and binding agreement on the part of the Company, enforceable in accordance with
its terms, except as rights to indemnity and
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<PAGE> 7
contribution hereunder may be limited by applicable laws and except as the
enforcement hereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors' rights
generally, or by general equitable principles.
(ixx) The Company has not taken and will not take, directly or indirectly,
any action designed to or that might be reasonably expected to cause or result
in stabilization or manipulation of the price of the Common Stock to facilitate
the sale or resale of the Stock.
(xx) The Company has not distributed and will not distribute prior to the
later of (i) the Closing Date (as hereinafter defined), or any date on which
Option Stock is purchased, as the case may be, and (ii) completion of the
distribution of the Stock, any offering material in connection with the offering
and sale of the Stock other than the Registration Statement, any Preliminary
Prospectus and the Prospectus and other materials, if any, permitted by the
Securities Act.
(xxi) The Company has not offered, or caused the Underwriters to offer, any
offered Securities to any person pursuant to the Directed Share Program with the
specific intent to unlawfully influence (i) a customer or supplier of the
Company to alter the customer's or supplier's level or type of business with the
Company or (ii) a trade journalist or publication to write or publish favorable
information about the Company or its products.
(xxii) No relationship, direct or indirect, exists between or among the
Company on the one hand, and the directors, officers, stockholders, customers or
suppliers of the Company on the other hand, which is required by the Act to be
disclosed in the Registration Statement or the Prospectus which is not so
disclosed.
(xxiii) The Company carries, or is covered by, insurance in such amounts
and covering such risks as is adequate for the conduct of its business and the
value of its respective properties and as is customary for companies engaged in
similar business.
3. PURCHASE OF THE STOCK BY THE UNDERWRITERS.
(a) On the basis of the representations and warranties and subject to the
terms and conditions herein set forth, the Company agrees to issue and sell
4,250,000 shares of the Underwritten Stock to the several Underwriters and each
of the Underwriters agrees to purchase from the Company the respective aggregate
number of shares of Underwritten Stock set forth opposite its name in Schedule
I. The price at which such shares of Underwritten Stock shall be sold by the
Company and purchased by the several Underwriters shall be $___ per share. In
making this Agreement, each Underwriter is contracting severally and not
jointly; except as provided in paragraphs (b) and (c) of this Section 3, the
agreement of each Underwriter is to purchase only the respective number of
shares of the Underwritten Stock specified in Schedule I.
(b) If for any reason one or more of the Underwriters shall fail or refuse
(otherwise than for a reason sufficient to justify the termination of this
Agreement under the provisions of Section 8 or 9 hereof) to purchase and pay for
the number of shares of the Stock agreed to be purchased by such Underwriter or
Underwriters, the Company shall immediately give notice thereof to you, and the
non-defaulting Underwriters shall have the right within 24 hours after the
receipt by you of such notice to purchase, or procure one or more other
Underwriters to purchase,
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<PAGE> 8
in such proportions as may be agreed upon between you and such purchasing
Underwriter or Underwriters and upon the terms herein set forth, all or any part
of the shares of the Stock which such defaulting Underwriter or Underwriters
agreed to purchase. If the non-defaulting Underwriters fail so to make such
arrangements with respect to all such shares and portion, the number of shares
of the Stock which each non-defaulting Underwriter is otherwise obligated to
purchase under this Agreement shall be automatically increased on a pro rata
basis to absorb the remaining shares and portion which the defaulting
Underwriter or Underwriters agreed to purchase; provided, however, that the
non-defaulting Underwriters shall not be obligated to purchase the shares and
portion which the defaulting Underwriter or Underwriters agreed to purchase if
the aggregate number of such shares of the Stock exceeds 10% of the total number
of shares of the Stock which all Underwriters agreed to purchase hereunder. If
the total number of shares of the Stock which the defaulting Underwriter or
Underwriters agreed to purchase shall not be purchased or absorbed in accordance
with the two preceding sentences, the Company shall have the right, within 24
hours next succeeding the 24-hour period above referred to, to make arrangements
with other underwriters or purchasers satisfactory to you for purchase of such
shares and portion on the terms herein set forth. In any such case, either you
or the Company shall have the right to postpone the Closing Date determined as
provided in Section 5 hereof for not more than seven business days after the
date originally fixed as the Closing Date pursuant to said Section 5 in order
that any necessary changes in the Registration Statement, the Prospectus or any
other documents or arrangements may be made. If neither the non-defaulting
Underwriters nor the Company shall make arrangements within the 24-hour periods
stated above for the purchase of all the shares of the Stock which the
defaulting Underwriter or Underwriters agreed to purchase hereunder, this
Agreement shall be terminated without further act or deed and without any
liability on the part of the Company to any non-defaulting Underwriter and
without any liability on the part of any non-defaulting Underwriter to the
Company. Nothing in this paragraph (b), and no action taken hereunder, shall
relieve any defaulting Underwriter from liability in respect of any default of
such Underwriter under this Agreement.
(c) On the basis of the representations, warranties and covenants herein
contained, and subject to the terms and conditions herein set forth, the Company
grants an option to the several Underwriters to purchase, severally and not
jointly, up to 637,500 shares in the aggregate of the Option Stock from the
Company at the same price per share as the Underwriters shall pay for the
Underwritten Stock. Said option may be exercised only to cover over-allotments
in the sale of the Underwritten Stock by the Underwriters and may be exercised
in whole or in part at any time (but not more than once) on or before the
thirtieth day after the date of this Agreement upon written or telegraphic
notice by you to the Company setting forth the aggregate number of shares of the
Option Stock as to which the several Underwriters are exercising the option.
Delivery of certificates for the shares of Option Stock, and payment therefor,
shall be made as provided in Section 5 hereof. The number of shares of the
Option Stock to be purchased by each Underwriter shall be the same percentage of
the total number of shares of the Option Stock to be purchased by the several
Underwriters as such Underwriter is purchasing of the Underwritten Stock, as
adjusted by you in such manner as you deem advisable to avoid fractional shares.
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4. OFFERING BY UNDERWRITERS.
(a) The terms of the initial public offering by the Underwriters of the
Stock to be purchased by them shall be as set forth in the Prospectus. The
Underwriters may from time to time change the public offering price after the
closing of the initial public offering and increase or decrease the concessions
and discounts to dealers as they may determine.
(b) The information set forth in the last paragraph on the front cover page
and under "Underwriting" in the Registration Statement, any Preliminary
Prospectus and the Prospectus relating to the Stock filed by the Company
(insofar as such information relates to the Underwriters) constitutes the only
information furnished by the Underwriters to the Company for inclusion in the
Registration Statement, any Preliminary Prospectus, and the Prospectus, and you
on behalf of the respective Underwriters represent and warrant to the Company
that the statements made therein are correct.
5. DELIVERY OF AND PAYMENT FOR THE STOCK.
(a) Delivery of certificates for the shares of the Underwritten Stock and
the Option Stock (if the option granted by Section 3(c) hereof shall have been
exercised not later than 7:00 A.M., San Francisco time, on the date two business
days preceding the Closing Date), and payment therefor, shall be made at the
office of Foley, Hoag & Eliot LLP, One Post Office Square, Boston, Massachusetts
02109, at 7:00 a.m., San Francisco time, on the fourth business day after the
date of this Agreement, or at such time on such other day, not later than seven
full business days after such fourth business day, as shall be agreed upon in
writing by the Company and you. The date and hour of such delivery and payment
(which may be postponed as provided in Section 3(b) hereof) are herein called
the Closing Date.
(b) If the option granted by Section 3(c) hereof shall be exercised after
7:00 a.m., San Francisco time, on the date two business days preceding the
Closing Date, delivery of certificates for the shares of Option Stock, and
payment therefor, shall be made at the office of Foley, Hoag & Eliot, One Post
Office Square, Boston, Massachusetts 02109, at 7:00 a.m., San Francisco time, on
the third business day after the exercise of such option.
(c) Payment for the Stock purchased from the Company shall be made to the
Company or its order by one or more certified or official bank check or checks
in same day funds. Such payment shall be made upon delivery of certificates for
the Stock to you for the respective accounts of the several Underwriters against
receipt therefor signed by you. Certificates for the Stock to be delivered to
you shall be registered in such name or names and shall be in such denominations
as you may request at least one business day before the Closing Date, in the
case of Underwritten Stock, and at least one business day prior to the purchase
thereof, in the case of the Option Stock. Such certificates will be made
available to the Underwriters for inspection, checking and packaging at the
offices of Lewco Securities Corporation, 2 Broadway, New York, New York 10004 on
the business day prior to the Closing Date or, in the case of the Option Stock,
by 3:00 p.m., New York time, on the business day preceding the date of purchase.
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It is understood that you, individually and not on behalf of the
Underwriters, may (but shall not be obligated to) make payment to the Company
for shares to be purchased by any Underwriter whose check shall not have been
received by you on the Closing Date or any later date on which Option Stock is
purchased for the account of such Underwriter. Any such payment by you shall not
relieve such Underwriter from any of its obligations hereunder.
6. FURTHER AGREEMENTS OF THE COMPANY. The Company covenants and agrees as
follows:
(a) The Company will (i) prepare and timely file with the Commission under
Rule 424(b) a Prospectus containing information previously omitted at the time
of effectiveness of the Registration Statement in reliance on Rule 430A and (ii)
not file any amendment to the Registration Statement or supplement to the
Prospectus of which you shall not previously have been advised and furnished
with a copy or to which you shall have reasonably objected in writing or which
is not in compliance with the Securities Act or the rules and regulations of the
Commission.
(b) The Company will promptly notify each Underwriter in the event of (i)
the request by the Commission for amendment of the Registration Statement or for
supplement to the Prospectus or for any additional information, (ii) the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement, (iii) the institution or notice of intended institution
of any action or proceeding for that purpose, (iv) the receipt by the Company of
any notification with respect to the suspension of the qualification of the
Stock for sale in any jurisdiction, or (v) the receipt by it of notice of the
initiation or threatening of any proceeding for such purpose. The Company will
make every reasonable effort to prevent the issuance of such a stop order and,
if such an order shall at any time be issued, to obtain the withdrawal thereof
at the earliest possible moment.
(c) The Company will (i) on or before the Closing Date, deliver to you four
signed copies of the Registration Statement as originally filed and of each
amendment thereto filed prior to the time the Registration Statement becomes
effective and, promptly upon the filing thereof, four signed copies of each
post-effective amendment, if any, to the Registration Statement (together with,
in each case, all exhibits thereto unless previously furnished to you) and will
also deliver to you, for distribution to the Underwriters, a sufficient number
of additional conformed copies of each of the foregoing (but without exhibits)
so that one copy of each may be distributed to each Underwriter, (ii) as
promptly as possible deliver to you and send to the several Underwriters, at
such office or offices as you may designate, as many copies of the Prospectus as
you may reasonably request, and (iii) thereafter from time to time during the
period in which a prospectus is required by law to be delivered by an
Underwriter or dealer, likewise send to the Underwriters as many additional
copies of the Prospectus and as many copies of any supplement to the Prospectus
and of any amended prospectus, filed by the Company with the Commission, as you
may reasonably request for the purposes contemplated by the Securities Act.
(d) If at any time during the period in which a prospectus is required by
law to be delivered by an Underwriter or dealer any event relating to or
affecting the Company, or of which the Company shall be advised in writing by
you, shall occur as a result of which it is necessary, in the opinion of counsel
for the Company or of counsel for the Underwriters, to
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supplement or amend the Prospectus in order to make the Prospectus not
misleading in the light of the circumstances existing at the time it is
delivered to a purchaser of the Stock, the Company will forthwith prepare and
file with the Commission a supplement to the Prospectus or an amended prospectus
so that the Prospectus as so supplemented or amended will not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in the light of the circumstances existing
at the time such Prospectus is delivered to such purchaser, not misleading. If,
after the initial public offering of the Stock by the Underwriters and during
such period, the Underwriters shall propose to vary the terms of offering
thereof by reason of changes in general market conditions or otherwise, you will
advise the Company in writing of the proposed variation, and, if in the opinion
either of counsel for the Company or of counsel for the Underwriters such
proposed variation requires that the Prospectus be supplemented or amended, the
Company will forthwith prepare and file with the Commission a supplement to the
Prospectus or an amended prospectus setting forth such variation. The Company
authorizes the Underwriters and all dealers to whom any of the Stock may be sold
by the several Underwriters to use the Prospectus, as from time to time amended
or supplemented, in connection with the sale of the Stock in accordance with the
applicable provisions of the Securities Act and the applicable rules and
regulations thereunder for such period.
(e) Prior to the filing thereof with the Commission, the Company will
submit to you, for your information, a copy of any post-effective amendment to
the Registration Statement and any supplement to the Prospectus or any amended
prospectus proposed to be filed.
(f) The Company will cooperate, when and as requested by you, in the
qualification of the Stock for offer and sale under the securities or blue sky
laws of such jurisdictions as you may designate and, during the period in which
a prospectus is required by law to be delivered by an Underwriter or dealer, in
keeping such qualifications in good standing under said securities or blue sky
laws; provided, however, that the Company shall not be obligated to file any
general consent to service of process or to qualify as a foreign corporation in
any jurisdiction in which it is not so qualified. The Company will, from time to
time, prepare and file such statements, reports, and other documents as are or
may be required to continue such qualifications in effect for so long a period
as you may reasonably request for distribution of the Stock.
(g) During a period of five years commencing with the date hereof, the
Company will furnish to you, and to each Underwriter who may so request in
writing, copies of all periodic and special reports furnished to shareholders of
the Company and of all information, documents and reports filed with the
Commission.
(h) Not later than the 45th day following the end of the fiscal quarter
first occurring after the first anniversary of the Effective Date, the Company
will make generally available to its security holders an earnings statement in
accordance with Section 11(a) of the Securities Act and Rule 158 thereunder.
(i) The Company agrees to pay all costs and expenses incident to the
performance of its obligations under this Agreement, including all costs and
expenses incident to (i) the preparation, printing and filing with the
Commission and the National Association of Securities Dealers, Inc. of the
Registration Statement, any Preliminary Prospectus and the Prospectus, (ii) the
furnishing to the Underwriters of copies of any Preliminary Prospectus and of
the several
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documents required by paragraph (c) of this Section 6 to be so furnished, (iii)
the printing of this Agreement and related documents delivered to the
Underwriters, (iv) the preparation, printing and filing of all supplements and
amendments to the Prospectus referred to in paragraph (d) of this Section 6, (v)
the furnishing to you and the Underwriters of the reports and information
referred to in paragraph (g) of this Section 6 and (vi) the printing and
issuance of stock certificates, including the transfer agent's fees.
(j) The Company agrees to reimburse you, for the account of the several
Underwriters, for blue sky fees and related disbursements (including counsel
fees and disbursements and cost of printing memoranda for the Underwriters) paid
by or for the account of the Underwriters or their counsel in qualifying the
Stock under state securities or blue sky laws and in the review of the offering
by the NASD.
(k) The Company hereby agrees that, without the prior written consent of
Hambrecht & Quist LLC on behalf of the Underwriters, the Company will not, for a
period of 180 days following the commencement of the public offering of the
Stock by the Underwriters, directly or indirectly, (i) sell, offer, contract to
sell, make any short sale, pledge, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase or otherwise transfer or dispose of any shares of Common Stock or any
securities convertible into or exchangeable or exercisable for or any rights to
purchase or acquire Common Stock or (ii) enter into any swap or other agreement
that transfers, in whole or in part, any of the economic consequences or
ownership of Common Stock, whether any such transaction described in clause (i)
or (ii) above is to be settled by delivery of Common Stock or such other
securities, in cash or otherwise. The foregoing sentence shall not apply to (A)
the Stock to be sold to the Underwriters pursuant to this Agreement, (B) shares
of Common Stock issued by the Company upon the exercise of options granted under
the stock option plans of the Company (the "Option Plans") or upon the exercise
of warrants outstanding as of the date hereof, all as described in the
Preliminary Prospectus, and (C) options to purchase Common Stock granted under
the Option Plans.
(l) If at any time during the 25-day period after the Registration
Statement becomes effective any rumor, publication or event relating to or
affecting the Company shall occur as a result of which in your opinion the
market price for the Stock has been or is likely to be materially affected
(regardless of whether such rumor, publication or event necessitates a
supplement to or amendment of the Prospectus), the Company will, after written
notice from you advising the Company to the effect set forth above, forthwith
prepare, consult with you concerning the substance of, and disseminate a press
release or other public statement, reasonably satisfactory to you, responding to
or commenting on such rumor, publication or event.
(m) The Company is familiar with the Investment Company Act of 1940, as
amended, and has in the past conducted its affairs, and will in the future
conduct its affairs, in such a manner to ensure that the Company was not and
will not be an "investment company" or a company "controlled" by an "investment
company" within the meaning of the Investment Company Act of 1940, as amended,
and the rules and regulations thereunder.
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<PAGE> 13
7. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless each Underwriter and
each person (including each partner or officer thereof) who controls any
Underwriter within the meaning of Section 15 of the Securities Act from and
against any and all losses, claims, damages or liabilities, joint or several, to
which such indemnified parties or any of them may become subject under the
Securities Act, the Securities Exchange Act of 1934, as amended (herein called
the Exchange Act), or the common law or otherwise, and the Company agrees to
reimburse each such Underwriter and controlling person for any legal or other
expenses (including, except as otherwise hereinafter provided, reasonable fees
and disbursements of counsel) incurred by the respective indemnified parties in
connection with defending against any such losses, claims, damages or
liabilities or in connection with any investigation or inquiry of, or other
proceeding which may be brought against, the respective indemnified parties, in
each case arising out of or based upon (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(including the Prospectus as part thereof and any Rule 462(b) registration
statement) or any post-effective amendment thereto (including any Rule 462(b)
registration statement), or 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 (ii) any untrue statement or alleged untrue statement
of a material fact contained in any Preliminary Prospectus or the Prospectus (as
amended or as supplemented if the Company shall have filed with the Commission
any amendment thereof or supplement thereto) or the omission or alleged omission
to state therein a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; provided, however, that (1) the indemnity agreements of the Company
contained in this paragraph (a) shall not apply to any such losses, claims,
damages, liabilities or expenses if such statement or omission was made in
reliance upon and in conformity with information furnished as herein stated or
otherwise furnished in writing to the Company by or on behalf of any Underwriter
for use in any Preliminary Prospectus or the Registration Statement or the
Prospectus or any such amendment thereof or supplement thereto and (2) the
indemnity agreement contained in this paragraph (a) with respect to any
Preliminary Prospectus shall not inure to the benefit of any Underwriter from
whom the person asserting any such losses, claims, damages, liabilities or
expenses purchased the Stock which is the subject thereof (or to the benefit of
any person controlling such Underwriter) if at or prior to the written
confirmation of the sale of such Stock a copy of the Prospectus (or the
Prospectus as amended or supplemented) was not sent or delivered to such person
and the untrue statement or omission of a material fact contained in such
Preliminary Prospectus was corrected in the Prospectus (or the Prospectus as
amended or supplemented) unless the failure is the result of noncompliance by
the Company with paragraph (c) of Section 6 hereof. The indemnity agreements of
the Company contained in this paragraph (a) and the representations and
warranties of the Company contained in Section 2 hereof shall remain operative
and in full force and effect regardless of any investigation made by or on
behalf of any indemnified party and shall survive the delivery of and payment
for the Stock.
(b) Each Underwriter severally agrees to indemnify and hold harmless the
Company, each of its officers who signs the Registration Statement on his own
behalf or pursuant to a power of attorney, each of its directors, each other
Underwriter and each person (including each partner or officer thereof) who
controls the Company or any such other Underwriter within the meaning of Section
15 of the Securities Act, from and against any and all losses, claims,
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<PAGE> 14
damages or liabilities, joint or several, to which such indemnified parties or
any of them may become subject under the Securities Act, the Exchange Act, or
the common law or otherwise and to reimburse each of them for any legal or other
expenses (including, except as otherwise hereinafter provided, reasonable fees
and disbursements of counsel) incurred by the respective indemnified parties in
connection with defending against any such losses, claims, damages or
liabilities or in connection with any investigation or inquiry of, or other
proceeding which may be brought against, the respective indemnified parties, in
each case arising out of or based upon (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(including the Prospectus as part thereof and any Rule 462(b) registration
statement) or any post-effective amendment thereto (including any Rule 462(b)
registration statement) or 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 (ii) any untrue statement or alleged untrue statement
of a material fact contained in the Prospectus (as amended or as supplemented if
the Company shall have filed with the Commission any amendment thereof or
supplement thereto) or the omission or alleged omission to state therein a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading, if such statement
or omission was made in reliance upon and in conformity with information
furnished as herein stated or otherwise furnished in writing to the Company by
or on behalf of such indemnifying Underwriter for use in the Registration
Statement or the Prospectus or any such amendment thereof or supplement thereto.
The indemnity agreement of each Underwriter contained in this paragraph (b)
shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any indemnified party and shall survive
the delivery of and payment for the Stock.
(c) Each party indemnified under the provision of paragraphs (a) and (b) of
this Section 7 agrees that, upon the service of a summons or other initial legal
process upon it in any action or suit instituted against it or upon its receipt
of written notification of the commencement of any investigation or inquiry of,
or proceeding against, it in respect of which indemnity may be sought on account
of any indemnity agreement contained in such paragraphs, it will promptly give
written notice (herein called the Notice) of such service or notification to the
party or parties from whom indemnification may be sought hereunder. No
indemnification provided for in such paragraphs shall be available to any party
who shall fail so to give the Notice if the party to whom such Notice was not
given was unaware of the action, suit, investigation, inquiry or proceeding to
which the Notice would have related and was prejudiced by the failure to give
the Notice, but the omission so to notify such indemnifying party or parties of
any such service or notification shall not relieve such indemnifying party or
parties from any liability which it or they may have to the indemnified party
for contribution or otherwise than on account of such indemnity agreement. Any
indemnifying party shall be entitled at its own expense to participate in the
defense of any action, suit or proceeding against, or investigation or inquiry
of, an indemnified party. Any indemnifying party shall be entitled, if it so
elects within a reasonable time after receipt of the Notice by giving written
notice (herein called the Notice of Defense) to the indemnified party, to assume
(alone or in conjunction with any other indemnifying party or parties) the
entire defense of such action, suit, investigation, inquiry or proceeding, in
which event such defense shall be conducted, at the expense of the indemnifying
party or parties, by counsel chosen by such indemnifying party or parties and
reasonably satisfactory to the indemnified party or parties; PROVIDED, HOWEVER,
that (i) if the indemnified party or parties reasonably determine that there may
be a conflict between the positions of the indemnifying
14
<PAGE> 15
party or parties and of the indemnified party or parties in conducting the
defense of such action, suit, investigation, inquiry or proceeding or that there
may be legal defenses available to such indemnified party or parties different
from or in addition to those available to the indemnifying party or parties,
then counsel for the indemnified party or parties shall be entitled to conduct
the defense to the extent reasonably determined by such counsel to be necessary
to protect the interests of the indemnified party or parties and (ii) in any
event, the indemnified party or parties shall be entitled to have counsel chosen
by such indemnified party or parties participate in, but not conduct, the
defense. If, within a reasonable time after receipt of the Notice, an
indemnifying party gives a Notice of Defense and the counsel chosen by the
indemnifying party or parties is reasonably satisfactory to the indemnified
party or parties, the indemnifying party or parties will not be liable under
paragraphs (a) through (c) of this Section 7 for any legal or other expenses
subsequently incurred by the indemnified party or parties in connection with the
defense of the action, suit, investigation, inquiry or proceeding, except that
(A) the indemnifying party or parties shall bear the legal and other expenses
incurred in connection with the conduct of the defense as referred to in clause
(i) of the proviso to the preceding sentence and (B) the indemnifying party or
parties shall bear such other expenses as it or they have authorized to be
incurred by the indemnified party or parties. If, within a reasonable time after
receipt of the Notice, no Notice of Defense has been given, the indemnifying
party or parties shall be responsible for any legal or other expenses incurred
by the indemnified party or parties in connection with the defense of the
action, suit, investigation, inquiry or proceeding.
(d) If the indemnification provided for in this Section 7 is unavailable or
insufficient to hold harmless an indemnified party under paragraph (a) or (b) of
this Section 7, then each indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of the losses, claims, damages or liabilities
referred to in paragraph (a) or (b) of this Section 7 (i) in such proportion as
is appropriate to reflect the relative benefits received by each indemnifying
party from the offering of the Stock or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of each indemnifying party in connection with
the statements or omissions that resulted in such losses, claims, damages or
liabilities, or actions in respect thereof, as well as any other relevant
equitable considerations. The relative benefits received by the Company and the
Underwriters shall be deemed to be in the same respective proportions as the
total net proceeds from the offering of the Stock received by the Company and
the total underwriting discount received by the Underwriters, as set forth in
the table on the cover page of the Prospectus, bear to the aggregate public
offering price of the Stock. Relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by each indemnifying party and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such untrue statement or omission.
The parties agree that it would not be just and equitable if contributions
pursuant to this paragraph (d) were to be determined by pro rata allocation
(even if the Underwriters were treated as one entity for such purpose) or by any
other method of allocation which does not take into account the equitable
considerations referred to in the first sentence of this paragraph (d). The
amount paid by an indemnified party as a result of the losses, claims, damages
or liabilities, or actions in respect thereof, referred to in the first sentence
of this paragraph (d) shall be deemed to
15
<PAGE> 16
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigation, preparing to defend or defending against
any action or claim which is the subject of this paragraph (d). Notwithstanding
the provisions of this paragraph (d), no Underwriter shall be required to
contribute any amount in excess of the underwriting discount applicable to the
Stock purchased by such Underwriter. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations in this paragraph
(d) to contribute are several in proportion to their respective underwriting
obligations and not joint.
Each party entitled to contribution agrees that upon the service of a
summons or other initial legal process upon it in any action instituted against
it in respect of which contribution may be sought, it will promptly give written
notice of such service to the party or parties from whom contribution may be
sought, but the omission so to notify such party or parties of any such service
shall not relieve the party from whom contribution may be sought from any
obligation it may have hereunder or otherwise (except as specifically provided
in paragraph (c) of this Section 7).
(e) The Company will not, without the prior written consent of each
Underwriter, settle or compromise or consent to the entry of any judgment in any
pending or threatened claim, action, suit or proceeding in respect of which
indemnification may be sought hereunder (whether or not such Underwriter or any
person who controls such Underwriter within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act is a party to such claim,
action, suit or proceeding) unless such settlement, compromise or consent
includes an unconditional release of such Underwriter and each such controlling
person from all liability arising out of such claim, action, suit or proceeding.
8. TERMINATION. This Agreement may be terminated by you at any time prior
to the Closing Date by giving written notice to the Company if after the date of
this Agreement trading in the Common Stock shall have been suspended, or if
there shall have occurred (i) the engagement in hostilities or an escalation of
major hostilities by the United States or the declaration of war or a national
emergency by the United States on or after the date hereof, (ii) any outbreak of
hostilities or other national or international calamity or crisis or change in
economic or political conditions if the effect of such outbreak, calamity,
crisis or change in economic or political conditions in the financial markets of
the United States would, in the Underwriters' reasonable judgment, make the
offering or delivery of the Stock impracticable, (iii) suspension of trading in
securities generally or a material adverse decline in value of securities
generally on the New York Stock Exchange, The Nasdaq National Market, or
limitations on prices (other than limitations on hours or numbers of days of
trading) for securities on either such exchange or system, (iv) the enactment,
publication, decree or other promulgation of any federal or state statute,
regulation, rule or order of, or commencement of any proceeding or investigation
by, any court, legislative body, agency or other governmental authority which in
the Underwriters' reasonable opinion materially and adversely affects or will
materially or adversely affect the business or operations of the Company, (v)
declaration of a banking moratorium by either federal or New York State
authorities or (vi) the taking of any action by any federal, state or local
government or agency in respect of its monetary or fiscal affairs which in the
Underwriters' reasonable opinion has a material adverse effect on the securities
markets in
16
<PAGE> 17
the United States. If this Agreement shall be terminated pursuant to this
Section 8, there shall be no liability of the Company to the Underwriters and no
liability of the Underwriters to the Company; provided, however, that in the
event of any such termination the Company agrees to indemnify and hold harmless
the Underwriters from all costs or expenses incident to the performance of the
obligations of the Company under this Agreement, including all costs and
expenses referred to in paragraphs (i) and (j) of Section 6 hereof.
9. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the several
Underwriters to purchase and pay for the Stock shall be subject to the
performance by the Company of all its obligations to be performed hereunder at
or prior to the Closing Date or any later date on which Option Stock is to be
purchased, as the case may be, and to the following further conditions:
(a) The Registration Statement shall have become effective; and no stop
order suspending the effectiveness thereof shall have been issued and no
proceedings therefor shall be pending or threatened by the Commission.
(b) The legality and sufficiency of the sale of the Stock hereunder and the
validity and form of the certificates representing the Stock, all corporate
proceedings and other legal matters incident to the foregoing, and the form of
the Registration Statement and of the Prospectus (except as to the financial
statements contained therein), shall have been approved at or prior to the
Closing Date by Testa, Hurwitz & Thibeault, LLP, counsel for the Underwriters.
(c) You shall have received from Foley, Hoag & Eliot LLP, counsel for the
Company, an opinion, addressed to the Underwriters and dated the Closing Date,
covering the matters set forth in Annex A hereto, and if Option Stock is
purchased at any date after the Closing Date, additional opinion from such
counsel, addressed to the Underwriters and dated such later date, confirming
that the statements expressed as of the Closing Date in such opinion remain
valid as of such later date.
(d) You shall be satisfied that (i) as of the Effective Date, the
statements made in the Registration Statement and the Prospectus were true and
correct and neither the Registration Statement nor the Prospectus omitted to
state any material fact required to be stated therein or necessary in order to
make the statements therein, respectively, not misleading, (ii) since the
Effective Date, no event has occurred which should have been set forth in a
supplement or amendment to the Prospectus which has not been set forth in such a
supplement or amendment, (iii) since the respective dates as of which
information is given in the Registration Statement and the Prospectus, there has
not been any material adverse change or any development which the Company has a
reasonable basis to believe may result in a prospective material adverse change
in the business, properties, financial condition or results of operations of the
Company, whether or not arising from transactions in the ordinary course of
business, other than as set forth in the Registration Statement and Prospectus,
and, since such dates, except in the ordinary course of business, the Company
has not entered into any material transaction not referred to in the
Registration Statement and the Prospectus, (iv) the Company does not have any
material contingent obligations which are not disclosed in the Registration
Statement and the Prospectus, (v) there is no action, suit, claim or proceeding
pending or, to the knowledge of the Company, threatened against the Company, or
any of its officers or properties before any court,
17
<PAGE> 18
government agency or body, or otherwise, that (a) reasonably would be expected
to have a material adverse effect, (b) reasonably would be expected to prevent
consummation of the transactions contemplated hereby or (c) is required to be
disclosed in the Registration Statement and not otherwise disclosed, (vi) there
are not any franchises, contracts, leases or other documents which are required
to be filed as exhibits to the Registration Statement which have not been filed
as required, (vii) the representations and warranties of the Company herein are
true and correct in all material respects as of the Closing Date or any later
date on which Option Stock is to be purchased, as the case may be, and (viii)
there has not been any material change in the market for securities in general
or in political, financial or economic conditions from those reasonably
foreseeable as to render it impracticable in your reasonable judgment to make a
public offering of the Stock, or a material adverse change in market levels for
securities in general (or those of companies in particular) or financial or
economic conditions which render it inadvisable to proceed.
(e) You shall have received on the Closing Date and on any later date on
which Option Stock is purchased a certificate, dated the Closing Date or such
later date, as the case may be, and signed by the President and the Chief
Financial Officer of the Company, stating that the respective signers of said
certificate have carefully examined the Registration Statement in the form in
which it originally became effective and the Prospectus contained therein and
any supplements or amendments thereto, and that the statements included in
clauses (i) through (vii) of paragraph (d) of this Section 9 are true and
correct.
(f) You shall have received from PricewaterhouseCoopers, LLP, a letter or
letters, addressed to the Underwriters and dated the Closing Date and any later
date on which Option Stock is purchased, confirming that they are independent
public accountants with respect to the Company within the meaning of the
Securities Act and the applicable published rules and regulations thereunder and
based upon the procedures described in their letter delivered to you
concurrently with the execution of this Agreement (herein called the Original
Letter), but carried out to a date not more than three business days prior to
the Closing Date or such later date on which Option Stock is purchased (i)
confirming, to the extent true, that the statements and conclusions set forth in
the Original Letter are accurate as of the Closing Date or such later date, as
the case may be, and (ii) setting forth any revisions and additions to the
statements and conclusions set forth in the Original Letter which are necessary
to reflect any changes in the facts described in the Original Letter since the
date of the Original Letter or to reflect the availability of more recent
financial statements, data or information. The letters shall not disclose any
change, or any development involving a prospective change, in or affecting the
business or properties of the Company which, in your sole judgment, makes it
impractical or inadvisable to proceed with the public offering of the Stock or
the purchase of the Option Stock as contemplated by the Prospectus.
(g) You shall have been furnished evidence in usual written or telegraphic
form from the appropriate authorities of the several jurisdictions, or other
evidence satisfactory to you, of the qualification referred to in paragraph (f)
of Section 6 hereof.
(h) Prior to the Closing Date, the Stock to be issued and sold by the
Company shall have been duly authorized for listing by the Nasdaq National
Market upon official notice of issuance.
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<PAGE> 19
(i) On or prior to the Closing Date, you shall have received from all
shareholders agreements, in form reasonably satisfactory to Hambrecht & Quist
LLC, stating that without the prior written consent of Hambrecht & Quist LLC on
behalf of the Underwriters, such person or entity will not, for a period of 180
days following the commencement of the public offering of the Stock by the
Underwriters, directly or indirectly, (i) sell, offer, contract to sell,
transfer the economic risk of ownership in, make any short sale, pledge or
otherwise transfer or dispose of any shares of Common Stock or any securities
convertible into or exchangeable or exercisable for or any other rights to
purchase or acquire Common Stock.
All the agreements, opinions, certificates and letters mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if Testa, Hurwitz & Thibeault, LLP, counsel for the
Underwriters, shall be satisfied that they comply in form and scope.
In case any of the conditions specified in this Section 9 shall not be
fulfilled, this Agreement may be terminated by you by giving notice to the
Company. Any such termination shall be without liability of the Company to the
Underwriters and without liability of the Underwriters to the Company; provided,
however, that (i) in the event of such termination, the Company agrees to
indemnify and hold harmless the Underwriters from all costs or expenses incident
to the performance of the obligations of the Company under this Agreement,
including all costs and expenses referred to in paragraphs (i) and (j) of
Section 6 hereof, and (ii) if this Agreement is terminated by you because of any
refusal, inability or failure on the part of the Company to perform any
agreement herein, to fulfill any of the conditions herein, or to comply with any
provision hereof other than by reason of a default by any of the Underwriters,
the Company will reimburse the Underwriters severally upon demand for all
out-of-pocket expenses (including reasonable fees and disbursements of counsel)
that shall have been incurred by them in connection with the transactions
contemplated hereby.
10. CONDITIONS OF THE OBLIGATION OF THE COMPANY. The obligation of the
Company to deliver the Stock shall be subject to the conditions that (a) the
Registration Statement shall have become effective and (b) no stop order
suspending the effectiveness thereof shall be in effect and no proceedings
therefor shall be pending or threatened by the Commission.
In case either of the conditions specified in this Section 10 shall not be
fulfilled, this Agreement may be terminated by the Company by giving notice to
you. Any such termination shall be without liability of the Company to the
Underwriters and without liability of the Underwriters to the Company; provided,
however, that in the event of any such termination the Company agrees to
indemnify and hold harmless the Underwriters from all costs or expenses incident
to the performance of the obligations of the Company under this Agreement,
including all costs and expenses referred to in paragraphs (i) and (j) of
Section 6 hereof.
11. REIMBURSEMENT OF CERTAIN EXPENSES. In addition to its other
obligations under Section 7 of this Agreement, the Company hereby agrees to
reimburse on a quarterly basis the Underwriters for all reasonable legal and
other expenses incurred in connection with investigating or defending any claim,
action, investigation, inquiry or other proceeding arising out of or based upon
any statement or omission, or any alleged statement or omission, described
19
<PAGE> 20
in paragraph (a) of Section 7 of this Agreement, notwithstanding the absence of
a judicial determination as to the propriety and enforceability of the
obligations under this Section 11 and the possibility that such payments might
later be held to be improper; PROVIDED, HOWEVER, that (i) to the extent any such
payment is ultimately held to be improper, the persons receiving such payments
shall promptly refund them and (ii) such persons shall provide to the Company,
upon request, reasonable assurances of their ability to effect any refund, when
and if due.
12. PERSONS ENTITLED TO BENEFIT OF AGREEMENT. This Agreement shall inure to
the benefit of the Company and the several Underwriters and, with respect to the
provisions of Section 7 hereof, the several parties (in addition to the Company
and the several Underwriters) indemnified under the provisions of said Section
7, and their respective personal representatives, successors and assigns.
Nothing in this Agreement is intended or shall be construed to give to any other
person, firm or corporation any legal or equitable remedy or claim under or in
respect of this Agreement or any provision herein contained. The term
"successors and assigns" as herein used shall not include any purchaser, as such
purchaser, of any of the Stock from any of the several Underwriters.
13. NOTICES. Except as otherwise provided herein, all communications
hereunder shall be in writing or by telegraph and, if to the Underwriters, shall
be mailed, telegraphed or delivered to Hambrecht & Quist LLC, One Bush Street,
San Francisco, California 94104; and if to the Company, shall be mailed,
telegraphed or delivered to it at its office, 150 CambridgePark Drive,
Cambridge, Massachusetts 02140, Attention: Lawrence S. Bohn. All notices given
by telegraph shall be promptly confirmed by letter.
14. MISCELLANEOUS. The reimbursement, indemnification and contribution
agreements contained in this Agreement and the representations, warranties and
covenants in this Agreement shall remain in full force and effect regardless of
(a) any termination of this Agreement, (b) any investigation made by or on
behalf of any Underwriter or controlling person thereof, or by or on behalf of
the Company or their respective directors or officers, and (c) delivery and
payment for the Stock under this Agreement; PROVIDED, HOWEVER, that if this
Agreement is terminated prior to the Closing Date, the provisions of
paragraph[s] (k) [and (l)] of Section 6 hereof shall be of no further force or
effect.
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.
This Agreement shall be governed by, and construed in accordance with, the
laws of the State of California.
[Remainder of page intentionally left blank]
20
<PAGE> 21
Please sign and return to the Company the enclosed duplicates of this
letter, whereupon this letter will become a binding agreement between the
Company and the several Underwriters in accordance with its terms.
Very truly yours,
NET.GENESIS CORP.
By __________________________
Lawrence S. Bohn
President and Chief Executive Officer
The foregoing Agreement is hereby confirmed
and accepted as of the date first above written.
HAMBRECHT & QUIST LLC
DEUTSCHE BANK SECURITIES, INC.
U.S. BANKCORP PIPER JAFFRAY, INC.
By: Hambrecht & Quist LLC
By __________________________
Managing Director
Acting on behalf of the several Underwriters,
including themselves, named in Schedule I hereto.
21
<PAGE> 22
SCHEDULE I
UNDERWRITERS
<TABLE>
<CAPTION>
NUMBER OF SHARES TO BE
UNDERWRITERS SHARES PURCHASED
- ------------ --------- ------------
<S> <C> <C>
Hambrecht & Quist LLC . . . . . . . . . . . . . . . . . . . . .
Deutsche Bank Securities Inc. . . . . . . . . . . . . . . . . .
U.S. Bancorp Piper Jaffray Inc. . . . . . . . . . . . . . . . .
--------- ---------
Total. . . . . . . . . . . . . . . . . . . . . . . . .
========= ==========
</TABLE>
22
<PAGE> 23
ANNEX A
MATTERS TO BE COVERED IN THE OPINION OF FOLEY, HOAG & ELIOT LLP
COUNSEL FOR THE COMPANY
(i) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, is duly qualified as a foreign corporation and in good standing
in each of the jurisdictions listed in Schedule __ hereto, and has full
corporate power and authority to own or lease its properties and conduct its
business as described in the Registration Statement;
(ii) the authorized capital stock of the Company consists of
shares of Preferred Stock, $.001 par value per share, of which there are no
outstanding shares, and shares of Common Stock, $.001 par value per
share, of which there are outstanding shares (including the
Underwritten Stock plus the number of shares of Option Stock issued on the date
hereof) and such additional number of shares, if any, as may have been issued
after and prior to the Closing Date, pursuant to ; proper
corporate proceedings have been taken validly to authorize such authorized
capital stock; all of the outstanding shares of such capital stock (including
the Underwritten Stock and the shares of Option Stock issued, if any) have been
duly and validly issued and are fully paid and nonassessable; any Option Stock
purchased after the Closing Date, when issued and delivered to and paid for by
the Underwriters as provided in the Underwriting Agreement, will have been duly
and validly issued and be fully paid and nonassessable; and no preemptive rights
of, or rights of refusal in favor of, shareholders exist with respect to the
Stock, or the issue and sale thereof, pursuant to the Certificate of
Incorporation or Bylaws of the Company and, to the knowledge of such counsel,
there are no contractual preemptive rights that have not been waived, rights of
first refusal or rights of co-sale which exist with respect to the issue and
sale of the Stock;
(iii) the Registration Statement has become effective under the Securities
Act and, to the best of such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement or suspending or preventing the use
of the Prospectus is in effect and no proceedings for that purpose have been
instituted or are pending or contemplated by the Commission;
(iv) the Registration Statement, when filed and declared effective, and the
Prospectus, at the Closing Date (except as to the financial statements and
schedules and other financial data contained therein, as to which such counsel
need express no opinion) comply as to form in all material respects with the
requirements of the Securities Act and with the rules and regulations of the
Commission thereunder;
(v) the information required to be set forth in the Registration Statement
in answer to Items 9, 10 (insofar as it relates to such counsel) and 11(c) of
Form S-1 is to the best of such counsel's knowledge accurately and adequately
set forth therein in all material respects or no response is required with
respect to such Items; the statements under the captions "Description of Capital
Stock" and "Shares Eligible for Future Sale"
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in the Prospectus, insofar as such statements constitute matters of law or legal
conclusions, have been reviewed by such counsel and are accurate and complete
statements of the information called for with respect to such matters; and, to
the best of such counsel's knowledge, the description of the Company's stock
option plans and the options granted and which may be granted thereunder and the
options granted otherwise than under such plans set forth in the Prospectus
accurately and fairly presents the information required to be shown with respect
to said plans and options to the extent required by the Securities Act and the
rules and regulations of the Commission thereunder;
(vi) to such counsel's knowledge, there are no agreements, franchises,
contracts, leases, documents or legal proceedings, pending or threatened, which
in the opinion of such counsel are of a character required to be described in
the Registration Statement or the Prospectus or to be filed as exhibits to the
Registration Statement, which are not described and filed as required;
(vii) to the best of such counsel's knowledge, there is no action, suit or
proceeding, at law or in equity, pending against the Company before any court or
administrative agency, which, if determined adversely to the Company, would
materially adversely affect the business, operations, financial condition,
income or business prospects of the Company or prevent consummation of the
transactions contemplated by the Underwriting Agreement;
(viii) the Underwriting Agreement has been duly authorized, executed and
delivered by the Company;
(ix) the issue and sale by the Company of the shares of Stock sold by the
Company as contemplated by the Underwriting Agreement will not conflict with, or
result in a breach of, the Certificate of Incorporation or Bylaws of the Company
or any agreement or instrument known to such counsel to which the Company is a
party or any applicable law or regulation, or so far as is known to such
counsel, any order, writ, injunction or decree, of any jurisdiction, court or
governmental instrumentality;
(x) [except as set forth in the Registration Statement and Prospectus,] no
holders of shares of Common Stock or other securities of the Company have
registration rights with respect to securities of the Company; and all holders
of securities of the Company having rights to the registration of shares of
Common Stock, or other securities, because of the filing of the Registration
Statement by the Company have waived such rights or such rights have expired by
reason of lapse of time following notification of the Company's intent to file
the Registration Statement;
(xi) each consent, approval, authorization, order, designation, declaration
or filing by or with any United States Federal, State or foreign regulatory,
administrative or other governmental agency or body or court is required in
connection with the execution and delivery by the Company of the Underwriting
Agreement and the consummation of the transactions contemplated in the
Underwriting Agreement, except such as have been obtained under the Securities
Act, such additional steps as may be required by the NASD
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and such as may be required under state securities or blue sky laws in
connection with the purchase and distribution of the Stock by the Underwriters;
(xii) the Stock issued and sold by the Company will been duly authorized
for listing by the Nasdaq National Market upon official notice of issuance;
(xiii) the Company is not, and upon consummation of the transactions
contemplated by the Underwriting Agreement and application of the net proceeds
from the sale of the Stock as set forth under the caption "Use of Proceeds" in
the Prospectus, will not be, an "investment company" within the meaning of the
Investment Company Act of 1940, as amended, and the rules and regulations
thereunder; and
(xiv) assuming the Underwriters purchased such Stock in good faith and
without notice of any adverse claim within the meaning of Section 8-302 of the
Uniform Commercial Code as in effect in the Commonwealth of Massachusetts, when
certificates therefor have been delivered and paid for by the Underwriters as
provided in the Underwriting Agreement, the Underwriters will have acquired good
and valid title in such stock free of any such adverse claim.
In addition to the matters set forth above, counsel rendering the foregoing
opinion shall also include a statement to the effect that nothing has come to
the attention of such counsel that leads them to believe that the Registration
Statement (except as to the financial statements, including the notes thereto,
and the other financial, accounting and statistical data contained therein at
the Effective Date (but after giving effect to changes incorporated pursuant to
Rule 430A under the Act) contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, or that the Prospectus (except as to
the financial statements, including the notes thereto, and the other financial,
accounting and statistical data contained therein), as of its date or at the
Closing Date (or any later date on which Option Stock is purchased), contained
or contains any untrue statement of a material fact or omitted or omits to state
a material fact necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. With respect to
such statement, such counsel may state that their belief is based upon the
procedures set forth therein, but is without independent check or verification.
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<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
Note: Asterisks indicate the location of information that has been omitted and
separately filed with the Securities and Exchange Commission subject to a
request for confidential treatment pursuant to Rule 406.
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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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<PAGE> 5
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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<PAGE> 6
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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<PAGE> 12
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)
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<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.
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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.
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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:______________________________
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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
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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.
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<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.
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<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 10.17
NET.GENESIS CORP.
SERIES D CONVERTIBLE PREFERRED STOCK
PURCHASE AGREEMENT
This Series D Convertible Preferred Stock Purchase Agreement is entered
into on this 25th day of June, 1998 by and among net.Genesis Corp., a Delaware
corporation (the "Company"), and the Persons listed on Exhibit 2.01A hereto, as
amended (each such Person being hereinafter sometimes referred to individually
as a "Purchaser" and all such Persons being hereinafter sometimes referred to
collectively as the "Purchasers").
In consideration of the mutual promises, representations, warranties,
covenants and conditions set forth in this Agreement, the parties hereto hereby
agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
1.01 Certain Definitions. As used in this Agreement, the following
terms shall have the following meanings (such meanings to be equally applicable
to both the singular and plural forms of the terms defined):
"Agreement" shall mean this Series D Convertible Preferred Stock
Purchase Agreement, as from time to time amended and in effect between the
parties hereto.
"BVP" shall mean Bessemer Venture Partners IV L.P., a limited
partnership, and the related entities so designated on Exhibit 2.01A.
"Board of Directors" shall mean the then present members of the Board
of Directors of the Company.
"Charter" shall mean the Third Amended and Restated Certificate of
Incorporation of the Company in the form of Exhibit 2.01B hereto, as amended
from time to time.
"Closing" shall have the meaning assigned to that term in Section
2.03(a) hereto.
"Company" shall mean and include net.Genesis Corp., a Delaware
corporation, and its successors and assigns.
"Company's Auditors" shall mean the firm of independent public
accountants employed by the Company from time to time to conduct its annual
audit, which firm shall be a "Big Six" accounting firm or such other accounting
firm acceptable to the holders of at least fifty-five (55%) percent of the
Purchased Shares.
"Common Stock" shall mean (a) the Company's Common Stock, $.001 par
value per share, as authorized on the date of this Agreement, (b) any other
capital stock of any class or classes (however designated) of the Company,
authorized on or after the date hereof, the holders of which shall have the
<PAGE> 2
right either to all or to a share of the balance of current dividends and
liquidating distributions after the preference of the Preferred Stock, or the
holders of which shall ordinarily, in the absence of contingencies, be entitled
to vote for the election of a majority of directors of the Company (even though
the right so to vote has been suspended by the happening of such a contingency),
and (c) any other securities into which or for which any of the securities
described in (a) or (b) may be converted or exchanged pursuant to a plan of
recapitalization, reorganization, merger, sale of assets or otherwise.
"Consolidated" when used with reference to any term defined herein
shall mean that term as applied to the accounts of the Company and its
Subsidiaries consolidated in accordance with generally accepted accounting
principles after eliminating intercompany items and minority interests.
"Conversion Shares" shall have the meaning assigned to that term in
Section 2.01 hereof.
"Counsel to the Company" shall mean Foley, Hoag & Eliot LLP.
"CRV" shall mean Charles River Partnership VII, a limited partnership.
"ERISA" shall have the meaning assigned to that term in Section 4.12
hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, or any
similar federal statute, and the rules and regulations of the Securities and
Exchange Commission (or of any other Federal agency then administering the
Exchange Act) thereunder, all as the same shall be in effect at the time.
"Indebtedness" shall mean all obligations, contingent and otherwise,
which should, in accordance with generally accepted accounting principles
consistently applied, be classified upon the obligor's balance sheet as
liabilities, but in any event including, without limitation, liabilities secured
by any mortgage or security interest on real or personal property owned or
acquired subject to such mortgage or security interest, whether or not the
liability secured thereby shall have been assumed, and also including, without
limitation, (a) all guaranties, endorsements and other contingent obligations in
respect of Indebtedness of others, whether or not the same are or should be so
reflected in said balance sheet, except guaranties by endorsement of negotiable
instruments for deposit or collection or similar transactions in the ordinary
course of business, and (b) the present value of any lease payments due under
leases required to be capitalized in accordance with applicable Statements of
Financial Accounting Standards, determined by discounting all such payments at
the interest rate determined in accordance with applicable Statements of
Financial Accounting Standards.
"Issue Price" shall mean $1.20, which is the price per share at which
the Purchased Shares are being issued hereunder.
"Key Employee" shall mean and include, the President and the Chief
Executive Officer, any Vice-President, the Treasurer and the Chief Financial
Officer of the Company or any Subsidiary, or any person who is not an officer of
the Company or any Subsidiary and is in charge of one or more of the following
functions: sales, marketing, production, or engineering and technical
development or any other position or employee so designated by the Board of
Directors of the Company.
"OLV" shall mean OneLiberty Ventures, a limited partnership.
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<PAGE> 3
"Person" shall mean an individual, corporation, partnership, joint
venture, trust, limited liability company, unincorporated organization, or
similarly entitled, or a government or any agency or political subdivision
thereof.
"Preferred Stock" shall mean the Series D Convertible Preferred Stock,
$.001 par value, of the Company, the rights, preference and other terms and
conditions of which are set forth in Exhibit 2.01B hereto.
"Purchased Shares" shall have the meaning assigned to that term in
Section 2.01 hereof.
"Purchasers" shall mean and include the Persons listed on Exhibit 2.01A
hereto.
"Purchasers' Special Counsel" shall mean Posternak, Blankstein & Lund,
L.L.P.
"Qualified Public Offering" shall mean and include the closing of a
firmly underwritten public offering pursuant to an effective registration
statement under the Securities Act covering the offer and sale of Common Stock
for the account of the Company from which the aggregate net proceeds to the
Company are at least $15,000,000 and the price per share of such Common Stock is
not less than $10.00 (such amount to be equitably adjusted whenever there is a
stock split, combination, stock dividend, reclassification or similar event
affecting the Common Stock).
"Securities Act" shall mean the Securities Act of 1933, or any similar
Federal statute, and the rules and regulations of the Securities and Exchange
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 A Preferred Stock" shall mean the Series A Preferred Stock,
$.001 par value, of the Company, the rights and privileges of which are set
forth in the Charter.
"Series B Preferred Stock" shall mean the Series B Preferred Stock,
$.001 par value, of the Company, the rights and privileges of which are set
forth in the Charter.
"Series C Preferred Stock" shall mean the Series C Preferred Stock,
$.001 par value, of the Company, the rights and privileges of which are set
forth in the Charter.
"Stock Option Plans" shall mean (i) the 1995 Stock Option Plan of the
Company presently providing for the issuance of, or grant of options to
purchase, up to 10,000,000 shares of Common Stock on the date hereof to
officers, directors, employees of and consultants to the Company and any
amendment thereto and/or (ii) any other plan, and any amendment thereto,
providing for the issuance of capital stock or options to purchase capital stock
to any such Persons.
"Stockholder Agreement" shall mean that certain Amended and Restated
Stockholder Agreement dated as of November 14, 1995, as amended, by and among
Rajat Bhargava, Eric Richard, Matthew Cutler, the persons set forth on Exhibits
A and B thereto, the signatories to any amendment thereto and the Company.
"Subsidiary" or "Subsidiaries" shall mean any corporation, 50% or more
of the outstanding voting stock of which shall at the time be owned by the
Company or by one or more Subsidiaries, or
-3-
<PAGE> 4
any other entity or enterprise, 50% or more of the equity of which shall at the
time be owned by the Company or by one or more Subsidiaries.
"Wholly-Owned Subsidiary" or "Wholly-Owned Subsidiaries" shall mean any
corporation, 100% of the outstanding voting stock of which shall at the time be
owned by the Company or by one or more Wholly-Owned Subsidiaries, or any other
entity or enterprise, 100% of the equity of which shall at the time be owned by
the Company or by one or more Wholly-Owned Subsidiaries.
1.02 Accounting Terms. All accounting terms not specifically defined
herein shall be construed in accordance with generally accepted accounting
principles, and all other financial data submitted pursuant to this Agreement
shall be prepared and calculated in accordance with such principles.
ARTICLE II
PURCHASE, SALE AND TERMS OF SHARES
2.01 The Purchased Shares. The Company has authorized the issuance and
sale of up to 5,900,000 shares (the "Purchased Shares") of the previously
authorized but unissued shares of its Preferred Stock to the Persons and in the
respective amounts set forth in Exhibit 2.01A hereto. The designation, rights,
preferences and other terms and conditions relating to the Preferred Stock shall
be as set forth in Exhibit 2.01B hereto. Any shares of Common Stock issuable
upon conversion of the Purchased Shares, and such shares when issued, are herein
referred to as the "Conversion Shares".
2.02 Reservation of Shares. The Company has authorized and reserved and
covenants to continue to reserve, free of preemptive rights and other
preferential rights, a sufficient number of its previously authorized but
unissued shares of Common Stock to satisfy the rights of conversion of the
holders of the Purchased Shares.
2.03 Purchase and Sale of Purchased Shares.
(a) The Closing. The Company agrees to issue and sell to the
Purchasers, and, subject to and in reliance upon the representations,
warranties, terms and conditions of this Agreement, the Purchasers,
severally but not jointly, agree to purchase at the Issue Price all,
and not less than all, of the Purchased Shares for the purchase prices
and in the amounts set forth opposite their respective names in Exhibit
2.01A hereto. Such purchase and sale shall take place at an initial
closing (the "Initial Closing") to be held at the offices of Foley,
Hoag & Eliot LLP One Post Office Square, Boston, MA 02109, on June
25th, 1998 at 10:00 a.m. or on such other date and at such time as may
be mutually agreed upon by the Company and a majority in interest of
the Purchasers; a second closing for the purchase by OneLiberty
Advisors IV LP will occur within thirty (30) days of the Initial
Closing at a time and place to be mutually agreed upon, orally or in
writing, by the Company and OneLiberty Advisors IV LP (the "Second
Closing," and together with the Initial Closing, the "Closings"). At
each Closing the Company will issue and deliver certificates, dated as
of the Initial Closing, evidencing the Purchased Shares sold at such
Closing registered in the name of Purchasers or their nominees, all in
the amounts set forth opposite their respective names in Exhibit 2.01A
hereto against delivery of checks payable to the order of the Company
or transfer by wire transfer
-4-
<PAGE> 5
in immediately available federal funds to the account of the Company in
payment of the full purchase price for the Purchased Shares.
(b) Use of Proceeds. The Company agrees to use the proceeds
from the issuance and sale of the Purchased Shares to fund operating
losses, to purchase capital equipment necessary for Company operations,
and for general working capital of the Company.
2.04 Representations by the Purchasers. All representations and
warranties of the Purchasers in this Section 2.04 are made severally and not
jointly as follows:
(a) Each Purchaser represents that it is acquiring the
Purchased Shares and any Conversion Shares for its own account and for
the purpose of investment and not with a view to distribution or resale
thereof; subject, nevertheless, to the condition that the disposition
of the property of each Purchaser shall at all times be within its
control, subject to applicable law and contractual restrictions. Each
Purchaser which is not an individual further represents and warrants
that it was not organized for the specific purpose of acquiring the
Purchased Shares. Each Purchaser further represents and warrants that
such Purchaser is (or, in the case of a partnership, it and all of its
partners are) an "accredited investor" for purposes of the Securities
Act (unless otherwise indicated on Exhibit 2.01A hereto) and Regulation
D thereunder and warrants that it has knowledge and experience in
financial and business matters such that it is capable of evaluating
the merits and risks of the investment to be made hereunder, and that
such Purchaser is financially able to undertake the risks involved in
such an investment. Each Purchaser further acknowledges that it has had
a full opportunity to request from the Company and to review and has
received all information which it deems relevant in making an informed
and knowledgeable decision to purchase the Purchased Shares being
purchased by it hereunder. Each Purchaser understands and agrees that
(i) the Purchased Shares and the Conversion Shares have not been
registered under the Securities Act by reason of their issuance in a
transaction exempt from the registration requirements of the Securities
Act pursuant to Section 4(2) or Regulation D promulgated thereunder,
(ii) the Purchased Shares and the Conversion Shares must be held
indefinitely unless a registration statement covering such shares is
effective under the Securities Act or unless an exception from
registration under such Act is available, (iii) the Purchased Shares
and the Conversion Shares will bear a legend to that effect and (iv)
the Company will make a notation on its transfer books to such effect.
Each Purchaser not an Accredited Investor makes the representations in
this Section 2.04 except as to his status as an Accredited Investor.
(b) The principal office or residence of each Purchaser, and
the place at which the decision to participate in this Agreement and
the transactions contemplated hereby was made is located at the address
appearing below such Purchaser's name on Exhibit 2.01A hereto. Each
Purchaser which is not an individual and whose address appearing below
such Purchaser's name on Exhibit 2.01A is located in Massachusetts
further represents that it is an "institutional buyer" as that term is
used in Section 402 (b) (8) of the Massachusetts Uniform Securities
Act.
(c) Each Purchaser represents and warrants that this Agreement
and all transactions contemplated hereunder have been duly authorized
by all necessary action on its part and that this Agreement has been
duly executed and delivered by it or on its behalf and is a valid and
binding agreement enforceable against it in accordance with its terms.
-5-
<PAGE> 6
(d) Each Purchaser represents that no person, firm or
corporation has or will have, as a result of any act or omission by
such Purchaser, any right, interest or valid claim against the Company
for any commission, fee or other compensation as a finder or broker, or
in any similar capacity, in connection with the transactions
contemplated by this Agreement.
ARTICLE III
CONDITIONS TO PURCHASERS' OBLIGATIONS
The obligation of each Purchaser to purchase and pay for the Purchased
Shares at each Closing is subject to the following conditions:
3.01 Representations and Warranties. Each of the representations and
warranties of the Company set forth in Article IV hereof, shall have been true
in all material respects when made and shall be true in all material respects as
of the date of the Initial Closing.
3.02 Documentation at Closing. The Purchasers shall have received prior
to or at such Closing all of the following, each in form and substance
reasonably satisfactory to the Purchasers and Purchasers' Special Counsel, and
all of the following events shall have occurred prior to or simultaneous with
the Initial Closing hereunder.
(a) A copy of all Charter documents of the Company certified
by the Secretary of State of Delaware; a certified copy of the
resolutions of the Board of Directors and the stockholders of the
company evidencing approval of this Agreement, the restatement of the
Charter, the authorization for issuance of the Purchased Shares and
other matters contemplated hereby; a certified copy of the By-laws of
the Company; and certified copies of all documents evidencing other
necessary corporate or other action and governmental approvals, if any,
with respect to this Agreement and the Purchased Shares.
(b) An opinion of Counsel to the Company as to matters set
forth in Exhibit 3.02B hereto. In rendering such opinion, such counsel
may require and, to the extent they deem necessary or appropriate, may
rely upon, representations and warranties made in certificates of
officers of the Company and representations and warranties of the
Company and Purchasers contained herein.
(c) A certificate of the Secretary or an Assistant Secretary
of the Company stating the names of the officers of the Company
authorized to sign this Agreement, the certificates for the Purchased
Shares and the other documents or certificates to be delivered pursuant
to this Agreement by the Company or any of its officers, together with
the true signatures of such officers.
(d) A certificate from a duly authorized officer of the
Company stating that the representations and warranties of the Company
contained in Article IV hereof or otherwise made by the Company in
writing in connection with the transactions contemplated hereby are
true and correct in all material respects and that all conditions
required to be performed by the Company prior to or at the Initial
Closing have been performed in all material respects, and that no
condition or event has occurred or is continuing or will result from
the execution and delivery of this Agreement or the issuance of the
Purchased Shares which constitutes an event
-6-
<PAGE> 7
of default or would constitute an event of default but for the
requirement that notice be given or time elapse or both.
(e) Amendment No. 3 to the Amended and Restated Stockholder
Agreement in the form and substance set forth in Exhibit 3.02E hereto,
shall have been executed by the parties named therein.
(f) Employee Confidentiality, Non-competition and Intellectual
Property Assignment Agreements in or substantially in the form and
substance set forth in Exhibit 3.02F hereto shall have been executed by
the Company and each Key Employee.
(g) The Amended and Restated Registration Rights Agreement in
the form and substance set forth in Exhibit 3.02G hereto shall have
been executed by the Company and the parties named therein.
(h) The Board of Directors of the Company shall consist of not
more than seven (7) members, as specified in the Stockholders
Agreement.
(i) The Company shall have performed all its other covenants
and agreements in all material respects set forth in this Agreement.
3.03 Consents, Waivers, etc.. Prior to the Initial Closing, the Company
shall have obtained all material consents or waivers, if any, necessary to
execute and deliver this Agreement, issue the Purchased Shares and to carry out
the transactions contemplated hereby and thereby, and all such consents and
waivers shall be in full force and effect. All corporate and other action and
governmental filings necessary to effectuate the terms of this Agreement, the
Purchased Shares and other agreements and instruments executed and delivered by
the Company in connection herewith shall have been made or taken, except for any
post-sale filing that may be required under federal and state securities laws,
as to which filing the Company agrees to make promptly after such Closing. In
addition to the documents set forth above, the Company shall have provided the
Purchasers any other information or copies, of documents that they may
reasonably request.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES BY THE COMPANY
The Company represents and warrants as follows:
4.01 Organization and Standing of the Company. The Company is a duly
organized and validly existing corporation in good standing under the laws of
the jurisdiction in which it is organized and has all requisite corporate power
and authority for the ownership and operation of its properties and for the
carrying on of its business as now conducted. The Company is duly licensed or
qualified and in good standing as a foreign corporation authorized to do
business in The Commonwealth of Massachusetts and in each other jurisdiction in
which the nature of the business transacted by it or the character of the
properties owned or leased by it requires such licensing or qualification,
unless the failure to so qualify does not and will not have a material adverse
effect on the business operations or financial condition of the Company.
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<PAGE> 8
4.02 Corporate Action. The Company has all necessary corporate power
and has taken all corporate action required for the due authorization, execution
and delivery of this Agreement and any other agreements and instruments executed
in connection herewith and for the due authorization, issuance and delivery of
the Purchased Shares, and this Agreement and any such other agreements are
valid, binding and enforceable against the Company in accordance with their
terms. Sufficient shares of authorized but unissued Common Stock of the Company
have been reserved by appropriate corporate action in connection with the
prospective conversion of the Purchased Shares. The issuance of the Purchased
Shares, and the issuance of the Conversion Shares upon the conversion of the
Purchased Shares, are not subject to preemptive or other preferential rights, or
similar statutory or contractual rights, either arising pursuant to any
agreement or instrument to which the Company is a party or which are otherwise
binding upon the Company.
4.03 Governmental Approvals. All authorizations, consents, approvals,
licenses, exemptions from or filings, or registrations with any court or
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, necessary for, or in connection with, the offer, issuance,
sale, execution or delivery by the Company, or for the performance by it of its
obligations under, this Agreement, the agreements referred to in Article III
hereof or the Purchased Shares shall have been made prior to, and shall be
effective as of, the Initial Closing (except for any post-sale filings that may
be required under federal or state securities laws, which will be filed by the
Company in a timely manner).
4.04 Litigation. There is no litigation or governmental proceeding or
investigation pending or, to the knowledge of the Company, threatened against
the Company affecting any of its properties or assets, or, to the knowledge of
the Company, after due inquiry, against any officer, Key Employee or principal
stockholder of the Company that might result, either in any case or in the
aggregate, in any material adverse change in the business, operations, affairs
or condition of the Company, or any of its properties or assets, or pending or,
to the knowledge of the Company, threatened against the Company that might call
into question the validity of this Agreement, the issuance of the Purchased
Shares, or any action taken or to be taken pursuant hereto or thereto. Neither
the Company nor, to the knowledge of the Company, after due inquiry, any
officer, Key Employee or principal stockholder of the Company or its
Subsidiaries, is in default with respect to any order, writ, injunction, decree,
ruling or decision of any court, commission, board or other government agency
that might result, either in any case or in the aggregate, in any material
adverse change in the business, operations, affairs or condition of the Company
or any of its properties or assets. The foregoing sentences include, without
limiting their generality, actions pending or threatened (or any basis therefor
known to the Company) involving the prior employment of employees of the Company
and the use in any of the Company's business of any information or techniques
allegedly proprietary to any of their former employers.
4.05 Certain Agreements of Officers and Employees.
(a) To the best of the Company's knowledge and belief, after
due inquiry, no employee of the Company is in violation of any material
term of any employment contract, patent disclosure agreement,
non-competition agreement, or any other contract or agreement or any
restrictive covenant relating to the right of any such officer or
employee to be employed by the Company because of the nature of the
business conducted by the Company or relating to the use of trade
secrets or proprietary information of others, and to the best of the
Company's knowledge and belief, the continued employment of the
Company's officers and employees do not subject the Company or the
Purchasers to any liability arising from such agreements.
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<PAGE> 9
(b) To the Company's knowledge, no officers of the Company,
nor any Key Employees of the Company whose termination, either
individually or in the aggregate, would have a material adverse effect
on the Company, has any present intention of terminating his employment
with the Company.
(c) The Company is not a party to any collective bargaining
agreement and, to the best of its knowledge, after due inquiry, there
have been no pending labor problems involving collective disputes or
disturbances with any group of employees and, to the knowledge of the
Company, there have been no attempts to organize its employees by any
union or similar association.
4.06 Compliance with Other Instruments. The Company is in compliance in
all respects with the terms and provisions of this Agreement and of its charter
documents, as amended, and by-laws, as amended, and in all material respects
with the terms and provisions of each material mortgage, indenture, lease,
agreement and other instrument relating to obligations of the Company, and, to
the best of the Company's knowledge, of all material judgments, decrees,
governmental orders, statutes, rules or regulations by which it is bound or to
which its properties or assets are subject. Neither the execution and delivery
of this Agreement or the Purchased Shares, nor the consummation of any
transaction contemplated hereby or thereby, has constituted or resulted in or
will constitute or result in a default or violation of any material term or
provision in any of the foregoing documents or instruments.
4.07 Federal Reserve Regulations. The Company is not engaged in the
business of extending credit for the purpose of purchasing or carrying margin
securities (within the meaning of Regulation G of the Board of Governors of the
Federal Reserve System), and no part of the proceeds of the Purchased Shares
will be used to purchase or carry any margin security or to extend credit to
others for the purpose of purchasing or carrying any margin security or in any
other manner which would involve a violation of any of the regulations of the
Board of Governors of the Federal Reserve System.
4.08 Title to Assets. The company has good and marketable title in fee
to such of its fixed assets as are real property, and good title to all of its
other assets now carried on its books, including those reflected in the most
recent balance sheet of the Company described below in Section 4.10, or acquired
since the date of such balance sheet (except personal property disposed of since
said date in the ordinary course of business) free of any mortgages, pledges,
charges, liens, security interests or other encumbrances, except those indicated
in Exhibit 4.08 hereto and except for liens for current taxes not yet due and
payable and minor imperfections of title, if any, not material in nature or
amount and not materially detracting from the value or impairing the use of the
property subject thereto or impairing the operations of the Company. The Company
enjoys peaceful and undisturbed possession under all leases under which it is
operating and is in compliance in all material respects with all such leases,
and all said leases are valid and subsisting and in full force and effect.
4.09 Patents and Intellectual Property Rights. The Company owns or has
a valid right, or will be able to obtain at reasonable cost standard in the
industry the right, to use the patents, patent rights, licenses, trade secrets,
trademarks, trademark rights, trade names or trade name rights or franchises,
copyrights, inventions, and
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intellectual property rights material to the conduct of its businesses as now
operated (the "Company's Intellectual Property"); and no claim is pending to the
effect that the operations of the Company, and to the Company's knowledge, the
operations of the Company will not, conflict with valid patents, patent rights,
licenses, trade secrets, trademarks, trademark rights, trade names or trade name
rights or franchises, copyrights, inventions, and intellectual property rights
of others. Except as set forth in Exhibit 4.09 hereto, and except for the
payment of the customary fees for the right to use commercially available
software, the Company has no obligation to compensate any Person for the use of
any of the Company's Intellectual Property and has granted to no Person any
license or other rights to use in any manner any of the Company's Intellectual
Property, whether requiring the payment of royalties or not.
4.10 Financial Information. The Company has furnished to the Purchasers
the unaudited balance sheet of the Company as of December 31, 1997 and the
related unaudited statements of income and statement of cash flows of the
Company for the twelve month period ended December 31, 1997 and the statement of
changes in redeemable preferred stock and stockholders' equity for the period
ended December 31, 1997. The Company has also furnished to the Purchasers the
unaudited balance sheet of the Company as of March 31, 1998 and the related
unaudited statements of operations and cash flows of the Company for three
months ended March 31, 1998, and the unaudited statement of stockholders' equity
of the Company for the period ended March 31, 1998. All such financial
statements have been prepared in accordance with generally accepted accounting
principles consistently applied (except that such unaudited financial statements
do not contain all of the required footnotes or period end adjustments not
material in the aggregate) and fairly present the financial position of the
Company as of December 31, 1997 and March 31, 1998, respectively, and the
results of its operations and cash flows for the year ended December 31, 1997
and the three month period ended March 31, 1998, respectively. The Company does
not have, and has no reasonable grounds to know of, any liability, contingent or
other, not adequately reflected in or reserved against in the aforesaid
financial statements. Since March 31, 1998, there has not been, except as set
forth in Exhibit 4.10, and except for changes in the ordinary course of business
which have not been materially adverse:
(a) Any material change in the assets, liabilities, financial
condition, or operations of the Company from that reflected in the
financial statements;
(b) Any change in the contingent obligations of the Company by
way of guaranty, endorsement, indemnity, warranty, or otherwise;
(c) Any damage, destruction, or loss, whether or not covered
by insurance, materially and adversely affecting the properties or
business of the Company;
(d) Any waiver or compromise by the Company of a valuable
right or of a material debt owed to it;
(e) Any loans made or promised by the Company to its
employees, officers, or directors other than travel advances made in
the ordinary course of business;
(f) Any increases in excess of ten (10%) percent in the
compensation of any of the Company's employees, officers, or directors
(but not including any options granted to any such persons);
(g) Any declaration or payment of any dividend or other
distribution of the assets of the Company;
(h) Any issuance or sale by the Company of any shares of its
Common Stock or other securities other than option grants pursuant to
the Company's 1995 Stock Option Plan and
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<PAGE> 11
option exercises pursuant to such Stock Option Plan, and the sale and
issuance of 1,035,000 shares of common stock to Larry Bohn;
(i) Any other event or condition of any character that has
materially and adversely affected the Company's business; or
(j) Any agreement or commitment by the Company to do any of
the things described in this Section 4.10.
4.11 Taxes. The Company has prepared and filed within the time
prescribed by law all federal, state and other tax returns required by law to be
filed by it, has paid all taxes shown to be due and all additional assessments,
including penalties and interest, received by it, and adequate provisions have
been made and are reflected in the Company's financial statements for all
current taxes and other charges to which the Company is subject and which are
not currently due and payable. None of the state, local or federal income tax
returns of the Company have been audited by, or are currently under audit by,
any state or local tax authority or by the Internal Revenue Service. The Company
knows of no additional assessments or adjustments pending or threatened for any
period. There are no tax liens upon the assets or property of the Company. The
Company has not granted any extension to any taxing authority of the limitation
period during which any tax liability may be asserted. All monies required to be
withheld by the Company from employees or collected from customers for income
taxes, social security and unemployment insurance taxes and sales, excise and
use taxes, and the portion of any such taxes to be paid by the Company to
governmental agencies or set aside in accounts for such purpose have been so
paid or set aside, or such monies have been approved, reserved against and
entered upon the books and financial statements of the Company. The Company does
not have in effect any tax election or consent for federal income tax purposes
under Sections 108, 341(f), 471, 1017, 1033 or 4977 of the Internal Revenue Code
of 1986, as amended.
4.12 ERISA. Except as set forth on Exhibit 4.12, the Company has no
employee benefit plan subject to ERISA; all such employee benefit plans listed
on Exhibit 4.12 are in full force and effect and in compliance with applicable
laws, and there are no funding deficiencies thereunder.
4.13 Contracts; Commitments. Except as set forth in Exhibit 4.13
hereto, the Company is not a party to (i) any employment or consulting contracts
(other than employment at will) (ii) or any contracts or commitments (or group
of related contracts or commitments) involving more than [$50,000] or having a
term (including renewals or extensions optional with another party) of more than
one (1) year from the date thereof; all of the contracts and commitments listed
on Exhibit 4.13 are in full force and neither the Company nor, to the best
knowledge of the Company, any other party to any such contracts or commitments
is in default of any material covenant or obligation thereunder.
4.14 Transactions with Affiliates. There are no loans, leases, royalty
agreements or other continuing transactions between the Company, its
Subsidiaries, any of its or their customers or suppliers and any officer or
director of the Company (other than on-going employment obligations to Mr. Bohn)
or any Person owning five (5%) percent or more of any class of capital stock of
the Company or any member of such officer, director or stockholder's immediate
family or any corporation or other entity controlled by such officer, director
or stockholder or a member of such officer, director or stockholder's immediate
family.
4.15 Assumptions or Guaranties of Indebtedness of other Persons. The
Company has not assumed, guaranteed, endorsed or otherwise become directly or
contingently liable on (including,
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without limitation, liability by way of agreement, contingent or otherwise, to
purchase, to provide funds for payment, to supply funds to or otherwise invest
in any debtor or otherwise to assure any creditor against loss), any
Indebtedness of any other Person.
4.16 Investments in Other Persons. Other than advances in the ordinary
course of business to employees, which are not in the aggregate material, the
Company has not made any loan or advance to any Person which is outstanding on
the date of this Agreement, nor is it committed or obligated to make any such
loan or advance, nor does the Company have any Subsidiaries or own any capital
stock, assets comprising the business of, obligations of, or any interest in,
any Person except as set forth on Exhibit 4.16.
4.17 Disclosure. This Agreement, the financial statements described in
Section 4.10, and any other agreement, document, certificate or written
statement provided to the Purchasers by or on behalf of the Company are true and
correct in all material respects. There is no fact within the knowledge of the
Company which has not been disclosed herein or in writing by them to the
Purchasers and which materially adversely affects, or in the future in the
Company's opinion has a substantial possibility to, insofar as the Company can
now foresee, materially adversely affect the business, properties, assets or
condition, financial or other, of the Company. Without limiting the foregoing,
the Company has no knowledge or belief that there exists any patent, invention,
device, application or principle which would materially adversely affect the
condition, financial or otherwise, or the business or operations of the Company.
4.18 Registration Rights. Except as provided in the Amended and
Restated Registration Rights Agreement set forth in Exhibit 3.02G hereto, no
Person has the right to demand or other rights to cause the Company to file any
registration statement under the Securities Act relating to any securities of
the Company, presently outstanding or that may be subsequently issued, or any
right to participate in any such registration statement.
4.19 Securities Act of 1933. The Company has complied and will comply
with all applicable federal or state securities laws in connection with the
issuance and sale of the Purchased Shares. Neither the Company nor anyone acting
on its behalf has offered or will offer to sell the Purchased Shares or similar
securities to, or solicit offers with respect thereto from, or enter into any
preliminary conversations or negotiations relating thereto with, any Person, so
as to bring the issuance and sale of the Purchased Shares under the registration
provisions of the Securities Act.
4.20 No Brokers or Finders. No Person has or will have, as a result of
the transactions contemplated by this Agreement, any right, interest or valid
claim against or upon the Purchasers or the Company for any commission, fee or
other compensation as a finder or broker; and the Company agrees to indemnify
and hold the Purchasers harmless against any such commissions, fees or other
compensation.
4.21 Capitalization; Status of Capital Stock. The Company has a total
authorized capitalization consisting of 28,102,148 shares, including 17,500,000
shares of Common Stock, $.001 par value per share, of which 1,773,884 shares are
issued and outstanding; 200,000 shares of Series A-1 Convertible Preferred
Stock, $0.001 par value per share, of which 200,000 shares are issued and
outstanding; 101,430 shares of Series A-2 Convertible Preferred Stock, $0.001
par value per share, of which 101,430 shares are issued and outstanding; 624,000
shares of Series A-3 Convertible Preferred Stock, $0.001 par value per share, of
which 624,000 shares are issued and outstanding; 776,718 shares of Series B
Convertible Preferred Stock, $0.001 par value per share, of which 776,718 shares
are
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issued and outstanding; and 3,000,000 shares of Series C Convertible Preferred
Stock, $0.001 par value per share of which 2,928,316 shares are issued and
outstanding, and 5,900,000 shares of Series D Convertible Preferred Stock,
$0.001 par value per share, of which none are issued and outstanding. A complete
list of the currently issued and outstanding shares of capital stock of the
Company and the names in which such shares are registered is set forth in
Exhibit 4.21 hereto. All of the outstanding shares of capital stock of the
Company have been duly authorized, are validly issued and are fully paid and
nonassessable. All shares of capital stock issuable upon exercise of outstanding
options and warrants have been duly authorized and, when issued in accordance
with the terms of such options and warrants, will be validly issued, and fully
paid and nonassessable. The Purchased Shares, when issued and delivered in
accordance with the terms hereof, and the Conversion Shares, when issued and
delivered upon conversion of the Purchased Shares, will be duly authorized,
validly issued and fully paid and nonassessable. Except as set forth in this
Agreement and Exhibit 4.21 hereto, there are no options, warrants or rights to
purchase shares of capital stock or other securities authorized, issued or
outstanding, nor is the Company obligated in any other manner to issue shares of
its capital stock or other securities. Except as set forth in Exhibit 4.21
hereto, there are no restrictions on the transfer of shares of capital stock of
the Company other than those imposed by relevant state and federal securities
laws. Except as set forth in the Stockholder Agreement, no holder of any
security of the Company is entitled to preemptive or similar statutory or
contractual rights, either arising pursuant to any agreement or instrument to
which the Company is a party or that are otherwise binding upon the Company. The
offer and sale of all shares of capital stock or other securities of the Company
issued before the Closing complied with or were exempt from registration or
qualification under all federal and state securities laws. No securities of the
Company have been issued prior hereto at a price which would result in an
increase in the number of shares of Common Stock issuable upon conversion of any
outstanding shares of any series or subseries of Series A Preferred Stock or
Series B Preferred Stock pursuant to the provisions of Article Fourth, A, 5(e)
or (f) of the Charter.
4.22 Insurance. Exhibit 4.22 hereto contains a summary of the insurance
policies currently maintained by the Company. The Company has not suffered the
cancellation of any of its insurance, nor has the Company been denied insurance
which it has applied for or requested.
4.23 Books and Records. The books of account, ledgers, order books,
records and documents of the Company accurately and completely reflect all
material information relating to the business of the Company, the nature,
acquisition, maintenance, location and collection of each of its assets, and the
nature of all transactions giving rise to the obligations or accounts receivable
of the Company.
4.24 Environmental Matters. The Company has not generated, used,
stored, treated or disposed of any Hazardous Substances (as defined below) in
connection with the operations of its business, other than cleaning and/or
office supplies required in the ordinary course of the Company's operations. To
the Company's knowledge, the Company, the operation of its business, and any
real property that the Company owns, leases or otherwise occupies or uses (the
"Premises") are in material compliance with all applicable Environmental Laws
(as defined below) . For purposes of this Section, the term "Environmental Laws"
shall mean any federal, state or local law, ordinance or regulation pertaining
to the protection of human health or the environment, including, without
limitation, the Comprehensive Environmental Response, Compensation and Liability
Act, 42 U.S.C. Sections 9601, et seq., Emergency Planning and Community
Right-to-Know Act, 42 U.S.C. Sections 11001, et seq., and the Resource
Conservation and Recovery Act, 42 U.S.C. Sections 6901, et seq. For purposes of
this Section, the term "Hazardous Substances" shall include oil and petroleum
products, polychlorinated biphenyls and any other material classified as
hazardous or toxic under any Environmental Laws.
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ARTICLE V
COVENANTS OF THE COMPANY
5.01 Affirmative Covenants of the Company Other Than Reporting
Requirements. Without limiting any other covenants and provisions hereof, the
Company covenants and agrees that, until a Qualified Public Offering, so long as
fifty percent (50%) of the Purchased Shares remain outstanding, it will perform
and observe the following covenants and provisions and will cause each
Subsidiary to perform and observe such of the following covenants and provisions
as are applicable to such Subsidiary:
(a) Payment of Taxes and Trade Debt. Pay and discharge all
taxes, assessments and governmental charges or levies imposed upon it
or upon its income or profits or business, or upon any properties
belonging to it, prior to the date on which penalties attach thereto,
and all lawful claims, which, if unpaid, might become a lien or charge
upon any properties of the Company, provided that the Company shall not
be required to pay any such tax, assessment, charge, levy or claim that
is being contested in good faith and by appropriate proceedings if the
Company shall have set aside on its books and shall have funded, in
accordance with generally accepted accounting principles, adequate
reserves with respect thereto. Pay when due, or in conformity with
customary trade terms, all lease obligations, all trade debt, and all
other Indebtedness incident to the operations of the Company, except
such as are being contested in good faith and by appropriate
proceedings if the Company shall have set aside on its books and shall
have funded, in accordance with generally accepted accounting
principles, adequate reserves with respect thereto.
(b) Maintenance of Insurance. Maintain with responsible and
reputable insurance companies or associations insurance (i) in such
amounts and covering such risks as is usually carried by companies of
similar size engaged in similar businesses and owning similar
properties in the same general areas in which the Company operates, and
(ii) a three year life insurance on Larry Bohn in the amount of
$1,000,000, payable to the Company.
(c) Preservation of Corporate Existence. Preserve and maintain
its corporate existence, rights, franchises and privileges in the
jurisdiction of its incorporation, and qualify and remain qualified as
a foreign corporation in each jurisdiction in which such qualification
is necessary or desirable in view of its business and operations or the
ownership of its properties. Preserve and maintain all material
licenses and other rights to use patents, processes, licenses,
trademarks, trade names, inventions, intellectual property rights or
copyrights owned or possessed by it and necessary to the conduct of its
business.
(d) Compliance with Laws. Comply in all material respects with
all applicable laws, rules, regulations and orders of any governmental
authority, noncompliance with which could materially adversely affect
its business or condition, financial or otherwise, except
non-compliance being contested in good faith through appropriate
proceedings so long as the Company shall have set up and funded
sufficient reserves, if any, required under generally accepted
accounting principles with respect to such items.
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<PAGE> 15
(e) Keeping of Records and Books of Account. Keep adequate
records and books of account, in which complete entries will be made in
accordance with generally accepted accounting principles consistently
applied, reflecting all financial transactions of the Company, and in
which, for each fiscal year, all proper reserves for depreciation,
depletion, obsolescence, amortization, taxes, bad debts and other
purposes in connection within its business shall be made.
(f) Maintenance of Properties, etc. Maintain and preserve all
of its properties necessary or useful in the proper conduct of its
business, in good repair, working order and condition, ordinary wear
and tear excepted, and from time to time make all necessary and proper
repairs, renewals, replacements, additions and improvements thereto.
Comply with the provisions of all material leases to which the Company
is a party or under which the Company occupies property so as to
prevent any loss or forfeiture thereof or thereunder.
(g) New Developments. Cause technological or other proprietary
developments, inventions, discoveries or improvements by the Company's
employees to be fully documented in accordance with the prevailing
industrial professional standards, cause all Key Employees and
consultants of the Company to execute appropriate confidentiality,
nondisclosure, patent and technology assignment agreements to the
Company and, where possible and appropriate, to file and prosecute
United States and foreign patent and copyright applications relating to
and protecting such developments on behalf of the Company.
(h) Employee Confidentiality, Non-competition and Intellectual
Property Assignment. As a condition to employment, cause each Key
Employee now or hereafter employed by the Company promptly to execute
an agreement substantially in the form of Exhibit 3.02F hereto or in a
form approved by the Board of Directors.
(i) Visitation Rights. Permit each of CRV, BVP and OLV (so
long as each of them holds not less than 50% of its Purchased Shares
and/or Conversion Shares) or any legal or financial representative
thereof periodically upon reasonable notice during normal business
hours upon reasonable notice to examine the books and records of the
Company at the Company's premises and permit such Purchasers (or any
general partners thereof) to meet, and to discuss the business affairs,
finances and accounts of the Company with any of its officers or
directors and independent accountants.
(j) Board of Directors; Indemnification. The Company shall use
its best efforts to hold at least four (4) meetings of the Board each
year and at least once every ninety (90) days, except as otherwise
agreed to by the Board. The Charter or by-laws of the Company shall at
all times provide for the indemnification of the Board to the full
extent provided by the law of the jurisdiction in which the Company is
organized. The Company shall promptly reimburse in full each director
of the Company who is not an employee of the Company for all his
reasonable out-of-pocket expenses incurred in attending each meeting of
the Board of Directors of the Company or any committee thereof.
5.02 Negative Covenants of the Company. Without limiting any other
covenants and provisions hereof, the Company covenants and agrees that at all
times while at least sixty (60%) percent of the Purchased Shares are issued and
outstanding, and, until a Qualified Public Offering, it will comply with and
observe the following covenants and provisions, and will cause each subsidiary
to comply with and observe such of the following covenants and provisions as are
applicable to such
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<PAGE> 16
Subsidiary, and will not (nor will any such Subsidiary) except with the consent
of holders of at least sixty (60%) percent of the then issued and outstanding
Purchased Shares:
(a) Maintenance of Ownership of Subsidiaries. Create any
Subsidiary that is not a Wholly-Owned Subsidiary, sell or otherwise
dispose of any shares of capital stock of any Subsidiary, or permit any
Subsidiary to merge or consolidate with, transfer its assets to, issue,
sell or otherwise dispose of any shares of its capital stock or the
capital stock of any Subsidiary to, any other Person, except to the
Company or a Wholly-Owned Subsidiary.
(b) Dealings with Affiliates and Others. Enter into any
transaction, including, without limitation, any loans or extensions of
credit or royalty agreements, with any officer or director of the
Company or any Subsidiary or holder of shares of any class of capital
stock of the Company, or any member of their respective immediate
families or any corporation or other entity directly or indirectly
controlled by one or more of such officers, directors or stockholders
or members of their immediate families unless such transaction is for
travel or business expenses of the Company incurred in the ordinary
course of business or is approved in advance by a majority of
disinterested members of the Board of Directors.
(c) Change in Nature of Business. Make, or permit any
Subsidiary to make, any material change in the nature of its business
as carried on at the date hereof or as contemplated in written
materials delivered to the Purchaser prior to the date hereof, or enter
new lines of business or exit or discontinue the Company's current line
of business.
(d) Acquisition/Investments. (i) Make, or permit any
Subsidiary to make, any loan or advance to any Person, other than
advances to employees for business expenses in the ordinary course of
business or accepting promissory notes for the purchase of capital
stock by employees, (ii) until August 31, 1998, purchase, otherwise
acquire, or permit any Subsidiary to purchase or otherwise acquire for
consideration having an aggregate value in excess of $10,000 in any
fiscal year, the capital stock, assets comprising the business of,
obligations of, or any interest in any other Person; or (iii) merge or
consolidate with any other Person (other than a merger or consolidation
permitted by Subsection 5.02(a)).
(e) Dividends. Prior to a Qualified Public Offering, declare
or pay any dividends on any class of the Company's or any Subsidiary's
capital stock now or hereafter outstanding (other than cash dividends
on the Purchased Shares and the Series B Preferred Stock or payable in
Common Stock or by any Subsidiary either to the Company or to another
Subsidiary that is the parent of the paying Subsidiary), or purchase,
redeem or otherwise acquire or retire any of the Company's or any
subsidiary's capital stock of any class now or hereafter outstanding or
otherwise return capital or make distributions of assets to
stockholders as such, except (i) repurchases of capital stock of the
Company from employees or consultants upon termination of employment or
consulting pursuant to stock restriction or repurchase agreements or
other agreements with any such employees or consultants (not to exceed
$50,000 in the aggregate in any fiscal year of the Company) which
repurchases are approved by the Board of Directors of the Company, and
(ii) redemptions of the Series B Preferred Stock and Series C Preferred
Stock in compliance with the provisions of the Charter.
(f) Stock Options/Vesting. Increase the number of shares of
capital stock issuable under the Stock Option Plans, or grant options
under the Stock Option Plans which will vest or become exercisable from
the date of such grant at a rate faster than 25% annually over a four
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<PAGE> 17
year period, commencing one year from the date of grant unless
consented to by the director designated solely by the holders of the
Series B Preferred Stock.
(g) Issuance of Equity Securities. Authorize or issue, or
obligate itself to issue any other equity security senior to or on a
parity with the Purchased Shares as to liquidation preference.
(h) Amendments. Make any amendment to its charter documents or
its by-laws which limits its legal capacity or ability to perform its
obligations under this Agreement, relating to the Purchased Shares, or
any other instrument or agreement executed or to be executed pursuant
to the provisions hereof or relating to the Purchased Shares or which
materially adversely affect the rights of the holders of the Purchased
Shares.
(i) Capital Expenditures/Loans. Make capital expenditures in
excess of $100,000 in any fiscal year or make loans to any third
parties other than loans to employees or others in the ordinary course
of business, not to exceed [$50,000].
(j) Guaranties. Make any guaranty of any other party's
obligations except in the ordinary course of business.
(k) Secured Debt. Incur, or permit any Subsidiary to incur,
any secured debt, except to institutional lenders, or mortgage, pledge
or grant a security interest in, or permit any Subsidiary to mortgage,
pledge or grant a security interest in, all or substantially all of the
Company's assets or any Subsidiary's assets, or enter into any
sale/leaseback transactions, except to institutional lenders or in
connection with purchase money security interests on commercially
reasonable terms and conditions or with the unanimous vote or consent
of the Board of Directors.
5.03 Reporting Requirements. Until the occurrence of a Qualified Public
Offering, the Company will furnish (x) all the following to each of CRV, BVP and
OLV (so long as each of them holds not less than 400,000 Purchased Shares and
(y) the information specified in Sections 5.03(a), (c) and (h) hereof to all
other holders of not less than 400,000 Purchased Shares and/or Conversion
Shares:
(a) As soon as available and in any event within one hundred
twenty (120) days after the end of each fiscal year of the Company, a
copy of the annual audit report for such year for the Company and its
Subsidiaries, including therein consolidated balance sheets of the
Company and its Subsidiaries as of the end of such fiscal year and
consolidated statements of income and retained earnings and of changes
in financial position of the Company and its Subsidiaries for such
fiscal year, setting forth in each case in comparative form the
corresponding figures for the preceding fiscal year, together with
supporting notes thereto, all duly certified by the Company's Auditors;
(b) As soon as available and in any event within thirty (30)
days after the end of each month, unaudited consolidated balance sheets
of the Company and its Subsidiaries as of the end of such month and
unaudited consolidated statements of income and retained earnings and
of changes in financial position of the Company and its Subsidiaries
for the month and the fiscal period ending with such month, setting
forth in each case in comparative form the corresponding figures for
(i) the corresponding periods of the prior fiscal year, and (ii) the
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budget for such periods, all in reasonable detail and duly certified
(subject to year-end audit adjustments, none of which shall be
material, individually or in the aggregate) by the chief financial
officer of the Company on the Company's behalf as having been prepared
in accordance with generally accepted accounting principles
consistently applied.
(c) As soon as available and in any event within forty-five
(45) days after the end of each fiscal quarter of the Company,
unaudited consolidated balance sheets of the Company and its
Subsidiaries as of the end of such quarter and unaudited consolidated
statements of income and retained earnings and of changes in financial
position of the Company and its Subsidiaries for the period ending with
such quarter, setting forth in each case in comparative form the
corresponding figures for the corresponding period of the prior fiscal
year, all in reasonable detail and duly certified (subject to year-end
audit adjustments none of which shall be material, individually or in
the aggregate) by the chief financial officer on behalf of the Company
as having been prepared in accordance with generally accepted
accounting principles consistently applied.
(d) At the time of delivery of each annual statement, a
certificate, executed by the Company's Auditors (but only if they will
provide such a certificate without any additional fee beyond their
normal audit charges; otherwise, such certificate will be provided on
behalf of the Company by the Company's chief financial officer) stating
that they have caused Sections 5.01(a) (insofar as it relates to
payment of federal and state income taxes), 5.02(b), (c), (e), (f),
(g), (h) and (j) hereof to be reviewed and have no knowledge of any
default by the Company or any Subsidiary in the performance or
observance of any of the provisions of this Agreement or the Purchased
Shares or, if such Company's Auditors have such knowledge, specifying
such default and the nature thereof;
(e) Promptly after receipt, a copy of any written report
submitted to the Company by the Company's Auditors in connection with
an annual or interim audit of the books of the Company and its
Subsidiaries made by such Auditors;
(f) Promptly after the commencement thereof, notice of all
actions, suits and proceedings before any court or governmental
department, commission, board, bureau, agency or instrumentality,
domestic or foreign, materially affecting the Company and the
Subsidiaries when considered as a whole of the type described in
Section 4.04 hereof;
(g) Prior to the commencement of each fiscal year of the
Company, a copy of the business plan (including development, operating
and strategic plans and objectives) and month by month budget for the
upcoming fiscal year (the "Annual Plan");
(h) Promptly after sending, making available, or filing the
same, all reports and financial statements that the Company or any
Subsidiary sends or makes available to the stockholders of the Company
or the Securities and Exchange Commission; and
(i) All other information respecting the business, properties
or the condition or operations, financial or otherwise, of the Company
or any of its Subsidiaries that any Purchaser may from time to time
reasonably request.
5.04 Confidentiality. Any confidential information obtained by any
holder of the Purchased Shares or Conversion Shares pursuant to this Agreement
shall be treated as confidential and shall not be
-18-
<PAGE> 19
disclosed to a third party without the prior written consent of the Company,
except that any Purchaser may disclose such information to its officers,
directors, shareholders and/or partners, and except further that such
information shall not be deemed confidential for the purpose of enforcement of
this Agreement or valuation of the Purchased Shares or Conversion Shares and
said information shall not be deemed confidential after it becomes publicly
known through no fault of the recipient.
5.05 Reserve for Conversion Shares. The Company shall at all times
reserve and keep available out of its authorized but unissued shares of Common
Stock, for the purpose of effecting the conversion of the Purchased Shares and
otherwise complying with the terms of this Agreement, such number of its duly
authorized shares of Common Stock as shall be sufficient to effect the
conversion of the Purchased Shares from time to time outstanding or otherwise to
comply with the terms of this Agreement. If at any time the number of authorized
but unissued shares of Common Stock shall not be sufficient to effect the
conversion of the Purchased Shares or otherwise to comply with the terms of this
Agreement, the Company will forthwith take such corporate action 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 purposes. The Company will
obtain any authorization, consent, approval or other action by or make any
filing with any court or administrative body that may be required under
applicable state securities laws in connection with the issuance of shares of
Common Stock upon conversion of the Purchased Shares.
ARTICLE VI
MISCELLANEOUS
6.01 No Waiver; Cumulative Remedies. No failure or delay on the part of
any Purchaser, or any other holder of the Purchased Shares or Conversion Shares
in exercising any right, power or remedy hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise of any such right, power or
remedy preclude any other or further exercise thereof or the exercise of any
other right, power or remedy hereunder. The remedies herein provided are
cumulative and not exclusive of any remedies provided by law.
6.02 Amendments, Waivers and Consents. Changes in or additions to this
Agreement may be made, and compliance with any covenant or provision herein or
therein set forth may be omitted or waived, if the Company shall obtain consent
thereto in writing from Persons holding an aggregate of at least sixty (60%)
percent of the issued and outstanding and issuable Conversion Shares (treating
for this purpose all Purchased Shares as if converted to Conversion Shares) and
shall, in each such case, deliver copies of such consent in writing to any
holders who did not execute the same; provided, however, that no such consent
shall be effective to reduce the percentage of the consent of the holders of the
Conversion Shares which is required under this Section nor to affect or alter
CRV or BVP's rights under Section 5.01(i) and 5.03 hereof without their consent
(so long as they hold any Purchased Shares and/or Conversion Shares). Any waiver
or consent may be given subject to satisfaction of conditions stated therein and
any waiver or consent shall be effective only in the specific instance and for
the specific purpose for which given.
6.03 Management Compensation. The Company will not grant increases in
the compensation of any officer or other member of senior management or issue
any stock options without authorization by the Board of Directors.
-19-
<PAGE> 20
6.04 Addresses for Notices, etc. All notices, requests, demands and
other communications provided for hereunder shall be in writing (including
telegraphic communication) and sent by registered or certified mail (return
receipt requested), by Federal Express, DHL or other guaranteed overnight
delivery service, or by telex or telegraph, or by facsimile transmission or
delivered to the applicable party at the addresses indicated below:
If to the Company: net.Genesis Corp.
215 First Street
Cambridge, MA 02142
Attention: Larry Bohn, President
With a Copy to: Foley, Hoag & Eliot LLP
One Post Office Square
Boston, MA 02109
Attention: John D. Patterson, Jr., Esq.
If to the Purchasers: at the addresses set forth under their
respective names on Exhibit 2.01A hereto.
If to any other holder
of the Purchased Shares
or Converted Shares: at such holder's address for notice as
set forth in the register maintained by
the Company;
or, as to each of the foregoing, at such other address as shall be designated by
such Person in a written notice to the other party complying as to delivery with
the terms of this Section.
All notices, requests, consents and other communications hereunder shall be
deemed to have been received (i) if by hand, at the time of the delivery thereof
to the receiving party at the address of such party set forth above or as so
designated, (ii) if made by telex, telecopy or facsimile transmission, at the
time that receipt thereof has been acknowledged by electronic confirmation or
otherwise, (iii) if sent by overnight courier, on the next business day
following the day such notice is delivered to the courier service, or (iv) if
sent by registered or certified mail, on the fifth business day following the
day such mailing is made.
6.04 Costs, Expenses and Taxes. The Company agrees to pay at each
Closing the reasonable fees and out-of-pocket expenses of (i) Purchasers'
Special Counsel in preparing and documenting this Agreement and the agreements
referred to herein and (ii) legal counsel, independent public accountants and
other outside experts reasonably retained by the Purchasers in connection with
the amendment or enforcement of this agreement, the Purchased Shares, the
Conversion Shares and other instruments and documents to be delivered hereunder
or thereunder. In addition, the Company shall pay any and all stamp and other
taxes payable or determined to be payable in connection with the execution and
delivery of this Agreement, the Purchased Shares, the Conversion Shares and
other instruments and documents to be delivered hereunder or thereunder and
agrees to save the Purchasers harmless from and against any and all liabilities
with respect to or resulting from any delay in paying or omission to pay such
taxes and filing fees.
6.05 Binding Effect; Assignment. This Agreement shall be binding upon
and inure to the benefit of the Company and the Purchasers and their respective
successors and assigns, except that the
-20-
<PAGE> 21
Company shall not have the right to assign its rights hereunder or any interest
herein without the prior written consent of the Purchasers obtained in
accordance with Section 6.02 hereof and the rights and interests of the
Purchasers shall be assignable without the consent of the Company to any
assignee.
6.06 Survival of Covenants, Representations and Warranties. All
covenants, representations and warranties made in this Agreement, the Purchased
Shares, or any other instrument or document delivered in connection herewith or
therewith, shall survive the execution and delivery hereof or thereof, provided
that such representations and warranties shall survive for a period of three (3)
years after the date hereof.
6.07 Prior Agreements. This Agreement constitutes the entire agreement
between the parties and supersedes any prior understandings or agreements
concerning the subject matter hereof.
6.08 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).
6.09 Headings. Article, section and subsection headings in this
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose.
6.10 Sealed Instrument. This Agreement is executed as an instrument
under seal.
6.11 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Agreement by signing
any such counterpart.
6.12 Further Assurances. From and after the date of this Agreement,
upon the reasonable request of the Purchasers, the Company and each Subsidiary
shall execute and deliver such instruments, documents and other writings as may
be necessary or desirable to confirm and carry out and to effectuate fully the
intent and purposes of this Agreement and the Purchased Shares.
6.13 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 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.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
COMPANY:
ATTEST: NET.GENESIS CORP.
By:/s/ John Delea By:/s/ Larry Bohn
--------------------------- ---------------------------
Name: John Delea Name: Larry Bohn
Title: Secretary Title: President
-21-
<PAGE> 22
Series D Convertible Preferred Stock Purchase Agreement
*Counterpart Signature Page*
(see counterpart signature pages)
INVESTORS:
CHARLES RIVER PARTNERSHIP VII
By:/s/ Ted Dintersmith
---------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
BESSEMER VENTURE PARTNERS IV L.P.
By: Deer IV & Co. L.L.C.,
General Partner
By:/s/ Robert Buescher
-----------------------------------------
Robert A. Buescher, Manager
BVP IV SPECIAL SITUATIONS L.P.
By: Deer IV & Co. L.L.C.,
General Partner
By:/s/ Robert Buescher
-----------------------------------------
Robert A. Buescher, Manager
/s/ Robert Buescher
------------------------------------------------
Robert A. Buescher
/s/ Robert Buescher
------------------------------------------------
Robert A. Buescher, attorney-in-fact signing for
those designated below by the "*" notation
*
------------------------------------------------
William T. Burgin
<PAGE> 23
Series D Convertible Preferred Stock Purchase Agreement
*Counterpart Signature Page*
BRIMSTONE ISLAND CO. L.P.
*By:
------------------------------------------------
Name:
Title:
*
------------------------------------------------
Neill H. Brownstein
*
------------------------------------------------
G. Felda Hardymon
*
------------------------------------------------
Christopher Gabrieli
GABRIELI FAMILY FOUNDATION
*By:
--------------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
*
------------------------------------------------
Michael I. Barach
*
------------------------------------------------
David J. Cowan
*
------------------------------------------------
Diane N. McPartlin
*
------------------------------------------------
Ravi B. Mhatre
*
------------------------------------------------
Gautam A. Prakash
*
------------------------------------------------
Robi L. Soni
*
------------------------------------------------
Joanna A. Strober
<PAGE> 24
Series D Convertible Preferred Stock Purchase Agreement
*Counterpart Signature Page*
*
------------------------------------------------
Rodney A. Cohen
*
------------------------------------------------
Richard R. Davis
*
------------------------------------------------
Adam P. Godfrey
*
------------------------------------------------
Barbara M. Henagan
BELISARIUS CORPORATION
*By:
--------------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
*
------------------------------------------------
Robert J.S. Roriston
*
------------------------------------------------
Thomas F. Rhum
QUENTIN CORPORATION
*By:
--------------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
HAMBRECHT & QUIST
By: illegible
---------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
BAYVIEW INVESTORS
By: illegible
---------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
<PAGE> 25
Series D Convertible Preferred Stock Purchase Agreement
*Counterpart Signature Page*
ONELIBERTY FUND IV
By: OneLiberty Partners IV LLC
By:/s/ Stephen J. Ricci
-----------------------------------------
Stephen J. Ricci, Manager
ONELIBERTY ADVISORS IV LP
By: OneLiberty Partners IV LLC
By:/s/ Stephen J. Ricci
-----------------------------------------
Stephen J. Ricci, Manager
illegible
------------------------------------------------
Chris Paul
illegible
------------------------------------------------
Sean M. O'Sullivan
/s/ Katherine R. Kirk
------------------------------------------------
Kathy Kirk
-25-
<PAGE> 1
Exhibit 10.18
NET.GENESIS CORP.
SERIES F CONVERTIBLE PREFERRED STOCK
PURCHASE AGREEMENT
This Series F Convertible Preferred Stock Purchase Agreement is entered
into on this 10th day of June, 1999 by and among net.Genesis Corp., a Delaware
corporation (the "Company"), and the Persons listed on Exhibit 2.01A hereto, as
amended (each such Person being hereinafter sometimes referred to individually
as a "Purchaser" and all such Persons being hereinafter sometimes referred to
collectively as the "Purchasers").
In consideration of the mutual promises, representations, warranties,
covenants and conditions set forth in this Agreement, the parties hereto hereby
agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
1.01 Certain Definitions. As used in this Agreement, the following
terms shall have the following meanings (such meanings to be equally applicable
to both the singular and plural forms of the terms defined):
"Agreement" shall mean this Series F Convertible Preferred Stock
Purchase Agreement, as from time to time amended and in effect between the
parties hereto.
"Board of Directors" shall mean the then present members of the Board
of Directors of the Company.
"Charter" shall mean the Fifth Amended and Restated Certificate of
Incorporation of the Company in the form of Exhibit 2.01B hereto, as amended
from time to time.
"Closing" shall have the meaning assigned to that term in Section
2.03(a) hereto.
"Company" shall mean and include net.Genesis Corp., a Delaware
corporation, and its successors and assigns.
"Company's Auditors" shall mean the firm of independent public
accountants employed by the Company from time to time to conduct its annual
audit, which firm shall be a "Big Five" accounting firm or such other accounting
firm acceptable to the holders of at least fifty-five (55%) percent of the
Purchased Shares.
"Common Stock" shall mean (a) the Company's Common Stock, $.001 par
value per share, as authorized on the date of this Agreement, (b) any other
capital stock of any class or classes (however designated) of the Company,
authorized on or after the date hereof, the holders of which shall have the
right either to all or to a share of the balance of current dividends and
liquidating distributions after the preference of the Preferred Stock, or the
holders of which shall ordinarily, in the absence of contingencies, be entitled
to vote for the election of a majority of directors of the Company (even
<PAGE> 2
though the right so to vote has been suspended by the happening of such a
contingency), and (c) any other securities into which or for which any of the
securities described in (a) or (b) may be converted or exchanged pursuant to a
plan of recapitalization, reorganization, merger, sale of assets or otherwise.
"Consolidated" when used with reference to any term defined herein
shall mean that term as applied to the accounts of the Company and its
Subsidiaries consolidated in accordance with generally accepted accounting
principles after eliminating intercompany items and minority interests.
"Conversion Shares" shall have the meaning assigned to that term in
Section 2.01 hereof.
"Counsel to the Company" shall mean Foley, Hoag & Eliot LLP.
"ERISA" shall have the meaning assigned to that term in Section 4.12
hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, or any
similar federal statute, and the rules and regulations of the Securities and
Exchange Commission (or of any other Federal agency then administering the
Exchange Act) thereunder, all as the same shall be in effect at the time.
"Indebtedness" shall mean all obligations, contingent and otherwise,
which should, in accordance with generally accepted accounting principles
consistently applied, be classified upon the obligor's balance sheet as
liabilities, but in any event including, without limitation, liabilities secured
by any mortgage or security interest on real or personal property owned or
acquired subject to such mortgage or security interest, whether or not the
liability secured thereby shall have been assumed, and also including, without
limitation, (a) all guaranties, endorsements and other contingent obligations in
respect of Indebtedness of others, whether or not the same are or should be so
reflected in said balance sheet, except guaranties by endorsement of negotiable
instruments for deposit or collection or similar transactions in the ordinary
course of business, and (b) the present value of any lease payments due under
leases required to be capitalized in accordance with applicable Statements of
Financial Accounting Standards, determined by discounting all such payments at
the interest rate determined in accordance with applicable Statements of
Financial Accounting Standards.
"Issue Price" shall mean $3.32, which is the price per share at which
the Purchased Shares are being issued hereunder.
"Key Employee" shall mean and include, the President and the Chief
Executive Officer, any Vice-President, the Treasurer and the Chief Financial
Officer of the Company or any Subsidiary, or any person who is not an officer of
the Company or any Subsidiary and is in charge of one or more of the following
functions: sales, marketing, production, or engineering and technical
development or any other position or employee so designated by the Board of
Directors of the Company.
"Person" shall mean an individual, corporation, partnership, joint
venture, trust, limited liability company, unincorporated organization, or
similarly entitled, or a government or any agency or political subdivision
thereof.
"Preferred Stock" shall mean the Series F Convertible Preferred Stock,
$.001 par value, of the Company, the rights, preference and other terms and
conditions of which are set forth in Exhibit 2.01B hereto.
-2-
<PAGE> 3
"Purchased Shares" shall have the meaning assigned to that term in
Section 2.01 hereof.
"Purchasers" shall mean and include the Persons listed on Exhibit 2.01A
hereto.
"Purchasers' Special Counsel" shall mean Cooley, Godward LLP.
"Qualified Public Offering" shall mean and include the closing of a
firmly underwritten public offering pursuant to an effective registration
statement under the Securities Act covering the offer and sale of Common Stock
for the account of the Company from which the aggregate net proceeds to the
Company are at least $20,000,000 and the price per share of such Common Stock is
not less than $6.64 (such amount to be equitably adjusted whenever there is a
stock split, combination, stock dividend, reclassification or similar event
affecting the Common Stock).
"Securities Act" shall mean the Securities Act of 1933, or any similar
Federal statute, and the rules and regulations of the Securities and Exchange
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 A Preferred Stock" shall mean the Series A Preferred Stock,
$.001 par value, of the Company, the rights and privileges of which are set
forth in the Charter.
"Series B Preferred Stock" shall mean the Series B Preferred Stock,
$.001 par value, of the Company, the rights and privileges of which are set
forth in the Charter.
"Series C Preferred Stock" shall mean the Series C Preferred Stock,
$.001 par value, of the Company, the rights and privileges of which are set
forth in the Charter.
"Series D Preferred Stock" shall mean the Series D Preferred Stock,
$.001 par value, of the Company, the rights and privileges of which are set
forth in the Charter.
"Series E Preferred Stock" shall mean the Series E Preferred Stock,
$.001 par value, of the Company, the rights and privileges of which are set
forth in the Charter.
"Stock Option Plans" shall mean (i) the 1995 Stock Option Plan of the
Company presently providing for the issuance of, or grant of options to
purchase, up to 4,000,000 shares of Common Stock on the date hereof to officers,
directors, employees of and consultants to the Company and any amendment thereto
and/or (ii) any other plan, and any amendment thereto, providing for the
issuance of capital stock or options to purchase capital stock to any such
Persons.
"Stockholder Agreement" shall mean that certain Amended and Restated
Stockholder Agreement dated as of November 14, 1995, as amended, by and among
Rajat Bhargava, Eric Richard, Matthew Cutler, the persons set forth on Exhibits
A and B thereto, the signatories to any amendment thereto and the Company.
"Subsidiary" or "Subsidiaries" shall mean any corporation, 50% or more
of the outstanding voting stock of which shall at the time be owned by the
Company or by one or more Subsidiaries, or any other entity or enterprise, 50%
or more of the equity of which shall at the time be owned by the Company or by
one or more Subsidiaries.
-3-
<PAGE> 4
"Wholly-Owned Subsidiary" or "Wholly-Owned Subsidiaries" shall mean any
corporation, 100% of the outstanding voting stock of which shall at the time be
owned by the Company or by one or more Wholly-Owned Subsidiaries, or any other
entity or enterprise, 100% of the equity of which shall at the time be owned by
the Company or by one or more Wholly-Owned Subsidiaries.
1.02 Accounting Terms. All accounting terms not specifically defined
herein shall be construed in accordance with generally accepted accounting
principles, and all other financial data submitted pursuant to this Agreement
shall be prepared and calculated in accordance with such principles.
ARTICLE II
PURCHASE, SALE AND TERMS OF SHARES
2.01 The Purchased Shares. The Company has authorized the issuance and
sale of up to 6,627,000 shares (the "Purchased Shares") of the previously
authorized but unissued shares of its Preferred Stock to the Persons and in the
respective amounts set forth in Exhibit 2.01A hereto. The designation, rights,
preferences and other terms and conditions relating to the Preferred Stock shall
be as set forth in Exhibit 2.01B hereto. Any shares of Common Stock issuable
upon conversion of the Purchased Shares, and such shares when issued, are herein
referred to as the "Conversion Shares".
2.02 Reservation of Shares. The Company has authorized and reserved and
covenants to continue to reserve, free of preemptive rights and other
preferential rights, a sufficient number of its previously authorized but
unissued shares of Common Stock to satisfy the rights of conversion of the
holders of the Purchased Shares.
2.03 Purchase and Sale of Purchased Shares.
(a) The Closing. The Company agrees to issue and sell to the
Purchasers, and, subject to and in reliance upon the representations,
warranties, terms and conditions of this Agreement, the Purchasers,
severally but not jointly, agree to purchase at the Issue Price all,
and not less than all, of the Purchased Shares for the purchase prices
and in the amounts set forth opposite their respective names in Exhibit
2.01A hereto. Such purchase and sale shall take place at a closing (the
"Closing") to be held at the offices of Foley, Hoag & Eliot LLP One
Post Office Square, Boston, MA 02109, on June 10, 1999 at 10:00 a.m. or
on such other date and at such time as may be mutually agreed upon by
the Company and a majority in interest of the Purchasers. At the
Closing the Company will issue and deliver certificates, dated as of
the Closing, evidencing the Purchased Shares sold at such Closing
registered in the name of Purchasers or their nominees, all in the
amounts set forth opposite their respective names in Exhibit 2.01A
hereto against delivery of checks payable to the order of the Company
or transfer by wire transfer in immediately available federal funds to
the account of the Company in payment of the full purchase price for
the Purchased Shares.
(b) Use of Proceeds. The Company agrees to use the proceeds
from the issuance and sale of the Purchased Shares to fund operating
losses, to purchase capital equipment necessary for Company operations,
and for general working capital of the Company.
-4-
<PAGE> 5
2.04 Representations by the Purchasers. All representations and
warranties of the Purchasers in this Section 2.04 are made severally and not
jointly as follows:
(a) Each Purchaser represents that it is acquiring the
Purchased Shares and any Conversion Shares for its own account and for
the purpose of investment and not with a view to distribution or resale
thereof; subject, nevertheless, to the condition that the disposition
of the property of each Purchaser shall at all times be within its
control, subject to applicable law and contractual restrictions. Each
Purchaser which is not an individual further represents and warrants
that it was not organized for the specific purpose of acquiring the
Purchased Shares. Each Purchaser further represents and warrants that
such Purchaser is (or, in the case of a partnership, it and all of its
partners are) an "accredited investor" for purposes of the Securities
Act (unless otherwise indicated on Exhibit 2.01A hereto) and Regulation
D thereunder and warrants that it has knowledge and experience in
financial and business matters such that it is capable of evaluating
the merits and risks of the investment to be made hereunder, and that
such Purchaser is financially able to undertake the risks involved in
such an investment. Each Purchaser further acknowledges that it has had
a full opportunity to request from the Company and to review and has
received all information which it deems relevant in making an informed
and knowledgeable decision to purchase the Purchased Shares being
purchased by it hereunder. Each Purchaser understands and agrees that
(i) the Purchased Shares and the Conversion Shares have not been
registered under the Securities Act by reason of their issuance in a
transaction exempt from the registration requirements of the Securities
Act pursuant to Section 4(2) or Regulation D promulgated thereunder,
(ii) the Purchased Shares and the Conversion Shares must be held
indefinitely unless a registration statement covering such shares is
effective under the Securities Act or unless an exception from
registration under such Act is available, (iii) the Purchased Shares
and the Conversion Shares will bear a legend to that effect and (iv)
the Company will make a notation on its transfer books to such effect.
Each Purchaser not an Accredited Investor makes the representations in
this Section 2.04 except as to his status as an Accredited Investor.
(b) The principal office or residence of each Purchaser, and
the place at which the decision to participate in this Agreement and
the transactions contemplated hereby was made is located at the address
appearing below such Purchaser's name on Exhibit 2.01A hereto. Each
Purchaser which is not an individual and whose address appearing below
such Purchaser's name on Exhibit 2.01A is located in Massachusetts
further represents that it is an "institutional buyer" as that term is
used in Section 402 (b) (8) of the Massachusetts Uniform Securities
Act.
(c) Each Purchaser represents and warrants that this Agreement
and all transactions contemplated hereunder have been duly authorized
by all necessary action on its part and that this Agreement has been
duly executed and delivered by it or on its behalf and is a valid and
binding agreement enforceable against it in accordance with its terms.
(d) Each Purchaser represents that no person, firm or
corporation has or will have, as a result of any act or omission by
such Purchaser, any right, interest or valid claim against the Company
for any commission, fee or other compensation as a finder or broker, or
in any similar capacity, in connection with the transactions
contemplated by this Agreement.
ARTICLE III
CONDITIONS TO PURCHASERS' OBLIGATIONS
-5-
<PAGE> 6
The obligation of each Purchaser to purchase and pay for the Purchased
Shares at the Closing is subject to the following conditions:
3.01 Representations and Warranties. Each of the representations and
warranties of the Company set forth in Article IV hereof, shall have been true
in all material respects when made and shall be true in all material respects as
of the date of the Closing.
3.02 Documentation at Closing. The Purchasers shall have received prior
to or at the Closing all of the following, each in form and substance reasonably
satisfactory to the Purchasers and Purchasers' Special Counsel, and all of the
following events shall have occurred prior to or simultaneous with the Closing
hereunder.
(a) A copy of all Charter documents of the Company certified
by the Secretary of State of Delaware; a certified copy of the
resolutions of the Board of Directors and the stockholders of the
company evidencing approval of this Agreement, the restatement of the
Charter, the authorization for issuance of the Purchased Shares and
other matters contemplated hereby; a certified copy of the By-laws of
the Company; and certified copies of all documents evidencing other
necessary corporate or other action and governmental approvals, if any,
with respect to this Agreement and the Purchased Shares, in each case
certified by the Secretary or Assistant Secretary.
(b) An opinion of Counsel to the Company as to matters set
forth in Exhibit 3.02B hereto. In rendering such opinion, such counsel
may require and, to the extent they deem necessary or appropriate, may
rely upon, representations and warranties made in certificates of
officers of the Company and representations and warranties of the
Company and Purchasers contained herein.
(c) A certificate of the Secretary or an Assistant Secretary
of the Company stating the names of the officers of the Company
authorized to sign this Agreement, the certificates for the Purchased
Shares and the other documents or certificates to be delivered pursuant
to this Agreement by the Company or any of its officers, together with
the true signatures of such officers.
(d) A certificate from a duly authorized officer of the
Company stating that the representations and warranties of the Company
contained in Article IV hereof or otherwise made by the Company in
writing in connection with the transactions contemplated hereby are
true and correct in all material respects and that all conditions
required to be performed by the Company prior to or at the Closing have
been performed in all material respects, and that no condition or event
has occurred or is continuing or will result from the execution and
delivery of this Agreement or the issuance of the Purchased Shares
which constitutes an event of default or would constitute an event of
default but for the requirement that notice be given or time elapse or
both.
(e) The Second Amended and Restated Stockholder Agreement in
the form and substance set forth in Exhibit 3.02E hereto (the "Second
Amended and Restated Stockholder Agreement"), shall have been executed
by the parties named therein.
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(f) Employee Confidentiality, Non-competition and Intellectual
Property Assignment Agreements in or substantially in the form and
substance set forth in Exhibit 3.02F hereto shall have been executed by
the Company and each Key Employee.
(g) The Third Amended and Restated Registration Rights
Agreement in the form and substance set forth in Exhibit 3.02G hereto
shall have been executed by the Company and the parties named therein.
(h) The Board of Directors of the Company shall consist of not
more than eight (8) members, as specified in the Second Amended and
Restated Stockholder Agreement.
(i) The Company shall have executed and delivered to
BankAmerica Ventures a Size Status Declaration on SBA Form 480 and an
Assurance of Compliance on SBA Form 652, and shall have provided to
BankAmerica Ventures the information requested by BankAmerica Ventures
necessary for the preparation by BankAmerica Ventures of a Portfolio
Financing Report on SBA Form 1031.
(j) The Company shall have performed all its other covenants
and agreements in all material respects set forth in this Agreement.
3.03 Consents, Waivers, etc.. Prior to the Initial Closing, the Company
shall have obtained all material consents or waivers, if any, necessary to
execute and deliver this Agreement, issue the Purchased Shares and to carry out
the transactions contemplated hereby and thereby, and all such consents and
waivers shall be in full force and effect. All corporate and other action and
governmental filings necessary to effectuate the terms of this Agreement, the
Purchased Shares and other agreements and instruments executed and delivered by
the Company in connection herewith shall have been made or taken, except for any
post-sale filing that may be required under federal and state securities laws,
as to which filing the Company agrees to make promptly after such Closing. In
addition to the documents set forth above, the Company shall have provided the
Purchasers any other information or copies, of documents that they may
reasonably request.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES BY THE COMPANY
The Company represents and warrants as follows:
4.01 Organization and Standing of the Company. The Company is a duly
organized and validly existing corporation in good standing under the laws of
the jurisdiction in which it is organized and has all requisite corporate power
and authority for the ownership and operation of its properties and for the
carrying on of its business as now conducted. The Company is duly licensed or
qualified and in good standing as a foreign corporation authorized to do
business in The Commonwealth of Massachusetts and in each other jurisdiction in
which the nature of the business transacted by it or the character of the
properties owned or leased by it requires such licensing or qualification,
unless the failure to so qualify does not and will not have a material adverse
effect on the business operations or financial condition of the Company.
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4.02 Corporate Action. The Company has all necessary corporate power
and has taken all corporate action required for the due authorization, execution
and delivery of this Agreement and any other agreements and instruments executed
in connection herewith and for the due authorization, issuance and delivery of
the Purchased Shares, and this Agreement and any such other agreements are
valid, binding and enforceable against the Company in accordance with their
terms. Sufficient shares of authorized but unissued Common Stock of the Company
have been reserved by appropriate corporate action in connection with the
prospective conversion of the Purchased Shares. The issuance of the Purchased
Shares, and the issuance of the Conversion Shares upon the conversion of the
Purchased Shares, are not subject to preemptive or other preferential rights, or
similar statutory or contractual rights, either arising pursuant to any
agreement or instrument to which the Company is a party or which are otherwise
binding upon the Company.
4.03 Governmental Approvals. All authorizations, consents, approvals,
licenses, exemptions from or filings, or registrations with any court or
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, necessary for, or in connection with, the offer, issuance,
sale, execution or delivery by the Company, or for the performance by it of its
obligations under, this Agreement, the agreements referred to in Article III
hereof or the Purchased Shares shall have been made prior to, and shall be
effective as of, the Initial Closing (except for any post-sale filings that may
be required under federal or state securities laws, which will be filed by the
Company in a timely manner).
4.04 Litigation. There is no litigation or governmental proceeding or
investigation pending or, to the knowledge of the Company, threatened against
the Company affecting any of its properties or assets, or, to the knowledge of
the Company, after due inquiry, against any officer, Key Employee or principal
stockholder of the Company that might result, either in any case or in the
aggregate, in any material adverse change in the business, operations, affairs
or condition of the Company, or any of its properties or assets, or pending or,
to the knowledge of the Company, threatened against the Company that might call
into question the validity of this Agreement, the issuance of the Purchased
Shares, or any action taken or to be taken pursuant hereto or thereto. Neither
the Company nor, to the knowledge of the Company, after due inquiry, any
officer, Key Employee or principal stockholder of the Company or its
Subsidiaries, is in default with respect to any order, writ, injunction, decree,
ruling or decision of any court, commission, board or other government agency
that might result, either in any case or in the aggregate, in any material
adverse change in the business, operations, affairs or condition of the Company
or any of its properties or assets. The foregoing sentences include, without
limiting their generality, actions pending or threatened (or any basis therefor
known to the Company) involving the prior employment of employees of the Company
and the use in any of the Company's business of any information or techniques
allegedly proprietary to any of their former employers.
4.05 Certain Agreements of Officers and Employees.
(a) To the best of the Company's knowledge and belief, after
due inquiry, no employee of the Company is in violation of any material
term of any employment contract, patent disclosure agreement,
non-competition agreement, or any other contract or agreement or any
restrictive covenant relating to the right of any such officer or
employee to be employed by the Company because of the nature of the
business conducted by the Company or relating to the use of trade
secrets or proprietary information of others, and to the best of the
Company's knowledge and belief, the continued employment of the
Company's officers and employees do not subject the Company or the
Purchasers to any liability arising from such agreements.
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<PAGE> 9
(b) To the Company's knowledge, no officers of the Company,
nor any Key Employees of the Company whose termination, either
individually or in the aggregate, would have a material adverse effect
on the Company, has any present intention of terminating his employment
with the Company.
(c) The Company is not a party to any collective bargaining
agreement and, to the best of its knowledge, after due inquiry, there
have been no pending labor problems involving collective disputes or
disturbances with any group of employees and, to the knowledge of the
Company, there have been no attempts to organize its employees by any
union or similar association.
4.06 Compliance with Other Instruments. The Company is in compliance in
all respects with the terms and provisions of this Agreement and of its charter
documents, as amended, and by-laws, as amended, and in all material respects
with the terms and provisions of each material mortgage, indenture, lease,
agreement and other instrument relating to obligations of the Company, and, to
the best of the Company's knowledge, of all material judgments, decrees,
governmental orders, statutes, rules or regulations by which it is bound or to
which its properties or assets are subject. Neither the execution and delivery
of this Agreement or the Purchased Shares, nor the consummation of any
transaction contemplated hereby or thereby, has constituted or resulted in or
will constitute or result (with or without the giving of notice or passage of
time) in a default or violation of any material term or provision in any of the
foregoing documents or instruments.
4.07 Federal Reserve Regulations. The Company is not engaged in the
business of extending credit for the purpose of purchasing or carrying margin
securities (within the meaning of Regulation G of the Board of Governors of the
Federal Reserve System), and no part of the proceeds of the Purchased Shares
will be used to purchase or carry any margin security or to extend credit to
others for the purpose of purchasing or carrying any margin security or in any
other manner which would involve a violation of any of the regulations of the
Board of Governors of the Federal Reserve System.
4.08 Title to Assets. The company has good and marketable title in fee
to such of its fixed assets as are real property, and good title to all of its
other assets now carried on its books, including those reflected in the most
recent balance sheet of the Company described below in Section 4.10, or acquired
since the date of such balance sheet (except personal property disposed of since
said date in the ordinary course of business) free of any mortgages, pledges,
charges, liens, security interests or other encumbrances, except those indicated
in Exhibit 4.08 hereto and except for liens for current taxes not yet due and
payable and minor imperfections of title, if any, not material in nature or
amount and not materially detracting from the value or impairing the use of the
property subject thereto or impairing the operations of the Company. The Company
enjoys peaceful and undisturbed possession under all leases under which it is
operating and is in compliance in all material respects with all such leases,
and all said leases are valid and subsisting and in full force and effect.
4.09 Patents and Intellectual Property Rights. The Company owns or has
a valid right, or will be able to obtain at reasonable cost standard in the
industry the right, to use the patents, patent rights, licenses, trade secrets,
trademarks, trademark rights, trade names or trade name rights or franchises,
copyrights, inventions, and intellectual property rights material to the conduct
of its businesses as now operated (the "Company's Intellectual Property"); and
no claim is pending to the effect that the operations of the Company, and to the
Company's knowledge, the operations of the Company will not, conflict with valid
patents, patent rights, licenses, trade secrets, trademarks, trademark rights,
trade names or trade name rights or franchises, copyrights, inventions, and
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<PAGE> 10
intellectual property rights of others. Except as set forth in Exhibit 4.09
hereto, and except for the payment of the customary fees for the right to use
commercially available software, the Company has no obligation to compensate any
Person for the use of any of the Company's Intellectual Property and has granted
to no Person any license or other rights to use in any manner any of the
Company's Intellectual Property, whether requiring the payment of royalties or
not.
4.10 Financial Information. The Company has furnished to the Purchasers
the audited balance sheet of the Company as of December 31, 1998 and the related
audited statements of income and statement of cash flows of the Company for the
twelve month period ended December 31, 1998 and the statement of changes in
redeemable preferred stock and stockholders' equity for the period ended
December 31, 1998. The Company has also furnished to the Purchasers the
unaudited balance sheet of the Company as of April 30, 1999 and the related
unaudited statements of operations and cash flows of the Company for four months
ended April 30, 1999, and the unaudited statement of stockholders' equity of the
Company for the period ended April 30, 1999. All such financial statements have
been prepared in accordance with generally accepted accounting principles
consistently applied (except that such unaudited financial statements do not
contain all of the required footnotes or period end adjustments not material in
the aggregate) and fairly present the financial position of the Company as of
December 31, 1998 and April 30, 1999, respectively, and the results of its
operations and cash flows for the year ended December 31, 1998 and the four
month period ended April 30, 1999, respectively. The Company does not have, and
has no reasonable grounds to know of, any material liability, contingent or
other, not adequately reflected in or reserved against in the aforesaid
financial statements. Since April 30, 1999 there has not been, except as set
forth in Exhibit 4.10, and except for changes in the ordinary course of business
which have not been materially adverse:
(a) Any material change in the assets, liabilities, financial
condition, or operations of the Company from that reflected in such
financial statements;
(b) Any change in the contingent obligations of the Company by
way of guaranty, endorsement, indemnity, warranty, or otherwise;
(c) Any damage, destruction, or loss, whether or not covered
by insurance, materially and adversely affecting the properties or
business of the Company;
(d) Any waiver or compromise by the Company of a valuable
right or of a material debt owed to it;
(e) Any loans made or promised by the Company to its
employees, officers, or directors other than travel advances made in
the ordinary course of business;
(f) Any increases in excess of ten (10%) percent in the
compensation of any of the Company's employees, officers, or directors
(but not including any options granted to any such persons);
(g) Any declaration or payment of any dividend or other
distribution of the assets of the Company;
(h) Any issuance or sale by the Company of any shares of its
Common Stock or other securities other than option grants pursuant to
the Company's 1995 Stock Option Plan and option exercises pursuant to
such Stock Option Plan.
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<PAGE> 11
(i) Any other event or condition of any character that has
materially and adversely affected the Company's business; or
(j) Any agreement or commitment by the Company to do any of
the things described in this Section 4.10.
4.11 Taxes. The Company has prepared and filed within the time
prescribed by law all federal, state and other tax returns required by law to be
filed by it, has paid all taxes shown to be due and all additional assessments,
including penalties and interest, received by it, and adequate provisions have
been made and are reflected in the Company's financial statements for all
current taxes and other charges to which the Company is subject and which are
not currently due and payable. None of the state, local or federal income tax
returns of the Company have been audited by, or are currently under audit by,
any state or local tax authority or by the Internal Revenue Service. The Company
knows of no additional assessments or adjustments pending or threatened for any
period. There are no tax liens upon the assets or property of the Company. The
Company has not granted any extension to any taxing authority of the limitation
period during which any tax liability may be asserted. All monies required to be
withheld by the Company from employees or collected from customers for income
taxes, social security and unemployment insurance taxes and sales, excise and
use taxes, and the portion of any such taxes to be paid by the Company to
governmental agencies or set aside in accounts for such purpose have been so
paid or set aside, or such monies have been approved, reserved against and
entered upon the books and financial statements of the Company. The Company does
not have in effect any tax election or consent for federal income tax purposes
under Sections 108, 341(f), 471, 1017, 1033 or 4977 of the Internal Revenue Code
of 1986, as amended.
4.12 ERISA. Except as set forth on Exhibit 4.12, the Company has no
employee benefit plan subject to ERISA; all such employee benefit plans listed
on Exhibit 4.12 are in full force and effect and in compliance with applicable
laws, and there are no funding deficiencies thereunder.
4.13 Contracts; Commitments. Except as set forth in Exhibit 4.13
hereto, the Company is not a party to (i) any employment or consulting contracts
(other than employment at will) (ii) or any contracts or commitments (or group
of related contracts or commitments) involving more than $50,000 or having a
term (including renewals or extensions optional with another party) of more than
one (1) year from the date thereof; all of the contracts and commitments listed
on Exhibit 4.13 are in full force and neither the Company nor, to the best
knowledge of the Company, any other party to any such contracts or commitments
is in default of any material covenant or obligation thereunder.
4.14 Transactions with Affiliates. There are no loans, leases, royalty
agreements or other continuing transactions between the Company, its
Subsidiaries, any of its or their customers or suppliers and any officer or
director of the Company (other than on-going employment obligations to Larry
Bohn) or any Person owning five (5%) percent or more of any class of capital
stock of the Company or any member of such officer, director or stockholder's
immediate family or any corporation or other entity controlled by such officer,
director or stockholder or a member of such officer, director or stockholder's
immediate family.
4.15 Assumptions or Guaranties of Indebtedness of other Persons. The
Company has not assumed, guaranteed, endorsed or otherwise become directly or
contingently liable on (including, without limitation, liability by way of
agreement, contingent or otherwise, to purchase, to provide funds for payment,
to supply funds to or otherwise invest in any debtor or otherwise to assure any
creditor against loss), any Indebtedness of any other Person.
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4.16 Investments in Other Persons. Other than advances in the ordinary
course of business to employees, which are not in the aggregate material, the
Company has not made any loan or advance to any Person which is outstanding on
the date of this Agreement, nor is it committed or obligated to make any such
loan or advance, nor does the Company have any Subsidiaries or own any capital
stock, assets comprising the business of, obligations of, or any interest in,
any Person except as set forth on Exhibit 4.16.
4.17 Disclosure. This Agreement, the financial statements described in
Section 4.10, and any other agreement, document, certificate or written
statement provided to the Purchasers by or on behalf of the Company are true and
correct in all material respects. There is no fact within the knowledge of the
Company which has not been disclosed herein or in writing by the Company to the
Purchasers, the disclosure of which is necessary to make the statements made
herein and therein not materially misleading and which materially adversely
affects, or in the future in the Company's opinion has a substantial possibility
to, insofar as the Company can now foresee, materially adversely affect the
business, properties, assets or condition, financial or other, of the Company.
Without limiting the foregoing, the Company has no knowledge or belief that
there exists any patent, invention, device, application or principle which would
materially adversely affect the condition, financial or otherwise, or the
business or operations of the Company.
4.18 Registration Rights. Except as provided in the Third Amended and
Restated Registration Rights Agreement set forth in Exhibit 3.02G hereto, no
Person has the right to demand or other rights to cause the Company to file any
registration statement under the Securities Act relating to any securities of
the Company, presently outstanding or that may be subsequently issued, or any
right to participate in any such registration statement. Except as provided in
the Second Amended and Restated Stockholder Agreement set forth in Exhibit 3.02E
hereto, the Company is not a party or subject to any agreement or understanding,
and, to the best of the Company's knowledge, there is no agreement or
understanding between any persons and/or entities, which affects or relates to
the voting or giving of written consents with respect to any security of the
Company.
4.19 Securities Act of 1933. The Company has complied and will comply
with all applicable federal or state securities laws in connection with the
issuance and sale of the Purchased Shares. Neither the Company nor anyone acting
on its behalf has offered or will offer to sell the Purchased Shares or similar
securities to, or solicit offers with respect thereto from, or enter into any
preliminary conversations or negotiations relating thereto with, any Person, so
as to bring the issuance and sale of the Purchased Shares under the registration
provisions of the Securities Act.
4.20 No Brokers or Finders. No Person has or will have, as a result of
the transactions contemplated by this Agreement, any right, interest or valid
claim against or upon the Purchasers or the Company for any commission, fee or
other compensation as a finder or broker other than commissions due Hambrecht &
Quist, Inc. pursuant to a letter agreement dated February __, 1999 (the "H&Q
Commission"); and the Company agrees to indemnify and hold the Purchasers
harmless against any such commissions, fees or other compensation, including the
H&Q Commission.
4.21 Capitalization; Status of Capital Stock. At the Closing, the
Company will have a total authorized capitalization consisting of 41,686,887
shares, including 24,000,000 shares of Common Stock, $.001 par value per share,
of which 1,773,884 shares are issued and outstanding; 200,000 shares of Series
A-1 Convertible Preferred Stock, $0.001 par value per share, of which 200,000
shares are issued and outstanding; 101,430 shares of Series A-2 Convertible
Preferred Stock, $0.001 par
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value per share, of which 101,430 shares are issued and outstanding; 624,000
shares of Series A-3 Convertible Preferred Stock, $0.001 par value per share, of
which 624,000 shares are issued and outstanding; 776,718 shares of Series B
Convertible Preferred Stock, $0.001 par value per share, of which 776,717 shares
are issued and outstanding; and 3,000,000 shares of Series C Convertible
Preferred Stock, $0.001 par value per share of which 2,928,316 shares are issued
and outstanding; 5,900,000 shares of Series D Convertible Preferred Stock,
$0.001 par value per share, of which 5,899,999 are issued and outstanding;
279,739 shares of Series E Convertible Preferred Stock, $.001 par value, of
which none are outstanding; and 6,805,000 shares of Series F Convertible
Preferred Stock, $.001 par value, of which none are issued and outstanding. A
complete list of the currently issued and outstanding shares of capital stock of
the Company and the names in which such shares are registered is set forth in
Exhibit 4.21 hereto. All of the outstanding shares of capital stock of the
Company have been duly authorized and reserved for issuance, are validly issued
and are fully paid and nonassessable. All shares of capital stock issuable upon
exercise of outstanding options and warrants have been duly authorized and, when
issued in accordance with the terms of such options and warrants, will be
validly issued, and fully paid and nonassessable. The Purchased Shares, when
issued and delivered in accordance with the terms hereof, and the Conversion
Shares, when issued and delivered upon conversion of the Purchased Shares, will
be duly authorized, validly issued and fully paid and nonassessable. Except as
set forth in this Agreement and Exhibit 4.21 hereto, there are no options,
warrants or rights to purchase shares of capital stock or other securities
authorized, issued or outstanding, nor is the Company obligated in any other
manner to issue shares of its capital stock or other securities. Except as set
forth in Exhibit 4.21 hereto, there are no restrictions on the transfer of
shares of capital stock of the Company other than those imposed by relevant
state and federal securities laws. Except as set forth in the Stockholder
Agreement, no holder of any security of the Company is entitled to preemptive or
similar statutory or contractual rights, either arising pursuant to any
agreement or instrument to which the Company is a party or that are otherwise
binding upon the Company. The offer and sale of all shares of capital stock or
other securities of the Company issued before the Closing complied with or were
exempt from registration or qualification under all federal and state securities
laws. No securities of the Company have been issued prior hereto at a price
which would result in an increase in the number of shares of Common Stock
issuable upon conversion of any outstanding shares of any series or subseries of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or
Series D Preferred Stock pursuant to the provisions of Article Fourth, A, 5(e)
through (i) of the Charter.
4.22 Insurance. Exhibit 4.22 hereto contains a summary of the insurance
policies currently maintained by the Company. The Company has not suffered the
cancellation of any of its insurance, nor has the Company been denied insurance
which it has applied for or requested.
4.23 Books and Records. The books of account, ledgers, order books,
records and documents of the Company accurately and completely reflect all
material information relating to the business of the Company, the nature,
acquisition, maintenance, location and collection of each of its assets, and the
nature of all transactions giving rise to the obligations or accounts receivable
of the Company.
4.24 Environmental Matters. The Company has not generated, used,
stored, treated or disposed of any Hazardous Substances (as defined below) in
connection with the operations of its business, other than cleaning and/or
office supplies required in the ordinary course of the Company's operations. To
the Company's knowledge, the Company, the operation of its business, and any
real property that the Company owns, leases or otherwise occupies or uses (the
"Premises") are in material compliance with all applicable Environmental Laws
(as defined below) . For purposes of this Section,
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the term "Environmental Laws" shall mean any federal, state or local law,
ordinance or regulation pertaining to the protection of human health or the
environment, including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. Sections 9601, et seq.,
Emergency Planning and Community Right-to-Know Act, 42 U.S.C. Sections 11001, et
seq., and the Resource Conservation and Recovery Act, 42 U.S.C. Sections 6901,
et seq. For purposes of this Section, the term "Hazardous Substances" shall
include oil and petroleum products, polychlorinated biphenyls and any other
material classified as hazardous or toxic under any Environmental Laws.
4.25 Small Business Concern. The Company, together with its
"affiliates" (as that term is defined in Section 121.103 of Title 13 of the Code
of Federal Regulations (the "Federal Regulations")), is a "small business
concern" within the meaning of the Small Business Investment Act of 1958, as
amended (the "Small Business Act"), and Part 121 of Title 13 of the Federal
Regulations. The information delivered by the Company to BankAmerica Ventures on
SBA Forms 480, 652 and 1031 of the Small Business Administration (the "SBA")
delivered in connection herewith is accurate and complete. The Company is not
ineligible for financing by any SBIC Investor pursuant to Section 107.720 of
Title 13 of the Federal Regulations. The Company acknowledges that BankAmerica
Ventures is a Federal licensee under the Small Business Act.
4.26 Qualified Small Business Stock. As of the Closing: (i) the Company
will be an eligible corporation as defined in Section 1202(e)(4) of the Internal
Revenue Code of 1986, as amended (the "Code"), (ii) the Company will not have
made any purchases of its own stock during the one-year period proceeding the
Closing having an aggregate value exceeding 5% of the aggregate value of all its
stock as of the beginning of such period and (iii) the Company's aggregate gross
assets, as defined by Code Section 1202(d)(2), at no time between its inception
and through the Closing have exceeded or will exceed $50 million, taking into
account the assets of any corporations required to be aggregated with the
Company in accordance with Code Section 1202(d)(3).
4.27 Investment Company. The Company represents and warrants that it is
not an "investment company" or controlled by an "investment company", within the
meaning of the Investment Company Act of 1940, as amended (the "1940 Act"). In
addition, the Company agrees that it shall not become an "investment company" or
a company "controlled" by an "investment company", within the meaning of the
1940 Act. In the event that the Company breaches the foregoing, the Company
shall forthwith notify the Purchasers and shall take immediate corrective action
to remedy such breach.
ARTICLE V
COVENANTS OF THE COMPANY
5.01 Affirmative Covenants of the Company Other Than Reporting
Requirements. Without limiting any other covenants and provisions hereof, the
Company covenants and agrees that, until a Qualified Public Offering, so long as
fifty percent (50%) of the Purchased Shares remain outstanding, it will perform
and observe the following covenants and provisions and will cause each
Subsidiary to perform and observe such of the following covenants and provisions
as are applicable to such Subsidiary:
(a) Payment of Taxes and Trade Debt. Pay and discharge all
taxes, assessments and governmental charges or levies imposed upon it
or upon its income or profits or business, or upon any properties
belonging to it, prior to the date on which penalties attach thereto,
and all lawful claims, which, if unpaid, might become a lien or charge
upon any properties of the
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<PAGE> 15
Company, provided that the Company shall not be required to pay any
such tax, assessment, charge, levy or claim that is being contested in
good faith and by appropriate proceedings if the Company shall have set
aside on its books and shall have funded, in accordance with generally
accepted accounting principles, adequate reserves with respect thereto.
Pay when due, or in conformity with customary trade terms, all lease
obligations, all trade debt, and all other Indebtedness incident to the
operations of the Company, except such as are being contested in good
faith and by appropriate proceedings if the Company shall have set
aside on its books and shall have funded, in accordance with generally
accepted accounting principles, adequate reserves with respect thereto.
(b) Maintenance of Insurance. Maintain with responsible and
reputable insurance companies or associations insurance (i) in such
amounts and covering such risks as is usually carried by companies of
similar size engaged in similar businesses and owning similar
properties in the same general areas in which the Company operates, and
(ii) a three year life insurance on Larry Bohn in the amount of
$1,000,000, payable to the Company.
(c) Preservation of Corporate Existence. Preserve and maintain
its corporate existence, rights, franchises and privileges in the
jurisdiction of its incorporation, and qualify and remain qualified as
a foreign corporation in each jurisdiction in which such qualification
is necessary or desirable in view of its business and operations or the
ownership of its properties. Preserve and maintain all material
licenses and other rights to use patents, processes, licenses,
trademarks, trade names, inventions, intellectual property rights or
copyrights owned or possessed by it and necessary to the conduct of its
business.
(d) Compliance with Laws. Comply in all material respects with
all applicable laws, rules, regulations and orders of any governmental
authority, noncompliance with which could materially adversely affect
its business or condition, financial or otherwise, except non-
compliance being contested in good faith through appropriate
proceedings so long as the Company shall have set up and funded
sufficient reserves, if any, required under generally accepted
accounting principles with respect to such items.
(e) Keeping of Records and Books of Account. Keep adequate
records and books of account, in which complete entries will be made in
accordance with generally accepted accounting principles consistently
applied, reflecting all financial transactions of the Company, and in
which, for each fiscal year, all proper reserves for depreciation,
depletion, obsolescence, amortization, taxes, bad debts and other
purposes in connection within its business shall be made.
(f) Maintenance of Properties, etc. Maintain and preserve all
of its properties necessary or useful in the proper conduct of its
business, in good repair, working order and condition, ordinary wear
and tear excepted, and from time to time make all necessary and proper
repairs, renewals, replacements, additions and improvements thereto.
Comply with the provisions of all material leases to which the Company
is a party or under which the Company occupies property so as to
prevent any loss or forfeiture thereof or thereunder.
(g) New Developments. Cause technological or other proprietary
developments, inventions, discoveries or improvements by the Company's
employees to be fully documented in accordance with the prevailing
industrial professional standards, cause all Key Employees and
consultants of the Company to execute appropriate confidentiality,
nondisclosure, patent
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and technology assignment agreements to the Company and, where possible
and appropriate, to file and prosecute United States and foreign patent
and copyright applications relating to and protecting such developments
on behalf of the Company.
(h) Employee Confidentiality, Non-competition and Intellectual
Property Assignment. As a condition to employment, cause each Key
Employee now or hereafter employed by the Company promptly to execute
an agreement substantially in the form of Exhibit 3.02F hereto or in a
form approved by the Board of Directors.
(i) Visitation Rights. Permit any Purchaser which holds no
less than 250,000 Purchased Shares (for which purpose Purchasers
designated as "affiliates" on Schedule 2.01A will be aggregated and
considered one Purchaser) (so long as each such Purchaser holds not
less than 50% of its Purchased Shares and/or Conversion Shares) or any
legal or financial representative thereof periodically upon reasonable
notice during normal business hours upon reasonable notice to examine
the books and records of the Company at the Company's premises and
permit such Purchasers (or any general partners thereof) to meet, and
to discuss the business affairs, finances and accounts of the Company
with any of its officers or directors and independent accountants.
(j) Board of Directors; Indemnification. The Company shall use
its best efforts to hold at least four (4) meetings of the Board each
year and at least once every ninety (90) days, except as otherwise
agreed to by the Board. The Charter or by-laws of the Company shall at
all times provide for the indemnification of the Board to the full
extent provided by the law of the jurisdiction in which the Company is
organized. The Company shall promptly reimburse in full each director
of the Company who is not an employee of the Company for all his
reasonable out- of-pocket expenses incurred in attending each meeting
of the Board of Directors of the Company or any committee thereof.
5.02 Reporting Requirements. Until the occurrence of a Qualified Public
Offering, the Company will furnish (x) all the following to each Purchaser that
holds not less than 250,000 Purchased Shares and/or Conversion Shares (for which
purpose Purchasers designated as "affiliates" on Schedule 2.01A will be
aggregated and considered one Purchaser):
(a) As soon as available and in any event within one hundred
twenty (120) days after the end of each fiscal year of the Company, a
copy of the annual audit report for such year for the Company and its
Subsidiaries, including therein consolidated balance sheets of the
Company and its Subsidiaries as of the end of such fiscal year and
consolidated statements of income and retained earnings and of changes
in financial position of the Company and its Subsidiaries for such
fiscal year, setting forth in each case in comparative form the
corresponding figures for the preceding fiscal year, together with
supporting notes thereto, all duly certified by the Company's Auditors;
(b) As soon as available and in any event within thirty (30)
days after the end of each month, unaudited consolidated balance sheets
of the Company and its Subsidiaries as of the end of such month and
unaudited consolidated statements of income and retained earnings and
of changes in financial position of the Company and its Subsidiaries
for the month and the fiscal period ending with such month, setting
forth in each case in comparative form the corresponding figures for
(i) the corresponding periods of the prior fiscal year, and (ii) the
budget for such periods, all in reasonable detail and duly certified
(subject to year-end audit
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<PAGE> 17
adjustments, none of which shall be material, individually or in the
aggregate) by the chief financial officer of the Company on the
Company's behalf as having been prepared in accordance with generally
accepted accounting principles consistently applied.
(c) As soon as available and in any event within forty-five
(45) days after the end of each fiscal quarter of the Company,
unaudited consolidated balance sheets of the Company and its
Subsidiaries as of the end of such quarter and unaudited consolidated
statements of income and retained earnings and of changes in financial
position of the Company and its Subsidiaries for the period ending with
such quarter, setting forth in each case in comparative form the
corresponding figures for the corresponding period of the prior fiscal
year, all in reasonable detail and duly certified (subject to year-end
audit adjustments none of which shall be material, individually or in
the aggregate) by the chief financial officer on behalf of the Company
as having been prepared in accordance with generally accepted
accounting principles consistently applied.
(d) At the time of delivery of each annual statement, a
certificate, executed by the Company's Auditors (but only if they will
provide such a certificate without any additional fee beyond their
normal audit charges; otherwise, such certificate will be provided on
behalf of the Company by the Company's chief financial officer) stating
that they have caused Section 5.01(a) (insofar as it relates to payment
of federal and state income taxes) hereof to be reviewed and have no
knowledge of any default by the Company or any Subsidiary in the
performance or observance of any of the provisions of this Agreement or
the Purchased Shares or, if such Company's Auditors have such
knowledge, specifying such default and the nature thereof;
(e) Promptly after receipt, a copy of any written report
submitted to the Company by the Company's Auditors in connection with
an annual or interim audit of the books of the Company and its
Subsidiaries made by such Auditors;
(f) Promptly after the commencement thereof, notice of all
actions, suits and proceedings before any court or governmental
department, commission, board, bureau, agency or instrumentality,
domestic or foreign, materially affecting the Company and the
Subsidiaries when considered as a whole of the type described in
Section 4.04 hereof;
(g) Prior to the commencement of each fiscal year of the
Company, a copy of the business plan (including development, operating
and strategic plans and objectives) and month by month budget for the
upcoming fiscal year (the "Annual Plan");
(h) Promptly after sending, making available, or filing the
same, all reports and financial statements that the Company or any
Subsidiary sends or makes available to the stockholders of the Company
or the Securities and Exchange Commission; and
(i) All other information respecting the business, properties
or the condition or operations, financial or otherwise, of the Company
or any of its Subsidiaries that any Purchaser may from time to time
reasonably request.
5.03 Confidentiality. Any confidential information obtained by any
holder of the Purchased Shares or Conversion Shares pursuant to this Agreement
shall be treated as confidential and shall not be disclosed to a third party
without the prior written consent of the Company, except that any Purchaser
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<PAGE> 18
may disclose such information to its investment advisers, attorneys,
accountants, consultants and other professionals to the extent necessary to
obtain their services in connection with such Purchaser's investment in the
Company, and to its officers, directors, shareholders and/or partners, and
except further that such information shall not be deemed confidential for the
purpose of enforcement of this Agreement or valuation of the Purchased Shares or
Conversion Shares and said information shall not be deemed confidential after it
becomes publicly known through no fault of the recipient. Notwithstanding the
foregoing, a holder of Purchased Shares shall be authorized to disclose
confidential information of the Company pursuant to the requirement or request
of a governmental body with jurisdiction, to the extent such disclosure is
required by a valid and applicable statute, rule, regulation, order, decree,
judgment or similar act, and notice is given by such holder of Purchased Shares
to the Company of any such requirement or request, which notice is adequate to
enable the Company to seasonably seek an appropriate protective order or
exemption from such requirement or request. Notwithstanding the foregoing, a
holder of Purchased Shares may disclose confidential information of the Company
to a governmental regulatory authority having jurisdiction over such holder
incident to an investigation or examination of such holder's affairs by such
regulatory authority, without providing the notice to the Company required by
the preceding sentence, in circumstances where such notice cannot practicably be
provided.
5.04 Reserve for Conversion Shares. The Company shall at all times
reserve and keep available out of its authorized but unissued shares of Common
Stock, for the purpose of effecting the conversion of the Purchased Shares and
otherwise complying with the terms of this Agreement, such number of its duly
authorized shares of Common Stock as shall be sufficient to effect the
conversion of the Purchased Shares from time to time outstanding or otherwise to
comply with the terms of this Agreement. If at any time the number of authorized
but unissued shares of Common Stock shall not be sufficient to effect the
conversion of the Purchased Shares or otherwise to comply with the terms of this
Agreement, the Company will forthwith take such corporate action 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 purposes. The Company will
obtain any authorization, consent, approval or other action by or make any
filing with any court or administrative body that may be required under
applicable state securities laws in connection with the issuance of shares of
Common Stock upon conversion of the Purchased Shares.
5.05 Small Business Administration Matters.
(a) The proceeds from the issuance and sale of the Series F
Preferred Stock will be used by the Company for working capital and
other general corporate purposes, which may include, without
limitation, one or more of the following as determined by the Company
in its sole discretion: administration, marketing obtaining capital and
other equipment and sales. The Company will provide to each Investor
identified as a licensed Small Business Investment Company on Exhibit
5.05 hereto (each an "SBIC Investor"), and to the Small Business
Administration (the "SBA"), reasonable access to the Company's books
and records for the purpose of confirming the use of proceeds by the
Company.
(b) For a period of one (1) year following the Closing, the
Company will not change the nature of its business activity if such
change would render the Company "ineligible" as provided in Section
107.720 of Title 13 of the Code of Federal Regulations (the "Federal
Regulations").
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<PAGE> 19
(c) So long as any SBIC Investor holds any securities of the
Company, the Company will at all times comply with the
non-discrimination requirements of Sections 112, 113 and 117 of Title
13 of the Federal Regulations.
(d) The Company will promptly provide each SBIC Investor who
so requests in writing to the Company, specifying in such written
request the nature of such required information in reasonable detail,
such information as such SBIC Investor requests, in order to permit
such SBIC Investor to comply with such SBIC Investor's obligations
under the Small Business Act of 1958, as amended (the "Small Business
Act"), and the regulations promulgated thereunder and related thereto.
Any submission of financial information pursuant to this Section 5.05
shall be under cover of a certificate executed by the Company's
President, Chief Executive Officer, Chief Financial Officer or
Treasurer, certifying that such information (i) relates to the Company,
(ii) to the best of the Company's knowledge is accurate and (iii) if
applicable, has been audited by the Company's independent auditors.
(e) For purposes of this Agreement, a "Regulatory Problem"
means any set of facts or circumstances wherein both (i) it has been
asserted by any governmental regulatory agency with jurisdiction over
an SBIC Investor that such SBIC Investor is not entitled to hold, or
exercise any significant right with respect to equity securities of the
Company, including the Series A Preferred Stock or the currently
unissued Common Stock of the Company into which the Series A Preferred
Stock is convertible and (ii) such SBIC Investor reasonably determines
that such assertion is meritorious and that the solutions proposed by
such SBIC Investor are necessary to cure such regulatory violation by
such SBIC Investor. If an SBIC Investor determines that it has a
Regulatory Problem, it will so notify the Company and the other
Investors as soon as practicable in writing. After giving such notice,
such SBIC Investor will have the right to transfer its Series F
Preferred Stock, and/or the shares of Common Stock issuable upon
conversion of such Series F Preferred Stock, without regard to any
restrictions on transfer set forth in this Agreement or any other
agreement identified herien (collectively, the "Related Agreements") or
in the Company's Certificate of Incorporation or Bylaws, other than
restrictions related to securities laws, provided that the transferee
agrees to become a party to this Agreement and/or to such relevant
Related Agreements, and acknowledges that such securities will become
again, after such transfer to such transferee, bound by all then
relevant provisions relating to further transfer thereof by transferee,
and the Company will take all such actions as are reasonably requested
by such SBIC Investor in order to (i) effectuate and facilitate any
transfer by such SBIC Investor of any securities of the Company then
held by such SBIC Investor to any person designated by such SBIC
Investor, (ii) permit such SBIC Investor (or any of its affilites) to
exchange all or any portion of any voting security of the Company then
held by such SBIC Investor on a share-for-share basis for shares of a
nonvoting security of the Company as will be created by action of the
Board, and, to the extent required by law, its stockholders, which
nonvoting security will be identical in all respects to the voting
security exchanged for it, except that it will be nonvoting and will be
convertible into a voting security on such terms, solely as required to
allow such SBIC Investor to comply with then-applicable regulatory
considerations, as are requested by such SBIC Investor in good faith,
and (iii) amend, and use its reasonable efforts to cause such other
relevant parties, including without limitation, the Company's
stockholders, to take such actions as are legally required in order to
amend, this Agreement, the Related Agreements, the Company's
Certificate of Incorporation, the Company's Bylaws and related
agreements and instruments in order to effectuate and reflect the
foregoing. The parties to this Agreement (other than the Company) will
vote all of the Company's voting securities held by them, and will
execute and deliver all
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<PAGE> 20
documents and instruments requested by them by the Company, in favor of
and to effect such amendments and actions.
ARTICLE VI
MISCELLANEOUS
6.01 No Waiver; Cumulative Remedies. No failure or delay on the part of
any Purchaser, or any other holder of the Purchased Shares or Conversion Shares
in exercising any right, power or remedy hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise of any such right, power or
remedy preclude any other or further exercise thereof or the exercise of any
other right, power or remedy hereunder. The remedies herein provided are
cumulative and not exclusive of any remedies provided by law.
6.02 Amendments, Waivers and Consents. Changes in or additions to this
Agreement may be made, and compliance with any covenant or provision herein or
therein set forth may be omitted or waived, if the Company shall obtain consent
thereto in writing from Persons holding an aggregate of at least sixty (60%)
percent of the issued and outstanding and issuable Conversion Shares (treating
for this purpose all Purchased Shares as if converted to Conversion Shares) and
shall, in each such case, deliver copies of such consent in writing to any
holders who did not execute the same; provided, however, that no such consent
shall be effective to reduce the percentage of the consent of the holders of the
Conversion Shares which is required under this Section nor to affect or alter
the rights under Section 5.01(i) and 5.02 hereof of any Purchaser who purchases
at least 250,000 Purchased Shares at the Closing pursuant to this Agreement,
without the consent of such party (so long as it holds any Purchased Shares
and/or Conversion Shares). Any waiver or consent may be given subject to
satisfaction of conditions stated therein and any waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.
6.03 Management Compensation. The Company will not grant increases in
the compensation of any officer or other member of senior management or issue
any stock options without authorization by the Board of Directors.
6.04 Addresses for Notices, etc. All notices, requests, demands and
other communications provided for hereunder shall be in writing (including
telegraphic communication) and sent by registered or certified mail (return
receipt requested), by Federal Express, DHL or other guaranteed overnight
delivery service, or by telex or telegraph, or by facsimile transmission or
delivered to the applicable party at the addresses indicated below:
If to the Company: net.Genesis Corp.
215 First Street
Cambridge, MA 02142
Attention: Larry Bohn, President
With a Copy to: Foley, Hoag & Eliot LLP
One Post Office Square
Boston, MA 02109
Attention: John D. Patterson, Jr., Esq.
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<PAGE> 21
If to the Purchasers: at the addresses set forth under their
respective names on Exhibit 2.01A hereto.
If to any other holder
of the Purchased Shares
or Converted Shares: at such holder's address for notice as set
forth in the register maintained by the
Company;
or, as to each of the foregoing, at such other address as shall be designated by
such Person in a written notice to the other party complying as to delivery with
the terms of this Section.
All notices, requests, consents and other communications hereunder shall be
deemed to have been received (i) if by hand, at the time of the delivery thereof
to the receiving party at the address of such party set forth above or as so
designated, (ii) if made by telex, telecopy or facsimile transmission, at the
time that receipt thereof has been acknowledged by electronic confirmation or
otherwise, (iii) if sent by overnight courier, on the next business day
following the day such notice is delivered to the courier service, or (iv) if
sent by registered or certified mail, on the fifth business day following the
day such mailing is made.
6.05 Costs, Expenses and Taxes. The Company agrees to pay at the
Closing the reasonable fees and out-of-pocket expenses of (i) Purchasers'
Special Counsel in preparing and documenting this Agreement and the agreements
referred to herein not to exceed $25,000 and (ii) legal counsel, independent
public accountants and other outside experts reasonably retained by the
Purchasers in connection with the amendment or enforcement of this agreement,
the Purchased Shares, the Conversion Shares and other instruments and documents
to be delivered hereunder or thereunder. In addition, the Company shall pay any
and all stamp and other taxes payable or determined to be payable in connection
with the execution and delivery of this Agreement, the Purchased Shares, the
Conversion Shares and other instruments and documents to be delivered hereunder
or thereunder and agrees to save the Purchasers harmless from and against any
and all liabilities with respect to or resulting from any delay in paying or
omission to pay such taxes and filing fees.
6.06 Binding Effect; Assignment. This Agreement shall be binding upon
and inure to the benefit of the Company and the Purchasers and their respective
successors and assigns, except that the Company shall not have the right to
assign its rights hereunder or any interest herein without the prior written
consent of the Purchasers obtained in accordance with Section 6.02 hereof and
the rights and interests of the Purchasers shall be assignable without the
consent of the Company to any assignee.
6.07 Survival of Covenants, Representations and Warranties. All
covenants, representations and warranties made in this Agreement, the Purchased
Shares, or any other instrument or document delivered in connection herewith or
therewith, shall survive the execution and delivery hereof or thereof, provided
that such representations and warranties shall survive for a period of three (3)
years after the date hereof.
6.08 Prior Agreements. This Agreement constitutes the entire agreement
between the parties and supersedes any prior understandings or agreements
concerning the purchase of Series F Preferred Stock.
6.09 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).
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<PAGE> 22
6.10 Headings. Article, section and subsection headings in this
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose.
6.11 Sealed Instrument. This Agreement is executed as an instrument
under seal.
6.12 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Agreement by signing
any such counterpart.
6.13 Further Assurances. From and after the date of this Agreement,
upon the reasonable request of the Purchasers, the Company and each Subsidiary
shall execute and deliver such instruments, documents and other writings as may
be necessary or desirable to confirm and carry out and to effectuate fully the
intent and purposes of this Agreement and the Purchased Shares.
6.13 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 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.
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<PAGE> 23
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
COMPANY:
ATTEST: NET.GENESIS CORP.
By: /s/ John Delea By: /s/ Lawrence Bohn
------------------ ---------------------
Name: John Delea Name: Larry Bohn
Title: Secretary Title: President
(see counterpart signature pages)
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<PAGE> 24
Series F Convertible Preferred Stock Purchase Agreement
*Counterpart Signature Page*
INVESTORS:
CHARLES RIVER PARTNERSHIP VII
By:/s/ Ted Dintersmith
-----------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
BESSEMER VENTURE PARTNERS IV L.P.
By: Deer IV & Co. L.L.C.,
General Partner
By:/s/ Robert Buescher
----------------------------------
Robert H. Buescher, Manager
BVP IV SPECIAL SITUATIONS L.P.
By: Deer IV & Co. L.L.C.,
General Partner
By:/s/ Robert Buescher
----------------------------------
Robert H. Buescher, Manager
BESSEC VENTURES IV L.P.
By: Deer IV & Co. L.L.C.,
General Partner
By:/s/ Robert Buescher
----------------------------------
Robert H. Buescher, Manager
/s/ Robert Buescher
--------------------------------------------
Robert H. Buescher
-24-
<PAGE> 25
Series F Convertible Preferred Stock Purchase Agreement
*Counterpart Signature Page*
/s/ Robert Buescher
------------------------------------------------
Robert H. Buescher, attorney-in-fact signing for
those designated below by the "*" notation
*William T. Burgin
*Brimstone Island Co. L.P.
*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
*John G. MacDonald
*Howard S. Markowitz
*Edward Park
*Robert J.S. Roriston
*Steven L. Williamson
*Quentin Corporation
HAMBRECHT & QUIST
By:/s/ Robert Savoie
----------------------------------------------
Name:
-----------------------------------------
Title:
----------------------------------------
BAYVIEW INVESTORS
By: BancBoston Robertson Stephens
General Partner
By: illegible
-----------------------------------------
Authorized Signatory
-25-
<PAGE> 26
Series F Convertible Preferred Stock Purchase Agreement
*Counterpart Signature Page*
ONELIBERTY FUND IV
By: OneLiberty Partners IV LLC
By:/s/ Stephen J. Ricci
-----------------------------------
Stephen J. Ricci, Manager
ONELIBERTY ADVISORS IV LP
By: OneLiberty Partners IV LLC
By:/s/ Stephen J. Ricci
-----------------------------------
Stephen J. Ricci, Manager
ST. PAUL VENTURE CAPITAL V, LLC
By:
By: illegible
---------------------------------
Its
ST. PAUL VENTURE CAPITAL AFFILIATES
FUND I, LLC
By: St. Paul Venture Capital, Inc.
its Manager
By: illegible
---------------------------------
Its
/s/ Katherine R. Kirk
---------------------------------------------
Kathy Kirk
-26-
<PAGE> 27
Series F Convertible Preferred Stock Purchase Agreement
*Counterpart Signature Page*
PICKREL WOOLEY 1999 TRUST
By: illegible
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
-27-
<PAGE> 28
Series F Convertible Preferred Stock Purchase Agreement
*Counterpart Signature Page*
BankAmerica Ventures
By:/s/ Rory O'Driscoll
------------------------------------------
Name: Rory O'Driscoll
----------------------------------------
Title: Principal
---------------------------------------
GS CAPITAL PARTNERS
By
-------------------------------------------
NEXUS GROUP
By
-------------------------------------------
Boston Milennia Partners Limited Partnership
By: Glen Partners Limited Partnership
By: illegible
------------------------------------------
Name:_____________________, General Partner
Boston Milennia Associates Partnership
By: illegible
------------------------------------------
Name:_____________________, General Partner
-28-
<PAGE> 29
Series F Convertible Preferred Stock Purchase Agreement
*Counterpart Signature Page*
Seligman Communications and Information Fund, Inc.
By:
-----------------------------------------------
Harte-Hanks, Inc.
By: illegible
-----------------------------------------------
Name:
---------------------------------------------
Title:
--------------------------------------------
Hambrecht & Quist Employee Venture Fund, L.P. II
By: H&Q Venture Management, L.L.C.,
Its General Partner
By: /s/ Robert N. Savoie
-----------------------------------------------
Name:
---------------------------------------------
Title:
--------------------------------------------
Comdisco, Inc.
By: illegible
-----------------------------------------------
Name:
---------------------------------------------
Title:
--------------------------------------------
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<PAGE> 30
Series F Convertible Preferred Stock Purchase Agreement
*Counterpart Signature Page*
The Goldman Sachs Group, Inc.
By: illegible
-----------------------------------------------
Name:
---------------------------------------------
Title:
--------------------------------------------
Stone Street Fund 1999, L.P.
By: Stone Street 1999 Corp.,
Its General Partner
By: illegible
-----------------------------------------------
Name:
---------------------------------------------
Title:
--------------------------------------------
Bridge Street Fund 1999, L.P.
By: Stone Street 1999 Corp.,
Its General Partner
By: illegible
-----------------------------------------------
Name:
---------------------------------------------
Title:
--------------------------------------------
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<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 January 24, 2000, except for Note 8, as to which the date is
February 2, 2000, 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
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 16, 2000
