<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 5, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------
NETOBJECTS, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7372 94-3233791
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Classification Code Number) Identification
organization) No.)
</TABLE>
301 GALVESTON DRIVE
REDWOOD CITY, CALIFORNIA 94063
(650) 482-3200
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
------------------
SAMIR ARORA, CHIEF EXECUTIVE OFFICER
301 GALVESTON DRIVE
REDWOOD CITY, CALIFORNIA 94063
(650) 482-3200
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------
COPIES TO:
ALAN B. KALIN JOHN W. WHITE
LAURA T. PUCKETT CRAVATH, SWAINE & MOORE
MARK F. HOFFMAN WORLDWIDE PLAZA
GRAHAM & JAMES LLP 825 EIGHTH AVENUE
600 HANSEN WAY NEW YORK, NEW YORK 10019-7475
PALO ALTO, CALIFORNIA 94304-1043
------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO 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, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF SECURITIES PROPOSED MAXIMUM AMOUNT OF
TO BE REGISTERED AGGREGATE OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C>
Common stock, par value $0.01 per share............. $70,000,000 $19,460
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o).
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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION
FEBRUARY 5, 1999
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
Shares
[LOGO]
Common Stock
---------
This is the initial public offering of NetObjects, Inc., and we are offering
shares of our common stock. No public market currently exists for our
shares. We anticipate that the initial public offering price will be between
$ and $ per share.
We have applied to list the common stock on the Nasdaq National Market under the
symbol "NETO."
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
BEGINNING ON PAGE 7.
<TABLE>
<CAPTION>
PER SHARE TOTAL
----------- --------------
<S> <C> <C>
Public offering price(1)............................................ $ $
Underwriting discounts.............................................. $ $
Proceeds to NetObjects.............................................. $ $
</TABLE>
(1) In connection with the offering, the underwriters have
reserved up to shares of our common stock for sale at
the initial public offering price to employees and friends of
NetObjects.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
NetObjects has granted the underwriters the right to purchase up to
additional shares of common stock at the initial public offering price to
cover over-allotments.
BT ALEX. BROWN
BANCBOSTON ROBERTSON STEPHENS
PIPER JAFFRAY INC.
, 1999
<PAGE>
DESCRIPTION OF ARTWORK
OUTSIDE PORTION OF GATEFOLD:
GRAPHIC DEPICTING: e-publishing, e-applications, and e-commerce, with arrows
pointing to e-business
INTRODUCTORY TEXT:
The web is changing the world. It's changing the way companies communicate,
do business, and grow. To reap the benefits of improved efficiency, businesses
need a presence on the web. They need an e-business site. One that builds
relationships with employees, partners and customers. One that lets companies
implement e-publishing, e-applications and e-commerce. NetObjects software,
professional services and online resources make it possible for businesses,
large or small, to easily build e-business sites or intranets that let them
leverage the power of the web.
HEADLINE COPY: Software Professional Services Online Resources
GRAPHICS OF PRODUCTS, PROFESSIONAL SERVICES and ONLINE RESOURCES:
(1) two overlapping product boxes: NetObjects Fusion 4.0 for Windows and
NetObjects Authoring Server 3.0
(2) photo of service people
(3) graphic showing overlapping screen shots of four web sites (left to right):
NetObjects corporate site, eFuse.com, eSiteStore.com, and eScriptZone.com
TEXT AT BOTTOM: When it comes to evaluating NetObjects applications, the
industry experts have spoken.
GRAPHICS OF LOGOS:
(1) NetObjects corporate logo
(2) Internet World logo
(3) Cross Roads award logo
(4) PC Magazine award logo
(5) JavaWorld award logo
(6) Web Developer award logo
(7) CNet logo
(8) IDEA logo
(9) InfoWorld logo
(10) IBM e-business logo
LEFT-HAND PAGE OF GATEFOLD:
TITLE: Their success is our success
INTRODUCTORY TEXT:
More than 300,000 copies of NetObjects Fusion have been delivered to date,
and more than 1 million web pages or web sites have been built using NetObjects
Fusion. In addition, over 500 businesses worldwide have deployed NetObjects
Authoring Server. Take a look at how some of our customers are using NetObjects
applications to build web sites that sell products, provide virtual tours, build
online catalogs, auction collectible goods, and more.
NINE GRAPHICS DEPICTING SCREEN SHOTS OF CUSTOMER WEB SITES
<PAGE>
CAPTIONS (ONE FOR EACH SCREEN SHOT, LEFT TO RIGHT, TOP TO BOTTOM):
(1) www.justforfeet.com
(2) www.collectit.net
(3) www.cellone-sf.com
(4) www.shell-lubricants.com
(5) www.northstarnursery.com
(6) www.leasesource.com
(7) www.christmas.com
(8) www.krause.com
(9) www.realty.com
RIGHT-HAND PAGE OF GATEFOLD:
TITLE: Strategic relationships we can count on
INTRO PARAGRAPH:
We have aligned with industry leaders through a host of partnership
agreements that supplement our core strengths. Equity, technology, co-marketing
and distribution partners extend our reach, enhance our products, complement our
sales and distribution efforts and allow us to continue our leadership in web
business solutions.
TWELVE CORPORATE LOGOS (LEFT TO RIGHT, TOP TO BOTTOM):
(1) IBM
(2) Lotus
(3) Novell
(4) Mitsubishi
(5) PeopleSoft Global Alliance Program
(6) Allaire
(7) CompuServe
(8) Compaq
(9) SmartAge
(10) Zip2
<PAGE>
PROSPECTUS SUMMARY
YOU SHOULD READ THE FOLLOWING SUMMARY TOGETHER WITH THE MORE DETAILED
INFORMATION REGARDING NETOBJECTS AND THE COMMON STOCK BEING SOLD IN THE
OFFERING, AS WELL AS OUR CONSOLIDATED FINANCIAL STATEMENTS AND NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS APPEARING ELSEWHERE IN THIS PROSPECTUS.
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS. THE OUTCOME OF THE
EVENTS DESCRIBED IN THESE FORWARD-LOOKING STATEMENTS IS SUBJECT TO RISKS AND
ACTUAL RESULTS COULD DIFFER MATERIALLY. THE SECTIONS ENTITLED "RISK FACTORS,"
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" AND "BUSINESS," AS WELL AS THOSE DISCUSSED ELSEWHERE IN THIS
PROSPECTUS, CONTAIN A DISCUSSION OF SOME OF THE FACTORS THAT COULD CONTRIBUTE TO
THESE DIFFERENCES.
The terms "NetObjects," "we," "us," and "our" refer to NetObjects, Inc. and
our subsidiary, NetObjects Ltd.
NETOBJECTS
We are a leading provider of e-business software and solutions that enable
small to medium-sized companies and large-scale enterprises to build, deploy and
maintain web sites on the Internet and corporate intranets. Our e-business
solutions address the growing challenges faced by businesses in capturing the
explosive growth of the Internet as an online business medium by helping them
build web sites that can publish content, conduct electronic commerce and run
web applications. In 1996, we pioneered the web site building product category
with the introduction of our award-winning flagship product, NetObjects Fusion.
Since 1996, we have released enhanced versions of NetObjects Fusion, and we have
introduced other products, including NetObjects Authoring Server, a scalable
client-server application for large-scale enterprises and corporate departments,
which facilitates controlled, collaborative building of intranet sites. We have
also built popular online resources, including eFuse.com, launched in December
1998, that target communities of business users and provide sources of
information, products and services for building business web sites. In addition,
in October 1998 we began offering professional services to our business
customers. By offering these services, we believe that we can better serve their
web site planning, building and maintenance needs. We have established a premier
Internet brand and estimate that over 300,000 copies of NetObjects Fusion have
been delivered to date, and more than 1,000,000 web pages or web sites have been
built using NetObjects Fusion.
Our flagship product, NetObjects Fusion, is an easy-to-use desktop software
application for building business web sites that support rich content,
e-commerce functionality and database interaction. NetObjects Fusion provides an
intuitive, visual interface that helps automate and integrates many site
building functions, including site layout and design, page building and content
management. NetObjects Fusion's open architecture supports a wide range of
platforms, including web browsers, databases and web servers. Examples of
NetObjects Fusion customers include small to medium-sized companies, such as
Christmas.com (Christmas Information Services), LeaseSource.com (LeaseSource
Online) and Realty.com (HTTP Development, Inc.), as well as large-scale
enterprises, such as DaimlerChrysler AG and Blue Cross Blue Shield. Our second
product offering, NetObjects Authoring Server, is a scalable client-server
application targeted at large-scale enterprises and corporate departments
developing web sites involving multiple builders and content contributors.
NetObjects Authoring Server offers the same features and open architecture as
NetObjects Fusion while providing a scalable, controlled, collaborative
environment for multiple concurrent users. Examples of NetObjects Authoring
Server customers include NationsBank Corporation, Cellular One (Bay Area), The
Boeing Company, VLSI Technology, Inc. and Bayer AG.
<PAGE>
We maintain several web sites providing information, products and services
to business web site builders. NetObjects.com offers information, products,
solutions and support for our customers. Our recently introduced eFuse.com site
is the first online resource to provide integrated content, products and
solutions for small and medium-sized businesses to help plan, produce, publish
and promote their web sites. eScriptZone.com provides articles, tutorials,
software and an online community of forums and newsgroups for webmasters and
corporate web applications builders. eSiteStore.com is our online retail store
that provides a one-stop shopping destination for businesses to purchase our
software, third-party software and components and also offers online services to
customers.
As part of our strategy to provide complete e-business solutions, we have
formed technology relationships with other Internet companies. Many of these
companies have built products with extensions for NetObjects Fusion and
NetObjects Authoring Server, such as Allaire Cold Fusion, iCat Commerce Online,
Lotus Domino, Beatnik audio software and IBM HotMedia. In addition, we have
built extensions for the Microsoft ASP Site Server. These extensions provide us
with broader platform connectivity and interoperability and position our
products as the open platforms of choice for web site building. We also provide
integrated web solutions with key online service providers such as CompuServe,
SmartAge, T-Online and Zip2 for hosting and promoting e-business sites.
To support our product sales, we have product bundling agreements that
provide greater brand recognition and awareness, such as the bundling of
NetObjects Fusion with Lotus Designer for Domino, IBM WebSphere Studio and
Novell Netware for Small Business. In addition, our strategic relationship with
International Business Machines Corporation, or IBM, has provided us with sales
and marketing benefits, including access to IBM and Lotus sales and distribution
channels, co-marketing and co-promotion benefits and credibility in the
marketplace.
We have experienced rapid growth since the launch of the first commercial
version of NetObjects Fusion in October 1996. Our total revenues have grown from
a base of $0 for fiscal year 1996 to $7.6 million for fiscal year 1997 and to
$15.3 million for fiscal year 1998. Traffic to our online web sites has grown
from approximately 800,000 visitors in 1996 to approximately 2.5 million
visitors in 1998. New visitors provided approximately half of the traffic to our
web site in 1998. In addition, over 500 businesses worldwide have deployed
NetObjects Authoring Server, or its predecessor NetObjects Team Fusion.
We incorporated in Delaware in November 1995 and have a limited operating
history. Our principal executive offices are located at 301 Galveston Drive,
Redwood City, CA 94063, and our telephone number is (650) 482-3200. Our web site
can be found at www.netobjects.com. Information contained on our web sites does
not constitute part of this prospectus.
NetObjects-Registered Trademark-, NetObjects Fusion-TM-, NetObjects
Authoring Server-TM-, NetObjects TeamFusion-TM-, NetObjects Fusion Enterprise
Edition-TM-, NetObjects ScriptBuilder-TM-, NetObjects Fusion Personal
Edition-TM-, SiteStructure Editor-TM-, PageDraw-Registered Trademark-,
SiteStyles-Registered Trademark-, SiteStyles Manager-TM-, SiteProducer-TM-,
StyleObject-TM-, WebDraw-TM-, PublishSet-TM-, AutoSites-TM-, The Web Needs
You-TM- and BeanBuilder-TM- are our registered and unregistered trademarks,
service marks and trade names. This prospectus also includes trademarks, service
marks and trade names other than those identified in this paragraph, each of
which is the property of its respective holder.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by NetObjects.............. shares
Common stock to be outstanding after the
offering...................................... shares(1)
Use of Proceeds................................. Repayment of $19.0 million of secured debt owed to IBM Credit
Corporation, a subsidiary of IBM, debt of $3.45 million plus
accrued interest that we expect to owe to IBM under notes
issued prior to the closing of the offering, working capital
requirements and other general corporate purposes. See "Use of
Proceeds."
Proposed Nasdaq National Market
symbol........................................ NETO
</TABLE>
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
PERIOD FROM THREE MONTHS ENDED
NOVEMBER 21, 1995 YEAR ENDED
(INCEPTION) TO SEPTEMBER 30, DECEMBER 31,
SEPTEMBER 30, -------------------- --------------------
1996 1997 1998 1997 1998
------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Total revenues.......................................... $ -- $ 7,567 $ 15,270 $ 2,285 $ 5,617
Cost of revenues........................................ -- 772 5,093 278 2,083
Gross profit............................................ -- 6,795 10,177 2,007 3,534
Operating loss.......................................... (6,741) (17,564) (20,970) (5,892) (4,094)
Nonrecurring interest charge on beneficial conversion
feature of convertible debt(2)........................ -- -- -- -- (3,792)
Net loss................................................ (6,695) (17,799) (22,224) (6,067) (8,600)
Basic and diluted net loss per share applicable to
common stockholders(3)................................ $ (4.89) $ (10.89) $ (13.11) $ (3.72) $ (4.64)
Shares used to compute basic and diluted net loss per
share applicable to common stockholders(3)............ 1,370 1,634 1,695 1,633 1,854
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-------------------------
ACTUAL AS ADJUSTED(4)
--------- --------------
<S> <C> <C>
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash..................................................................................... $ 1,288
Working capital (deficit)................................................................ (23,390)
Total assets............................................................................. 7,502
Short-term borrowings from IBM and IBM Credit Corp....................................... (18,813)
Long-term obligations, less current portion.............................................. 7,890
Accumulated deficit...................................................................... (55,318)
Stockholders' deficit.................................................................... (29,177)
</TABLE>
5
<PAGE>
- ------------------------
(1) Excludes (i) 2,629,575 shares of common stock issuable at a weighted average
exercise price of $2.38 per share upon exercise of stock options outstanding
at December 31, 1998; (ii) 258,651 shares reserved for future issuance under
our stock option plans; (iii) 300,000 shares reserved for issuance under our
1999 Employee Stock Purchase Plan, and assumes (a) the conversion of each
outstanding share of preferred stock into one share of common stock, par
value $0.01 per share, upon the effectiveness of the offering, including
1,654,041 shares of common stock issuable upon conversion of outstanding 10%
Senior Subordinated Secured Convertible Promissory Notes, or convertible
notes, and (b) the issuance of 3,051,803 shares of common stock, reflecting
exercise of outstanding warrants to purchase convertible preferred stock at
a weighted average exercise price of $4.82 per share by surrendering shares
of common stock as payment of the exercise price, assuming a fair market
value per share of common stock in the offering of $ . See
"Management--Benefit Plans," "Certain Transactions--Sales of Common Stock
and Preferred Stock" and "Description of Capital Stock."
(2) Nonrecurring non-cash interest charge based on the difference between the
price per share for Series F-2 preferred stock issued to Novell, Inc. and MC
Silicon Valley, Inc. and for Series E-2 preferred stock issuable to IBM and
another investor upon conversion of certain convertible notes in accordance
with EITF Topic D-60. See note 8 of notes to consolidated financial
statements. Under the terms of an April 1997 contract with IBM, we agreed
that any funds provided by IBM for our operations during 1997 and 1998
through the sale of equity securities to IBM would have a per share price
not higher than $6.68. In October and November 1998, we issued preferred
stock to Novell, Inc. and MC Silicon Valley, Inc. at a price per share of
$9.00. See "Certain Transactions--IBM Relationship."
(3) Does not include the effect of outstanding shares of convertible preferred
stock, shares from the assumed conversion of convertible notes and shares
issuable upon the exercise of stock options and warrants that are considered
anti-dilutive pursuant to Statement of Financial Accounting Standards (SFAS)
No. 123. For an explanation of basic and diluted net loss per share
applicable to common stockholders and the number of shares used to compute
basic and diluted net loss per share applicable to common stockholders, see
note 1 of notes to consolidated financial statements.
(4) As adjusted to give effect to the (i) conversion of all outstanding shares
of preferred stock into common stock upon the effectiveness of the offering,
including 1,654,041 shares of common stock issuable upon conversion of the
convertible notes; (ii) sale of shares of common stock to be
sold in the offering at the initial public offering price of $ per
share; (iii) application of the estimated net proceeds of the offering; (iv)
issuance of 3,051,803 shares of common stock, reflecting a "cashless"
exercise of outstanding Series C, Series E and Series E-2 warrants to
purchase convertible preferred stock at a weighted average exercise price of
$4.82 per share by surrendering shares of common stock as payment of the
exercise price, assuming a fair market value per share of common stock in
the offering of $ . See "Use of Proceeds," "Capitalization" and
"Description of Capital Stock."
6
<PAGE>
RELATIONSHIP WITH IBM
On April 11, 1997, IBM acquired approximately 80% of our common stock (on an
as-converted basis) by exchanging shares of IBM common stock for substantially
all of our outstanding preferred stock. Revenues from IBM have represented a
substantial percentage of our total revenues, representing approximately 36% and
50% of our total revenues in fiscal year 1998 and in the first quarter of fiscal
year 1999, respectively. Almost all of our revenues from IBM in fiscal year 1998
resulted from two significant sources. The first comprised royalties paid by
Lotus Development Corporation, an IBM subsidiary, to bundle NetObjects Fusion
with Lotus products. The second consisted of services related to integrating our
software with IBM's WebSphere software products.
When IBM acquired approximately 80% of our stock, IBM did not provide us
with equity financing. Subsequently, through December 31, 1998, IBM has provided
us with approximately $40 million of financing through $10.5 million in
nonrefundable cash prepayments against future royalties for their licensing of
our products and our charges for the provision of services, $19.0 million in a
secured credit facility with IBM Credit Corp., and $10.1 million in convertible
debt securities and warrants to purchase convertible preferred stock. We have an
option to raise an additional $3.45 million through the sale of notes and
warrants to IBM which we may exercise prior to the completion of the offering.
After the offering, IBM will have only limited commitments to provide additional
revenues and will have no obligation to provide additional financing.
IBM currently markets and sells our products primarily in bundles with IBM
software products, and also individually, for which we receive royalties. Lotus
also currently markets, bundles and sells our products and has created foreign
language, or "localized," versions of our software, for which it pays us reduced
royalties on products that it sells. IBM will retain control of NetObjects after
the offering and may continue to cooperate with us in a number of areas,
including product bundling and sales and marketing. The interests of IBM may
conflict with our interests, and IBM is free to compete with us. IBM's
controlling interest in us, our dependence on IBM and the potential conflicts of
interests and potential competition associated with IBM's relationship with us
represent significant risks for an investor acquiring our stock. See "Risk
Factors--Dependence on IBM and Potential Conflicts," "Business--NetObjects
Strategy," "--Sales, Marketing and Distribution" and "--Competition," "Certain
Transactions" and "Principal Stockholders."
7
<PAGE>
RISK FACTORS
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD CAREFULLY CONSIDER
THE RISKS DESCRIBED BELOW AND THE OTHER INFORMATION IN THIS PROSPECTUS BEFORE
DECIDING TO INVEST IN OUR STOCK. WHILE WE HAVE IDENTIFIED THE FOLLOWING RISKS
AND UNCERTAINTIES, THERE MAY BE ADDITIONAL RISKS AND UNCERTAINTIES OF WHICH WE
ARE NOT AWARE OR WHICH WE CURRENTLY DEEM IMMATERIAL THAT COULD IMPAIR OUR
OPERATIONS.
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED
IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING
THOSE DESCRIBED ELSEWHERE IN THIS PROSPECTUS.
NEITHER IBM'S OWNERSHIP OF OUR SECURITIES NOR IBM'S RELATIONSHIP AND
AGREEMENTS WITH OUR COMPANY IS A RECOMMENDATION BY IBM THAT INVESTORS SHOULD
ACQUIRE OR HOLD OUR STOCK. IBM WILL HAVE THE UNRESTRICTED ABILITY TO SELL ALL OR
PART OF ITS STOCK IN OUR COMPANY WHEN PERMISSIBLE UNDER APPLICABLE SECURITIES
LAWS AND AGREEMENTS WITH THE UNDERWRITERS. IBM HAS NO OBLIGATION TO RESELL OUR
PRODUCTS BEYOND THE LIMITED AMOUNT REQUIRED BY EXISTING AGREEMENTS. AFTER THE
OFFERING, IBM WILL HAVE NO OBLIGATION TO PROVIDE US WITH ADDITIONAL FINANCING.
SEE "RISK FACTORS--DEPENDENCE ON IBM AND POTENTIAL CONFLICTS," "CERTAIN
TRANSACTIONS," "PRINCIPAL STOCKHOLDERS" AND "SHARES ELIGIBLE FOR FUTURE SALE."
HISTORY OF SUBSTANTIAL LOSSES; EXPECTATION OF FUTURE LOSSES; "GOING CONCERN"
QUALIFICATION FROM AUDITORS
We were incorporated in November 1995 and first recognized revenues in
October 1996. You should consider our business and prospects in light of the
risks and difficulties frequently encountered by early-stage companies in
rapidly evolving markets, such as the market for web site building software and
services. To date, most of our revenues from software licensing fees have come
from sales of NetObjects Fusion. We have incurred substantial costs to develop,
introduce and enhance our main products, NetObjects Fusion and NetObjects
Authoring Server, to offer our online and professional services, to build brand
awareness and to grow our business. As a result, we have incurred large
operating losses since inception, and we expect to continue to incur substantial
operating losses for the foreseeable future.
As of December 31, 1998, we had an accumulated deficit of approximately
$55.3 million, $42.8 million of which has been incurred since April 1997. To
date, a significant portion of our total revenues has come from IBM, which
agreed to advance us $10.5 million in nonrefundable cash prepayments against
future royalties for their licensing of our products and our charges for the
provision of services. The prepayments have been recorded as deferred revenues
from IBM on our balance sheet. We are recognizing these revenues on a per unit
basis and as reimbursements of services as they are provided to IBM. KPMG LLP,
in their independent auditors' report, have expressed "substantial doubt" as to
our ability to continue as a going concern based on significant operating losses
since inception and significant debt and capital deficit as of September 30,
1998. The consolidated financial statements do not include any adjustments that
might result from the outcome of that uncertainty. Our ability to continue as a
going concern is dependent upon the net proceeds from this offering. The net
proceeds from the offering are estimated to be $ , after the
repayment of a $19 million secured credit facility with IBM Credit Corp. and
$3.45 million that we expect to owe to IBM under notes to be issued prior to the
closing of the offering. This credit facility will be repaid out of the proceeds
of this offering and the credit facility will terminate. We believe the net
proceeds from the offering, together with other available cash resources, will
be sufficient to meet our cash needs through September 30, 2000. One of the
closing conditions to this
8
<PAGE>
offering is that KPMG LLP reissue their independent auditors' report. Such
report shall exclude the explanatory paragraph that states that our recurring
losses and net capital deficiency raise substantial doubt about our ability to
continue as a going concern. See note 1(d) of notes to consolidated financial
statements.
To achieve and sustain profitability, we must:
- increase substantially our revenues from our two principal products,
NetObjects Fusion (which in fiscal year 1998 accounted for most of our
total revenues) and NetObjects Authoring Server, and our related
professional services (which have generated minimal revenues to date);
- continue to develop successfully new versions of our products, such as
NetObjects Fusion 4.0, which was released in December 1998;
- respond quickly and effectively to competitive, market and technological
developments;
- expand substantially our sales and marketing operations;
- develop our professional services business, which we launched in October
1998;
- control expenses;
- continue to attract, train and retain qualified personnel in the
competitive software industry; and
- maintain existing relationships and establish new relationships with
leading Internet hardware and software companies.
There can be no assurance that we will achieve these objectives, and our
failure to do so would have a material adverse effect on our business,
prospects, financial condition and results of operations.
DEPENDENCE ON IBM AND POTENTIAL CONFLICTS
DEPENDENCE TO DATE ON IBM FOR FINANCING AND SIGNIFICANT REVENUES. Since
IBM's acquisition of approximately 80% of our stock, IBM has provided us with
approximately $40 million of financing through the payment, between April and
December 1997, of $10.5 million of cash prepayments against future royalties for
their licensing of our products and our charges for services, approximately half
of which we had not recognized by the end of fiscal year 1998, $10.1 million
through our sale to IBM of convertible debt securities and warrants for the
purchase of convertible preferred stock and the establishment of a $19 million
secured credit facility with IBM Credit Corp. that has been guaranteed by IBM.
We were not in compliance with a financial covenant in the credit facility as of
December 31, 1998, but on February 3, 1999, IBM Credit Corp. waived our
compliance through December 31, 1998 and agreed to take no action with respect
to our noncompliance through April 30, 1999. This credit facility will be repaid
out of the proceeds of this offering and the credit facility will terminate.
Prior to completion of the offering, we expect to exercise our option to raise
up to $3.45 million from the sale of notes and warrants to IBM. Such notes, if
issued, would be repaid from proceeds of the offering. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and "Certain Transactions-- IBM
Relationship." After the offering, IBM will have no obligation to provide us
with additional financing.
In addition, revenues from IBM have represented a substantial portion of our
total revenues-- approximately 36% and 50% of our total revenues in fiscal year
1998 and in the first quarter of fiscal year 1999, respectively. To date,
substantially all of these revenues have consisted of software license fees, for
which we have been recognizing revenues on a per unit sales basis, and revenues
for
9
<PAGE>
services for integrating our software with IBM's WebSphere software products,
which have been recognized principally in accordance with the percentage of
completion accounting method. All of IBM's payment obligations for these
revenues have been offset against the $10.5 million of cash prepayments recorded
as deferred revenues from IBM on our balance sheet. As of December 31, 1998, the
balance of the deferred revenues from IBM was approximately $2.3 million. Such
revenues, when recognized, will not result in our receipt of additional cash
from IBM. Our agreement with IBM for WebSphere services ends on February 28,
1999. In addition, our product bundling arrangement with Lotus for Designer for
Domino expires in June 1999. Lotus' payment obligations for Designer for Domino
revenues are also offset against the $10.5 million prepayment. We believe that
all of the deferred revenues from IBM at December 31, 1998 will have been
recognized as software license fees and service revenues by June 30, 1999. We
have no commitments from IBM to pay us software license fees or revenues from
services after June 1999. Our software license fees from IBM in the remaining
quarters of fiscal year 1999 are likely to decline, perhaps substantially, from
the level in the first quarter of fiscal year 1999. We do not expect to receive
any service revenues from IBM after February 1999.
On these and other transactions with IBM, we have worked closely with IBM's
representatives on our board of directors and other senior management personnel
in Lotus and other IBM software organizations. Our ability to work effectively
with IBM and to maintain our strategic relationship with IBM depends to a
significant extent on the efforts of these individuals. If they cease to be
involved in our business, we may experience difficulties in leveraging our
strategic relationship with IBM.
We would not have been able to obtain a $19 million loan from an independent
third party without the guarantee by IBM. The financial support of IBM has
allowed us to pursue a market share and brand strategy that we otherwise would
not have been able to pursue. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources,"
"Certain Transactions" and note 1(d) of notes to consolidated financial
statements.
Although we have been dependent on IBM, and IBM has provided substantial
support to us, IBM makes independent business and product decisions that may
conflict with our business objectives. For example, under our original agreement
with IBM with respect to IBM's WebSphere offerings, we were obligated to deliver
modified versions of NetObjects Fusion, NetObjects ScriptBuilder and NetObjects
Authoring Server. We anticipated that all three products would be bundled with
IBM's WebSphere product offerings. In that event the agreement provided for IBM
to pay us royalties for each of the listed products subject to a minimum royalty
amount tied to the amount of services that we provided. Most of the royalties
would have been due for NetObjects Authoring Server, which is our highest priced
product. In October 1998, however, IBM purchased all rights to Build IT from
Wallop, Inc., a software product that IBM intends to include with its WebSphere
offerings for application development teams, unlike NetObjects Authoring Server,
which we designed for collaborative intranet site builders and corporate desktop
users. Subsequently, IBM decided not to bundle NetObjects Authoring Server with
WebSphere. Because we had expected to earn most of our software license fees
under the original agreement from WebSphere bundles with NetObjects Authoring
Server, IBM and we agreed to modify the original agreement to add charges for
our services based upon the amount of our costs and expenses, in addition to
royalties for product bundles. As a result, through December 31, 1998, we have
recognized services revenues from IBM totaling $4.4 million under the amended
agreement and not software license fees, as was originally contemplated.
CONTROL BY IBM; POTENTIAL SALE BY IBM OF ITS CONTROLLING INTEREST. Before
the offering, IBM owned approximately 71% of our common stock (on an
as-converted basis), and after the offering IBM will own approximately % of
our common stock (on an as-converted basis) ( % if the
10
<PAGE>
underwriters' over-allotment option is exercised in full). Under a voting
agreement which takes effect upon completion of the offering, IBM has agreed to
vote all of its shares of common stock to elect no more than three of the six
members of our board of directors, notwithstanding its legal right to elect the
entire board, as long as it owns at least a majority of our outstanding stock.
The voting agreement will terminate if IBM's total fully-diluted ownership of
our Company (taking into account outstanding warrants for purchase of
convertible preferred stock and convertible securities held by IBM as well as
outstanding shares) falls below 45% for a period of 180 consecutive days from
its current ownership of % on a fully-diluted basis. Prior to the
offering, IBM controlled our board of directors, but after the offering, it will
not. So long as IBM owns more than 50% of our outstanding stock, however, it
will be able to exercise a controlling influence over our business and affairs
due to a board of directors' resolution that was passed at IBM's request. This
resolution allows IBM's designees to our board of directors to control any
determinations with respect to most material transactions outside the ordinary
course of our business, including mergers or other business combinations, the
acquisition or disposition of our assets, future issuances of our equity or debt
securities and the payment of dividends. As our majority stockholder, IBM will
have the power to determine matters submitted to a vote of our stockholders
without the consent of other stockholders, will have the power to prevent or
cause a change in control of our Company and could take other actions that might
be favorable to IBM and potentially harmful to us. IBM is under no obligation to
provide us with financial or other support after the offering.
FREEDOM OF ACTION FOR IBM. Our restated certificate of incorporation
contains provisions that expressly acknowledge IBM's "freedom of action" to
conduct its business and pursue other business opportunities, even in
competition with us. These provisions materially limit the liability of IBM and
its affiliates, including IBM's representatives on our board of directors and
Lotus, from conduct and actions taken by IBM or its affiliates, even if such
conduct or actions are beneficial to IBM and harmful to us. When IBM becomes
eligible to sell its stock subject to applicable securities laws, contractual
arrangements with the underwriters and the terms of a registration rights
agreement, if applicable, IBM will be able to transfer some or all of its stock,
including to our competitors. Such a transfer could result in a transfer of
IBM's controlling interest in our Company, and could have a material adverse
effect on our business, prospects, financial condition and results of
operations. See "Business--NetObjects Strategy--Strategic Relationships" and
"--Competition," "Certain Transactions," "Principal Stockholders," "Description
of Capital Stock" and "Shares Eligible for Future Sale."
POTENTIAL CONFLICTS OF INTEREST; POTENTIAL AND ACTUAL COMPETITION. Because
IBM is our controlling stockholder and because IBM executives are directors of
our Company, conflicts of interest could arise. Under our restated certificate
of incorporation, IBM has no obligation to refrain from competing with us,
investing in our competitors, doing business with our customers or hiring away
our key personnel. Our restated certificate of incorporation further provides
that no director shall be prohibited from taking actions or from voting on any
action because of any actual or apparent conflict of interest between such
director and our Company, and that no action taken by our board of directors
will be void or voidable, or give rise to liability for breach of fiduciary duty
or otherwise, solely because a majority of the directors are affiliated with
IBM, or such action is, or is deemed to be by law, beneficial to IBM. In
addition, IBM is under no obligation to inform us of any corporate opportunity
and is free to avail itself of any such opportunity or to transfer such
opportunity to a third party. Any of these provisions of the restated
certificate of incorporation could give rise to conflicts of interest, and we
cannot be certain that any such conflicts would be resolved in our favor. But
for these provisions, some future conduct or actions by IBM might constitute a
breach of fiduciary duty to NetObjects or our other stockholders. These
provisions become inapplicable when IBM's ownership of our stock on a
fully-diluted basis falls to less than 10%, and may be amended only with the
approval of at least 90% of our outstanding voting securities. Any of the risks
11
<PAGE>
arising from our relationship with IBM could have a material adverse effect on
our business, prospects, financial condition and results of operations. See
"Business--NetObjects Strategy--Strategic Relationships" and "Certain
Transactions."
Although our license agreements with IBM contain certain restrictions on
IBM's use and transfer of our software and intellectual property, these
restrictions are subject to exceptions. Under a software license agreement with
IBM, we have placed our key source code in escrow for IBM's benefit. In the
event of our default under the contract, IBM will have access rights to this
source code and will be free to use it to maintain our products and create
derivative works for the benefit of IBM and its customers. Events of default
under the agreement include a bankruptcy filing, our failure to adequately
service and maintain the software licensed to IBM and its customers, and our
insolvency. Furthermore, all of our licensing arrangements with IBM are
non-exclusive. IBM has the right to cease promoting and distributing our
software at any time. IBM may license its name, logo and technology to, or
invest in, other web site building companies, and it may more actively promote
the services of our competitors. For example, IBM is currently selling HomePage
Builder, an IBM developed web page building software product, in Japan, and
HomePage Creator, an IBM web based service that allows users to build web pages
online.
OBLIGATIONS OF IBM SUBSIDIARIES. As an IBM subsidiary, we are subject to
IBM policies which may not apply to most small public companies, and we may
incur additional expenses in complying with these policies. We also are subject
to many IBM contracts with third parties. These contracts include patent
cross-license agreements between IBM and other companies that provide us with
immunity from suit for patent infringement claims by those companies as long as
we remain an IBM subsidiary, and grant those companies freedom from our patent
infringement claims against them. Contractual obligations to third parties which
arise because we are an IBM subsidiary may have future adverse consequences that
are currently unforeseeable. If we cease to be an IBM subsidiary, we may face
material litigation risks associated with patent infringement claims that IBM's
patent cross-licensees cannot currently assert against us. In addition, we may
be unable to assert patent claims of our own against an IBM cross-licensee,
which may remain free of liability for such claims under the terms of the
cross-license agreement even after we cease to be an IBM subsidiary. See
"--Uncertain Protection of Intellectual Property; Risks Associated with Licensed
Third-Party Technology."
REVENUE DEPENDENCE ON NETOBJECTS FUSION
Most of our revenues from software license fees in fiscal year 1998 were
derived from versions of one of our products, NetObjects Fusion, and we expect
that this single product will continue to account for the substantial majority
of our total revenues in the near-term. To remain competitive, software products
typically require frequent updates that add new features. There can be no
assurance that we will be able to create successfully and sell updated or new
versions of NetObjects Fusion. A decline in demand for, or in the average
selling price of, NetObjects Fusion, whether as a result of new product
introductions or price competition from competitors, technological change or
otherwise, would have a material adverse effect on our business, prospects,
financial condition and results of operations.
INTENSE COMPETITION FROM MICROSOFT AND OTHER ESTABLISHED SOFTWARE VENDORS
The market for web site building software and services for the Internet and
corporate intranets is relatively new, constantly evolving and intensely
competitive. We expect competition to intensify in the future. Many of our
current and potential competitors have longer operating histories, greater name
recognition and significantly greater financial, technical and marketing
resources. Our principal competitors in web site building software include
Microsoft Corporation, Adobe Systems Incorporated and Macromedia, Inc.
12
<PAGE>
Microsoft's FrontPage, a web site building software product, has a dominant
market share. Microsoft has announced but not shipped FrontPage 2000, which may
become one of the products in at least one version of Microsoft's Office product
suite that dominates the market for desktop business application software. We
believe that NetObjects Fusion and NetObjects Authoring Server contain features
that differentiate them from the announced description of FrontPage 2000, but
widespread distribution of Office with FrontPage 2000 and the vast number of
computer users familiar with Microsoft desktop application software products,
give Microsoft a substantial competitive advantage over us. In addition,
Microsoft, and other competitors who bundle their software products as a suite,
may offer their suites at prices that may force us to reduce the prices for our
products, which are not sold in comparable suites, to keep them competitive. In
connection with its recent acquisition of GoLive, Inc., Adobe acquired a web
site building software product for Macintosh, which increases the
competitiveness of the market for Macintosh web site building products. Our
current Macintosh product, NetObjects Fusion 3.0, may become less competitive
over time.
Alternatives to using web site building software include products from
third-party web site builders, in-house resources and online web site building
resources, such as GeoCities, some of which also provide web site hosting and
other services. Competitive factors in our market include:
- the manner in which the software is distributed with other products;
- quality and reliability;
- features for creating, editing and developing web sites;
- ease of use and interactive user features;
- scalability and cost per user; and
- compatibility with the user's existing computer systems.
To expand our user base and further enhance the user's experience, we must
continue to innovate and improve the performance of our products. In addition,
we may need to change our pricing, license terms, services and marketing
practices. For example, during the three months ended September 30, 1997, we
reduced the price of NetObjects Fusion from $495 to $295, which resulted in a
decline in total revenues from the third to the fourth quarters in fiscal 1997.
Continued price concessions or the emergence of other pricing or distribution
strategies by competitors could have a material adverse effect on our business,
prospects, financial condition and results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business--Competition."
UNCERTAINTY OF FUTURE REVENUES; PROBABLE FLUCTUATIONS IN QUARTERLY OPERATING
RESULTS
The success of our business and our revenue growth to date have depended on
our ability to create web site building software that appeals to our customers,
to update our main product, NetObjects Fusion, with new features and to release
and deliver new versions of NetObjects Fusion on time. We need to develop new
products in addition to NetObjects Fusion and to ship the new products on time.
Failure to do so will materially affect the amount and timing of future
revenues.
Our quarterly operating results also may fluctuate significantly in the
future due to a variety of other factors, many of which are outside our control.
Principal factors include:
- the expiration of commitments from IBM for software license fees in June
1999 and service revenues in February 1999;
- the timing of the introduction or enhancement of our products and services
which can cause customers to avoid purchasing our existing products, cause
us to issue rebates and discounted upgrade offers and cause an increase in
product returns by channel distributors;
13
<PAGE>
- our ability to continue to develop derivative products, such as new
versions of NetObjects Fusion for Macintosh;
- a longer sales cycle for products for large-scale enterprise customers and
for NetObjects Authoring Server;
- vendors' introductions of other types of software products (for example,
Microsoft's introduction of Windows 98, which adversely impacted our sales
temporarily);
- the amount and timing of operating costs and capital expenditures related
to expansion of our business, operations and infrastructure;
- price reductions by us or our competitors or changes in how their products
and services are priced;
- the mix of distribution channels through which our products are licensed
and sold; and
- the promptness with which sales data, used for recognizing product
royalties, are reported to us from third parties.
Because our business is evolving rapidly and we have a very limited
operating history, we have little experience in forecasting our revenues. Our
expense levels are based in part on our expectations of future revenues, and to
a large extent such expenses are fixed, particularly in the short-term. We
cannot be certain that our revenue expectations will be accurate or that we will
be able to adjust spending in a timely manner to compensate for any unexpected
revenue shortfall. As a result, we believe that period-to-period comparisons of
our financial results are not necessarily meaningful, and you should not rely
upon them as an indication of our future performance.
The $10.5 million of cash prepayments under our license agreement with IBM
have provided some revenue certainty for us since April 1997. We expect to have
recognized all of the prepayments as revenues by June 30, 1999. Thereafter, our
revenues from IBM, if any, are likely to become more variable. See "--Dependence
on IBM and Potential Conflicts--Dependence to Date on IBM for Financing and
Significant Revenues." In addition, factors such as seasonal demand for our
products and services (for example, annual reductions in sales in Europe in July
and August), costs of litigation and intellectual property protection, technical
difficulties with respect to the use of our products, general economic
conditions and economic conditions specifically related to use of the Internet
as a business medium could influence our quarterly operating results. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Quarterly Results of Operations."
ADEQUACY OF ALLOWANCES FOR PRODUCT RETURNS AND PRICE PROTECTIONS
At the time of sale of our software products, we have historically recorded
significant allowances for product returns. The factors that influence our
decision on the size of the allowances include the timing of new product and
product upgrade introductions, release of new products or product upgrades by
competitors and sales data that we obtain from our distributors.
We have stock-balancing programs for our software products that under
certain circumstances allow for the return of software by resellers. We also
provide for price protection for our software for some of our direct and
indirect channel resellers that, under certain conditions, allows the reseller a
price reduction from us if we reduce our price to similar channel resellers.
Moreover, the risk of product returns may increase as new versions of our
software become more popular or market factors force us to make changes in our
distribution system. We attempt to monitor and manage the volume of our sales to
retailers and distributors and their inventories as substantial overstocking in
the distribution channel can result in high returns. Our allowance for returns
is based on estimated future returns of products, taking into account
promotional activities, the timing
14
<PAGE>
of new product introductions, distributor and retailer inventories of our
products and other factors and that our current allowance will be sufficient to
meet return and price protection requirements for current in-channel inventory.
In August 1997, our price reduction for NetObjects Fusion triggered price
protection obligations resulting in the need to record an additional allowance
in the three months ended September 30, 1997. There can be no assurance that
actual returns or price protection will not exceed our estimates, and our
estimation policy may cause significant quarterly fluctuations. See
"--Uncertainty of Future Revenues; Probable Fluctuations in Quarterly Operating
Results" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Results of Operations."
DEPENDENCE ON MARKET ACCEPTANCE AND GROWTH OF NETOBJECTS AUTHORING SERVER AND
PROFESSIONAL SERVICES
We formally announced and shipped NetObjects Authoring Server in September
1998 as a successor to our original TeamFusion product released in December
1997. We expect that our financial performance will depend significantly on the
successful marketing, development and customer acceptance of NetObjects
Authoring Server and the related solutions that we plan to develop. The success
of NetObjects Authoring Server will depend on the rapid emergence of a market
for large-scale enterprise web site and intranet building products and services.
This market may fail to develop if information services departments of
large-scale enterprises choose to create and maintain their web and intranet
sites internally or use third-party professional developers to create and
maintain their sites. We cannot be certain that NetObjects Authoring Server will
meet customer performance needs or that it will be free of significant software
defects or bugs. In addition, because of higher pricing and different marketing
and distribution characteristics, such as direct selling, we expect NetObjects
Authoring Server to have a longer sales cycle than NetObjects Fusion, with
related increased selling costs and risks to our operating results. There are no
product bundles of NetObjects Authoring Server with IBM or Lotus, although IBM
does offer NetObjects Authoring Server through its "Passport Advantage" program.
See "--Dependence on IBM and Potential Conflicts" and "Business--Sales,
Marketing and Distribution." If NetObjects Authoring Server does not meet
customer needs or expectations, for whatever reason, upgrades or enhancements
could be costly and time-consuming.
In October 1998, we formed a new professional services organization to
assist our customers with training, consulting and implementation. We believe
that product sales growth will depend on our ability to provide our customers
with these services and to educate third-party resellers about how to use our
products. We currently outsource most of our professional services, but we plan
to increase the number of our services personnel to meet the needs of our
customers. We cannot be certain that our services business will generate
significant revenues or achieve profitability. Competition for qualified
services personnel is intense, and we cannot be certain that we can attract or
retain a sufficient number of highly qualified services personnel to meet our
business needs.
Since inception, we have invested, and we continue to invest, resources on
our online services, which we believe support and add to market acceptance of
our products. Continued market acceptance of our online services is a
significant factor in further developing market acceptance of our products and
services and of our brand. The failure of the market to accept our online
services could adversely affect our business, prospects, financial condition and
results of operations.
NEED TO EXPAND DISTRIBUTION CHANNELS, SALES FORCE AND PRODUCT BUNDLING
ARRANGEMENTS
While we derive some of our revenues from direct sales, most of our revenues
are derived from the indirect sale of our products through third-party
distributors and resellers. There can be no assurance that third parties will be
willing or able to carry our products in the future. If third parties were to
reduce or cease carrying our products, our direct sales would be insufficient to
support our operating expense base.
15
<PAGE>
We sell our products worldwide, principally in North America, through
multiple distribution channels, including traditional software distributors,
hardware and software original equipment manufacturers, or "OEMs", international
distributors, value-added resellers, or VARs, retail dealers and direct
marketers. Accordingly, we are dependent on the continued viability and
financial stability of these third parties. We cannot be certain that we will be
able to attract additional third parties that will be able to market our
products effectively or that such third parties will devote significant
resources to marketing and supporting our products. We are obligated to accept
the return of products purchased by our distributors in some cases where they
may have purchased excess product.
To increase market penetration of our products and promote sales of
NetObjects Authoring Server, we will need to increase the size of our sales
force, especially direct sales personnel. To date, our sales force has primarily
been dedicated to supporting our indirect distribution channel. As of December
31, 1998, we had 24 employees in our sales organization. There is intense
competition for sales personnel in software sales, and we may not be successful
in attracting, integrating, motivating and retaining new sales personnel.
Moreover, even if we were able to recruit a sufficient number of sales
personnel, there will be a delay between the time we hire new employees and the
time at which they become effective, because they will need to acquire
familiarity with our products, customers and markets.
We believe that products that are not sold in a "suite" containing software
products or components that perform different functions are less likely to be
commercially successful. For example, NetObjects Fusion 4.0 includes software
products or components from different vendors such as Allaire Corporation, IBM,
iCat, Lotus and NetStudio. These arrangements sometimes entail additional
royalty and marketing expenses, as well as potentially increasing the risk that
our products may not always operate as desired. We cannot be assured of
obtaining suitable arrangements to bundle the products or components of third
parties with our products.
IBM also bundles our products with some of its software products, such as
the bundling of NetObjects Fusion, NetObjects ScriptBuilder and NetObjects
BeanBuilder with WebSphere Studio and NetObjects Fusion with Lotus Designer for
Domino. NetObjects Fusion is also bundled with Novell's NetWare for Small
Business. Both IBM and Novell are investors in our Company. We cannot be assured
that other third parties will bundle our products with their products.
Failure to maintain and expand our distribution channels, recruit, train or
retain sales personnel or conclude suitable software product bundling
arrangements could have a material adverse effect on our business, prospects,
financial condition and results of operations.
POTENTIAL PRODUCT DEFECTS AND PRODUCT LIABILITY
We frequently release new products and new versions of existing products.
For example, we released NetObjects Fusion 4.0 in December 1998. Our software
products are complex and may contain undetected errors or result in system
failures. Despite extensive testing, errors could occur in any of our current or
future product offerings after commencement of commercial shipments. Any such
errors could result in loss of or delay in revenues, loss of market share,
failure to achieve market acceptance, diversion of development resources, injury
to our reputation or damage to our efforts to build brand awareness, any of
which could have a material adverse effect on our business, prospects, financial
condition and results of operations. Errors also might result in potential
liability to our customers and to their customers. The applications developed
using our products can be critical to the operations of our customers'
businesses and provide benefits that may be difficult to quantify. Any failure
in a customer's application could result in a claim for substantial damages
against us, regardless of our responsibility for such failure. Our license
agreements with our customers typically contain provisions designed to limit our
exposure to potential product liability claims
16
<PAGE>
through contractual limitations of warranties and remedies. We also maintain
general liability insurance, including coverage for errors and omissions. We
cannot be certain that the contractual limitations of liability will be
enforceable, or that our insurance coverage will continue to be available on
reasonable terms or will be available in amounts to cover one or more large
claims, or that the insurer will not disclaim coverage as to any future claim.
The successful assertion of one or more large claims that exceed available
insurance coverage or changes in our insurance policies, including premium
increases or the imposition of large deductible or co-insurance requirements,
could have a material adverse effect on our business, prospects, financial
condition and results of operations. See "Business--Sales, Marketing and
Distribution."
RAPID TECHNOLOGICAL CHANGES; DEVELOPMENT OF NEW PRODUCTS
The market for our products is marked by rapid technological change,
frequent new product introductions and enhancements, uncertain product life
cycles, changes in customer demands and evolving industry standards. New
products based on new technologies or new industry standards can render existing
products obsolete and unmarketable. To succeed, we will need to enhance our
current products and develop new products on a timely basis to keep pace with
technological developments and to satisfy the increasingly sophisticated
requirements of our customers. Our product and software development efforts
inherently are difficult to manage and keep on schedule. On occasion, we have
experienced development delays and related cost overruns, and we cannot be
certain that we will not encounter such problems in the future. Any delays in
developing and releasing enhanced or new products could have a material adverse
effect on our business, prospects, financial condition and results of
operations. In addition, we cannot be certain that we will successfully develop
and market new products or product enhancements that respond to technological
change, evolving industry standards or customer requirements, or that any such
product innovations will achieve the market penetration or price stability
necessary for profitability.
DEPENDENCE ON KEY PERSONNEL; NEED FOR ADDITIONAL PERSONNEL
We depend on the continued service of our key personnel, and we expect that
we will need to hire additional personnel in all areas. The competition for
personnel throughout our industry is intense, particularly in the San Francisco
Bay Area, where our headquarters are located. We have experienced difficulties
in attracting new personnel, and all of our personnel, including our management,
may terminate their employment at any time for any reason. Currently, we are
dependent upon the services of Samir Arora, our President, Chief Executive
Officer, Chairman of the Board and one of our founders. We also depend upon the
services of Michael J. Shannahan, our Senior Vice President, Finance and Chief
Financial Officer. The loss of either individual's services would materially
impede the operation and growth of our business at this time. We do not maintain
key person life insurance for any of our personnel. Furthermore, our failure to
attract new personnel or retain and motivate our current personnel could have a
material adverse effect on our business, prospects, financial condition and
results of operations. See "Business--Employees" and "Management."
CERTAIN ANTI-TAKEOVER PROVISIONS
IBM will own approximately % of our outstanding stock immediately
following the offering (based upon the number of shares outstanding at December
31, 1998). That ownership interest and certain provisions of our restated
certificate of incorporation, bylaws, other agreements and Delaware law could
make it more difficult for a third party to acquire us, even if a change in
control would be beneficial to our stockholders. See "Certain Transactions" and
"Description of Capital Stock."
17
<PAGE>
UNCERTAIN PROTECTION OF INTELLECTUAL PROPERTY; RISKS ASSOCIATED WITH LICENSED
THIRD-PARTY TECHNOLOGY
Trademarks and other proprietary rights are important to our success and our
competitive position. We seek to protect our trademarks and other proprietary
rights, but our actions may be inadequate to prevent misappropriation or
infringement of our technology, trademarks and other proprietary rights or to
prevent others from claiming violations of their trademarks and other
proprietary rights. Although we have obtained federal registration of the
trademark "NetObjects Fusion-Registered Trademark-" we know that other
businesses use the word "Fusion" in their marks alone or in combination with
other words. We do not believe that we will be able to prevent others from using
the word "Fusion" for competing goods and services. For example, Allaire markets
its application development and server software for web development including
applications for e-commerce under the federally registered trademark "Cold
Fusion." Under an agreement with Allaire Corporation, we have agreed that
neither company will identify its products and services with the single word
"Fusion," unless otherwise agreed as in the case of our co-bundled product
"Fusion2Fusion." Business customers may confuse our products and services with
similarly named brands, which could dilute our brand names or limit our ability
to build market share. To license many of our products, we rely in part on
"shrinkwrap" and "clickwrap" licenses that are not signed by the end user and,
therefore may be unenforceable under the laws of certain jurisdictions. In
addition, we may license content from third parties. We could become subject to
infringement actions based upon such licenses, and we could be required to
obtain licenses from other third parties to continue offering our products.
We cannot be certain that we will be able to avoid significant expenditures
to protect our intellectual property rights, to defend against third-party
infringement or other claims or to license content from third parties alleging
that our products infringe their intellectual property rights. Any such
expenditures could have a material adverse effect on our business, prospects,
financial condition and results of operations. As a subsidiary of IBM, we
benefit from patent cross-license agreements between IBM and other companies.
When IBM no longer owns more than 50% of our outstanding stock, however, we will
lose the benefits of such agreements and may become subject to patent
infringement claims from which we now are protected by IBM's cross-license
agreements. See "--Dependence on IBM and Potential Conflicts" and
"Business--Intellectual Property."
INTERNATIONAL OPERATIONS
International sales represented approximately 15% and 16% of our total
revenues in fiscal 1997 and 1998, respectively. We intend to expand the scope of
our international operations and currently have a subsidiary in the United
Kingdom. Our continued growth and profitability will require continued expansion
of our international operations, particularly in Europe, and in Japan, where
Mitsubishi Corporation acts as our exclusive master distributor and Lotus is a
reseller of NetObjects Fusion.
Our international operations are, and any expanded international operations
will be, subject to a variety of risks associated with conducting business
internationally that could materially adversely affect our business, including
the following:
- difficulties in staffing and managing international operations;
- lower gross margins than in the United States;
- slower adoption of the Internet;
- longer payment cycles;
18
<PAGE>
- fluctuations in currency exchange rates;
- seasonal reductions in business activity during the summer months in
Europe and certain other parts of the world;
- recessionary environments in foreign economies; and
- increases in tariffs, duties, price controls or other restrictions on
foreign currencies or trade barriers imposed by foreign countries.
Furthermore, the laws of foreign countries may provide little or no
protection of our intellectual property rights. See "--Uncertain Protection of
Intellectual Property; Risks Associated with Licensed Third-Party Technology."
FAILURE TO MANAGE RAPID GROWTH
We have expanded our operations rapidly since inception, and we intend to
continue to expand in the foreseeable future. This rapid growth places a
significant demand on our managerial and operational resources. To manage growth
effectively, we must:
- implement and improve our operational systems, procedures and controls on
a timely basis;
- expand, train and manage our workforce and, in particular, our sales and
marketing and support organizations in light of our recent decision to
offer online and professional services;
- implement and manage new distribution channels to penetrate different and
broader markets, including the market for intranet software products; and
- manage an increasing number of complex relationships with customers,
co-marketers and other third parties.
We cannot be certain that our systems, procedures or controls will be
adequate to support our current or future operations or that our management will
be able to manage the expansion and still achieve the rapid execution necessary
to exploit fully the market for our products and services. Failure to manage our
growth effectively could have a material adverse effect on our business,
prospects, financial condition and results of operations. See "--Dependence on
Key Personnel; Need for Additional Personnel."
DEPENDENCE ON CONTINUED GROWTH IN USE OF THE INTERNET AND INTRANETS
Our products and services enable our customers to build and maintain
commercial web sites and web applications. Sales of our products and services
depend in large part on the emergence of the Internet as a viable commercial
marketplace with a strong and reliable infrastructure and on the growth of
corporate intranets. Critical issues concerning use of the Internet and
intranets, including security, reliability, cost, ease of use and quality of
service, remain unresolved and may inhibit the growth of, and the degree to
which business is conducted over, the Internet and intranets. Failure of the
Internet and intranets to develop into viable commercial mediums would have a
material adverse effect on our business, prospects, financial condition and
results of operations. See "Business--Industry Overview."
YEAR 2000 READINESS
Many existing software programs are coded to accept only two digit entries
in their date fields. As a result, these programs are unable to distinguish
whether "00" means the year 1900 or the year 2000, which could result in system
failures or miscalculations causing disruptions to operations. Although we
believe that our products are Year 2000 ready, because NetObjects Fusion and
NetObjects Authoring Server may interact with external databases for purposes of
data storage, the
19
<PAGE>
ability of applications integrated with a web site built using NetObjects Fusion
or NetObjects Authoring Server to comply with Year 2000 requirements is largely
dependent on whether any such databases underlying the application are Year 2000
ready. If NetObjects Fusion or NetObjects Authoring Server is connected to a
database that is not Year 2000 ready, a web application created or developed for
a web site built using NetObjects Fusion or NetObjects Authoring Server could
work incorrectly. Furthermore, the purchasing patterns of customers or potential
customers may be affected by Year 2000 issues as businesses expend significant
resources to correct their current systems for Year 2000 compliance. These
expenditures may result in reduced funds available for web site building
activities, which could have a material adverse effect on our business,
prospects, financial condition and results of operations. Year 2000
complications may disrupt the operations, viability or commercial acceptance of
the Internet, which could have a material adverse effect on our business,
prospects, financial condition and results of operations.
We have received verbal confirmations, and are in the process of obtaining
written certifications, from vendors that software we have purchased for our
internal financial systems is Year 2000 ready. To date, we have not incurred
significant costs to comply with Year 2000 requirements, and, based upon our
preliminary analysis, we do not believe we will incur significant costs in the
foreseeable future. There can be no assurance, however, that Year 2000 errors or
defects will not be discovered in our internal software systems. If such errors
or defects were discovered, the costs of making such systems Year 2000 ready
could have a material adverse effect on our business, prospects, financial
condition and results of operations.
We rely on third-party vendors that may not be Year 2000 compliant for
certain equipment and services. In addition, many of our distributors are
dependent on commercially available operating systems that may be impacted by
Year 2000 complications. To date, we have not completed our Year 2000 review of
our vendors or distributors. Failure of systems maintained by our vendors or
distributors to operate properly with regard to the Year 2000 and thereafter
could require us to incur significant unanticipated expenses to remedy any
problems or replace affected vendors, could reduce our revenues from our
indirect distribution channel and could have a material adverse effect on our
business, prospects, financial condition and results of operations.
RISKS ASSOCIATED WITH POTENTIAL FUTURE ACQUISITIONS
In the future we may make acquisitions of, or large investments in,
businesses that offer products, services and technologies that we believe would
help us better provide e-business web site and intranet site building software
and services to businesses. Any future acquisitions or investments would present
risks commonly encountered in acquisitions of businesses, such as difficulty in
combining the technology, operations or workforce of the acquired business with
our own, disruption of our ongoing businesses and difficulty in realizing the
anticipated financial or strategic benefits of the transaction.
To make these acquisitions or large investments we might use cash, common
stock or a combination of cash and common stock. If we use common stock, such
acquisitions could further dilute existing stockholders. Amortization of
goodwill or other intangible assets resulting from such acquisitions could
materially impair our operating results and financial condition. Furthermore,
there can be no assurance that we would be able to obtain acquisition financing,
or that any such acquisition, if consummated, would be smoothly integrated into
our business. If such acquisitions or large investments were to take place, the
risks described above could have a material adverse effect on our business,
prospects, financial condition and results of operations. We make no assurances
that we will make any such acquisitions or large investments, however.
20
<PAGE>
GOVERNMENTAL REGULATION AND LEGAL UNCERTAINTIES
We are not currently subject to direct regulation by any governmental
agency, other than laws and regulations generally applicable to businesses,
although certain U.S. export controls and import controls of other countries,
including controls on the use of encryption technologies, may apply to our
products. Due to the increasing popularity and use of the Internet, it is
possible that a number of laws and regulations may be adopted in the United
States and abroad with particular applicability to the Internet. It is possible
that governments will enact legislation that may apply to us in areas such as
network security, encryption, the use of key escrow, data and privacy
protection, electronic authentication or "digital" signatures, illegal and
harmful content, access charges and retransmission activities. Moreover, the
applicability to the Internet of existing laws governing issues such as property
ownership, content, taxation, defamation and personal privacy is uncertain. The
majority of such laws were adopted before the widespread use and
commercialization of the Internet and, as a result, do not contemplate or
address the unique issues of the Internet and related technologies. Any such
export or import restrictions, new legislation or regulation or governmental
enforcement of existing regulations may limit the growth of the Internet,
increase our cost of doing business or increase our legal exposure, any of which
could have a material adverse effect on our business, prospects, financial
condition and results of operations.
SALES AND OTHER TAXES
We currently do not collect sales or similar taxes with respect to the sale
of products, license of technology or provision of services in states and
countries other than states in which we have offices. In October 1998, the
Internet Tax Freedom Act, or ITFA, was signed into law. Among other things, the
IFTA imposes a three year moratorium on discriminatory taxes on electronic
commerce. Nonetheless, foreign countries, or, following the moratorium, one or
more states, may seek to impose sales or other tax obligations on companies that
engage in online commerce within their jurisdictions. A successful assertion by
one or more states or any foreign country that we should collect sales or other
taxes on the sale of products, license of technology or provision of services or
remit payment of sales or other taxes for prior periods, could have a material
adverse effect on our business, prospects, financial condition and results of
operations.
NO SPECIFIC USE OF PROCEEDS
We have not designated any specific use for a significant amount of net
proceeds from the sale of the common stock offered under this prospectus, other
than the repayment of $19 million of debt to IBM Credit Corp. and debt of
approximately $3.45 million under notes that we expect to owe IBM by the
completion of the offering. We intend to use the remaining net proceeds
primarily for general corporate purposes, including working capital to fund
anticipated operating losses and capital expenditures. Accordingly, management
will have significant flexibility in applying the remaining net proceeds of the
offering. The failure of management to apply such funds effectively could have a
material adverse effect on our business, prospects, financial condition and
results of operations. See "Use of Proceeds."
NO PRIOR MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY OF STOCK PRICE
There has not previously been a public market for our stock. We cannot
predict the extent to which investor interest in us will lead to the development
of a trading market or how liquid that market might become. The initial public
offering price for our stock will be determined by our negotiations with the
representatives of the underwriters and may not be indicative of prices that
will prevail in the trading market. The stock market has experienced significant
price and volume fluctuations, and the market prices of securities of technology
companies, particularly Internet-related companies, have been highly volatile.
Investors may not be able to resell their stock at or
21
<PAGE>
above the initial public offering price. See "Underwriting." In the past,
following periods of volatility in the public securities markets, securities
class action litigation has often been instituted against companies whose stock
prices exhibited significant volatility. Such litigation could result in
substantial costs and a diversion of management's attention and resources.
POSSIBLE ADVERSE EFFECT ON MARKET PRICE OF COMMON STOCK OF SHARES ELIGIBLE FOR
FUTURE SALE AFTER THE OFFERING
If our stockholders sell substantial amounts of our stock (including shares
issued upon the exercise of outstanding options and warrants) in the public
market following the offering, then the market price of our stock could fall.
After the offering, shares of our stock will be outstanding,
assuming no exercise of the underwriters' over-allotment option and no exercise
of outstanding options or warrants. Of those shares, the shares sold in
the offering will be freely tradable except for any shares purchased by our
"affiliates," as defined in Rule 144 under the Securities Act. The remaining
shares are "restricted securities," as that term is defined in Rule
144, and may be sold in the public market only if registered or if they qualify
for an exemption from registration under Rule 144 or Rule 701 under the
Securities Act. All officers, directors and a substantial majority of our
stockholders of NetObjects have agreed not to sell any shares of common stock,
or any securities convertible into or exercisable or exchangeable for common
stock, for 180 days after the offering without the prior written consent of BT
Alex. Brown. BT Alex. Brown may, in its sole discretion, release all or any
portion of the shares subject to such lock-up agreements. Following expiration
of the lock-up agreements, of the restricted shares will be eligible for
immediate public sale and the remaining restricted shares will be eligible
for public sale subject to compliance with the holding period, volume and manner
of sale restrictions of Rule 144, unless they are previously registered under
the Securities Act.
Following the offering, we intend to file a registration statement under the
Securities Act covering shares of common stock reserved for
issuance under our employee stock plans. Upon expiration of the lock-up
agreements, at least shares of common stock will be subject to
vested options (based on options granted and outstanding as of December 31,
1998). We expect to file that registration statement prior to expiration of the
lock-up agreements, and it will become effective when we file it. Accordingly,
after the lock-up agreements expire, the registered shares will, subject to Rule
144 limitations, be available for sale in the open market immediately upon
exercise of the vested options.
Holders of shares and certain warrants have certain demand and
piggyback registration rights. The exercise of such rights could adversely
affect the market price of our stock. See "Shares Eligible for Future Sale."
DILUTION; ABSENCE OF DIVIDENDS
The initial public offering price of our stock is substantially higher than
the net tangible book value per share of our outstanding stock immediately after
the offering. Therefore, if you purchase our stock in the offering, you will
incur immediate dilution of approximately $ in the net tangible book
value per share from the price you pay for such stock (based upon an assumed
initial public offering price of $ ). See "Dilution." We have never
declared or paid cash dividends on our stock and do not anticipate paying any
cash dividends in the foreseeable future. See "Dividend Policy."
22
<PAGE>
USE OF PROCEEDS
The net proceeds to our Company from the sale of the shares of common
stock at the initial public offering price of $ per share, after deducting
the underwriting discount and estimated offering expenses, are estimated to be
$ ($ if the underwriters' over-allotment option is exercised in full).
The principal purposes of the offering are to repay $19 million of secured
debt principal to IBM Credit Corp. that will become due and payable upon the
closing of the offering, to repay debt of approximately $3.45 million that we
expect to owe IBM under notes to be issued prior to the completion of the
offering, to increase our working capital, to create a public market for our
common stock, to increase our visibility in the marketplace and to facilitate
our future access to public equity markets. The debt to IBM Credit Corp. has an
interest rate of LIBOR plus 1.5%, was incurred to fund working capital, and
matures on the earlier of the closing of the offering, termination upon 30 days'
advance notice from us to IBM Credit Corp. and December 23, 1999. The debt under
the notes has an interest rate of 10%. We have no specific plans for the
remaining net proceeds, which we intend to use primarily for general corporate
purposes, including working capital to fund anticipated operating losses and
capital expenditures. We may, when and if the opportunity arises, use an
unspecified portion of the net proceeds to acquire or invest in complementary
businesses, products and technologies. We have no present understandings,
commitments or agreements with respect to any material acquisition or investment
in third parties. Pending use of the net proceeds for the above purposes, we
intend to invest such funds in interest-bearing, investment-grade securities.
DIVIDEND POLICY
We have never declared or paid cash dividends on our stock. We currently
anticipate that we will retain all of our future earnings, if any, for use in
the expansion and operations of our business and, therefore, do not anticipate
paying any cash dividends in the foreseeable future.
23
<PAGE>
CAPITALIZATION
The following table sets forth our cash, short-term borrowings and
capitalization (i) at December 31, 1998; (ii) pro forma to reflect (a) a cash
payment from IBM of $2,585,000 on January 5, 1999 for the purchase of
convertible notes, (b) the conversion of all outstanding shares of preferred
stock into common stock, including 1,654,041 shares of common stock issuable on
automatic conversion of convertible notes on closing of the offering and (c)
issuance of 3,051,803 shares of common stock, reflecting a "cashless" exercise
of outstanding Series C, Series E and Series E-2 warrants to purchase
convertible preferred stock at a weighted average exercise price of $4.82 per
share by surrendering shares of common stock as payment of the exercise price,
assuming a fair market value per share of common stock in the offering of
$ ; and (iii) as adjusted to reflect (a) the pro forma capitalization and
(b) our sale of shares to be sold in the offering at the initial public
offering price of $ per share (after deducting the underwriting discounts
and commissions and estimated expenses of the offering). See "Use of Proceeds"
and note 1(d) of notes to consolidated financial statements. The information set
forth below is unaudited and should be read in conjunction with our consolidated
financial statements and notes to consolidated financial statements:
<TABLE>
<CAPTION>
DECEMBER 31, 1998
----------------------------------
AS
ACTUAL PRO FORMA ADJUSTED
---------- ---------- ----------
<S> <C> <C> <C>
(IN THOUSANDS)
Cash........................................................................ $ 1,288 $ 3,873 $
---------- ---------- ----------
---------- ---------- ----------
Short-term borrowings from IBM Credit Corp.................................. $ 18,813 $ 18,813
---------- ---------- ----------
---------- ---------- ----------
Capital lease obligations, less current portion............................. 271 271
Convertible notes from IBM and related party................................ 7,619 --
---------- ---------- ----------
Total long-term obligations............................................. 7,890 271
---------- ---------- ----------
Preferred stock, $0.01 par value;
22,816,300 shares authorized; 11,965,826 issued and outstanding, actual;
none issued and outstanding, pro forma; none issued and outstanding, as
adjusted................................................................ 113 --
Common stock, $0.01 par value;
28,300,000 shares authorized; 2,088,561 shares issued and outstanding,
actual; 18,760,231 shares issued and outstanding, pro forma;
shares issued and outstanding, as adjusted(1) 21 182
Additional paid-in capital.................................................. 26,567 36,723 --
Deferred stock-based compensation........................................... (441) (441)
Stockholders' notes receivable.............................................. (113) (113) --
Translation adjustment...................................................... (6) (6) --
Accumulated other comprehensive losses...................................... (55,318) (55,318) --
---------- ---------- ----------
Total stockholders' deficit............................................. (29,177) (18,973)
---------- ---------- ----------
Total capitalization.................................................... $ (21,287) $ (18,702) $
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
- ------------------------
(1) Excludes (i) 2,629,575 shares of common stock issuable at a weighted average
exercise price of $2.38 per share upon exercise of stock options outstanding
at December 31, 1998; (ii) 258,651 shares of common stock reserved for
future issuance under our stock option plans; and (iii) 300,000 shares of
common stock reserved for issuance under our 1999 Employee Stock Purchase
Plan. See "Management--Benefit Plans."
24
<PAGE>
DILUTION
Our pro forma net tangible book deficit at December 31, 1998 was
$18,973,000, or $(1.01) per share, as adjusted to give effect to (i) a cash
payment from IBM of $2,585,000 on January 5, 1999 for the purchase of
convertible notes, (ii) the conversion of all outstanding shares of preferred
stock into common stock, including 1,654,041 shares of common stock issuable on
automatic conversion of convertible notes on closing of the offering and (iii)
the issuance of 3,051,803 shares of common stock, reflecting a "cashless"
exercise of outstanding Series C, Series E and Series E-2 warrants to purchase
convertible preferred stock at a weighted average exercise price of $4.82 per
share by surrendering shares of common stock as payment of the exercise price
assuming a fair market value per share of common stock in the offering of $ .
Pro forma net tangible book deficit per share represents the amount of our total
pro forma tangible assets less pro forma total liabilities divided by the
aggregate pro forma number of shares of common stock outstanding. After giving
effect to the application of the estimated net proceeds (which reflect an
estimate of underwriting discounts and commissions and an estimate of offering
expenses) from the sale of shares of common stock to be sold in the
offering at the initial public offering price of $ per share, our adjusted
pro forma net tangible book value at December 31, 1998 would have been
approximately $ or $ per share of common stock. This represents
an immediate increase in the pro forma net tangible book value of $ per
share of common stock to existing stockholders and an immediate dilution of
$ per share to new investors. The following table illustrates this per
share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share........................... $
---------
Pro forma net tangible book deficit per share at December 31, 1998...... $ (1.01)
Increase in pro forma net tangible book value per share attributable to
new investors.........................................................
---------
Adjusted pro forma net tangible book value per share after the offering...
---------
Dilution per share to new investors....................................... $
---------
---------
</TABLE>
The following table summarizes, on a pro forma basis at December 31, 1998,
after giving effect to the offering, the difference between existing
stockholders and investors in the offering with respect to the number of shares
of common stock purchased from our Company, the total consideration paid and the
average price paid per share:
<TABLE>
<CAPTION>
SHARES PURCHASED(1)(2) TOTAL CONSIDERATION
-------------------------- --------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------- ----------- -------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Existing stockholders......................... 18,760,231 -- % $ 20,456,000 -- % $ 1.09
New investors................................. -- -- -- -- --
------------- ----- -------------- -----
Total..................................... -- 100.0% $ -- 100.0%
------------- ----- -------------- -----
------------- ----- -------------- -----
</TABLE>
- ------------------------
(1) The table assumes no exercise of the underwriters' over-allotment option.
Exercise of the over-allotment option in full would (i) reduce the
proportion of shares held by existing stockholders to % of the total
number of shares outstanding after the offering; and (ii) increase the
number of shares purchased by investors in the offering to shares, or
% of the total number of shares.
(2) Excludes (i) 2,629,575 shares of common stock issuable at a weighted average
exercise price of $2.38 per share upon exercise of stock options outstanding
at December 31, 1998; (ii) shares of common stock reserved for future
issuance under our stock option plans; and (iii) 300,000 shares of common
stock reserved for issuance under our 1999 Employee Stock Purchase Plan. See
"Management--Benefit Plans."
25
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected historical consolidated financial data presented
below are derived from our consolidated financial statements. The financial
statements for the period from November 21, 1995 (inception) to September 30,
1996, and as of and for the fiscal years ended September 30, 1997 and 1998, have
been audited by KPMG LLP, independent auditors, and are included elsewhere in
this prospectus. The balance sheet data as of September 30, 1996 is derived from
audited consolidated financial statements of the Company that are not included
herein. The selected historical consolidated financial data as of December 31,
1998 and for the three months ended December 31, 1997 and 1998 have been derived
from unaudited consolidated financial statements included elsewhere in this
prospectus, that include, in the opinion of management, all adjustments,
consisting only of normal recurring adjustments, that we consider necessary for
a fair presentation of our financial position and results of operations for
those periods. The selected consolidated financial data set forth below is
qualified in its entirety by, and should be read in conjunction with,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", our consolidated financial statements, the related notes and the
independent auditor's report, which contains an explanatory paragraph that
states that our recurring losses from operations and net capital deficiency
raise substantial doubt about our ability to continue as a going concern,
included elsewhere in this prospectus. The consolidated financial statements and
the selected consolidated financial data do not include any adjustments that
might result from the outcome of that uncertainty. The operating results for the
periods presented are not necessarily indicative of the results to be expected
for the full fiscal year or any other period:
<TABLE>
<CAPTION>
PERIOD FROM THREE MONTHS ENDED
NOVEMBER 21, YEAR ENDED
1995 (INCEPTION) SEPTEMBER 30, DECEMBER 31,
TO SEPTEMBER 30, -------------------- --------------------
1996 1997 1998 1997 1998
--------------------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Software license fees........................... $ -- $ 7,392 $ 9,703 $ 2,086 $ 2,622
Service revenues................................ -- -- -- -- 190
Software license fees from IBM.................. -- 175 2,700 199 1,318
Service revenues from IBM....................... -- -- 2,867 -- 1,487
------- --------- --------- --------- ---------
Total revenues................................ -- 7,567 15,270 2,285 5,617
------- --------- --------- --------- ---------
Cost of revenues:
Software license fees........................... -- 772 2,531 278 495
Service revenues................................ -- -- -- -- 184
IBM service revenues............................ -- -- 2,562 -- 1,404
------- --------- --------- --------- ---------
Total cost of revenues........................ -- 772 5,093 278 2,083
------- --------- --------- --------- ---------
Gross profit.................................. -- 6,795 10,177 2,007 3,534
--------- --------- --------- ---------
Operating expenses:
Research and development........................ 2,765 8,436 10,231 3,070 2,204
Sales and marketing............................. 2,998 12,161 17,114 4,060 4,430
General and administrative...................... 978 3,762 3,575 769 894
Stock-based compensation........................ -- -- 227 -- 100
------- --------- --------- --------- ---------
Total operating expenses...................... 6,741 24,359 31,147 7,899 7,628
------- --------- --------- --------- ---------
Operating loss................................ (6,741) (17,564) (20,970) (5,892) (4,094)
Interest income (expense)......................... 46 (234) (1,194) (168) (712)
Nonrecurring interest charge on beneficial
conversion feature of convertible debt (1)...... -- -- -- -- (3,792)
Loss before income taxes...................... (6,695) (17,798) (22,164) (6,060) (8,598)
Income taxes...................................... -- 1 60 7 2
------- --------- --------- --------- ---------
Net loss.......................................... $ (6,695) $ (17,799) $ (22,224) $ (6,067) $ (8,600)
------- --------- --------- --------- ---------
------- --------- --------- --------- ---------
Basic and diluted net loss per share applicable to
common stockholders (2)......................... $ (4.89) $ (10.89) $ (13.11) $ (3.72) $ (4.64)
------- --------- --------- --------- ---------
------- --------- --------- --------- ---------
Shares used to compute basic and diluted net loss
per share applicable to common stockholders
(2)............................................. 1,370 1,634 1,695 1,633 1,854
------- --------- --------- --------- ---------
------- --------- --------- --------- ---------
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------------- DECEMBER 31,
1996 1997 1998 1998
--------- --------- --------- ---------------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash................................................................. $ 1,090 $ 303 $ 459 $ 1,288
Working capital (deficit)............................................ (1,749) (10,116) (30,229) (23,390)
Short-term borrowings from IBM and IBM Credit Corp................... -- -- 20,666 18,813
Long-term obligations, less current portion.......................... 173 633 336 7,890
Total assets......................................................... 2,129 4,605 5,145 7,502
Accumulated deficit.................................................. (6,695) (24,494) (46,718) (55,318)
Stockholders' deficit................................................ (1,357) (8,913) (28,925) (29,177)
</TABLE>
- ------------------------
(1) Nonrecurring non-cash interest charge based on the difference between the
price per share for Series F-2 preferred stock issued to Novell, Inc. and MC
Silicon Valley, Inc. and for Series E-2 preferred stock issuable to IBM and
another investor upon conversion of certain convertible notes in accordance
with EITF Topic D-60. See note 8 of notes to consolidated financial
statements. Under the terms of an April 1997 contract with IBM, we agreed
that any funds provided by IBM for our operations during 1997 and 1998
through the sale of equity securities to IBM would have a per share price
not higher than $6.68. In October and November 1998, we issued preferred
stock to Novell, Inc. and MC Silicon Valley, Inc. at a price per share of
$9.00. See "Certain Transactions--IBM Relationship."
(2) Does not include the effect of outstanding shares of convertible preferred
stock, shares from the assumed conversion of convertible notes and shares
issuable upon the exercise of stock options and warrants that are considered
anti-dilutive pursuant to SFAS No. 123. For an explanation of basic and
diluted net loss per share applicable to common stockholders and the number
of shares used to compute basic and diluted net loss per share applicable to
common stockholders, see note 1 of notes to consolidated financial
statements.
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION OF OUR FINANCIAL CONDITION AND RESULTS OF
OPERATIONS SHOULD BE READ IN CONJUNCTION WITH OUR CONSOLIDATED FINANCIAL
STATEMENTS AND THE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS INCLUDED ELSEWHERE
IN THIS PROSPECTUS. THIS DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES. THE ACTUAL RESULTS OF OUR COMPANY MAY DIFFER
MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A
RESULT OF CERTAIN FACTORS, INCLUDING, BUT NOT LIMITED TO, THOSE SET FORTH UNDER
"RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
We provide software and solutions that enable small to medium-sized
businesses and large-scale enterprises to build, deploy and maintain Internet
and intranet web sites and applications. We pioneered the web site building
products category with the introduction of NetObjects Fusion in October 1996,
and we have released several other award-winning software products, including
NetObjects Authoring Server, a successor to NetObjects TeamFusion. In October
1998, we began offering online and professional services to serve the site
building and maintenance needs of our customers. We were incorporated in
November 1995 and first recognized revenues in October 1996, when we provided
our first commercial version of NetObjects Fusion.
We recognize revenues from software license fees upon delivery of our
software products to our customers, net of allowances for estimated returns and
price protection, as long as we have no significant obligations remaining and we
believe that collection of the resulting receivable is probable. Software
license fees earned from products bundled with OEM resellers, including IBM, are
generally recognized upon the OEM resellers shipping the bundled products to
their customers. We recognize service revenues from IBM in connection with the
integration of our software with IBM's WebSphere software products using the
percentage-of-completion method. We are deferring the recognition of profit on
this arrangement until the amount of profit can be reasonably estimated. We
defer recognition of maintenance revenues, paid primarily for support and
upgrades, upon receipt of payment and recognize the related revenues ratably
over the term of the contract, which typically is 12 months. These payments
generally are made in advance and are nonrefundable. See "Risk Factors--Adequacy
of Allowances for Product Returns and Price Protection."
Through September 30, 1998, we recognized revenues in accordance with
American Institute of Certified Public Accountants (AICPA) Statement of Position
(SOP) 91-1, SOFTWARE REVENUE RECOGNITION. On October 1, 1998, we adopted the
provisions of SOP 97-2 and SOP 98-9, which supersede SOP 91-1. See note 1 of
notes to consolidated financial statements.
We earn revenues from software license fees primarily through sales of our
software through our indirect and online distribution channels, direct sales
force and through important strategic relationships such as our relationship
with IBM. Our indirect and online distribution channels include distributors,
direct and OEM resellers, VARs and online sales. During fiscal year 1997, our
total revenues from software license fees rose from $0 to $7.6 million, and
again grew significantly in fiscal year 1998, to $12.4 million, as a result of
our introduction of new versions of our main product NetObjects Fusion and,
secondarily, the release of other related products. In fiscal year 1998, our
total revenues from IBM grew to approximately $5.6 million from approximately
$175,000 in fiscal year 1997. Our total revenues from IBM in fiscal year 1998
and for the three months ended December 31, 1998 included revenues of $2.9
million and $1.5 million, respectively, for our charges for services under the
WebSphere agreement.
We initiated relationships with our primary distributors in North America,
Europe and Asia Pacific in fiscal year 1997. Revenues generated by our indirect
and online distribution channels
28
<PAGE>
accounted for substantially all of our non-IBM revenues for fiscal years 1997
and 1998. We anticipate that revenues derived from our indirect and online
distribution channels will decrease as a percentage of our total revenues. We
anticipate that revenues derived from direct channels will continue to increase
as a percentage of our total revenues. We derive our international revenues
through our indirect distribution channels.
In April 1997, when IBM acquired approximately 80% of our outstanding stock
from existing investors, we agreed to license IBM the right to market and sell
certain of our products to their customers for 10 years under an agreement that
allowed us to receive nonrefundable cash prepayments totaling $10.5 million
between April 1997 and December 31, 1998. We requested and received the full
amount of these prepayments between April and December 1997. These prepayments
have been reflected as deferred revenues from IBM on our balance sheet until
recognized. In the three months ended December 31, 1997, IBM began reselling our
products, and in the three months ended March 31, 1998, we began providing
services under the WebSphere agreement that will end on February 28, 1999. As
IBM reports sales of our products and we perform services, we recognize revenues
and the deferred revenue from IBM declines by the same amount. At December 31,
1998, approximately $2.3 million of the prepayments remained as deferred revenue
from IBM. As a result, we will not receive cash on sales by IBM of our products
or for services that we provide to IBM until the prepayment balance has been
reduced to zero. See "Risk Factors--Dependence on IBM and Potential Conflicts."
From our inception through the end of fiscal year 1996, our operating
activities related primarily to recruiting personnel, raising capital,
purchasing operating assets, conducting research and development, building the
NetObjects brand and establishing the market for our products. During fiscal
year 1997, we continued to invest significantly in research and development,
marketing, building our domestic and international sales channels and general
and administrative infrastructure. During both fiscal years we engaged in many
activities designed to gain corporate brand identity, seed the market with our
product, establish the site building product category and educate the market
about the benefits of site building rather than page authoring. In addition, we
invested in a broad range of marketing activities such as advertising, trade
shows, direct mail and public relations. We also entered into many co-marketing
and distribution arrangements with well-known companies such as AT&T, Apple
Computer, Inc., Compaq Computer, Inc., Microsoft, Netscape Communications Corp.
and PeopleSoft that allowed us to identify our NetObjects Fusion brand with
their brands. Most of these arrangements have not generated revenues for us, and
their principal benefit has been to help us achieve substantial brand
recognition in a relatively short period. The costs of these activities and
arrangements, which were not offset by revenues, have contributed substantially
to our significant losses since inception, and as of December 31, 1998, we had
an accumulated deficit of approximately $55.3 million. We believe that our
success will depend largely on our ability to extend our technological
leadership and to continue to build our brand position. Accordingly, we intend
to continue to invest heavily in research and development and sales and
marketing. As a result, we expect to continue to incur substantial operating
losses for the foreseeable future. See "Risk Factors" and "Risk Factors--History
of Substantial Losses; Expectation of Future Losses; 'Going Concern'
Qualification from Auditors" for a discussion of factors that could cause these
forward looking statements not to come true.
KPMG LLP, in their independent auditors' report, have expressed "substantial
doubt" as to our ability to continue as a going concern based on significant
operating losses since inception and significant debt and capital deficit as of
September 30, 1998. The consolidated financial statements do not include any
adjustments that might result from the outcome of that uncertainty. Our ability
to continue as a going concern is dependent upon the net proceeds from this
offering. The net proceeds from the offering are estimated to be $ ,
after the repayment of a $19 million secured credit facility with IBM Credit
Corp. and $3.45 million that we expect to owe to IBM under
29
<PAGE>
notes to be issued prior to closing of the offering. This credit facility will
be repaid out of the proceeds of this offering and the credit facility will
terminate. We believe the net proceeds from the offering, together with other
available cash resources, will be sufficient to meet our cash needs through
September 30, 2000.
Our prospects must be considered in light of our limited operating history
and the risks, expenses and difficulties frequently encountered by companies in
early stages of development, particularly companies in rapidly evolving markets
such as the market for web site building software and services. To achieve and
sustain profitability, we must, among other things:
- increase substantially our revenues from our two principal products,
NetObjects Fusion (which in fiscal year 1998 accounted for most of our
total revenues) and NetObjects Authoring Server, and our professional
services (which have generated minimal revenues to date);
- continue to develop successfully new versions of our products, such as
NetObjects Fusion 4.0, which was released in December 1998;
- continue to be a leading provider of e-business software for building web
sites and corporate intranet sites;
- respond quickly and effectively to competitive, market and technological
developments;
- expand substantially our sales and marketing operations;
- develop our professional services business, which we launched in October
1998;
- control expenses;
- continue to attract, train and retain qualified personnel in the
competitive software industry; and
- maintain existing relationships and establish new relationships with
leading Internet hardware and software companies.
There can be no assurance that we will achieve or sustain profitability. See
"Risk Factors-- History of Substantial Losses; Expectation of Future Losses;
'Going Concern' Qualification from Auditors."
30
<PAGE>
The following table sets forth financial data for the periods indicated as a
percentage of total revenues:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
SEPTEMBER 30, DECEMBER 31,
-------------------- --------------------
1997 1998 1997 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Software license fees................................ 97.7% 63.5% 91.3% 46.7%
Service revenues..................................... -- -- -- 3.4
Software license fees from IBM....................... 2.3 17.7 8.7 23.4
Service revenues from IBM............................ -- 18.8 -- 26.5
--------- --------- --------- ---------
Total revenues..................................... 100.0 100.0 100.0 100.0
--------- --------- --------- ---------
Cost of revenues:
Software license fees................................ 10.2 16.6 12.2 8.8
Service revenues..................................... -- -- -- 3.3
Service revenues from IBM............................ -- 16.8 -- 25.0
--------- --------- --------- ---------
Total cost of revenues............................. 10.2 33.4 12.2 37.1
--------- --------- --------- ---------
Gross profit........................................... 89.8 66.6 87.8 62.9
--------- --------- --------- ---------
Operating expenses:
Research and development............................. 111.5 67.0 134.4 39.2
Sales and marketing.................................. 160.7 112.0 177.6 78.9
General and administrative........................... 49.7 23.4 33.7 15.9
Stock-based compensation............................. -- 1.5 -- 1.8
--------- --------- --------- ---------
Total operating expenses........................... 321.9 203.9 345.7 135.8
--------- --------- --------- ---------
Operating loss......................................... (232.1) (137.3) (257.9) (72.9)
Interest expense..................................... (3.1) (7.8) (7.3) (12.7)
Nonrecurring interest charge on beneficial conversion
feature of convertible debt........................ -- -- -- (67.5)
Income taxes......................................... -- 0.4 0.3 --
--------- --------- --------- ---------
Net loss............................................... (235.2)% (145.5)% (265.5)% (153.1)%
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1997 AND 1998
REVENUES. Total revenues increased from approximately $2.3 million to
approximately $5.6 million for the three months ended December 31, 1997 and
1998, respectively, primarily because of our performance of WebSphere services
for IBM, increased market acceptance of our products, including the introduction
of NetObjects Fusion 4.0 in December 1998, and increased software license fees
from the bundling of NetObjects Fusion with Lotus' Designer for Domino.
For the three months ended December 31, 1997 and 1998, respectively,
international revenues were 14% and 18% of total revenues, respectively. The
increase in international revenues was due to the expansion of our indirect
sales channel in Europe, services revenues for the first time and OEM
arrangements with internet service providers in Europe in December 1998. We sell
our products in United States dollars in international markets. We do not expect
international sales to continue to grow at the same rate during the balance of
fiscal year 1999. See "Risk Factors--International Operations."
31
<PAGE>
Revenues from IBM increased from approximately 8.7% to 50% of our total
revenues for the three months ended December 31, 1997 and 1998, respectively.
Our agreement with IBM for WebSphere services ends on February 28, 1999. In
addition, our product bundling arrangement with Lotus for Designer for Domino
expires in June 1999. We believe that all of the IBM deferred revenues, which
were $2.3 million at December 31, 1998, will have been recognized as revenues by
June 30, 1999. We have no commitments from IBM to pay us software license fees
or services revenues after June 1999. Our software license revenues from IBM in
the remaining quarters of fiscal year 1999 are likely to decline, perhaps
substantially, from the level in the first quarter of fiscal year 1999. We do
not expect to receive any services revenues from IBM after February 1999. See
"Risk Factors--Dependence on IBM and Potential Conflicts" and "Business--Sales,
Marketing and Distribution."
COST OF REVENUES. Our cost of software license fees includes the cost of
product media, duplication, manuals, packaging materials, shipping, technology
licensed to us and fees paid to third-party vendors for order fulfillment, and
was approximately $278,000 and $495,000 for the three months ended December 31,
1997 and 1998, respectively, which represented approximately 13% and 19%,
respectively, of non-IBM software license fees. The increase in percentage terms
arose primarily from the increase in royalties we pay to third parties for
software included in NetObjects Fusion 4.0 that was not included in the version
that we sold in the three months ended December 31, 1997. Our cost of services
consists of personnel costs and related overhead as well as fees paid to third
parties who assist us in providing services to our customers. Our cost of IBM
services revenues consists solely of personnel costs and related overhead for
the services provided.
Gross margins may be affected by the mix of distribution channels we use,
the mix of products sold, the mix of product revenues versus services revenues
and the mix of international versus domestic revenues. We typically realize
higher gross margins on direct channel sales relative to indirect channels and
higher gross margins on domestic indirect channel sales relative to
international indirect sales. If sales through indirect channels increase as a
percentage of total revenues, or if, as we anticipate, services revenues
increase as a percentage of total revenues, our gross margins will be adversely
affected.
RESEARCH AND DEVELOPMENT. Our research and development expenses consist
primarily of salaries and consulting fees to support product development. To
date, we have expensed all research and development costs as we have incurred
them because we generally establish the technological feasibility of our
products upon completion of a working model. We have not yet incurred
significant costs between the date of completion of a working model and the date
of general release of a product. We believe that continued investment in
research and development is critical to attaining our strategic objectives and,
as a result, we expect research and development expenses to continue to
increase. Research and development expenses were approximately $3.1 million and
$2.2 million for the three months ended December 31, 1997 and 1998,
respectively, and 134% and 39%, respectively, of total revenues. The decrease in
total dollars and in percentage terms in the three months ended December 31,
1998 occurred primarily because much of our personnel were redirected towards
integrating our software with IBM's WebSphere software products. The associated
expenses are reflected in our cost of IBM revenues from services instead.
SALES AND MARKETING. Our sales and marketing expenses consist primarily of
salaries, commissions, consulting fees, trade show expenses, advertising,
marketing materials and the cost of customer service operations. We intend to
continue to increase staff in our enterprise sales organization and decrease our
aggressive brand building and marketing campaign and, therefore, expect sales
and marketing expenses to continue to increase. Sales and marketing expenses
were approximately $4.1 million and $4.4 million for the three months ended
December 31, 1997 and 1998, respectively, representing 178% and 79%,
respectively, of total revenues. The increase resulted primarily
32
<PAGE>
from the growth in our sales personnel, increased sales commissions and costs
related to the continued development and implementation of our branding and
marketing campaigns. As our total revenues grew at a faster rate than expenses,
our sales and marketing expenses decreased as a percentage of total revenues for
the three months ended December 31, 1998.
GENERAL AND ADMINISTRATIVE. Our general and administrative expenses consist
primarily of salaries and fees for professional services. We expect general and
administrative expenses to increase as we expand our staff, incur additional
costs related to growth of our business and become a publicly traded company.
General and administrative expenses were approximately $769,000 and $894,000 for
the three months ended December 31, 1997 and 1998, respectively, representing
approximately 34% and 16%, respectively, of total revenues. The increased amount
resulted primarily from additional personnel and facility expenses related to
our growth, while the decrease in percentage terms occurred because total
revenues grew at a faster rate than general and administrative expenses.
STOCK-BASED COMPENSATION. Beginning with the three months ended March 31,
1998 we have been amortizing aggregate stock-based compensation of $768,000
attributable to the grant of stock options over the 48-month period in which the
options vest in a manner consistent with Financial Accounting Standards Board
(FASB) Interpretation No. 28. Of the total deferred stock-based compensation
expense, approximately $100,000 was amortized during the three months ended
December 31, 1998.
INTEREST EXPENSE. Our interest expense consists primarily of interest on
our borrowings and amounted to approximately $168,000 and $712,000 for the three
months ended December 31, 1997 and 1998, respectively. The increase was due
primarily to the increase in borrowing over the period. In connection with the
in-the-money convertible notes we issued to IBM and another existing investor
that convert to Series E-2 preferred stock at $6.68 per share we recorded $3.8
million of interest expense in accordance with EITF Topic D-60 in the three
months ended December 31, 1998. In connection with the revolving loan and
security agreement with IBM Credit Corp., in December 1997 we issued warrants to
purchase 83,333 shares of Series F preferred stock at $10.80 per share. In
addition, in connection with the convertible notes we issued warrants to
purchase 163,715 shares of Series E preferred stock at $6.68 per share. The
Series E and Series F preferred stock warrants were valued based upon the
Black-Scholes pricing model which resulted in approximately $191,000 of
additional interest expense in the three month period ended December 31, 1998.
INCOME TAXES. We had a net operating loss for each period from our
inception through December 31, 1998. We recorded income tax expense due to
withholding tax on payments made by Mitsubishi, our exclusive master distributor
of our products in Japan.
YEARS ENDED SEPTEMBER 30, 1997 AND 1998
REVENUES. Our total revenues increased from approximately $7.6 million to
$15.3 million for the fiscal years ended September 30, 1997 and 1998,
respectively. The increase was due primarily to growing market acceptance of our
products, including the introduction of NetObjects TeamFusion in December 1997,
NetObjects Fusion 3.0 for Windows 95, Windows 98 and Windows NT in March 1998
and NetObjects Fusion for Macintosh in June 1998, $2.9 million of WebSphere
services revenues and successful product promotions and diversification of our
sales channels, including online distribution, which began in August 1998. In
August 1997, we reduced the price of NetObjects Fusion from a suggested retail
price of $495 to $295, and provided credits for unsold inventory to many of our
distributors and other resellers, thereby reducing revenues from software
license fees for the three months ended September 30, 1997 to a lower amount
than in the preceding quarter.
33
<PAGE>
Our international revenues were approximately 15% and 16% of total revenues
for the fiscal years ended September 30, 1997 and 1998, respectively. The
increase in international revenues was due in part to the expansion of the
indirect sales channel in Europe as well as the initiation of our master
distributor agreement with Mitsubishi, which also invested in us in November
1998, to manufacture and sell our products in Japan.
Our revenues from IBM were approximately 2% and 36% of total revenues for
the fiscal years ended September 30, 1997 and 1998, respectively. The increased
revenues from IBM were generated primarily from our product bundles with Lotus
Designer for Domino and our provision of WebSphere services beginning in March
1998.
COST OF REVENUES. Our cost of software license fees was approximately
$772,000 and $2.5 million for the fiscal years ended September 30, 1997 and
1998, respectively, representing approximately 10% and 26%, respectively, of
total non-IBM revenues. Total costs increased as our product sales increased,
and increased as a percentage of total revenues because we reduced the price of
NetObjects Fusion in August 1997, wrote off unsold inventory resulting from
product upgrades and increased our fulfillment costs for fiscal year 1998. Cost
of IBM revenues consists solely of the costs of providing WebSphere services.
RESEARCH AND DEVELOPMENT. Our research and development expenses were
approximately $8.4 million and $10.2 million for the fiscal years ended
September 30, 1997 and 1998, respectively, and 111% and 67%, respectively, of
total revenues. The increase in fiscal 1998 resulted primarily from increases in
internal development personnel and independent contractor expenses. The decrease
in percentage terms occurred as revenues grew at a faster rate than expenses.
SALES AND MARKETING. Our sales and marketing expenses were approximately
$12.2 million and $17.1 million for the fiscal years ended September 30, 1997
and 1998, respectively, representing approximately 161% and 112%, respectively,
of total revenues. The increase resulted primarily from the growth in our sales
personnel, sales commissions and costs related to the continued development and
implementation of our branding and marketing campaigns. The decrease in
percentage terms occurred as revenues grew at a faster rate than expenses.
GENERAL AND ADMINISTRATIVE. Our general and administrative expenses were
approximately $3.8 million and $3.6 million for the fiscal years ended September
30, 1997 and 1998, respectively, representing approximately 50% and 23%,
respectively, of total revenues. Costs of approximately $300,000 in professional
fees incurred in connection with IBM's acquisition of approximately 80% of our
stock are included in general and administrative expenses in fiscal 1997. The
decrease in percentage terms occurred as revenues grew at a faster rate than
expenses.
STOCK-BASED COMPENSATION. We amortized approximately $227,000 of the total
deferred stock-based compensation in fiscal year 1998.
INTEREST EXPENSE. Our interest expense consisted primarily of interest on
our borrowings and increased from approximately $234,000 to $1.2 million for the
fiscal years ended September 30, 1997 and 1998, respectively, as we increased
our borrowings during fiscal year 1998. Fiscal year 1998 interest expense
included $201,000 for the Series F preferred stock warrants issued to IBM Credit
Corp.
PERIOD FROM NOVEMBER 21, 1995 (INCEPTION) THROUGH SEPTEMBER 30, 1996
During the period from November 21, 1995 (inception) through September 30,
1996, our operating activities related primarily to recruiting personnel,
raising capital, purchasing operating assets, conducting research and
development, building the NetObjects brand and establishing the market for our
products. We recognized no revenue and incurred operating expenses of $6.7
million during the period. Accordingly, a comparison of the operating results
for that period with the operating results for fiscal year 1997 is not
meaningful and has been omitted.
34
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited quarterly results of
operations data for the eight quarters ended December 31, 1998. We believe that
this information has been prepared substantially on the same basis as the
audited consolidated financial statements appearing elsewhere in this
prospectus, and all necessary adjustments, consisting only of normal recurring
adjustments, have been included in the amounts stated below to present fairly
the unaudited quarterly results of operations. The quarterly data should be read
in conjunction with our audited consolidated financial statements and notes to
consolidated financial statements appearing elsewhere in this prospectus. The
operating results for any quarter are not necessarily indicative of the
operating results for any future period:
<TABLE>
<CAPTION>
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30,
1997 1997 1997 1997 1998 1998 1998
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Software license fees............... $ 2,115 $ 2,332 $ 1,721 $ 2,086 $ 2,485 $ 2,524 $ 2,608
Service revenues.................... -- -- -- -- -- -- --
Software license fees from IBM...... -- 75 100 199 1,016 1,069 416
Service revenues from IBM........... -- -- -- -- 206 1,225 1,436
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total revenues.................... 2,115 2,407 1,821 2,285 3,707 4,818 4,460
----------- ----------- ----------- ----------- ----------- ----------- -----------
Cost of revenues:
Software license fees............... 143 240 305 278 704 840 709
Service revenues.................... -- -- -- -- -- -- --
IBM service revenues................ -- -- -- -- 184 1,095 1,284
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total cost of revenues............ 143 240 305 278 888 1,935 1,993
----------- ----------- ----------- ----------- ----------- ----------- -----------
Gross profit.......................... 1,972 2,167 1,516 2,007 2,819 2,883 2,468
----------- ----------- ----------- ----------- ----------- ----------- -----------
Operating expenses:
Research and development............ 1,671 2,500 2,711 3,070 2,785 2,175 2,201
Sales and marketing................. 1,888 3,833 4,454 4,060 4,353 4,444 4,257
General and administrative.......... 1,016 1,180 926 769 977 878 951
Stock-based compensation............ -- -- -- -- 53 74 100
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total operating expenses.......... 4,575 7,513 8,091 7.899 8,168 7,571 7,509
----------- ----------- ----------- ----------- ----------- ----------- -----------
Operating loss........................ (2,603) (5,346) (6,575) (5,892) (5,349) (4,688) (5,041)
Net other expense................... 75 37 53 175 303 335 441
Nonrecurring interest charge on
beneficial conversion feature of
convertible debt.................. -- -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net loss.............................. $ (2,678) $ (5,383) $ (6,628) $ (6,067) $ (5,652) $ (5,023) $ (5,482)
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
Revenues:
Software license fees............... 100.0% 96.9% 94.5% 91.3% 67.4% 52.4% 58.5%
Service revenues.................... -- -- -- -- -- -- --
Software license fees from IBM...... -- 3.1 5.5 8.7 27.4 22.2 9.3
Service revenues from IBM........... -- -- -- -- 5.6 25.4 32.2
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total revenues.................... 100.0 100.0 100.0 100.0 100.0 100.0 100.0
----------- ----------- ----------- ----------- ----------- ----------- -----------
Cost of revenues:
Software license fees............... 6.8 10.0 16.7 12.2 19.0 17.5 15.9
Service revenues.................... -- -- -- -- -- -- --
Service revenues from IBM........... -- -- -- -- 5.0 22.7 28.8
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total cost of revenues............ 6.8 10.0 16.7 12.2 24.0 40.2 44.7
----------- ----------- ----------- ----------- ----------- ----------- -----------
Gross profit.......................... 93.2 90.0 83.3 87.8 76.0 59.8 55.3
----------- ----------- ----------- ----------- ----------- ----------- -----------
Operating expenses:
Research and development............ 79.0 103.9 148.9 134.3 75.1 45.1 49.4
Sales and marketing................. 89.3 159.2 244.6 177.7 117.4 92.2 95.4
General and administrative.......... 48.0 49.0 50.8 33.7 26.4 18.2 21.3
Stock-based compensation............ -- -- -- -- 1.4 1.6 2.2
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total operating expenses.......... 216.3 312.1 444.3 345.7 220.3 157.1 168.3
----------- ----------- ----------- ----------- ----------- ----------- -----------
Operating loss........................ (123.1) (222.1) (361.0) (257.9) (144.3) (97.3) (113.0)
Net other expense................... 3.5 1.5 2.9 7.6 8.2 7.0 9.9
Nonrecurring interest charge on
beneficial conversion feature of
convertible debt.................. -- -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net loss.............................. (126.6)% (223.6)% (363.9)% (265.5)% (152.5)% (104.3)% (122.9)%
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
<CAPTION>
DEC. 31,
1998
-----------
<S> <C>
Revenues:
Software license fees............... $ 2,622
Service revenues.................... 190
Software license fees from IBM...... 1,318
Service revenues from IBM........... 1,487
-----------
Total revenues.................... 5,617
-----------
Cost of revenues:
Software license fees............... 495
Service revenues.................... 184
IBM service revenues................ 1,404
-----------
Total cost of revenues............ 2,083
-----------
Gross profit.......................... 3,534
-----------
Operating expenses:
Research and development............ 2,204
Sales and marketing................. 4,430
General and administrative.......... 894
Stock-based compensation............ 100
-----------
Total operating expenses.......... 7,628
-----------
Operating loss........................ (4,094)
Net other expense................... 714
Nonrecurring interest charge on
beneficial conversion feature of
convertible debt.................. 3,792
-----------
Net loss.............................. $ (8,600)
-----------
-----------
Revenues:
Software license fees............... 46.7%
Service revenues.................... 3.4
Software license fees from IBM...... 23.4
Service revenues from IBM........... 26.5
-----------
Total revenues.................... 100.0
-----------
Cost of revenues:
Software license fees............... 8.8
Service revenues.................... 3.3
Service revenues from IBM........... 25.0
-----------
Total cost of revenues............ 37.1
-----------
Gross profit.......................... 62.9
-----------
Operating expenses:
Research and development............ 39.2
Sales and marketing................. 78.9
General and administrative.......... 15.9
Stock-based compensation............ 1.8
-----------
Total operating expenses.......... 135.8
-----------
Operating loss........................ (72.9)
Net other expense................... 12.7
Nonrecurring interest charge on
beneficial conversion feature of
convertible debt.................. 67.5
-----------
Net loss.............................. (153.1)%
-----------
-----------
</TABLE>
35
<PAGE>
Our total revenues fluctuate from quarter-to-quarter due to many factors,
including new product and product upgrade introductions. In addition, we attempt
to limit sales of existing products for the months preceding the release of
upgraded products in order to reduce the number of returns of the older product
from certain of our direct and indirect channel resellers. The timing of our
recognition of revenues from strategic arrangements with other companies such as
AT&T, IBM or Netscape has contributed to fluctuations in revenues from quarter
to quarter. During the three months ended September 30, 1997, we reduced the
suggested retail price of NebObjects Fusion from $495 to $295, and provided
price protection credits to our indirect channel distributors for unsold
inventory. Consequently, our total revenues for the quarter declined
substantially as a percentage of the preceding quarter's revenues. While unit
volumes increased in quarters subsequent to the price reduction, the price
reduction reduced total revenue growth in subsequent quarters. For a discussion
of IBM revenues in the remaining quarters of 1999, see "Risk Factors--Dependence
on IBM and Potential Conflicts--Dependence to Date on IBM for Financing and
Significant Revenues."
FACTORS AFFECTING OPERATING RESULTS. As a result of our limited operating
history and the emerging nature of the markets in which we compete, we are
unable to forecast accurately our revenues. Our expense levels are based in part
on our expectations with regard to future revenues. We may be unable to adjust
spending in a timely manner to compensate for any unexpected revenues shortfall.
As a result, any significant shortfall in demand for our products and services
relative to our expectations would have an immediate material adverse effect on
our business, prospects, financial condition and results of operations. Further,
as a strategic response to changes in the competitive environment, we may from
time to time implement pricing, service or marketing changes that could have a
material adverse effect on our business, prospects, financial condition and
results of operations. See "Risk Factors--Uncertainty of Future Revenues;
Probable Fluctuation in Quarterly Operating Results," and
"Business--Competition."
We expect to experience significant fluctuations in our future quarterly
operating results due to a variety of factors, many of which are outside our
control, including
- the expiration of commitments from IBM for software license fees in June
1999 and service revenues in February 1999;
- the introduction or enhancement of our products and services and market
acceptance of such products and services;
- a longer sales cycle for products for large-scale enterprise customers and
for NetObjects Authoring Server;
- competitors' introductions of other types of software products (for
example, Microsoft's introduction of Windows 98 adversely impacted our
sales temporarily);
- the amount and timing of operating costs and capital expenditures related
to expansion of our business, operations and infrastructure;
- price reductions by us or our competitors or changes in how their products
and services are priced;
- the mix of distribution channels through which our products are licensed
and sold; and
- the promptness with which sales data are reported to us from third
parties.
In addition to fluctuations of revenues from IBM, our revenues may become
more variable due to factors such as seasonal demand for our products and
services (for example, annual reductions in sales in Europe in July and August),
costs of litigation and intellectual property protection, technical difficulties
with respect to the use of our products, general economic conditions and
economic
36
<PAGE>
conditions specifically related to businesses dependent upon the Internet. It
often is difficult to forecast the effect such factors, or any combination
thereof, would have on our results of operations for any given fiscal quarter.
We have used, and expect to continue to use, price promotions to increase the
trial, purchase and use of our products, as well as to increase the overall
recognition of our brands. The effect of such promotions on revenues in a
particular period may be significant and extremely difficult to forecast.
Quarterly sales and operating results depend primarily on the volume and timing
of orders received in the quarter, both of which are difficult to forecast.
Quarterly sales and operating results depend primarily on the volume and timing
of orders received in the quarter, both of which are difficult to forecast. We
typically recognize a substantial portion of our revenues in the last month of
each quarter. Based on the foregoing, we believe that our quarterly revenues,
expenses and operating results could vary significantly in the future, and that
period-to-period comparisons should not be relied upon as indications of future
performance.
We generally distribute our software products in "trial" form to the public
electronically from our web site. The "trial" version generally allows the
customer to use the product but either has an expiration period, in which case
the product is automatically deleted from a hard drive, or prohibits the site
from being published. These features may cause certain customers to delay
purchasing decisions until they have thoroughly tested the product, or they may
be able to override the "trial" features and use the product in an unlicensed
manner, which could have a material adverse effect on our revenues and quarterly
results of operations.
Due to the foregoing factors, it is likely that in some future quarters our
operating results will fall below the expectations of securities analysts and
investors, which would likely have a material adverse effect on the trading
price of our stock.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations primarily through a
combination of private placements of equity securities and borrowings, which
yielded an aggregate of $47.3 million of net proceeds from November 1995 through
December 31, 1998. Since December 1997, approximately $7.5 million and $19
million of this financing have been provided by IBM and IBM Credit Corp.,
respectively, in the form of a secured credit facility. In addition, we have
received cash prepayments from IBM of approximately $10.5 million which are
recorded as deferred revenues from IBM on our balance sheet. We have paid
interest to IBM on the amounts of prepayments that we received in advance of the
scheduled prepayment period set forth in our license agreement with IBM. All
such interest expense ceased at December 31, 1998. This credit facility will be
repaid out of the proceeds of this offering and the credit facility will
terminate.
We will not receive additional cash on sales of our products by IBM or for
services that we provide to IBM until the balance of the deferred revenues from
IBM has been reduced to zero. At December 31, 1998 approximately $2.3 million of
the cash prepayments provided by IBM had not been recognized and were reflected
as deferred revenue from IBM on our balance sheet.
We also have established equipment lease lines under which we may finance
the purchase up to approximately $2.7 million in furniture, computer equipment
and software, approximately $720,000 of which is provided by IBM Credit Corp.
The lease terms range from three to five years. At December 31, 1998
approximately $200,000 was available under these lease lines.
Net cash used in operating activities in the period from November 21, 1995
(inception) to December 31, 1996 and for the years ended September 30, 1997 and
1998 was $4.8 million, $10.8 million and $19.0 million, respectively, and $8.2
million in the three months ended December 31, 1998. Net cash used for operating
activities in each of these periods resulted primarily from our net losses,
offset in part by increases in our accounts payable, accrued expenses and
non-cash expenses.
37
<PAGE>
Net cash used in investing activities in the period from November 21, 1995
(inception) to December 31, 1996 and for the years ended September 30, 1997 and
1998 was $551,000, $1.0 million and $792,000, respectively, and $703,000 in the
three months ended December 31, 1998. Net cash used in investing activities in
each of these periods was related to the purchases of property and equipment.
The property and equipment purchased consisted primarily of computer hardware
and software.
Net cash provided by financing activities in the period from November 21,
1995 (inception) to December 31, 1996 and for the years ended September 30, 1997
and 1998 was $6.5 million, $11.0 million and $20.0 million, respectively, and
$9.8 million in the three months ended December 31, 1998. The cash provided by
financing activities was the result of net proceeds from borrowings and the sale
of our preferred stock and common stock.
As of December 31, 1998, we had approximately $1.3 million in cash. Other
than the $19 million of short-term borrowings from IBM, our principal
commitments consisted of obligations outstanding under operating leases.
Although we have no material commitments for capital expenditures, they may
increase consistent with our anticipated growth in operations, infrastructure
and personnel, and we anticipate capital expenditures of at least $2.0 million
over the next 24 months given our current growth rate. We will continue to add
computer hardware resources. There can be no assurance, however, that our growth
rate will continue at current levels or that it will meet our current
expectations.
In October 1998, we issued convertible notes to IBM and Perseus Capital
L.L.C., which has business relationships with several of our directors, for a
total of $10.9 million. Prior to closing of this offering, the convertible notes
will be converted into shares of Series E-2 preferred stock, which converts to
common stock automatically at the closing of this offering. The notes bear
interest at 10% per annum. By December 31, 1998, we had received $8.3 million of
the $10.9 million amount. We received the remaining $2.6 million in January
1999. In October and November 1998, we sold 388,888 shares of Series F-2
preferred stock for a total of $3.5 million. See "Certain Transactions." Prior
to the closing of this offering we have the right to sell up to $3.45 million of
notes and warrants to IBM to continue to finance our operations. We expect to
incur substantially all of this additional debt and expect IBM to exercise its
right to require the repayment of the additional convertible notes in full upon
the closing of this offering.
After the offering, we anticipate moderate growth in our operating expenses
for the foreseeable future to execute our business plan, particularly in sales
and marketing expenses and to a lesser extent research and development and
general and administrative expenses. As a result, we expect our operating
expenses, as well as planned capital expenditures, to continue to constitute a
material use of our cash resources. In addition, we may require cash resources
to fund acquisitions or investments in complementary businesses, technologies or
product lines. We believe that the net proceeds from the offering, together with
our current cash and cash equivalents, will be sufficient to meet our
anticipated cash requirements for working capital and capital expenditures
through September 30, 2000. Thereafter, if cash generated from operations is
insufficient to satisfy our liquidity requirements, we may seek to sell
additional equity or debt securities, or obtain additional credit facilities.
YEAR 2000 READINESS
Many existing software programs are coded to accept only two digit entries
in their date fields. As a result, these programs are unable to distinguish
whether "00" means the year 1900 or the year 2000, which could result in system
failures or miscalculations causing disruptions to operations. Although we
believe that our products are Year 2000 ready, because NetObjects Fusion and
NetObjects Authoring Server may interact with external databases for purposes of
data storage, the
38
<PAGE>
ability of applications integrated with a web site built using NetObjects Fusion
or NetObjects Authoring Server to comply with Year 2000 requirements is largely
dependent on whether any such databases underlying the application are Year 2000
ready. If NetObjects Fusion or NetObjects Authoring Server is connected to a
database that is not Year 2000 ready, a web application created or developed for
a web site built using NetObjects Fusion or NetObjects Authoring Server could
work incorrectly. Furthermore, the purchasing patterns of customers or potential
customers may be affected by Year 2000 issues as businesses expend significant
resources to correct their current systems for Year 2000 readiness. These
expenditures may result in reduced funds available for web site building
activities, which could have a material adverse effect on our business,
prospects, financial condition and results of operations. Year 2000
complications may disrupt the operations, viability or commercial acceptance of
the Internet, which could have a material adverse effect on our business,
prospects, financial condition and results of operations.
We have received verbal confirmations, and are in the process of obtaining
written certifications, from vendors of software that we have purchased for our
internal financial systems is Year 2000 ready. To date, we have not incurred
significant costs to comply with Year 2000 requirements, and, based upon our
preliminary analysis, we do not believe we will incur significant costs in the
foreseeable future. There can be no assurance, however, that Year 2000 errors or
defects will not be discovered in our internal software systems. If such errors
or defects were discovered, the costs of making such systems Year 2000 ready
could have a material adverse effect on our business, prospects, financial
condition and results of operations.
We rely on third party vendors that may not be Year 2000 compliant for
certain equipment and services. In addition, many of our distributors are
dependent on commercially available operating systems that may be impacted by
Year 2000 complications. To date, we have not completed our Year 2000 review of
our vendors or distributors. Failure of systems maintained by our vendors or
distributors to operate properly with regard to the Year 2000 and thereafter
could require us to incur significant unanticipated expenses to remedy any
problems or replace affected vendors, could reduce our revenues from our
indirect distribution channel and could have a material adverse effect on our
business, prospects, financial condition and results of operations.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income.
This statement establishes standards for the reporting and display of
comprehensive income and its components. SFAS No. 130 is effective beginning in
1998. Adoption of SFAS No. 130 is for presentation only and did not affect our
financial condition or results of operations.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. The new standard establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. SFAS No. 133 is effective for all
fiscal quarters of fiscal years beginning after June 15, 1999. We do not expect
SFAS No. 133 to have a material effect on our financial condition or results of
operations.
In February 1998, the AcSEC issued SOP 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use. SOP 98-1 establishes
the accounting for costs of software products developed or purchased for
internal use, including when such costs should be capitalized. We do not expect
SOP 98-1, which is effective for us beginning January 1, 1999, to have a
material effect on our financial condition or results of operations.
39
<PAGE>
BUSINESS
OUR COMPANY
We are a leading provider of e-business software and solutions that enable
small to medium-sized companies and large-scale enterprises to build, deploy and
maintain web sites on the Internet and corporate intranets. Our e-business
solutions address the growing challenges faced by businesses in capturing the
explosive growth of the Internet as an online business medium by helping them
build web sites that can publish content, conduct electronic commerce and run
web applications. In 1996, we pioneered the web site building product category
with the introduction of our award-winning flagship product, NetObjects Fusion.
NetObjects Fusion is an easy-to-use desktop software application for building
business web sites with an intuitive, visual interface that helps automate and
integrates many site building functions. NetObjects Fusion's open architecture
supports a wide range of platforms, including web browsers, databases and web
servers. Since 1996, we have released enhanced versions of NetObjects Fusion,
and we have introduced other products, including NetObjects Authoring Server, a
scalable client-server application for large-scale enterprises and corporate
departments, which facilitates controlled, collaborative building of intranet
sites. We have also built popular online resources, including NetObjects.com,
eFuse.com, launched in December 1998, eScriptZone.com and eSiteStore.com, that
target communities of business users and provide sources of information,
products and services for building web sites. In addition, in October 1998, we
began offering professional services to our business customers to better serve
their web site planning, building and maintenance needs.
As part of our strategy to provide complete e-business solutions, we have
formed technology relationships with other Internet companies. Many of these
companies have built products with extensions for NetObjects Fusion and
NetObjects Authoring Server, such as Allaire Cold Fusion, iCat Commerce Online,
Lotus Domino, Beatnik audio software and IBM HotMedia. In addition, we have
built extensions for the Microsoft ASP Site Server. These extensions provide us
with broader platform connectivity and interoperability, and help position our
products as the open platforms of choice for web site building. We offer
integrated web services with key online service providers which host and promote
e-business sites. We also have product bundling agreements with technology
companies, such as IBM, Lotus and Novell, that help create greater brand
recognition and awareness. In addition, our strategic relationship with IBM has
furnished us with sales and marketing benefits, including access to IBM and
Lotus sales and distribution channels, co-marketing and co-promotion benefits,
and credibility in the marketplace.
We have established a premier Internet brand and estimate that over 300,000
copies of NetObjects Fusion have been delivered to date, and more than 1,000,000
web pages or sites have been built using NetObjects Fusion. Our total revenues
have grown from a base of $0 for fiscal year 1996 to approximately $7.6 million
for fiscal year 1997 and approximately $15.3 million for fiscal year 1998.
Traffic to our web sites has grown from approximately 800,000 visitors in 1996
to approximately 2.5 million visitors in 1998. New visitors provided
approximately half of the traffic to our web sites in 1998.
INDUSTRY OVERVIEW
GROWTH OF THE WEB
In fewer than five years, the web has emerged as a universal, rapidly
growing online business medium enabling millions of users worldwide to share
information, conduct electronic commerce and access business applications.
According to International Data Corp., the number of web users worldwide will
grow from an estimated 97.3 million at the end of 1998 to an estimated 320
million by the end of 2002. IDC estimates that worldwide Internet commerce will
increase from an estimated $32 billion at the end of 1998 to an estimated $426
billion by the end of 2002. The explosive
40
<PAGE>
growth of the web as an online business medium has been fueled by a number of
factors, including an increased awareness by businesses of the revenue, cost and
performance benefits from using the web to conduct business, and the large and
growing number of web users.
In addition, we believe the cycle of growth will accelerate as an increasing
number of web users attracts more businesses to build or enhance their online
web sites, which in turn attracts more users. IDC reported that the number of
universal resource locators (URL's) will grow from 250.5 million in 1997 at a
compound annual growth rate of approximately 60% to 640 million in 2000.
According to IDC in the U.S., there are currently 6 million businesses with a
web site, or about 21% of all businesses. By the year 2000, IDC expects over
12.3 million businesses to have a web site.
As developing or enhancing a web presence becomes increasingly important to
businesses, business web sites are becoming more complex. As the web's
importance has grown, businesses have applied advances in Internet technology to
convert business web sites from static "billboards" to sophisticated e-business
web sites where businesses can interact and transact with customers, employees,
suppliers and distributors. E-business sites may contain hundreds of pages,
embed audio and video content and provide access to dynamic data
("e-publishing"), provide online commerce ("e-commerce") capabilities, and run
web applications ("e-applications") such as interactive forms. E-business web
sites are rapidly becoming a strategic necessity for many companies as they
discover how conducting business online can enhance revenues, reduce costs and
improve performance.
GROWTH OF CORPORATE INTRANETS
The growth of the web as a global communications medium is also driving
large-scale corporate enterprises to enhance communication, collaboration and
productivity by building corporate intranets consisting of numerous internal web
sites. These intranets bring together corporate information and applications
that facilitate communication and information sharing within an organization.
Intranets can also streamline business processes such as customer service, sales
and marketing and human resources, thereby reducing costs or improving
performance through automation or self-service. According to a recent report,
Zona Research estimates that two-thirds of intranet sites are being developed
through team-based web site building, and corporate intranets represent the
greatest business opportunity for providers of Internet and intranet-related
software technologies and products.
THE BUSINESS WEB SITE OPPORTUNITY
Although it has become relatively easy to access the web, it can be
difficult and expensive to build an effective web presence. The challenges of
building a successful Internet or intranet web site require solutions that
address planning, design, building and deployment, as well as web site promotion
and maintenance after the web site is placed online. Companies are often also
faced with a difficult "make or buy" decision, either to build a web site by
using in-house resources or third-party service providers, or to develop a web
site with available "off-the-shelf" applications. Key factors influencing their
choice of solutions include ease and flexibility of building, construction time
and cost and the cost and flexibility of later maintaining and enhancing their
web site. In addition, the web utilizes multiple standards and platforms,
including different web browsers, databases and web servers, which increase the
complexity of building a site that operates in multiple environments.
The first generation of web site building products was technically difficult
to use and generally required the programming expertise of a limited number of
highly skilled users such as HTML programmers or highly skilled designers. The
second generation of products, and online services that facilitated web site
building, targeted consumers with personal "home page" building tools and
41
<PAGE>
casual desktop users with the ability to publish simple, static information.
Although third-party service providers and in-house IS personnel can provide
technical coding, these resources can be expensive and may not provide the
flexibility required to develop and maintain dynamic, evolving web sites. In
addition, third-party and in-house IS solutions often have excluded key business
users from the web site building and maintenance process, rather than enabling a
truly collaborative site building development process which includes content
contributions from such users.
According to the Yankee Group, the majority of small to medium-sized
businesses have not strategically embraced the Internet. We believe those that
have a web presence often need to enhance their web sites with new functionality
such as e-commerce or e-applications, or otherwise improve their web site
features and promotion. Businesses with more sophisticated web site
requirements, but without access to highly skilled HTML programmers, require an
easy-to-use, capability-rich, open and scalable solution. In-house IS personnel
or third-party service providers can address technical design and coding
requirements, but often at a higher cost than a packaged application and with
less flexibility in building and maintaining their web sites. In addition,
large-scale corporate enterprises have complex organizational structures with a
variety of departments and need solutions that allow effective collaboration in
developing, deploying and maintaining their intranet web sites.
THE NETOBJECTS SOLUTION
We provide e-business software and services that enable small to
medium-sized businesses, as well as large-scale corporate enterprises, to build,
deploy and maintain web sites on the Internet and corporate intranets. Our
e-business solutions are specifically designed to help businesses build web
sites that can publish content, conduct e-commerce and run e-applications on the
web. Our solutions include products and online services for small and
medium-sized businesses, and products and professional services for large-scale
enterprises and departments, that use collaborating teams to build web sites.
Small and medium-sized businesses require easy-to-use solutions that enable
them to build or enhance their web sites quickly and efficiently, add key
functions such as electronic commerce or web applications and work with a
variety of industry standards and platforms. Our award-winning application,
NetObjects Fusion is designed specifically to address these needs. NetObjects
Fusion has an intuitive, visual interface that integrates and helps automate
many site creation functions, including site layout and design, page building
and content management.
In addition, we, along with third parties, offer small and medium-sized
businesses online solutions to help them register, host, build, maintain and
promote their web sites. eFuse.com, our latest web site launched in December
1998, is the first online resource to provide integrated content, products and
solutions for small and medium-sized businesses. eScriptZone.com is an online
resource that provides articles, tutorials, software and an online community of
forums and newsgroups for webmasters and corporate web applications builders.
eSiteStore.com is our online retail store that provides a one-stop shopping
destination for businesses to purchase our software, third-party software and
components and also offers online services to customers.
Large-scale corporate enterprises and departments require scalable, reliable
and secure solutions that enable them to design, develop, deploy and manage
their complex Internet and intranet web sites. They also need products that will
operate across disparate corporate systems and platforms in order to leverage
existing legacy systems, databases and content. In addition, teams that develop
corporate intranet sites have requirements distinctly different from those of
individuals who develop external Internet sites. They need a client-server-based
web site building environment that supports creativity and collaboration, while
allowing an administrator to assert control over the site building process, so
that sites are built more efficiently and deliver corporate information more
42
<PAGE>
effectively. Our award-winning client-server application, NetObjects Authoring
Server, addresses these large-scale corporate needs. In addition, software
components that provide integration with products from other technology
companies, including Allaire, IBM, Lotus, Microsoft and Netscape, provide
additional web applications, dynamic database publishing and electronic commerce
capabilities for the NetObjects Authoring Server. In response to customer
demand, in October 1998 we formed our Professional Services Group, which
provides training, consulting and implementation services to large-scale
enterprises to help design, build, deploy and maintain their web sites, and
integrate their web sites with existing corporate applications. We provide these
services through our own professional services organization and through
relationships with third-party service providers.
NETOBJECTS STRATEGY
Our strategy is to establish ourselves as a complete e-business solutions
provider by leveraging our position as a leading provider and brand of web site
building software. As more companies seek solutions for capturing the explosive
growth of the web as an online business medium, we believe our e-business
software and resources serve as ideal starting points. NetObjects Fusion,
NetObjects Authoring Server and our online resources are positioned as open
platforms for aggregating broader solutions, including web site hosting by third
parties, software and components, site content, e-commerce using third-party
transactional software and other web applications and services. Key elements of
our strategy include:
BRAND RECOGNITION AND BROAD CUSTOMER BASE. As a pioneer of the web site
building product category, and as the recipient of over 50 industry awards, we
believe that we have established a premier Internet brand in the market for web
site building products and services. We estimate that over 300,000 copies of
NetObjects Fusion have been delivered to date, and more than 1,000,000 web pages
or sites have been built using NetObjects Fusion. Our customer base and the
active online communities of builders who use our products help sustain and
promote our brand by participating in our web site forums and bulletin boards
and by providing feedback on pre-release versions of our software. Over 60,000
links exist from other web sites to NetObjects.com, including the web sites of
complementary products and services providers. In addition, over 500 businesses
worldwide have deployed NetObjects Authoring Server, or its predecessor
NetObjects TeamFusion. Our strong brand recognition and growing customer base
are significant assets for attracting new customers, as well as for enhancing
our ability to develop relationships with other leading software and service
solution providers.
STRATEGIC RELATIONSHIPS. We have entered into product bundling
relationships with many companies, including Allaire, IBM, Lotus and Novell, to
combine NetObjects Fusion and NetObjects Authoring Server with popular business
software. We will continue to pursue such relationships in the future. We
believe that our products have broad-based platform connectivity and
interoperability, such as with web application servers from Allaire, Lotus, IBM,
Microsoft and PeopleSoft, and e-commerce software from Breakthrough Software and
iCat. Our strategic relationship with IBM has provided us with other sales and
marketing benefits, including access to IBM and Lotus sales and distribution
channels, co-marketing and co-promotion benefits and credibility in the
marketplace. We also provide integrated web solutions with key online service
providers such as CompuServe, SmartAge, T-Online and Zip2 for hosting and
promoting e-business sites, which enhance our products and solutions, as well as
complement our sales, marketing and distribution reach. These relationships also
greatly enhance our brand recognition and may provide a short-term source of
revenues. We intend to continue to leverage new and existing strategic
relationships to enhance our product and service offerings and help expand our
market presence. See "Risk Factors--Dependence on IBM and Potential Conflicts."
43
<PAGE>
TECHNOLOGICAL LEADERSHIP AND OPEN ARCHITECTURE. NetObjects Fusion and
NetObjects Authoring Server are based on proprietary open technology that
provides an intuitive, visual, site-based building environment without coding
that allows for significant productivity gains compared to page-based,
coding-intensive products. In addition, NetObjects Authoring Server offers a
collaborative web site building environment for teams of builders while
providing centralized control over the site building effort. We believe our open
technology architecture and products provide the optimal solutions for web site
building, compared to highly technical HTML coding products or consumer-based
web applications. In addition, our products support all major Internet protocols
and are publishable on major web platforms, such as Netscape Navigator and
Microsoft Internet Explorer, and our products were among the first to offer an
open Java-based component architecture that allows other web site solutions
providers to integrate their products with our products. By maintaining our
technological advantages and our open architecture, we believe our web
applications will continue to be recognized by other web site building solutions
providers as open platforms for easy integration with their products and
services.
PLATFORMS OF CHOICE FOR E-BUSINESS SOLUTIONS AGGREGATION. As businesses
face the increasingly complex and numerous challenges of establishing a
successful e-business presence, we believe they will seek aggregated solutions
to address their needs, from building and hosting their web sites to maintaining
and promoting them. We believe that other web site solutions providers have
compelling incentives to use NetObjects Fusion, NetObjects Authoring Server and
our online resources as platforms for aggregating their e-business solutions, as
well. Other solutions providers can benefit from our strong brand to reach a
growing business customer base through our products, services and web sites. In
turn, we can offer more complete solutions by leveraging our strategic
relationships to include e-commerce services, database access, banner exchange,
content, web applications and other online services from other web site
solutions providers.
PRODUCTS AND SERVICES
We provide solutions specifically designed for two broad categories of
customers: NetObjects Fusion and online services for businesses, and NetObjects
Authoring Server and professional services for large-scale enterprises and
departments.
NETOBJECTS FUSION AND ONLINE SERVICES
NetObjects Fusion is an easy-to-use desktop application designed
specifically for small and medium-sized businesses and corporate intranet
builders. NetObjects Fusion offers a range of publishing and electronic commerce
capabilities to simplify web site building and enhance the productivity of both
novice and experienced web site builders. Earlier versions of NetObjects Fusion
are available in major languages including German, French, Spanish, Chinese and
Japanese, and our relationship with IBM has allowed us to release upgraded
versions of NetObjects in a total of nine languages in addition to English.
44
<PAGE>
<TABLE>
<CAPTION>
PRODUCT DESCRIPTION AWARDS
<S> <C> <C>
NETOBJECTS FUSION NetObjects Fusion provides five views Four out of Four Stars, Internet World,
(suggested selling price that map to the process of site building: February 1999
SITE VIEW lets the author visually plan Editor's Choice, CNET's Builder.com,
$295) and organize the pages on the web site. September 1998
NetObjects Fusion automatically creates Five Stars, PC Computing, August 1998.
[LOGO] and maintains the navigation buttons and Stellar Award, Windows Sources, May 1998
links based on how the author lays out WinList, Windows Magazine, March 1998--
the web site. November 1998.
PAGE VIEW lets the author create pages Best of Internet Showcase "98, David
visually. A wide range of content can be Coursey's Internet Showcase, January 1998
incorporated on the page, including text, Analyst's Choice, InfoWorld, 1997
graphics, rich media, applets and other
components.
STYLES VIEW lets the author create a
consistent, attractive visual style for
the site. Over 150 site styles are
available, and authors can customize or
create their own styles.
ASSETS VIEW serves as a content manager
to make it easy to find and replace
assets throughout the site.
PUBLISH VIEW lets the author publish all
or portions of the site as standard HTML
pages to the server of choice.
</TABLE>
<TABLE>
<CAPTION>
PRODUCT DESCRIPTION AWARDS
<S> <C> <C>
NETOBJECTS NetObjects Fusion Enterprise Best Scripting Tool of 1998,
ENTERPRISE EDITION Edition contains NetObjects CNET's Builder.com
(suggested selling Fusion, NetObjects ScriptBuilder Editors Choice, PC Magazine,
price $495) and NetObjects BeanBuilder April 1998
NETOBJECTS SCRIPTBUILDER is a
[LOGO] JavaScript building environment
for the web.
[LOGO] NETOBJECTS BEANBUILDER allows
intranet builders to quickly
assemble and connect
JavaBeans-TM- in a visual, point
and click environment without
programming.
</TABLE>
We also offer small and medium-sized businesses online solutions, including
content, products and services, to help them register, host through third
parties, build, maintain and promote their web sites. eFuse.com, our latest web
site launched in December 1998, is an online resource dedicated to business web
site builders and features articles from the industry's experienced builders and
authors on how to use NetObjects Fusion and other complementary products.
eScriptZone.com (formerly "ScriptBuilder.com") is an online resource that
provides articles, tutorials, software and an
45
<PAGE>
online community of forums and newsgroups for webmasters and corporate web
application builders. In November 1998, Web21.com's 100 Hot sites rated it as
the 33rd most visited site for technology developers. eSiteStore.com is our
online retail store that provides a one-stop shopping destination for businesses
to purchase our software, third party software, components and merchandise, and
also offers online services to customers.
NETOBJECTS AUTHORING SERVER AND PROFESSIONAL SERVICES
NetObjects Authoring Server is a scalable client-server application, with
the same easy-to-use features and open architecture as NetObjects Fusion, and is
targeted at large-scale enterprises and corporate departments developing web
sites involving multiple builders and content contributors. We introduced
NetObjects Authoring Server Suite 3.0 in September 1998 as a new product that
replaced our original client-server application, NetObjects TeamFusion,
introduced in December 1997. The family of NetObjects Authoring Server products
now consists of the NetObjects Authoring Server Suite, NetObjects Authoring
Server Connectors and NetObjects Authoring Server for IBM WebSphere, which may
be used with the IBM WebSphere web application server. NetObjects Authoring
Server Suite consists of four modules for creating a controlled and structured
environment for teams of concurrent users to develop web sites:
AUTHORING SERVER. Authoring Server is the server-side control center of
NetObjects Authoring Server and contains an internal repository, built on an SQL
database, which stores the information about assets, site pages, site structure,
link information and user profiles for multiple web sites. It also controls the
number of concurrent users that can access the system. Authoring Server works in
conjunction with any web server.
AUTHORING SERVER ADMINISTRATOR. Authoring Server Administrator is used to
create sites and form teams, assign team members with editing and publishing
privileges and monitor workflow. The product is designed to provide control of
the web site building process, without imposing a specific workflow on team
members.
TEAMFUSION CLIENT. TeamFusion Client provides the "client"-side software of
the client-server application and includes all of NetObjects Fusion's features.
CONTENT CONTRIBUTOR CLIENT. Content Contributor Client enables any business
user to submit content directly onto templates created on completed web sites or
web sites under construction, regardless of their web authoring skills, and
without compromising the web site's integrity. Users can add, modify and delete
text easily and without considering web site design. NetObjects Authoring Server
automatically formats the content contributed as a web page when the web site is
published.
In addition, NetObjects Authoring Server Connectors include NetObjects
Authoring Server Connector for Microsoft FrontPage, which enables Microsoft
FrontPage users to collaborate with team members using NetObjects Authoring
Server.
46
<PAGE>
<TABLE>
<CAPTION>
PRODUCT DESCRIPTION AWARDS
<S> <C> <C>
NETOBJECTS AUTHORING NetObjects Authoring Server Suite 1999 Crossroads A-List Award,
SERVER SUITE consists of four modules: Open Systems Advisors, January
(suggested selling NETOBJECTS AUTHORING SERVER is 1999
price for 2 user the "server"-side control center Four out of Four Stars, Internet
system inclusive of and runs on a Windows NT server. World, September 1998
server and clients NETOBJECTS AUTHORING SERVER Industrial Design Excellence
is $1,585; 20 user ADMINISTRATOR is used to create Award--Gold, Designers Society of
is $10,475) sites and form teams, assign team America, May 1998
members with editing and (NetObjects Fusion and
[LOGO] publishing privileges, and TeamFusion)
monitor workflow. Win 100 List, Windows Magazine,
NETOBJECTS TEAMFUSION CLIENT is May--July 1998 (TeamFusion)
based on the award-winning
NetObjects Fusion, and connects
to NetObjects Authoring Server.
Its site-oriented, visual
approach, along with its
check-in/check-out controls,
allows a web team to work
collaboratively and efficiently.
NETOBJECTS CONTENT CONTRIBUTOR
CLIENT is a browser-based Java
application that lets
departmental web contributors
submit content directly to sites
under development.
NETOBJECTS AUTHORING NETOBJECTS AUTHORING SERVER
SERVER CONNECTORS CONNECTOR FOR MICROSOFT FRONTPAGE
[image] enables Microsoft FrontPage users
to collaborate using NetObjects
Authoring Server.
NETOBJECTS AUTHORING NETOBJECTS AUTHORING SERVER FOR
SERVER FOR IBM IBM WEBSPHERE is optimized for
WEBSPHERE tight integration with the IBM
[image] WebSphere Application Server
through powerful Java servlets
and special components.
</TABLE>
We formed our Professional Services Group in October 1998 to provide
training, consulting and implementation services to our customers deploying the
NetObjects Authoring Server. We provide these services through our own
professional services organization and, at present, primarily through
relationships with third-party service providers. We believe that providing a
high level of customer service and technical support is necessary to achieve
rapid product implementation which, in turn, is essential to customer
satisfaction and continued license sales and revenue growth. We also offer
support and training services to our customers in addition to our Professional
Services Group, including telephone and online support. Internationally, with
our technical assistance, our distributors provide telephone support to their
customers.
47
<PAGE>
CUSTOMERS
We market and sell our products to a wide range of customers located in the
U.S. and in over 30 other countries worldwide. We believe that approximately 70%
of our customers have been small and medium-sized businesses and approximately
30% have been large-scale enterprises, including Fortune 1,000 companies or
departments within such enterprises. Approximately one-third of our small and
medium-sized business customers are third-party service providers that build web
sites for other companies.
SMALL AND MEDIUM-SIZED BUSINESSES. Our products appeal to small and
medium-sized businesses needing to build web sites that support rich content and
e-commerce, with a minimum of resources and time, and with little design and
HTML coding expertise. Some examples of small and medium-sized customers that
have built e-commerce web sites with our products include Cellular Market
(cellularmarket.com) and Christmas.com. Some examples of customers that have
built e-publishing web sites with our products include Pangea Systems
(pangeasystems.com), Northstar Nursery (northstarnursery.com), Raychem
(raychem.com) and Realty.com.
LARGE-SCALE ENTERPRISES. Our products appeal to a wide range of larger
customers across multiple industry segments. The following is a list of certain
of our large scale enterprise customers:
<TABLE>
<CAPTION>
COMMUNICATIONS GOVERNMENT & EDUCATION HEALTHCARE AND MEDICAL
<S> <C> <C>
Cellular One (Bay Area) U.S. Senate Blue Cross/Blue Shield
Bell Atlantic Data Solutions Group State of Utah, Dept. of Community Dept. of Health & Human Services
Nortel Networks & Bayer AG
Economic Development
University of North Carolina
Kings County, California
MANUFACTURING FINANCIAL TECHNOLOGY
DuPont NationsBank Corporation VLSI Technology, Inc.
The Boeing Company Credit Suisse First Boston Lockheed Martin
DaimlerChrysler AG Goettinger Gruppe Siemens Microelectronics
Shell Lubricants Travelers Life and Annuity Mitsubishi Electronics America
</TABLE>
CUSTOMER SITES BUILT USING NETOBJECTS FUSION
NetObjects Fusion is well-suited for a wide range of web site projects that
require a rapid site building cycle, a combination of rich content and
transaction processing capability, interactivity and personalization and
deployment on a variety of web browsers from multiple server platforms. Some
examples of sites that help demonstrate our product's robust site building
capabilities include:
CHRISTMAS.COM, the most popular Christmas site on the web and selected as
the top Christmas site by Excite, receives over 10 million page views per season
and provides families and children all over the world with rich content sources
about Christmas. First unveiled in 1995, the site was rebuilt with NetObjects
Fusion in 1997 and is enhanced and updated annually using our product, including
recent enhancements to support e-commerce transactions.
JUSTFORFEET.COM, the world's largest athletic shoe store, developed its web
site and corporate intranet using NetObjects Authoring Server Suite. Recently, a
complete web site redesign coincided with the launch of a national television
campaign. The new site provides a variety of information from shoe longevity
tips to store tours to help finding store locations. The state-of-the-art site
also features e-commerce functionality, allowing customers to virtually browse
the shelves, compare prices and purchase shoes online. The sites are maintained
by a core web team of six people, each providing different areas of expertise.
The corporate intranet site, with over 600 pages of information, continuously
maintains up-to-the-minute information provided by over 20 content contributors
throughout the company.
48
<PAGE>
DAIMLERCHRYSLER AG sites built with our products range from departmental
home pages, to newsletters, to sites that share information across the entire
corporation. Many departments within DaimlerChrysler selected NetObjects Fusion
because it provides an open and robust site building environment that integrates
with existing desktop and backend software systems to create web sites that are
easy for users to navigate and search. DaimlerChrysler estimates that over 40
Internet and intranet sites have been built using NetObjects Fusion within the
company by departments including DaimlerChrysler's Fleet Operations, General
Auditor's Office and Information Systems.
SALES, MARKETING AND DISTRIBUTION
We sell our products and services to our customers using a combination of
indirect distribution channels, our direct enterprise sales force, our online
distribution channel and strategic relationships, and we market our products and
services using a broad range of activities to generate demand and build brand
awareness. As of December 31, 1998, we had 63 employees, or approximately 41% of
our work force, engaged in sales and marketing activities.
INDIRECT DISTRIBUTION CHANNELS
Our indirect distribution channels include domestic and international
distributors, retail vendors, VARs and other technology companies with whom we
have strategic relationships. We have 15 non-exclusive distributors worldwide
including Ingram Micro, Tech Data and Douglas Stewart in North America;
Softline, Internet 2000, Unipalm and Principal in Europe; and Mitsubishi in
Japan. As of December 1998, we had over 1,500 corporate and catalog resellers,
OEMs and VARs purchasing products through these distributors.
DIRECT ENTERPRISE SALES FORCE
Our direct enterprise sales force focuses on sales to larger corporate
customers worldwide. The enterprise sales force is comprised of field
representatives and inside sales representatives. The field representatives
market and sell our products and services to corporate customers that the inside
sales team has identified as sales prospects. The inside representatives develop
and pursue leads generated from inquiries on our web sites, downloads of our
trial products and other direct marketing efforts. Our sales force increased
from 17 employees to 21 employees in fiscal year 1998, and during that period,
revenues per salesperson increased while the number of transactions per
salesperson decreased.
ONLINE DISTRIBUTION CHANNEL
Our web site eSiteStore.com allows users to download and purchase our
products. In addition, several third-party electronic commerce and distribution
sites, including buydirect.com, beyond.com and download.com, make our products
available for sale by direct download or ESD (electronic software distribution).
ESD provides us with a low-cost, globally accessible, 24-hour sales channel.
STRATEGIC RELATIONSHIPS
We have a number of significant ongoing strategic relationships with other
technology companies pursuant to which our products are incorporated into, or
bundled with, the third party's products. We believe that these strategic
relationships significantly enhance our brand recognition and awareness of our
products and services, and also provide a source of revenues. Such strategic
relationships include:
IBM/LOTUS. Lotus markets, bundles and sells a version of NetObjects Fusion
with Lotus Designer for Domino, and IBM markets, bundles and sells NetObjects
Fusion Enterprise Edition
49
<PAGE>
(NetObjects Fusion, NetObjects ScriptBuilder and NetObjects BeanBuilder) with
its WebSphere Studio product. In addition, our products are offered for sale
through a variety of IBM and Lotus channels including "Passport Advantage," the
worldwide direct purchasing option for Lotus and IBM branded software and the
Lotus Business Partner program, which allows 18,000 program members access to
our products at discounted prices globally. Our relationship with IBM and Lotus
provides us with access to customers and marketing leverage generally beyond the
reach of companies our size, including participation in advertising, direct
marketing, tradeshows and seminars. See "Risk Factors--Dependence on IBM and
Potential Conflicts" and "Certain Transactions."
MITSUBISHI CORPORATION. Mitsubishi is our master distributor in Japan that
markets and sells through a variety of Japanese companies. Mitsubishi is also an
investor in our Company. See "Certain Transactions."
NOVELL. Novell bundles a version of NetObjects Fusion with its NetWare for
Small Business product offering on a worldwide basis. Novell also offers
end-user training on NetObjects Fusion at over 100 Novell certified training
centers worldwide. Novell is an investor in our Company. See "Certain
Transactions."
MARKETING ACTIVITIES
Since our inception, we have invested a substantial percentage of our annual
revenues in a broad range of marketing activities to generate demand, gain
corporate brand identity, establish the site building product category and
educate the market about the benefits of site building rather than page
authoring. These activities have included advertising (both print and online),
direct marketing (direct mail and e-mail), public relations, sponsoring seminars
for potential customers, participating in trade shows and conferences and
providing product information through our web sites. Our marketing programs are
aimed at informing our customers of the capabilities and benefits of our
products and services, increasing brand awareness, stimulating demand across all
market segments and encouraging independent software developers to develop
products and web applications that are compatible with our products and
technology. We also entered into many co-marketing and distribution arrangements
with well-known companies such as AT&T, Apple Computer, Inc., Compaq Computer,
Inc., Microsoft, Netscape and PeopleSoft that have allowed us to identify our
NetObjects Fusion brand with their brands.
COMPETITION
The market for software and services for the Internet and intranets is
relatively new, constantly evolving and intensely competitive. We expect
competition to intensify in the future. Many of our current and potential
competitors have longer operating histories, greater name recognition and
significantly greater financial, technical and marketing resources. Our
principal competitors in the web site building software market segment include
Microsoft, Adobe and Macromedia, Inc.
Microsoft's FrontPage, a web site building software product, has a dominant
market share. Microsoft has announced but not shipped FrontPage 2000, which may
become one of the products in at least one version of Microsoft's Office product
suite, which dominates the market for desktop business application software. We
believe that NetObjects Fusion and NetObjects Authoring Server contain features
that significantly differentiate them from the announced description of
FrontPage 2000, but widespread distribution of Office with FrontPage 2000, and
the vast number of computer users familiar with Microsoft desktop application
software products, give Microsoft a substantial competitive advantage over us.
In addition, Microsoft and other competitors who bundle their software products
as a suite may offer their suites at prices that may force us to reduce prices
for our products, which are not sold in comparable suites, to keep them
competitive. In connection with its recent acquisition of GoLive, Inc., Adobe
acquired a web site building software product for
50
<PAGE>
Macintosh, which increases the competitiveness of the market for Macintosh web
site building products. Our current Macintosh product, NetObjects Fusion 3.0,
may become less competitive over time.
Alternatives to using web site building software include using services from
third-party web site builders, in-house resources or online web site building
resources, such as GeoCities, some of which also provide web site hosting and
other services. Competitive factors in the web site building products and
services market include the manner in which the software is distributed with
other products; quality and reliability; features for creating, editing and
developing web sites; ease of use and interactive user features; scalability and
cost per user; and compatibility with the user's existing computer systems. To
expand our user base and further enhance the user experience, we must continue
to innovate and improve the performance of our products. We anticipate that
consolidation will continue in the web site building products industry and
related industries such as computer software, media and communications.
Consequently, our competitors may be acquired by, receive investments from or
enter into other commercial relationships with larger, well-established and
well-financed companies. There can be no assurance that we can establish or
sustain a leadership position in this market segment.
We believe that additional competitors may enter the market with competing
products as the size and visibility of the market opportunity increases.
Increased competition could result in additional pricing pressures, reduced
margins or the failure of our products to achieve or maintain market acceptance,
any of which could have a material adverse effect on our business, prospects,
financial condition and results of operations. Many of our current and potential
competitors such as Microsoft, Adobe and Macromedia have longer operating
histories and substantially greater financial, technical, marketing and other
resources than us and therefore may be able to respond more quickly to new or
changing opportunities, technologies, standards or customer requirements. Many
of these competitors also have broader and more established distribution
channels that may be used to deliver competing products directly to customers
through product bundling or other means. For example, Microsoft enjoys
significant distribution advantages over us, including the vast number of
computer users familiar with Microsoft desktop application software products. If
our competitors bundle competing products with their products, the demand for
our products might be substantially reduced and our ability to distribute our
products successfully would be substantially diminished. Moreover, Microsoft's
dominance in desktop business application software enables it to vary the
pricing for its software sold as part of a suite. As a result of Microsoft's and
other competitors' bundling arrangements, we may need to reduce our prices for
our products to keep them competitive. New technologies and the enhancement of
existing technologies will likely increase the competitive pressures. There can
be no assurance that competing technologies developed by market participants or
the emergence of new industry standards will not adversely affect our
competitive position or render our products or technologies noncompetitive or
obsolete.
As a result of the foregoing and other factors, there can be no assurance
that we will compete effectively with current or future competitors or that
competitive pressures will not have a material adverse effect on our business,
prospects, financial condition and results of operations. See "Risk
Factors--Intense Competition from Microsoft and Other Established Software
Vendors."
TECHNOLOGY AND DEVELOPMENT
We devote substantial resources to the development of innovative products
for the market for web site building software and services. During the fiscal
years ended September 30, 1997 and 1998, respectively, we invested approximately
111% and 67%, respectively, of our total revenues on research and development
activities. NetObjects Fusion and NetObjects Authoring Server are among the
earliest and most recognized entrants in the emerging market for web site
building software. We
51
<PAGE>
believe that we have been able to leverage our understanding of the market and
technology opportunity as well as our staff and software development processes
to build robust, open solutions for customers. We intend to continue to use
these core strengths to introduce innovative products and product enhancements
for building, deploying and maintaining business web sites. We intend to
continue to devote substantial resources to research and development for at
least the next several years. As of December 31, 1998, we had 50 employees, or
approximately one-third of our workforce, engaged in research and development
activities. We must hire additional skilled software engineers to further our
research and development efforts. Our business, prospects, financial condition
and results of operations could be adversely affected if we are not able to
hire, train and retain an adequate number of engineers.
OPEN AND SCALABLE ARCHITECTURE
Our products are built upon a scalable and flexible object-oriented
architecture called SOLO (Structure of Linked Objects). This architecture, which
was created by Rae Technology, Inc. and transferred to us, has been instrumental
in the rapid development of our products. See "Certain Transactions." One of the
core benefits of the architecture is a clear separation of visual presentation
from content, and the architecture is based on a strong navigational framework.
Software web applications based upon this architecture provide certain benefits,
such as data storage independence, Internet communication protocol independence,
modularity, portability and extensibility. We intend to continue to invest in
further development of this architecture to build and integrate new products and
technologies that offer open integration, platform interoperability and
controlled collaboration.
OPEN INTEGRATION
We specifically design our products to support key web client and web server
software platforms, technologies and protocols, as well as key enterprise and
client-server standards. NetObjects Fusion and NetObjects Authoring Server can
be fully integrated with a broad range of Internet protocols and technologies,
enabling web site builders to incorporate these technologies into virtually any
business site. NetObjects Fusion offers site builders an open site building
environment that provides superior flexibility and choice for easy page layout
and allows site-builders to control and edit HTML code, add DHTML-based
interactivity and animation, publish for different browsers and integrate sites
with existing databases and e-commerce applications. These products provide
further extensibility with other software applications; for example, NetObjects
Fusion components, which are Java-encapsulated mini-applications that can be
used to create or manipulate pages, extend the functionality of the page by
embedding Java-based objects, and process the generated HTML for deployment. Our
products also provide open editors support; for example, NetObjects Fusion
allows users to launch any HTML editor to modify pieces of HTML embedded inside
pages; and NetObjects Authoring Server provides an open site building platform
and offers support for non-NetObjects clients, such as Microsoft FrontPage.
PLATFORM INTEROPERABILITY
Businesses utilize a variety of software and hardware platforms to meet
their information technology needs. These platforms include different operating
systems, different programming languages and different web-enabling
technologies, such as web browsers. Our technology strategy includes the
objective of platform interoperability; for example, NetObjects Fusion runs on
Windows 95, Windows 98 and Windows NT, and an older version runs on Macintosh.
NetObjects Fusion also is localized in a variety of languages, and is capable of
publishing web sites for Internet Explorer or Netscape Navigator, and on
different web servers. NetObjects Authoring Server currently runs only on
Windows NT and also supports a variety of web browsers, databases and web
servers.
52
<PAGE>
CONTROLLED COLLABORATION
Intranet web sites are evolving from simple publishing pages coordinated by
a single webmaster to multi-contributor strategic business platforms that
integrate business processes and deploy mission-critical applications.
Enterprise groups that build these intranet web sites face the conflicting needs
of maintaining control and encouraging collaboration. NetObjects Authoring
Server provides the scalability and performance needed to support concurrent,
collaborating users across an enterprise-wide deployment with several underlying
technologies such as a Java-based content contributor, an integrated asset
manager and remote systems administrator.
In addition to our products, product enhancements and core proprietary
technology, we have a highly-skilled engineering workforce that includes several
seasoned software industry veterans. Our original key technologists are still
employees of our Company, and they continue to play an integral role in defining
and leading our technology vision and strategy. We intend to hire additional
software engineers to further our research and development efforts. Our
business, prospects, financial condition and results of operations could be
adversely affected if we are unable to hire and retain the required number of
skilled engineers. See "Risk Factors--Dependence on Key Personnel; Need for
Additional Personnel."
INTELLECTUAL PROPERTY
Our success depends in part on our ability to protect our proprietary
software and other intellectual property. To protect our proprietary rights, we
rely generally on patent, copyright, trademark and trade secret laws,
confidentiality agreements with employees and third parties, license agreements
with consultants, vendors and customers and "shrinkwrap" license agreements.
Despite such protections, a third party could, without authorization, copy or
otherwise obtain and use our products, or develop similar products. There can be
no assurance that our agreements will not be breached, that we will have
adequate remedies for any such breach or that our trade secrets will not
otherwise become known or independently developed by competitors.
We currently have several pending patents relating to our product
architecture and technology and have licensed two utility patents from Rae
Technology. See "Certain Transactions--Transactions with Rae Technology and
Studio Archetype." There can be no assurance that any pending or future patent
application will be granted, that any existing or future patent will not be
challenged, invalidated or circumvented or that the rights granted under any
patent that has issued or may issue will provide competitive advantages to us.
If a blocking patent has issued or issues in the future, we would need to obtain
a license or design around the patent. Except for patents licensed from Rae
Technology, which we have rights to acquire, there can be no assurance that we
would be able to obtain such a license on acceptable terms, if at all, or to
design around the patent.
We pursue the registration of certain of our trademarks and service marks in
the United States and in certain other countries, although we have not secured
registration of all of our marks. Many of our current and potential competitors
dedicate substantially greater resources to protection and enforcement of
intellectual property rights. We are also aware of other companies that use
"Fusion" in their marks alone or in combination with other words (such as
Allaire's ColdFusion), and we do not expect to be able to prevent third party
uses of the word "Fusion" for competing goods and services. We have agreed with
Allaire that neither party will use the word "Fusion" to describe products in
the absence of appropriate brand identification, such as "NetObjects Fusion."
The laws of some foreign countries do not protect our proprietary rights to
the same extent as do the laws of the United States, and effective patent,
copyright, trademark and trade secret protection may not be available in such
jurisdictions. We license certain of our proprietary rights to third parties,
and there can be no assurance that such licensees will abide by compliance and
quality
53
<PAGE>
control guidelines with respect to such proprietary rights. See "Risk
Factors--Uncertain Protection of Intellectual Property; Risks Associated with
Licensed Third-Party Technology."
EMPLOYEES
As of December 31, 1998, we had 153 full-time employees and 4 part-time
employees. None of our employees is subject to a collective bargaining
agreement, and we believe that our relations with our employees are good. We
believe that our future success will depend in part on our continued ability to
attract, integrate, retain and motivate highly qualified sales, technical,
professional services and managerial personnel, and upon the continued service
of our current personnel. We also use independent contractors to supplement our
work force. None of our personnel is bound by an employment agreement that
prevents such person from terminating his or her relationship at any time for
any reason. Competition for qualified personnel is intense. There can be no
assurance that we will be successful in attracting, integrating, retaining and
motivating a sufficient number of qualified personnel to conduct our business in
the future.
FACILITIES
Our executive offices are located in Redwood City, California, in an office
building in which, as of December 31, 1998, we lease an aggregate of
approximately 25,000 square feet. The lease agreement terminates on September
11, 2002. We also lease three serviced office suites in a facility in Windsor,
United Kingdom under a lease that expires in February 1999. We expect to renew
the lease through February 2000.
LEGAL PROCEEDINGS
From time to time, we expect to be subject to legal proceedings and claims
in the ordinary course of business, including claims of alleged infringement of
third-party trademarks and other intellectual property rights by us and our
licensees. Such claims, even if not meritorious, could result in the expenditure
of significant financial and managerial resources. We are not aware of any legal
proceedings or claims that we believe will have, individually or in the
aggregate, a material adverse effect on our business, prospects, financial
condition or results of operations.
54
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Our directors and executive officers as of December 31, 1998 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ --- ---------------------------------------------------------------
<S> <C> <C>
Samir Arora(1)............................ 33 Chairman of the Board, Chief Executive Officer and President
Michael J. Shannahan...................... 50 Senior Vice President, Finance and Chief Financial Officer
David Kleinberg........................... 40 Executive Vice President, Desktop Products and Online Services
Morris Taradalsky......................... 52 Executive Vice President, Server Products and Professional
Services
Mark Patton............................... 40 Senior Vice President, Worldwide Sales and Corporate Marketing
Clement Mok............................... 40 Chief Creative Architect
Gagan (Sal) Arora......................... 25 Chief Technology Architect and Vice President, Engineering,
Desktop Products and Online Services
Robert G. Anderegg(2)..................... 49 Director
Lee A. Dayton(1).......................... 56 Director
John Sculley(1)(2)........................ 59 Director
Christopher M. Stone(2)(3)................ 41 Director
Michael D. Zisman......................... 49 Director
</TABLE>
- ------------------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
(3) Mr. Stone will become a director of our Company on the closing date of the
offering.
Set forth below is certain information regarding the business experience
during the past five years for each of our officers and directors.
SAMIR ARORA has served as our Chairman of the Board, Chief Executive Officer
and President since our inception in November 1995. In 1992, Mr. Arora founded
Rae Technology, a provider of software applications, and from 1992 through
November 1995 served as its CEO. From 1986 to 1992, Mr. Arora served in several
management roles in Apple Computer, Inc. Mr. Arora holds a diploma in sales and
marketing from the London Business School and attended INSEAD, France and BITS,
India. Samir Arora is the brother of Sal Arora, who is our Chief Technology
Architect and Vice President, Engineering Desktop Products and Online Services.
MICHAEL J. SHANNAHAN has served as our Senior Vice President, Finance and
Chief Financial Officer since August 1997. From February 1995 to August 1997,
Mr. Shannahan served as Vice President, Finance and Chief Financial Officer of
Broderbund Software Inc. From 1980 to 1995, Mr. Shannahan was employed at KPMG
LLP, where he served as a Partner from 1986 to 1995. Mr. Shannahan holds a B.S.
in Business Administration from Rockhurst College and is a certified public
accountant.
DAVID KLEINBERG has served as our Executive Vice President, Desktop Products
and Online Services since November 1995. In September 1992, Mr. Kleinberg
co-founded Rae Technology with Samir Arora. Mr. Kleinberg served as Executive
Vice President, Sales and Marketing of Rae Technology from September 1992 to
November 1995. Mr. Kleinberg holds a B.A. in English from Georgetown University
and an M.B.A. from Stanford University.
55
<PAGE>
MORRIS TARADALSKY has served as our Executive Vice President, Server
Products and Professional Services since April 1997. From April 1994 to April
1997, Mr. Taradalsky served as Chief Executive Officer of MicroNet Technology,
Inc., a privately-held storage systems supplier. From December 1988 to April
1994, Mr. Taradalsky was employed at Apple Computer, Inc. where he was General
Manager of the Apple Business Systems Division. Prior to joining Apple Computer,
Mr. Taradalsky was employed by IBM for 18 years in a number of positions,
including Vice President and General Manager, Santa Teresa Laboratory. Mr.
Taradalsky graduated MAGNA CUM LAUDE from Pennsylvania State University with a
B.S. in Mathematics.
MARK PATTON has served as our Senior Vice President, Worldwide Sales and
Corporate Marketing since December 1996. From February 1995 to November 1996,
Mr. Patton was Vice President and General Manager of the Digital and Applied
Imaging Division at Eastman Kodak, Inc. From February 1994 to February 1995, Mr.
Patton was Vice President and General Manager, American Division at Logitech,
Inc., a computer peripheral products manufacturer. From August 1985 to February
1994, Mr. Patton held various sales management positions at Apple Computer, Inc.
Mr. Patton holds a B.A. in Speech Communication from the University of
Washington.
CLEMENT MOK has served as our Chief Creative Architect since September 1998.
Prior to that, Mr. Mok was our Chief Creative Officer from our founding in
November 1995. In 1988, Mr. Mok founded Studio Archetype, now a wholly-owned
subsidiary of Sapient Corporation. From 1988 to 1998, Mr. Mok was Chairman and
Chief Creative Officer of Studio Archetype. He is currently the Chief Creative
Officer of Sapient Corporation. From 1993 to present, Mr. Mok also has been the
Chief Executive Officer of CMCD, Inc., a royalty-free, media publishing company.
Mr. Mok holds a B.F.A. from the Art Center College of Design.
SAL ARORA has served as our Chief Technology Architect and Vice President,
Engineering, Desktop Products and Online Services since November 1995. From
September 1994 to November 1995, Mr. Arora was the lead engineer at Rae
Technology. From June 1992 to September 1994, Mr. Arora was a software engineer
at ACIUS Inc. Mr. Arora holds a B.S. in Computer Science from the University of
California, Berkeley. Sal Arora is the brother of Samir Arora, who is our
Chairman of the Board, Chief Executive Officer and President.
ROBERT G. ANDEREGG has been a director of our corporation since April 11,
1997. Mr. Anderegg has served as Vice President and Assistant General Counsel at
IBM since August 1998. He has been appointed to serve on our board of directors
by IBM as one of its representatives. Mr. Anderegg has served as an Assistant
General Counsel or Associate General Counsel at IBM since 1988. Mr. Anderegg
holds a B.S. degree from Georgia Tech and received his J.D. from Harvard Law
School.
LEE A. DAYTON has been a director of our Company since April 11, 1997. Mr.
Dayton is Vice President, Corporate Development and Real Estate at IBM. He has
been appointed to serve on our board of directors by IBM as one of its
representatives. Mr. Dayton has held various management positions at IBM since
he joined in 1965 as a systems engineer. Mr. Dayton holds a B.S. in Engineering
from Northwestern University.
JOHN SCULLEY has been a director of our Company since December 20, 1996.
Since April 1994, Mr. Sculley has been a partner of Sculley Brothers, an
investment capital firm. Mr. Sculley also is a director of General Wireless,
Inc., a wireless communications services provider, Talk City, Inc., an online
chat community, and NFO Worldwide, Inc., a market research firm. From 1983 to
1993, Mr. Sculley served as Chief Executive Officer of Apple Computer, Inc. Mr.
Sculley holds a B.A. in Architectural Design from Brown University, an M.B.A.
from the Wharton School at the University of Pennsylvania and holds eight
honorary doctorates from various schools.
CHRISTOPHER M. STONE will become a director of our Company on the closing
date of this offering. Since August 1997, Mr. Stone has been the Executive Vice
President of Corporate Strategy and
56
<PAGE>
Development at Novell, Inc. From September 1989 to August 1997, Mr. Stone was
Chairman and Chief Executive Officer of the Object Management Group, the
creators of an industry standard known as CORBA. Mr. Stone holds a B.S. in
Computer Science from the University of New Hampshire.
MICHAEL D. ZISMAN has been a director of our Company since April 11, 1997.
Mr. Zisman is an Executive Vice President of Lotus, a position that he has held
since October 1996. He has been appointed to serve on our board of directors by
IBM as one of its representatives. From July 1994 to October 1996, he held other
executive positions at Lotus. Mr. Zisman is also the Vice President of Strategy
for the IBM Software Group. Mr. Zisman was the Chief Executive Officer of
Soft-Switch, Inc., a software development company, from 1979 to July 1994. Mr.
Zisman is a director of Strategic Weather Services, Inc., a privately-held
company. Mr. Zisman holds a B.S. from Lehigh University, an M.S. from the
University of Pennsylvania Moore School and a Ph.D. from The Wharton School at
the University of Pennsylvania.
NUMBER, TERM AND ELECTION OF DIRECTORS
Effective upon the closing of this offering, our bylaws will be amended
automatically to fix the number of directors at six until changed by approval of
the stockholders or a majority of the directors. Each director is elected to
serve until the next annual meeting of stockholders and until the election and
qualification of his or her successor or his or her earlier resignation or
removal.
CONTRACTUAL ARRANGEMENTS
We are party to a voting agreement with IBM that provides, effective upon
the closing of this offering, that IBM will vote its shares of voting stock in a
way that limits the number of IBM representatives on a six-member board of
directors to three, notwithstanding IBM's legal right to elect the entire board
for as long as IBM owns a majority of our voting stock. The agreement defines an
IBM representative as an officer, director or other agent or employee of IBM,
IBM's subsidiaries or any other entity controlled by IBM, other than our
Company. The voting agreement also obligates us and IBM to maintain a board of
directors consisting of six members unless the holders of a majority of
outstanding voting stock, excluding IBM's shares, approve an amendment to our
amended and restated bylaws or restated certificate of incorporation to change
the size of the board. The voting agreement remains in effect until IBM holds
less than 45% of our voting securities on a fully-diluted basis for a period of
180 consecutive days (taking into account warrants and convertible securities
held by IBM as well as outstanding shares).
DIRECTOR COMPENSATION
Our directors do not receive cash compensation for their services as
directors or members of committees of the board of directors. After the offering
we will automatically grant options to purchase 20,000 shares of common stock to
outside directors upon joining the board. The option exercise price will be
equal to the fair market value of a share of common stock at the date of grant.
The option term will be six years and the option will vest and become
exercisable pro rata at the end of each month for 48 months while the option
holder continues to serve as a director.
BOARD COMMITTEES
We have established an audit committee and a compensation committee.
The audit committee consists of Messrs. Sculley, Anderegg and, after the
offering, Mr. Stone. The functions of the audit committee are to make
recommendations to the board of directors regarding the selection of independent
auditors, review the results and scope of the audit and other services provided
by our independent auditors and evaluate our internal controls.
57
<PAGE>
The compensation committee consists of Messrs. Arora, Dayton and Sculley.
The functions of the compensation committee are to review and approve the
compensation and benefits for our executive officers, administer our stock
option and stock purchase plans and make recommendations to the board of
directors regarding such matters.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
As of the end of our last fiscal year, we did not have a compensation
committee, and all decisions regarding compensation of our executive officers
were made by the board of directors. During fiscal year 1998, Mr. Samir Arora
participated in deliberations of the board of directors concerning executive
officer compensation. No executive officer currently 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 the
compensation committee, which was established during fiscal year 1999.
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation
received by our Chief Executive Officer and by the other four most highly
compensated executive officers during the fiscal year ended September 30, 1998
(the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------
NAME AND PRINCIPAL POSITION SALARY($)(1) BONUS($)
- --------------------------------------------------------------------------------------- ------------ ----------
<S> <C> <C>
Samir Arora
Chairman of the Board, Chief Executive Officer, President............................ $ 175,338 $ 47,434
Morris Taradalsky
Executive Vice President, Server Products and Professional Services.................. 166,048 86,095(1)
Mark Patton
Senior Vice President, Worldwide Sales and Corporate Marketing....................... 150,000 35,555
David Kleinberg
Executive Vice President, Desktop Products and Online Services....................... 145,600 24,856
Michael J. Shannahan
Senior Vice President, Finance and Chief Financial Officer........................... 151,436 15,542
</TABLE>
- ------------------------
(1) Includes $65,745 for relocation expenses.
The following table sets forth information regarding option exercises, and
the fiscal year-end values of stock options held, by each of the Named Executive
Officers during the fiscal year ended September 30, 1998:
58
<PAGE>
AGGREGATED OPTION EXERCISES IN FISCAL 1998 AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT AT SEPTEMBER 30,
SEPTEMBER 30, 1998(#) 1998($)
------------------------ ----------------------
EXERCISABLE/ EXERCISABLE/
NAME UNEXERCISABLE UNEXERCISABLE(1)
- ---------------------------------------------------------------- ------------------------ ----------------------
<S> <C> <C>
Samir Arora..................................................... 84,375/140,625 $ 374,625/$624,375
Morris Taradalsky............................................... 47,222/86,111 209,666/382,334
Mark Patton..................................................... 55,661/69,339 247,136/307,864
David Kleinberg................................................. 56,250/93,750 249,750/416,250
Michael J. Shannahan............................................ 29,340/78,993 130,270/350,730
</TABLE>
- ------------------------
(1) The fair market value of the underlying securities at the close of business
on September 30, 1998 was estimated to be approximately $4.44 per share, as
determined by the board of directors.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Our amended and restated certificate of incorporation, which takes effect
only upon the closing of this offering, limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law provides that directors
of a corporation 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 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, or
any transaction from which the director derived an improper personal benefit.
Such limitation of liability does not apply to liabilities arising under the
federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or rescission.
Our amended and restated bylaws, which take effect only upon the closing of
this offering, provide that we will indemnify our directors and officers and may
indemnify our employees and other agents to the fullest extent permitted by law.
The amended and restated bylaws also permit us to secure insurance on behalf of
any officer, director, employee or other agent for any liability arising out of
his or her actions in such capacity, regardless of whether the amended and
restated bylaws would permit indemnification. We have obtained officer and
director liability insurance with respect to liabilities arising out of certain
matters, including matters arising under the Securities Act.
We have entered into agreements with our directors and executive officers
that take effect only upon the closing of this offering and, among other things,
will indemnify them for certain expenses (including attorneys' fees), judgments,
fines and settlement amounts incurred by them in any action or proceeding,
including any action by us or on our behalf, arising out of such person's
services as a director or officer of NetObjects or any of our subsidiaries or
any other company or enterprise to which the person provides services at our
request. We are obligated to advance expenses incurred by the indemnified person
prior to the conclusion of any such action or proceeding, in the absence of a
determination, as provided in the agreement, that indemnification would not be
permitted under applicable law. We believe that these provisions and agreements
are necessary to attract and retain qualified directors and officers. These
agreements also provide officers with the same limitation of liability for
monetary damages that Delaware corporate law and our restated certificate of
incorporation provide to directors.
59
<PAGE>
BENEFIT PLANS
1997 STOCK OPTION PLAN
The NetObjects 1997 Stock Option Plan, or the 1997 Plan, provides for the
issuance of incentive stock options under the Internal Revenue Code of 1986 and
nonqualified stock options to purchase common stock to employees, non-employee
directors or consultants at prices not less than the fair market value at the
date of grant. A total of 2,158,943 shares of common stock has been authorized
for issuance under the 1997 Plan. The fair market value of the common stock is
determined by the board of directors. Options currently outstanding generally
vest 25% at the end of the first year and then monthly on a pro rata basis over
the next three years. In connection with the IBM's acquisition of approximately
80% of our outstanding stock, the 1996 Stock Option Plan was cancelled and all
options issued under that plan were reissued under the 1997 Plan. Under the 1996
Stock Option Plan, optionees had the right to exercise unvested options, subject
to our Company's right to repurchase (at the original purchase price) unvested
shares held at the time of termination of employment. That right was carried
over to the 1997 Plan for optionees who held options under the 1996 Stock Option
Plan that were reissued under the 1997 Plan, but does not apply to new options
granted under the 1997 Plan since April 11, 1997. At December 31, 1998, 81,237
shares of common stock were subject to our right of repurchase, and 258,651
shares of common stock were available for future option grants, under the 1997
Plan.
1997 SPECIAL STOCK OPTION PLAN
In March 1997, our board of directors adopted, and in April 1997, our
stockholders approved, the 1997 Special Stock Option Plan. A total of 1,041,056
shares of common stock were authorized for issuance under the plan. On March 18,
1997, our board of directors authorized the grant of options for the purchase of
all shares of common stock authorized for issuance under the plan to 35 key
employees, including Messrs. Samir Arora and David Kleinberg, who received
grants to purchase 225,000 shares and 150,000 shares, respectively. The options
granted under the plan generally vest 25% at the end of the first year and then
monthly on a pro rata basis over the next three years. Our board of directors
does not intend to grant any more options under this stock option plan.
1999 EMPLOYEE STOCK PURCHASE PLAN
Our 1999 Employee Stock Purchase Plan, or ESPP, which has been adopted by
our board of directors and our stockholders, will take effect upon the closing
of this offering. We have reserved 300,000 shares of common stock for issuance
under the ESPP. The ESPP is intended to qualify for favorable tax treatment
under Section 423 of the Internal Revenue Code. The ESPP will be implemented
through a series of offering periods of six months' duration, with new offering
periods commencing on January 1 and July 1 of each year. We expect the first
such period after the offering to commence on July 1, 1999. The ESPP will be
administered by the compensation committee of our board of directors. Each
employee of ours or of any majority-owned subsidiary of ours who has been
employed by us or such majority-owned subsidiary for at least 90 days and for
more than 20 hours per week and more than five months per year will be eligible
to participate in the ESPP. The ESPP permits an eligible employee to purchase
common stock through payroll deductions, which may not exceed 10% of his or her
compensation, at a price equal to 85% of the lesser of the fair market value of
the common stock at the beginning of the offering period and the fair market
value of the common stock at the end of the offering period. Employees may
terminate their participation in the ESPP at any time during the offering
period, but they may not change their level of participation in the ESPP at any
time during the offering period. Participation in the ESPP terminates
automatically on the participant's termination of employment with us.
60
<PAGE>
401(K) PLAN
We maintain a 401(k) plan, a defined contribution plan intended to qualify
under Section 401 of the Internal Revenue Code, that covers all employees who
satisfy certain eligibility requirements relating to minimum age, length of
service and hours worked. Under the profit-sharing portion of the plan, we may
make an annual contribution for the benefit of eligible employees in an amount
determined by the board of directors. We have not made any such contributions to
date and currently have no plans to do so. Under the 401(k) portion of the plan,
eligible employees may make pretax elective contributions of up to 15% of their
compensation, subject to maximum limits on contributions prescribed by law.
61
<PAGE>
CERTAIN TRANSACTIONS
SALES OF COMMON STOCK AND PREFERRED STOCK
Since our inception in November 1995, we have issued, in private placement
transactions, shares of common stock and preferred stock to directors, executive
officers, 5% stockholders, and certain other purchasers included in the
descriptions below, as follows:
We issued 600,000, 400,000, 333,333 and 250,000 shares of common stock,
respectively, to Samir Arora, David Kleinberg, Clement Mok and Sal Arora (the
"Founders"), respectively, on December 21, 1995. The purchase price of the
shares of common stock was $0.09 per share. The Founders issued three-year
promissory notes as consideration for the issuance of the shares, in the
aggregate principal amount of $142,500, which bear interest at a rate of 8.00%
per annum and are secured by the shares. As of December 31, 1998, the aggregate
remaining principal balance of such notes was $112,500 and the term of the notes
was extended for one year. See "--Transactions with Rae Technology and Studio
Archetype--Rae Technology, Inc.".
We issued 166,666 and 1,666,666 shares of Series A preferred stock,
respectively, to Studio Archetype (formerly "Clement Mok Designs") and Rae
Technology, respectively, on December 21, 1995. The purchase price of the shares
was $0.90 per share. All but 651,945 of the shares were exchanged for IBM common
stock and were cancelled in connection with IBM's acquisition of approximately
80% of our stock in April 1997, and remained outstanding at December 31, 1998.
See also "--Transactions with Rae Technology and Studio Archetype--Rae
Technology, Inc." and "--Studio Archetype."
We issued an aggregate of 2,083,333 shares of Series B preferred stock to
Norwest Equity Partners V, 2,233,333 shares collectively to Venrock Associates,
Venrock Associates II, L.P. (and one of their affiliates), and 150,000 shares of
Series B preferred stock to John Sculley, on February 2, 1996. The purchase
price of the shares was $1.20 per share. All of the shares were exchanged for
IBM common stock and cancelled in connection with IBM's acquisition of
approximately 80% of our stock in April 1997.
In December 1996, we agreed to issue warrants for the purchase of 6,863,426
shares of Series C preferred stock to a group of institutional investors led by
Perseus Capital, including Perseus U.S. Investors, L.L.C., Norwest Equity
Partners V, Venrock Associates and John Sculley under the terms of a secured
loan agreement that provided us with additional bank financing of approximately
$1 million. We also received a total of $300,000 in loans from Norwest and
Venrock. Pursuant to the exercise of the warrant, we issued an aggregate of
2,330,009 shares, 477,130 shares and 462,816 shares of Series C preferred stock,
respectively, to Perseus, L.L.C. and Perseus U.S. Investors, L.L.C.
collectively, Norwest Equity Partners V, and Venrock Associates, L.P. and
Venrock Associates II, L.P. collectively, respectively, on various dates between
December 1996 and March 1997. Three of our directors are members of Perseus. The
purchase price of the shares was approximately $1.82 per share. All of the
shares were exchanged for IBM common stock and cancelled in connection with
IBM's acquisition of approximately 80% of our stock in April 1997. As of
December 31, 1998, warrants to purchase a total of 2,250,500 shares of Series C
preferred stock, at an exercise price of approximately $1.82 per share, were
held by Perseus, Norwest, Venrock and Mr. Sculley. These warrants will
automatically be surrendered on a "net exercise" basis upon the closing of this
offering, if not exercised earlier.
In connection with IBM's acquisition of approximately 80% of our stock on
April 11, 1997, we issued a warrant to IBM to purchase up to 3,482,838 shares of
Series E preferred stock at an exercise price of approximately $6.68 per share.
In October and December 1998, we also issued warrants to purchase up to
1,661,348 shares and 135,906 shares of Series E-2 preferred stock, respectively,
to IBM and Perseus Capital, L.L.C., respectively, at an exercise price of
approximately
62
<PAGE>
$6.68 per share. Each share of Series E-2 preferred stock will be automatically
converted into one share of common stock upon the effectiveness of the offering,
but is subject to adjustments in the conversion ratio that would be triggered by
our failure to complete this or a similar offering or repay the convertible
notes prior to certain dates, the earliest of which is April 8, 1999. In
February 1999, IBM agreed to purchase up to $3.45 million of notes and
additional warrants, at our option, up to the date of closing of the offering.
The warrants represent the right to purchase 308,013 shares of Series E-2
preferred stock which would be exercisable on a net basis automatically at the
closing of this offering. IBM has the right to require us to repay all
indebtedness under the additional convertible notes in full upon the closing of
the offering. IBM's warrant to purchase shares of Series E preferred stock
expires on April 11, 2000. The Series E-2 preferred stock warrants are
exercisable for five years after their issuance dates.
On April 11, 1997, we issued 10,495,968 shares of Series E preferred stock
to IBM at a purchase price of approximately $6.68 per share. On various dates
between June 30, 1997 and March 31, 1998, we issued an aggregate of 299,457,
84,622, 17,891 and 4,596 shares of Series E preferred stock, respectively, at a
purchase price of approximately $6.68 per share, to Samir Arora, David
Kleinberg, Clement Mok and Sal Arora, respectively.
On March 14, 1997, we issued warrants to purchase 274,604, 105,511, 73,190,
109,783, 188,636 and 13,581 shares of Series F preferred stock (originally
classified as Series D preferred stock), respectively, at a purchase price of
$10.80 per share, to Perseus U.S. Investors, Rae Technology, LLC, Venrock
Associates, L.P., Venrock Associates II, L.P., Norwest Equity Partners V and
John Sculley, respectively. On December 23, 1997, we issued a warrant to
purchase 83,333 shares of Series F preferred stock, at a purchase price of
$10.80 per share, to IBM Credit Corp. These warrants are exercisable for three
years from the date of issuance. The holders of the warrants may surrender them
on a "net exercise" basis on or after the closing of this offering and prior to
the expiration date.
Novell purchased 333,333 shares of our Series F-2 preferred stock for $9.00
per share, pursuant to a stock purchase agreement dated October 16, 1998. Under
the stock purchase agreement, Novell has "observer rights" at meetings of our
board of directors so long as Novell remains the beneficial owner of not less
than 1% (fully-diluted) of our stock. In addition, Christopher M. Stone, an
Executive Vice President of Novell, is one of our directors. Pursuant to the
stock purchase agreement, Novell also acquired a warrant for the purchase of up
to 16,666 shares of Series F-2 preferred stock at an exercise price $9.00 per
share. The warrant may be exercised between January 1, 2001 and December 31,
2003, but only if we have not consummated an initial public offering of our
securities resulting in aggregate cash proceeds of at least $30 million by
December 31, 2000.
MC Silicon Valley, Inc., a subsidiary of Mitsubishi, acquired 55,555 shares
of our Company's Series F-2 preferred stock at a price per share of $9.00, under
the terms of a stock purchase agreement dated October 28, 1998. Mitsubishi is
also our master distributor in Japan.
TRANSACTIONS WITH RAE TECHNOLOGY AND STUDIO ARCHETYPE
RAE TECHNOLOGY, INC. In connection with our formation, Rae Technology and
we entered into a technology transfer agreement dated December 21, 1995 pursuant
to which Rae Technology granted us, among other things, an exclusive, perpetual,
transferable, worldwide and royalty-free license, with a right of sublicense, to
use certain technologies referred to as "SOLO" for all commercial applications
on commercial online networks, and all rights to the trademark "NetObjects." In
exchange for our original license and other intangible property we issued
1,666,666 shares of Series A preferred stock to Rae Technology. In connection
with our formation, we also purchased certain assets and equipment, and assumed
certain lease obligations, of Rae Technology and subleased 90% of Rae
Technology's office premises. Samir Arora, one of our founders, our Chairman,
63
<PAGE>
Chief Executive Officer and President, is the President and Chief Executive
Officer and a director of Rae Technology, and Mr. Arora, David Kleinberg, our
Executive Vice President, Desktop Products and Online Services, Morris
Taradalsky, our Executive Vice President, Server Products and Professional
Services, and Sal Arora, Vice President, Engineering, Desktop Products and
Online Services, collectively own approximately 90% of the outstanding equity
interests of Rae Technology. Messrs. Arora, Kleinberg and Arora also acquired
shares of common stock in connection with our formation. See "--Sales of Common
Stock and Preferred Stock."
In March 1997, in connection with IBM's April 1997 acquisition of
approximately 80% of our stock, Rae Technology and we amended the technology
transfer agreement to expand our rights to SOLO and the "NetObjects" trademark
as they existed at the time and to limit Rae Technology's rights to SOLO and our
modifications to it from February 2, 1996 to December 31, 1998. As a result, Rae
Technology now has a non-transferable, perpetual, royalty-free non-exclusive
license to create and sell single user software programs primarily intended to
be used by individuals to manage personal data such as personal contacts,
events, schedules, tasks, projects, notes, pictures, lists of files and other
personal information.
On April 10, 1997, Rae Technology and we entered into a patent transfer and
license agreement under which we assigned all of our rights to four U.S. patent
applications and related rights and inventions and reserved for ourselves a
non-exclusive, perpetual, royalty-free, worldwide, irrevocable license to all of
the transferred rights and inventions, including any patents that issue on them.
Two patents have issued to date. The patent agreement was entered into in
connection with Rae Technology's amendment of the technology transfer agreement
in March 1997. Under the patent agreement we are entitled to receive 85% of all
license revenues earned by Rae Technology and its affiliates from the
transferred rights. We are obligated to reimburse Rae Technology for all patent
prosecution expenses and fees that are not offset by Rae Technology's share of
the licensing revenues. To date, Rae Technology has not earned any licensing
revenues and we have reimbursed Rae Technology a total of approximately
$ . We have the right to reacquire all of the transferred rights,
including issued patents, from Rae Technology under a number of circumstances,
including on April 10, 1999 and April 10, 2000 upon payment of a $5,000 transfer
fee to Rae Technology, unless we otherwise determine not to reacquire such
rights at that time. We also may reacquire the transferred rights and any
patents upon the occurrence of events of default or Rae Technology's failure to
meet certain licensing revenue thresholds once it begins earning license fees.
STUDIO ARCHETYPE. In connection with our formation, Studio Archetype and we
entered into a technology license agreement dated December 21, 1995, pursuant to
which Studio Archetype granted to us, among other things, a non-exclusive,
perpetual, transferable, worldwide and royalty-free license, with a right of
sublicense, to use certain intellectual property rights and know-how referred to
as the iD System. In exchange for that license agreement, we issued 1,666,666
shares of Series A preferred stock to Studio Archetype, valued at that time at
approximately $150,000.
IBM RELATIONSHIP
Upon the effectiveness of the merger that resulted in IBM's acquisition of
approximately 80% of our stock, Messrs. Dayton, Zisman and Anderegg became
directors of our Company. After the offering, IBM will beneficially own
approximately % of our common stock and will continue to exercise significant
influence over the election of directors and other corporate matters and over
other matters submitted to a vote of our stockholders. We and IBM have entered
into numerous transactions and arrangements including the following:
MERGER AGREEMENT. IBM acquired its controlling interest in us on April 11,
1997 pursuant to an agreement and plan of merger dated March 18, 1997 under
which IBM acquired 10,495,968 shares
64
<PAGE>
of Series E preferred stock for approximately $6.68 per share, representing at
the time approximately 80% of our voting securities. Pursuant to the merger
agreement, each preferred stockholder agreed, severally and not jointly, to
indemnify IBM and its affiliates against any losses arising from any inaccuracy
in, or any breach of, certain representations and warranties made by us in the
merger agreement and any related documents. The obligations of any preferred
stockholder to indemnify IBM and its affiliates were to be satisfied only from
such preferred stockholder's pro rata portion of the securities and other funds
held in escrow in accordance with an escrow agreement. Rae Technology agreed to
indemnify IBM and its affiliates, to the extent of Rae Technology's pro rata
portion, with respect to any inaccuracy in, or breach of, certain
representations and warranties pertaining to intellectual property transferred
by Rae Technology to us at the time of our formation. The preferred stockholders
deposited all outstanding shares of, and warrants to purchase shares of, Series
A preferred stock, Series C preferred stock and Series F preferred stock held by
them and outstanding immediately after the effective time of the merger, and 10%
of the IBM common stock issued to them under the merger agreement into an escrow
to secure the payment of the indemnification obligations described above. The
shares of IBM common stock held in escrow were released without claims or offset
in April 1998. The remaining escrowed securities will be released to the
preferred stockholders upon the closing of this offering, or April 11, 1999, if
earlier.
In connection with the merger agreement, IBM also paid $250,000 for a
warrant to acquire 3,482,838 more shares of Series E preferred stock at an
exercise price of approximately $6.68 per share. During the same time period,
the parties also entered into a number of other agreements, including a
stockholders agreement, a patent license agreement and a software license
agreement, each of which is discussed below, and a registration rights
agreement. See "Shares Eligible for Future Sale--Registration Rights."
STOCKHOLDERS AGREEMENT. On March 18, 1997, NetObjects, IBM and certain of
our stockholders at that time executed a stockholders agreement that, among
other things, provided for "freedom of action" for IBM and its affiliates to
compete with us without liability for breach of any fiduciary duty or for
usurping any "corporate opportunity." Such protections extended to IBM's
representatives on the board of directors. The stockholders agreement required
approval by our board of directors prior to our taking a number of actions, and
these restrictions were incorporated into Section 3.14 of our amended and
restated bylaws. The stockholders agreement was terminated in connection with
the offering, but the "freedom of action" provisions are contained in our
restated certificate of incorporation. See "Risk Factors--Dependence on IBM and
Potential Conflicts."
PATENT LICENSE AGREEMENT. On April 10, 1997, we and IBM executed a patent
license agreement that grants IBM a nonexclusive, royalty-free, perpetual
license to our patents as they are issued.
SOFTWARE LICENSE AGREEMENT. On March 18, 1997, we and IBM executed a
10-year software license agreement which, as amended, provides for payment of
royalties by IBM to us in connection with sales of product bundles that include
certain of our products and for payment to us for services performed in
connection with the IBM WebSphere project. Between March 18, 1997 and December
31, 1997, IBM made nonrefundable prepayments to us totaling $10.5 million, which
were recorded as deferred revenues. As a result, any payments under the
agreement, which include services, royalty and internal license fee payment
components, are credited against the prepaid amount. This license agreement has
been amended a number of times, and licenses IBM to use certain of our products
in IBM's internal operations, for which we received a license payment. Under the
software license agreement we are obligated to place all of our source code into
an escrow. IBM may obtain access to the source code upon certain events of
default related to our failure to provide required maintenance and support or
our bankruptcy or similar event of financial reorganization. IBM may use the
source code that it obtains to create derivative works, which it will
65
<PAGE>
own subject to our rights in the underlying software. See "Risk
Factors--Dependence on IBM and Potential Conflicts--Dependence to Date on IBM
for Financing and Significant Revenues," "Business--Sales, Marketing and
Distribution" and note 3 to notes to consolidated financial statements.
LOAN AND SECURITY AGREEMENT. On December 23, 1997, we and IBM Credit Corp.
executed a revolving loan and security agreement, as amended, against which we
have drawn approximately $19 million in total principal amount and issued
convertible revolving credit notes to IBM Credit Corp. for a corresponding
amount. The revolving notes bear interest at LIBOR plus 1.5%. In the event of
our default under the revolving notes, IBM Credit Corp. has the right to convert
the unpaid balance into shares of common stock at the lower of approximately
$6.68 per share and a price determined by independent appraisal. To secure our
obligations under the loan agreement, we granted a recorded first priority
security interest in all of our assets, including intangible assets, to IBM
Credit Corp. IBM has guaranteed our obligations under the revolving notes. We
would not have been able to obtain a $19 million loan from an independent third
party without the guarantee from IBM. IBM Credit Corp. We were not in compliance
with a financial convenant in the loan agreement concerning the amount of our
operating losses as of December 31, 1998, but on February 3, 1999, IBM Credit
Corp. waived our compliance through December 31, 1998 and agreed to take no
action with respect to our noncompliance through April 30, 1999. See "Risk
Factors--Dependence on IBM and Potential Conflicts--Dependence to Date on IBM
for Financing and Significant Revenues" and note 3 to notes to consolidated
financial statements.
NOTE AND WARRANT PURCHASE AGREEMENT. We and IBM are parties to a note and
warrant purchase agreement dated October 8, 1998, pursuant to which we have
issued the convertible notes in the aggregate principal amount of approximately
$10.1 million and $825,000, respectively, to IBM and Perseus Capital, L.L.C., an
affiliate of Perseus U.S. Investors L.L.C. Two of our directors are minor
investors in Perseus and one of our directors is an adviser to Perseus. The
principal and interest due under the convertible notes will be converted into
shares of common stock upon closing of this offering. The convertible notes are
secured by a security interest in all of our assets and properties that is
second in priority to the security interest we granted to IBM Credit Corp. In
February 1999, we and IBM amended the note and warrant purchase agreement to
permit us to sell up to $3.45 million of notes and additional warrants to IBM.
These notes will be payable in full upon the closing of this offering.
VOTING AGREEMENT. In January 1999, we entered into the voting agreement
with IBM. See "Management--Contractual Arrangements."
STRATEGIC RELATIONSHIPS. We have a number of relationships with IBM and its
subsidiary, Lotus, pursuant to which some of our products are offered for sale
through a variety of IBM and Lotus channels. During fiscal year 1998,
approximately 36% of our total revenues were derived from IBM. As long as we
remain a subsidiary of IBM we may receive greater access to customers and
marketing activities, including advertising, direct marketing, tradeshows and
seminars, and advertising media rates that are significantly lower than those
generally available to a company of our size in our industry. See "Risk
Factors--Dependence on IBM and Potential Conflicts" and "Business-- NetObjects
Strategy."
OUTSIDE DIRECTOR OPTION GRANTS AND EXPENSES
Effective on the closing of the offering, we will grant stock options to
Messrs. Sculley and Stone that will entitle each of them to purchase up to
20,000 shares of common stock at an exercise price equal to the public offering
price, vesting over four years. We also have granted an option to Mr. Sculley to
purchase up to 50,000 shares of common stock at an exercise price of $7.50,
vesting over four years, and will reimburse him for certain expenses incurred in
connection with his attendance at board meetings.
66
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the common stock as of December 31, 1998, assuming conversion of
all shares of preferred stock into common stock, and as adjusted to reflect the
sale of shares of common stock in the offering for (i) each person
known to us to own beneficially more than 5% of the common stock, (ii) each of
our directors, (iii) each of the Named Executive Officers and (iv) all executive
officers and directors as a group:
<TABLE>
<CAPTION>
COMMON STOCK
----------------------------------------
NUMBER OF PERCENT OWNERSHIP
SHARES ------------------------
BENEFICIALLY BEFORE AFTER
NAME OWNED (1) OFFERING OFFERING
- ---------------------------------------------------------- -------------- ----------- -----------
<S> <C> <C> <C>
International Business Machines Corporation (2)........... 15,723,485 81.0% %
New Orchard Road
Armonk, NY 10504
Samir Arora (3)........................................... 1,705,456 11.9
c/o NetObjects, Inc.
301 Galveston Drive
Redwood City, CA 94062
Perseus U.S. Investors L.L.C.(4).......................... 1,272,103 8.3
The Army and Navy Club Building
16271 I Street, N.W., Suite 610
Washington, D.C. 20006
David Kleinberg (5)....................................... 764,775 5.4
c/o NetObjects, Inc.
301 Galveston Drive
Redwood City, CA 94062
Norwest Equity Partners V................................. 780,489 5.3
245 Lytton Avenue, Suite 250
Palo Alto, CA 94301
Venrock Associates, L.P. (6).............................. 757,071 5.1
30 Rockefeller Plaza, Room 5508
New York, NY 10112
Rae Technology, LLC (7)................................... 698,187 5.0
Rae Technology, LLC II
1072 De Anza Blvd., Suite A107
San Jose, CA 95129
Morris Taradalsky (8)..................................... 84,692 *
Mark Patton (9)........................................... 68,682 *
John Sculley (10)......................................... 56,192 *
Michael J. Shannahan (11)................................. 40,625 *
Robert G. Anderegg (12)................................... 0 *
Lee A. Dayton (12)........................................ 0 *
Michael D. Zisman (12).................................... 0 *
All directors and executive officers as a group (12
persons) (13)............................................. 3,247,705 22.1% %
</TABLE>
- ------------------------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with rules of the
Commission and includes shares over which the beneficial owner exercises
voting or investment power. Shares of common stock subject to options or
warrants currently exercisable or exercisable within 60 days of December
10, 1998 are deemed outstanding for the purpose of computing the percentage
67
<PAGE>
ownership of the person holding the options or warrants, but are not deemed
outstanding for the purpose of computing the percentage ownership of any
other person. Except as otherwise indicated, and subject to community
property laws where applicable, we believe, based on information provided
by such persons, that the persons named in the table above have sole voting
and investment power with respect to all shares of common stock shown as
beneficially owned by them.
(2) Includes 3,717,506 shares of common stock issuable on exercise of
outstanding warrants to purchase convertible preferred stock and 1,510,011
shares of common stock issuable on conversion of outstanding convertible
notes.
(3) Includes (i) 107,812 shares of common stock issuable on exercise of
outstanding options and 299,457 shares owned by Information Capital LLC,
wholly owned by Mr. Arora and (ii) 592,677 shares of common stock and
105,510 shares of common stock issuable on exercise of outstanding warrants
to purchase convertible preferred stock owned by Rae Technology because he
is its President and owns a majority of its equity interests. Mr. Arora
disclaims beneficial ownership of the Rae Technology shares except to the
extent of his pecuniary interest therein. Sal Arora is the brother of Samir
Arora.
(4) Includes (i) 1,136,198 and 12,379 shares of common stock issuable on
exercise of outstanding warrants for purchase of convertible preferred
stock by Perseus U.S. Investors L.L.C. and Perseus Capital L.L.C.,
respectively, and (ii) 123,526 shares of common stock issuable on
conversion of outstanding convertible notes. Three of our directors,
Messrs. Sculley, Zisman and Arora, are members of Perseus U.S. Investors
L.L.C. and Perseus Capital L.L.C., and disclaim beneficial ownership of all
common stock held by such entities except to the extent of their respective
pecuniary interests therein.
(5) Includes (i) 71,875 shares of common stock issuable on exercise of
outstanding options and (ii) 176,909 shares of common stock and 31,370
shares of common stock issuable on exercise of outstanding warrants to
purchase convertible preferred stock, which is Mr. Kleinberg's pro rata
share of securities held by Rae Technology.
(6) Includes 323,592 and 433,479 shares of common stock issuable on exercise of
outstanding warrants for purchase of convertible preferred stock owned by
Venrock Associates L.P. and Venrock Associates II, L.P., respectively.
(7) Includes 105,510 shares of common stock issuable on exercise of outstanding
warrants for purchase of convertible preferred stock. Five of our officers
are members of Rae Technology.
(8) Includes (i) 61,111 shares of common stock issuable on exercise of
outstanding options and (ii) 20,018 shares of common stock and 3,563 shares
of common stock issuable on exercise of outstanding warrants to purchase
convertible preferred stock, which is Mr. Taradalsky's pro rata share of
securities held by Rae Technology.
(9) Includes 68,682 shares of common stock issuable on exercise of outstanding
options.
(10) Includes 56,192 shares of common stock issuable on exercise of outstanding
warrants owned for purchase of convertible preferred stock.
(11) Includes 40,625 shares of common stock issuable on exercise of outstanding
options.
(12) Messrs. Anderegg, Dayton and Zisman are IBM's representatives on the board
of directors.
(13) Includes an aggregate of 515,562 shares and 172,253 shares, respectively,
of common stock issuable on exercise of outstanding options and warrants
for purchase of convertible preferred stock, including securities held by
Rae Technology and Studio Archetype, which entities are owned or
controlled by officers of NetObjects.
68
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following description of our capital stock and certain provisions of our
restated certificate of incorporation and amended and restated bylaws is a
summary and is qualified by reference to our restated certificate of
incorporation and the amended and restated bylaws. The descriptions of the
common stock and preferred stock reflect changes to our capital structure that
will occur on effectiveness of the offering in accordance with the terms of the
restated certificate of incorporation.
The authorized capital stock of our Company consists of 33,333,333 shares of
common stock, par value $0.01 per share, and 22,816,300 shares of preferred
stock, par value $0.01 per share.
COMMON STOCK
As of December 31, 1998, 2,088,561 shares of common stock were outstanding
and held of record by 89 stockholders, assuming no exercise after December 31,
1998 of outstanding options or warrants. Each holder of common stock is entitled
to one vote per share. Subject to the rights of the holders of any preferred
stock that may be outstanding, holders of common stock on the applicable record
date are entitled to receive such dividends as may be declared by our board of
directors out of funds legally available therefor and, in the event of
liquidation, to share pro rata in any distribution of our assets after payment
or providing for the payment of liabilities and the liquidation preference of
any outstanding preferred stock. Holders of common stock have no cumulative
voting rights or preemptive rights to purchase or subscribe for any shares of
our common stock or other securities. All the outstanding shares of common stock
are fully paid and nonassessable. As of December 31, 1998, 2,629,575 shares of
common stock were issuable upon exercise of outstanding options at a weighted
average exercise price of $2.38 per share.
PREFERRED STOCK
Our board of directors has the authority, subject to any limitations
prescribed by Delaware law, to issue shares of preferred stock in one or more
series and to fix and determine the relative rights and preferences of the
shares constituting any series to be established without any further vote or
action by the stockholders. Any shares of preferred stock so issued may have
priority over the common stock with respect to dividend, liquidation and other
rights. On closing of the offering, no shares of preferred stock will be
outstanding. We have no current intention to issue any shares of preferred
stock.
WARRANTS TO PURCHASE PREFERRED STOCK
As of December 31, 1998, we had outstanding warrants to purchase 2,250,500
shares of Series C preferred stock at an exercise price of approximately $1.82
per share, warrants to purchase 3,482,838 shares of Series E preferred stock at
an exercise price of approximately $6.68 per share, warrants to purchase 163,715
shares of Series E-2 preferred stock at an exercise price of approximately $6.68
per share, warrants to purchase 16,666 shares of Series F-2 preferred stock at
an exercise price of approximately $9.00 per share and warrants to purchase
916,666 shares of Series F preferred stock at an exercise price of approximately
$10.80 per share. The warrants to purchase shares of Series C preferred stock
will terminate on closing of the offering. The warrants to purchase shares of
Series E preferred stock, Series E-2 preferred stock and Series F preferred
stock expire at the end of their respective exercise periods, and, following the
offering, will be exercisable for an equivalent number of shares of common
stock. See "Certain Transactions--Sales of Common Stock and Preferred Stock."
69
<PAGE>
CERTAIN VOTING AND OTHER MATTERS
The Board may authorize the issuance of preferred stock with voting or
conversion rights that could adversely affect the voting power or other rights
of the holders of common stock. The issuance of preferred stock, while providing
flexibility in connection with possible acquisitions and other corporate
purposes, could, under certain circumstances, have the effect of delaying,
deferring or preventing a change of control of our Company.
RESTATED CERTIFICATE OF INCORPORATION AND AMENDED AND RESTATED BYLAWS
The restated certificate of incorporation contains certain provisions
relating to the rights and powers of IBM that could have the effect of delaying,
deferring or preventing a change in control of our Company. See "Risk
Factors--Dependence on IBM and Potential Conflicts."
Special meetings of the stockholders may be called only by the board of
directors, the Chairman of the board of directors, the Chief Executive Officer
or any holder of at least 25% of our outstanding common stock. The amended and
restated bylaws provide that stockholders seeking to bring business before, or
to nominate directors at, an annual meeting of stockholders must provide timely
notice thereof in writing. To be timely, a stockholder's notice must be received
by our Secretary not less than 120 calendar days nor more than 150 calendar days
before the date of our proxy statement sent to stockholders for the prior year's
annual meeting. The amended and restated bylaws also contain notice provisions
in the event that no annual meeting was held in the previous year, or if the
date of the applicable annual meeting has been changed by more than 30 days. The
amended and restated bylaws also contain specific requirements for the form of a
stockholder's notice. These provisions may preclude or deter some stockholders
from bringing matters before the stockholders or from making nominations of
directors, and may have the effect of delaying, deferring or preventing a change
in control of our company.
CONTRACTUAL AGREEMENTS
Under the voting agreement, IBM has agreed, under certain circumstances,
that it shall not be permitted to elect more than three of the six directors,
notwithstanding its position as the majority stockholder of our Company. See
"Management--Contractual Arrangements."
WAIVER OF DELAWARE ANTITAKEOVER STATUTE
Section 203 of the DGCL generally prohibits a publicly-held Delaware
corporation from engaging in a "business combination" transaction with any
"Interested Stockholder" for a period of three years after the date of the
transaction in which the person became an "Interested Stockholder," unless the
business combination is approved in a prescribed manner. For purposes of Section
203, a "business combination" includes a merger, asset sale or other transaction
resulting in a financial benefit to the Interested Stockholder, and an
"Interested Stockholder" is a person who, together with affiliation and
association, owns (or within three years, did own) 15% or more of a
corporation's voting stock. The statute could prohibit or delay, defer or
prevent a "change in control" with respect to our Company. However, we have
waived the provisions of Section 203 by an amendment to our restated certificate
of incorporation.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is Boston EquiServe.
70
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
If our stockholders sell substantial amounts of our stock (including shares
issued upon the exercise of outstanding options and warrants) in the public
market following the offering, then the market price of our stock could fall.
After the offering, shares of our stock will be outstanding,
assuming no exercise of the underwriters' over-allotment option and no exercise
of outstanding options or warrants. Of those shares, the shares sold in
the offering will be freely tradable except for any shares purchased by our
"affiliates," as defined in Rule 144 under the Securities Act. The remaining
restricted shares are "restricted securities," as that term is
defined in Rule 144, and may be sold in the public market only if registered or
if they qualify for an exemption from registration under Rule 144 or Rule 701,
which rules are summarized below. All of our officers, directors and
stockholders have signed lock-up agreements pursuant to which they have agreed
not to sell any shares of common stock, or any securities convertible into or
exercisable or exchangeable for common stock, for 180 days after the offering
without the prior written consent of BT Alex. Brown. BT Alex. Brown may, in its
sole discretion, release all or any portion of the shares subject to such lock
up agreements. Following expiration of the lock-up agreements, of the
restricted shares will be eligible for immediate public sale under Rule 144(k),
of the restricted shares will be eligible for immediate public sale
under Rule 701 and the remaining restricted shares will be eligible for
public sale subject to compliance with the holding period, volume and manner of
sale restrictions of Rule 144, unless they are previously registered under the
Securities Act.
Following the offering, we intend to file a registration statement under the
Securities Act covering shares of common stock reserved for
issuance under the 1997 Plan, the Special Plan and the ESPP. Upon expiration of
the lock-up agreements, at least shares of common stock will be
subject to vested options (based on options outstanding as of December 31,
1998). Such registration statement is expected to be filed and become effective
prior to expiration of the lock up agreements; accordingly, shares registered
under such registration statement will, subject to Rule 144 volume limitations
applicable to "affiliates," be available for sale in the open market immediately
after the lock up agreements expire. In addition, shares of common
stock issuable upon exercise of warrants (assuming all outstanding warrants are
exercised), all of which are subject to the lock up agreements, will be eligible
for sale following expiration of the lock up agreements, subject to compliance
with Rule 144.
Assuming the exercise of the Series E preferred stock warrant by IBM in its
entirety, the conversion of all Series E preferred stock into common stock and
conversion of all Series C preferred stock into common stock, the exercise of a
warrant for Series F-2 preferred stock by Novell and conversion of all Series
F-2 preferred stock into common stock, and the conversion of all convertible
notes and exercise or conversion of the warrants issued pursuant to the note and
warrant purchase agreement and conversion of all Series E-2 preferred stock, the
holders of shares and certain warrants have certain demand and
piggyback registration rights. The exercise of such rights could adversely
affect the market price of our stock.
We also expect to register all shares under our stock option plans and our
ESPP in the near future. After such registration is effective, shares issued
upon exercise of stock options or purchased under the ESPP will be eligible for
resale in the public market without restriction. See "--Registration Rights."
In general, Rule 144 provides that any person who has beneficially owned
shares for at least one year, including an affiliate, is generally entitled to
sell, within any three-month period, a number of shares that does not exceed the
greater of 1% of the shares of common stock then outstanding (approximately
shares immediately after the offering) or the reported average
weekly trading volume of the common stock during the four calendar weeks
immediately preceding the
71
<PAGE>
date on which notice of the sale is sent to the Commission. Sales under Rule 144
are subject to certain manner of sale restrictions, notice requirements and
availability of current public information concerning us. A person who is not an
affiliate of ours, and who has not been an affiliate within three months prior
to the sale, generally may sell shares without regard to the limitations of Rule
144 provided that the person has held such shares for at least two years. Under
Rule 144(k), a person who is not deemed to have been an "affiliate" of ours at
any time during the 90 days preceding a sale, and who has beneficially owned the
shares proposed to be sold for at least two years, is entitled to sell such
shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144.
Any employee, director or officer of ours, or consultant to us, holding
shares purchased pursuant to a written compensatory plan or contract (including
options) entered into prior to the offering is entitled to rely on the resale
provisions of Rule 701, which permit nonaffiliates to sell such shares without
having to comply with the public information, holding period, volume limitation
or notice requirements of Rule 144 and permit affiliates to sell their Rule 701
shares without having to comply with the holding period restrictions of Rule
144, in each case beginning 90 days after the date of this prospectus.
REGISTRATION RIGHTS
The second amended and restated registration rights agreement, as amended,
provides certain rights to register shares under the Securities Act to certain
holders of our capital stock or their permitted transferees. Under the terms of
this agreement, if we propose to register any of our securities under the
Securities Act in an underwritten primary registration, we must include the
shares that we have been requested to register pursuant to "piggyback" rights,
subject to any limitation set by the underwriters on the number of shares
included in such registration. Also, IBM may require us to use our best efforts,
not more than twice, to file a registration statement under the Securities Act,
at our expense, with respect to certain of IBM's shares of common stock. None of
the shares of any stockholder have been registered for sale in this offering.
Following this offering, IBM also may require us to use our best efforts to
file up to two registration statements on Form S-3, at the expense of IBM,
provided that the aggregate offering price net of underwriting discounts and
commissions for each registration is not less than $500,000. In addition, any
holder of Series E-2 preferred stock and any holder of at least 100,000 shares
of Series F-2 preferred stock may require us to use our best efforts to file
registration statements on Form S-3, at our expense, to register shares of
common stock acquired in connection with the exercise of such warrants. IBM may
assign its registration rights to any person whom it transfers at least
1,000,000 shares of common stock.
72
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement, the
underwriters named below, through their representatives BT Alex. Brown
Incorporated, BancBoston Robertson Stephens and Piper Jaffray Inc. (the
"Representatives"), have severally agreed to purchase from us the following
respective numbers of shares of common stock at the initial public offering
price less the underwriting discounts and commissions set forth on the cover
page of this prospectus:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- -------------------------------------------------------------------------------------------------- --------------
<S> <C>
BT Alex. Brown Incorporated.......................................................................
BancBoston Robertson Stephens.....................................................................
Piper Jaffray Inc.................................................................................
--------------
Total.........................................................................................
--------------
--------------
</TABLE>
The underwriting agreement provides that the obligations of the underwriters
are subject to certain conditions precedent and that the underwriters will
purchase all shares of the common stock offered hereby if any of such shares are
purchased.
One of the closing conditions to this offering is that KPMG LLP reissue
their independent auditors' report on our consolidated financial statements as
of September 30, 1997 and 1998 and for the period from November 21, 1995
(inception) to September 30, 1996, and for the two year period ended September
30, 1998. Such report shall exclude the explanatory paragraph that states that
our recurring losses and net capital deficiency raise substantial doubt about
our ability to continue as a going concern.
We have been advised by the Representatives that the underwriters propose to
offer the shares of common stock to the public at the initial public offering
price set forth on the cover page of this prospectus and to certain dealers at
such price less a concession not in excess of $ per share. The underwriters
may allow, and such dealers may re-allow, a concession not in excess of $
per share to certain other dealers. After the initial public offering, the
offering price and other selling terms may be changed by the Representatives.
We have granted to the underwriters an option, exercisable not later than 30
days after the date of this prospectus, to purchase up to additional
shares of common stock at the initial public offering price less the
underwriting discounts and commissions set forth on the cover page of this
prospectus. To the extent that the underwriters exercise such option, each of
the underwriters will have a firm commitment to purchase approximately the same
percentage thereof that the number of shares of common stock to be purchased by
it in the above table bears to the total number of shares to be sold in the
offering, and we will be obligated, pursuant to the option to sell such shares
to the underwriters. The underwriters may exercise such option only to cover
over-allotments made in connection with the sale of the common stock offered
hereby. If purchased, the underwriters will offer such additional shares on the
same terms as those on which the shares are being offered.
At our request, the underwriters have reserved up to shares of common
stock for sale, at the initial public offering price, to employees and friends
of ours through a directed share program. The number of shares of common stock
available for sale to the general public in the public offering will be reduced
to the extent such persons purchase such reserved shares.
73
<PAGE>
AMOUNTS PAYABLE TO THE UNDERWRITERS
<TABLE>
<CAPTION>
NO EXERCISE FULL EXERCISE
------------ -------------
<S> <C> <C>
Per Share............................................................................ $ $
Total................................................................................ $
</TABLE>
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act of 1933.
Each of our officers, directors and a substantial majority of our
stockholders have agreed not to offer, sell, contract to sell or otherwise
dispose of (or enter into any transaction which is designed to, or could be
expected to, result in the disposition of any portion of) any common stock for a
period of 180 days after the effective date of the registration statement of
which this prospectus is a part, without the prior written consent of BT Alex.
Brown Incorporated, except in the case of certain transfers to charitable
organizations or from certain entities to partners of such entities. Such
consent may be given at any time without public notice. We have entered into a
similar agreement, except that we may issue, and grant options or warrants to
purchase, shares of common stock or any securities convertible into, exercisable
for or exchangeable for shares of common stock, pursuant to the exercise of
outstanding options and warrants and our issuance of options and stock granted
under the existing stock option and stock purchase plans.
The Representatives have advised us that the underwriters do not intend to
confirm sales to any account over which they exercise discretionary authority.
Prior to this offering, there has been no public market for our common
stock. Consequently, the initial public offering price for the common stock will
be determined by negotiation among us and the Representatives. Among the factors
considered in such negotiations are prevailing market conditions, our results of
operations in recent periods, the market capitalizations and stages of
development of other companies that we and the Representatives believe to be
comparable to us, estimates of our business potential, the present stage of our
development and other factors deemed relevant.
In order to facilitate the offering of the common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
market price of the common stock. Specifically, the underwriters may over-allot
shares of the common stock in connection with this offering, thereby creating a
short position in the underwriters' syndicate account. Additionally, to cover
such over-allotments or to stabilize the market price of the common stock, the
underwriters may bid for, and purchase, shares of the common stock in the open
market. Any of these activities may maintain the market price of the common
stock at a level above that which might otherwise prevail in the open market.
The underwriters are not required to engage in these activities, and, if
commenced, any such activities may be discontinued at any time. The
Representatives, on behalf of the underwriters, also may reclaim selling
concessions allowed to an underwriter or dealer, if the syndicate repurchases
shares distributed by that underwriter or dealer.
LEGAL MATTERS
The validity of the common stock being offered hereby will be passed upon
for our Company by Graham & James LLP, Palo Alto, California. Partners of Graham
& James LLP performing services for us directly or indirectly beneficially own
12,934 shares of the common stock. Alan Kalin, a partner in the firm of Graham &
James LLP, serves as our Secretary. Certain legal matters in connection with the
offering will be passed upon for the underwriters by Cravath, Swaine & Moore,
New York, New York.
74
<PAGE>
EXPERTS
The consolidated financial statements and schedule of NetObjects, Inc. as of
September 30, 1997 and 1998, and for the period from November 21, 1995
(inception) to September 30, 1996, and for each of the years in the two-year
period ended September 30, 1998 included herein and in the registration
statement are included in reliance upon the report of KPMG LLP, independent
auditors, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
The report of KPMG LLP covering the September 30, 1998 consolidated
financial statements contains an explanatory paragraph that states that our
recurring losses from operations and net capital deficiency raise substantial
doubt about our ability to continue as a going concern. The consolidated
financial statements do not include any adjustments that might result from the
outcome of that uncertainty.
CHANGE IN AUDITORS
Ernst & Young LLP was previously our principal accountant. On October 29,
1997, Ernst & Young LLP's was dismissed as principal accountants and KPMG LLP
was engaged to audit our consolidated financial statements. The board of
directors has approved the appointment of KPMG LLP as our principal accountants.
In connection with the audit for the period from November 21, 1995
(inception) through September 30, 1996, and the subsequent interim period
through October 29, 1997, there were no disagreements with Ernst & Young LLP on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedures, which disagreements if not resolved
to their satisfaction would have caused them to make reference in connection
with their opinion on the subject matter of the disagreement.
The audit report of Ernst & Young LLP on our consolidated financial
statements as of and for the period from November 21, 1995 (inception) through
September 30, 1996 contained a statement that our operating loss since inception
raises substantial doubt about our ability to continue as a going concern.
ADDITIONAL INFORMATION
We have filed with the Commission a Registration Statement on Form S-1
(together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act with respect to the offer and sale of
common stock pursuant to this prospectus. Prior to the offering we were not
required to file reports with the Commission. This prospectus, filed as a part
of the Registration Statement, does not contain all the information set forth in
the Registration Statement or the exhibits thereto and schedule filed therewith
in accordance with the rules and regulations of the Commission, and reference is
hereby made to such omitted information. Statements made in this prospectus
concerning the contents of any contract, agreement or other document filed as an
exhibit to the Registration Statement are summaries of the terms of such
contracts, agreements or documents and are not necessarily complete. Reference
is made to each such exhibit for a more complete description of the matters
involved, and such statements shall be deemed qualified by such reference. The
Registration Statement and the exhibits thereto filed with the Commission may be
inspected, without charge, and copies may be obtained at prescribed rates, at
the SEC's Public Reference facility maintained by the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549. The public may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The
Registration Statement and other information filed by the Company with the
Commission also are available at the web site maintained by the Commission on
the world wide web at http://www.sec.gov. For further information pertaining to
our Company and the common stock offered by this prospectus, reference is hereby
made to the Registration Statement.
We intend to furnish our stockholders with annual reports containing
financial statements audited by our independent accountants and quarterly
reports for the first three quarters of each fiscal year containing unaudited
financial statements.
75
<PAGE>
NETOBJECTS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report.......................................................... F-2
Consolidated Balance Sheets as of September 30, 1997 and 1998 and December 31, 1998
(unaudited)......................................................................... F-3
Consolidated Statements of Operations for the period from November 21, 1995
(inception) to September 30, 1996, for the years ended September 30, 1997 and 1998
and for the three month periods ended December 31, 1997 and 1998 (unaudited)........ F-4
Consolidated Statements of Shareholders' Deficit for the period from November 21, 1995
(inception) to September 30, 1996, for the years ended September 30, 1997 and 1998
and for the three month period ended December 31, 1998 (unaudited).................. F-5
Consolidated Statements of Cash Flows for the period from November 21, 1995
(inception) to September 30, 1996, for the years ended September 30, 1997 and 1998
and for the three month periods ended December 31, 1997 and 1998 (unaudited)........ F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
NetObjects, Inc.:
We have audited the accompanying consolidated balance sheets of NetObjects,
Inc. and subsidiary (the Company), a majority owned subsidiary of IBM
Corporation, as of September 30, 1997 and 1998, and the related consolidated
statements of operations, stockholders' deficit, and cash flows for the period
from November 21, 1995 (inception) to September 30, 1996, and for each of the
years in the two-year period ended September 30, 1998. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of NetObjects,
Inc. and subsidiary, a majority owned subsidiary of IBM Corporation, as of
September 30, 1997 and 1998, and the results of their operations and their cash
flows for the period from November 21, 1995 (inception) to September 30, 1996,
and for each of the years in the two-year period ended September 30, 1998, in
conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
1(d) to the consolidated financial statements, the Company has suffered
recurring losses from operations and has a net capital deficit that raises
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 1(d). The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
KPMG LLP
Mountain View, California,
December 21, 1998
F-2
<PAGE>
NETOBJECTS, INC.
AND SUBSIDIARY
(A MAJORITY OWNED SUBSIDIARY OF IBM CORPORATION)
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, 1998
-------------------- ------------------------
1997 1998 ACTUAL PRO FORMA(A)
--------- --------- --------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash............................................................ $ 303 $ 459 $ 1,288 $ 3,873
Accounts receivable, net of allowances of $781, $2,263, and
$1,789 as of September 30, 1997 and 1998, and December 31,
1998, respectively............................................ 2,018 2,292 3,074 3,074
Prepaid expenses and other current assets....................... 448 754 1,037 1,037
--------- --------- --------- -------------
Total current assets........................................ 2,769 3,505 5,399 7,984
Property and equipment, net....................................... 1,836 1,640 2,103 2,103
--------- --------- --------- -------------
Total assets...................................................... $ 4,605 $ 5,145 $ 7,502 $ 10,087
--------- --------- --------- -------------
--------- --------- --------- -------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Short-term borrowings from IBM and IBM Credit Corp.............. $ -- $ 20,666 $ 18,813 $ 18,813
Short-term borrowings........................................... 2,050 -- -- --
Accounts payable................................................ 2,518 4,723 4,461 4,461
Accrued compensation............................................ 1,041 1,690 1,322 1,322
Other accrued liabilities....................................... 684 1,066 1,294 1,294
Deferred revenue from IBM....................................... 6,228 5,121 2,316 2,316
Other deferred revenues......................................... 61 169 297 297
Current portion of capital lease obligations.................... 303 299 286 286
--------- --------- --------- -------------
Total current liabilities................................... 12,885 33,734 28,789 28,789
Capital lease obligations, less current portion................... 633 336 271 271
Convertible notes from IBM and related party...................... -- -- 7,619 --
--------- --------- --------- -------------
Total long-term obligations................................. 633 336 7,890 271
--------- --------- --------- -------------
Total liabilities........................................... 13,518 34,070 36,679 29,060
--------- --------- --------- -------------
Commitments
Stockholders' deficit:
Preferred stock, $0.01 par value; 20,339,666 shares authorized;
11,394,965, 11,576,937 and 11,965,826 shares issued and
outstanding as of September 30, 1997 and 1998 and December 31,
1998, respectively, and none outstanding on a pro forma basis
as of December 31, 1998 (aggregrate liquidation preference of
$75,279,768 as of September 30, 1998)......................... 107 109 113 --
Common stock, $0.01 par value; 28,333,333 shares authorized;
1,857,449, 2,001,186, and 2,088,561 shares issued and
outstanding as of September 30, 1997 and 1998 and December 31,
1998, respectively, and 18,760,231 shares issued and
outstanding on a pro forma basis at December 31, 1998......... 18 20 21 182
Additional paid-in capital...................................... 15,599 18,318 26,567 36,723
Deferred stock-based compensation............................... -- (541) (441) (441)
Notes receivable from stockholders.............................. (143) (113) (113) (113)
Accumulated other comprehensive losses.......................... -- -- (6) (6)
Accumulated deficit............................................. (24,494) (46,718) (55,318) (55,318)
--------- --------- --------- -------------
Total stockholders' deficit................................. (8,913) (28,925) (29,177) (18,973)
--------- --------- --------- -------------
Total liabilities and stockholders' deficit..................... $ 4,605 $ 5,145 $ 7,502 $ 10,087
--------- --------- --------- -------------
--------- --------- --------- -------------
</TABLE>
- ------------------------------
(a) Assumes the conversion of 11,965,826 shares of preferred stock into common
stock, the issuance of $2.6 million in convertible debt, the issuance of
1,654,041 shares of common stock, reflecting the conversion of convertible
debt and related interest and the issuance of 3,051,803 shares of common
stock upon the cashless exercise of outstanding warrants to purchase
convertible preferred stock at a weighted average exercise price of $4.82
per share by surrending shares of common stock as payment of the exercise
price, assuming an initial public offering price of $ per share.
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
NETOBJECTS, INC.
AND SUBSIDIARY
(A MAJORITY OWNED SUBSIDIARY OF IBM)
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD FROM
NOVEMBER 21,
1995 YEAR ENDED THREE MONTHS ENDED
(INCEPTION) TO SEPTEMBER 30, DECEMBER 31,
SEPTEMBER 30, ---------------------- ----------------------
1996 1997 1998 1997 1998
-------------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Software license fees....................... $ -- $ 7,392 $ 9,703 $ 2,086 $ 2,622
Service revenues............................ -- -- -- -- 190
Software license fees from IBM.............. -- 175 2,700 199 1,318
Service revenues from IBM................... -- -- 2,867 -- 1,487
-------------- ---------- ---------- ---------- ----------
Total revenues............................ -- 7,567 15,270 2,285 5,617
-------------- ---------- ---------- ---------- ----------
Cost of revenues:
Software license fees....................... -- 772 2,531 278 495
Service revenues............................ -- -- -- -- 184
Service revenues from IBM................... -- -- 2,562 -- 1,404
-------------- ---------- ---------- ---------- ----------
Total cost of revenues.................... -- 772 5,093 278 2,083
-------------- ---------- ---------- ---------- ----------
Gross profit.............................. -- 6,795 10,177 2,007 3,534
-------------- ---------- ---------- ---------- ----------
Operating expenses:
Research and development.................... 2,765 8,436 10,231 3,070 2,204
Sales and marketing......................... 2,998 12,161 17,114 4,060 4,430
General and administrative.................. 978 3,762 3,575 769 894
Stock-based compensation.................... -- -- 227 -- 100
-------------- ---------- ---------- ---------- ----------
Total operating expenses.................. 6,741 24,359 31,147 7,899 7,628
-------------- ---------- ---------- ---------- ----------
Operating loss............................ (6,741) (17,564) (20,970) (5,892) (4,094)
Interest income (expense)..................... 46 (234) (1,194) (168) (712)
Nonrecurring interest charge on beneficial
conversion feature of convertible debt...... -- -- -- -- (3,792)
-------------- ---------- ---------- ---------- ----------
Loss before income taxes.................. (6,695) (17,798) (22,164) (6,060) (8,598)
Income taxes.................................. -- 1 60 7 2
-------------- ---------- ---------- ---------- ----------
Net loss.................................. $ (6,695) $ (17,799) $ (22,224) $ (6,067) $ (8,600)
Translation adjustment........................ -- -- -- -- (6)
-------------- ---------- ---------- ---------- ----------
Comprehensive loss........................ $ (6,695) $ (17,799) $ (22,224) $ (6,067) $ (8,606)
-------------- ---------- ---------- ---------- ----------
-------------- ---------- ---------- ---------- ----------
Basic and diluted net loss per share.......... $ (4.89) $ (10.89) $ (13.11) $ (3.72) $ (4.64)
-------------- ---------- ---------- ---------- ----------
-------------- ---------- ---------- ---------- ----------
Shares used to compute basic and diluted net
loss per share.............................. 1,370,216 1,633,968 1,694,614 1,632,580 1,853,707
-------------- ---------- ---------- ---------- ----------
-------------- ---------- ---------- ---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
NETOBJECTS INC.
AND SUBSIDIARY
(A MAJORITY OWNED SUBSIDIARY OF IBM)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
PERIOD FROM NOVEMBER 21, 1995 (INCEPTION) TO SEPTEMBER 30, 1996 AND FOR THE
YEARS ENDED SEPTEMBER 30, 1997 AND 1998
AND FOR THE THREE MONTH PERIOD ENDED DECEMBER 31, 1998 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREFERRED STOCK
-----------------------------------------------------------------------------------
SERIES A SERIES B SERIES C SERIES E SERIES F
-------------- -------------- -------------- -------------- ---------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances as of November 21, 1995
(inception)...................... -- $-- -- $-- -- $-- -- $-- -- $--
Exercise of stock options.......... -- -- -- -- -- -- -- -- -- --
Issuance of common stock........... -- -- -- -- -- -- -- -- -- --
Issuance of Series A preferred
stock in exchange for
technology....................... 1,833 -- -- -- -- -- -- -- -- --
Issuance of Series B preferred
stock, net of $59 in issuance
fees............................. -- -- 4,467 45 -- -- -- -- -- --
Net loss........................... -- -- -- -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Balances, September 30, 1996....... 1,833 -- 4,467 45 -- -- -- -- -- --
Exercise of stock options.......... -- -- -- -- -- -- -- -- -- --
Issuance of common stock........... -- -- -- -- -- -- -- -- -- --
Repurchase of restricted stock..... -- -- -- -- -- -- -- -- -- --
Warrants exercised................. -- -- 27 -- 4,821 48 23 -- -- --
Issuance of Series E and F
warrants......................... -- -- -- -- -- -- -- -- -- --
Conversion of Series A, B, and C
preferred stock to Series E
preferred stock.................. (1,181) -- (4,494) (45) (4,821) (48) 10,495 105 -- --
Issuance of Series E preferred
stock............................ -- -- -- -- -- -- 225 2 -- --
Net loss........................... -- -- -- -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Balances, September 30, 1997....... 652 -- -- -- -- -- 10,743 107 -- --
Exercise of stock options.......... -- -- -- -- -- -- -- -- -- --
Issuance of common stock........... -- -- -- -- -- -- -- -- -- --
Repurchase of restricted stock..... -- -- -- -- -- -- -- -- -- --
Warrant to purchase Series F
preferred stock.................. -- -- -- -- -- -- -- -- -- --
Issuance of Series E preferred
stock............................ -- -- -- -- -- -- 182 2 -- --
Repayment of stockholder notes
receivable....................... -- -- -- -- -- -- -- -- -- --
Deferred compensation related to
stock option grants.............. -- -- -- -- -- -- -- -- -- --
Amortization of stock-based
compensation..................... -- -- -- -- -- -- -- -- -- --
Net loss........................... -- -- -- -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Balances, September 30, 1998....... 652 $-- -- $-- -- $-- 10,925 $109 -- $--
Exercise of stock options
(unaudited)...................... -- -- -- -- -- -- -- -- -- --
Issuance of common stock
(unaudited)...................... -- -- -- -- -- -- -- -- -- --
Repurchase of restricted stock
(unaudited)...................... -- -- -- -- -- -- -- -- -- --
Issuance of in the money
convertible debt and warrants to
purchase Series E preferred stock
(unaudited)...................... -- -- -- -- -- -- -- -- -- --
Issuance of Series F preferred
stock net of $30 issuance costs
(unaudited)...................... -- -- -- -- -- -- -- -- 389 4
Amortization of stock-based
compensation (unaudited)......... -- -- -- -- -- -- -- -- -- --
Translation adjustment
(unaudited)...................... -- -- -- -- -- -- -- -- -- --
Net loss (unaudited)............... -- -- -- -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Balances, December 31, 1998
(unaudited)...................... 652 $-- -- $-- -- $-- 10,925 $109 389 $ 4
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<CAPTION>
COMMON STOCK NOTES ACCUMULATED
ADDITIONAL DEFERRED RECEIVABLE OTHER
--------------- PAID-IN STOCK-BASED FROM COMPREHENSIVE ACCUMULATED
SHARES AMOUNT CAPITAL COMPENSATION STOCKHOLDERS LOSSES DEFICIT
------ ------ ---------- ------------ ------------ ------------- -----------
<S> <C>
Balances as of November 21, 1995
(inception)...................... -- $-- -- -- -- -- --
Exercise of stock options.......... 259 3 28 -- -- -- --
Issuance of common stock........... 1,633 16 133 -- (143) -- --
Issuance of Series A preferred
stock in exchange for
technology....................... -- -- -- -- -- -- --
Issuance of Series B preferred
stock, net of $59 in issuance
fees............................. -- -- 5,256 -- -- -- --
Net loss........................... -- -- -- -- -- -- (6,695)
--
------ ------ ---------- ----- ----- -----------
Balances, September 30, 1996....... 1,892 19 5,417 -- (143) -- (6,695)
Exercise of stock options.......... 127 1 15 -- -- -- --
Issuance of common stock........... 2 -- 1 -- -- -- --
Repurchase of restricted stock..... (164) (2) (18) -- -- -- --
Warrants exercised................. -- -- 8,400 -- -- -- --
Issuance of Series E and F
warrants......................... -- -- 298 -- -- -- --
Conversion of Series A, B, and C
preferred stock to Series E
preferred stock.................. -- -- (12) -- -- -- --
Issuance of Series E preferred
stock............................ -- -- 1,498 -- -- -- --
Net loss........................... -- -- -- -- -- -- (17,799)
--
------ ------ ---------- ----- ----- -----------
Balances, September 30, 1997....... 1,857 18 15,599 -- (143) -- (24,494)
Exercise of stock options.......... 144 2 89 -- -- -- --
Issuance of common stock........... 18 -- 116 -- -- -- --
Repurchase of restricted stock..... (18) -- (2) -- -- -- --
Warrant to purchase Series F
preferred stock.................. -- -- 535 -- -- -- --
Issuance of Series E preferred
stock............................ -- -- 1,213 -- -- -- --
Repayment of stockholder notes
receivable....................... -- -- -- -- 30 -- --
Deferred compensation related to
stock option grants.............. -- -- 768 (768) -- -- --
Amortization of stock-based
compensation..................... -- -- -- 227 -- -- --
Net loss........................... -- -- -- -- -- -- (22,224)
--
------ ------ ---------- ----- ----- -----------
Balances, September 30, 1998....... 2,001 $ 20 18,318 (541) (113) -- (46,718)
Exercise of stock options
(unaudited)...................... 103 1 72 -- -- -- --
Issuance of common stock
(unaudited)...................... 5 -- 37 -- -- -- --
Repurchase of restricted stock
(unaudited)...................... (20) -- (2) -- -- -- --
Issuance of in the money
convertible debt and warrants to
purchase Series E preferred stock
(unaudited)...................... -- -- 4,676 -- -- -- --
Issuance of Series F preferred
stock net of $30 issuance costs
(unaudited)...................... -- -- 3,466 -- -- -- --
Amortization of stock-based
compensation (unaudited)......... -- -- -- 100 -- -- --
Translation adjustment
(unaudited)...................... -- -- -- -- -- (6) --
Net loss (unaudited)............... -- -- -- -- -- -- (8,600)
--
------ ------ ---------- ----- ----- -----------
Balances, December 31, 1998
(unaudited)...................... 2,089 $ 21 26,567 (441) (113) (6) (55,318)
--
--
------ ------ ---------- ----- ----- -----------
------ ------ ---------- ----- ----- -----------
<CAPTION>
TOTAL
STOCKHOLDERS'
DEFICIT
-------------
Balances as of November 21, 1995
(inception)...................... --
Exercise of stock options.......... 31
Issuance of common stock........... 6
Issuance of Series A preferred
stock in exchange for
technology....................... --
Issuance of Series B preferred
stock, net of $59 in issuance
fees............................. 5,301
Net loss........................... (6,695)
-------------
Balances, September 30, 1996....... (1,357)
Exercise of stock options.......... 16
Issuance of common stock........... 1
Repurchase of restricted stock..... (20)
Warrants exercised................. 8,448
Issuance of Series E and F
warrants......................... 298
Conversion of Series A, B, and C
preferred stock to Series E
preferred stock.................. --
Issuance of Series E preferred
stock............................ 1,500
Net loss........................... (17,799)
-------------
Balances, September 30, 1997....... (8,913)
Exercise of stock options.......... 91
Issuance of common stock........... 116
Repurchase of restricted stock..... (2)
Warrant to purchase Series F
preferred stock.................. 535
Issuance of Series E preferred
stock............................ 1,215
Repayment of stockholder notes
receivable....................... 30
Deferred compensation related to
stock option grants.............. --
Amortization of stock-based
compensation..................... 227
Net loss........................... (22,224)
-------------
Balances, September 30, 1998....... (28,925)
Exercise of stock options
(unaudited)...................... 73
Issuance of common stock
(unaudited)...................... 37
Repurchase of restricted stock
(unaudited)...................... (2)
Issuance of in the money
convertible debt and warrants to
purchase Series E preferred stock
(unaudited)...................... 4,676
Issuance of Series F preferred
stock net of $30 issuance costs
(unaudited)...................... 3,470
Amortization of stock-based
compensation (unaudited)......... 100
Translation adjustment
(unaudited)...................... (6)
Net loss (unaudited)............... (8,600)
-------------
Balances, December 31, 1998
(unaudited)...................... (29,177)
-------------
-------------
</TABLE>
F-5
<PAGE>
NETOBJECTS, INC.
AND SUBSIDIARY
(A MAJORITY OWNED SUBSIDIARY OF IBM)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
NOVEMBER 21, THREE MONTHS ENDED
1995 YEAR ENDED SEPTEMBER
(INCEPTION) TO 30, DECEMBER 31,
SEPTEMBER 30, -------------------- --------------------
1996 1997 1998 1997 1998
--------------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss......................................................... $ (6,695) $ (17,799) $ (22,224) $ (6,067) $ (8,600)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization.................................. 88 697 1,104 216 240
Accretion of discount on borrowings............................ -- -- 201 -- 191
Non recurring interest charge on beneficial conversion feature
of convertible debt.......................................... -- -- -- -- 3,792
Amortization of deferred stock-based compensation.............. -- -- 227 -- 100
Changes in operating assets and liabilities:
Accounts receivable.......................................... -- (2,018) (275) (93) (782)
Prepaid expenses and other current assets.................... (474) 27 (306) (300) (283)
Accounts payable............................................. 1,759 721 2,205 662 (225)
Accrued compensation......................................... 342 699 649 -- (368)
Other accrued liabilities.................................... 37 685 382 281 228
Deferred revenue............................................. 102 6,186 (999) 4,693 (2,677)
Interest payable............................................. -- -- -- -- 137
--------------- --------- --------- --------- ---------
Net cash used in operating activities...................... (4,841) (10,802) (19,036) (608) (8,247)
--------------- --------- --------- --------- ---------
Cash flows used in investing activities--purchases of property and
equipment........................................................ (551) (1,028) (792) (214) (703)
--------------- --------- --------- --------- ---------
Cash flows from financing activities:
Proceeds from short-term borrowings.............................. 1,000 1,050 21,000 3,083 --
Repayments of short-term borrowings.............................. -- -- (2,050) (2,050) (2,000)
Proceeds from convertible debt................................... -- -- -- -- 8,325
Payment on capital lease obligations............................. (35) (252) (300) (71) (78)
Proceeds from sale and leaseback of equipment.................... 179 -- -- -- --
Proceeds from issuance of preferred stock........................ 5,301 10,246 1,215 -- 3,467
Proceeds from issuance of common stock........................... 39 17 91 2 73
Repurchases of common stock...................................... -- (20) (2) -- (2)
Repayment of shareholder notes receivable........................ -- -- 30 -- --
--------------- --------- --------- --------- ---------
Net cash provided by financing activities.................. 6,484 11,041 19,984 964 9,785
--------------- --------- --------- --------- ---------
Effect of exchange rate changes on cash.......................... -- -- -- -- (6)
--------------- --------- --------- --------- ---------
Net increase (decrease) in cash.................................... 1,092 (789) 156 142 829
Cash at beginning of period........................................ -- 1,092 303 303 459
--------------- --------- --------- --------- ---------
Cash at end of period.............................................. $ 1,092 303 459 445 1,288
--------------- --------- --------- --------- ---------
--------------- --------- --------- --------- ---------
Supplemental disclosures of cash flow information:
Interest paid.................................................... $ 28 $ 293 $ 753 $ -- $ 350
--------------- --------- --------- --------- ---------
--------------- --------- --------- --------- ---------
Noncash investing and financing activities:
Equipment recorded under capital leases........................ $ 423 $ 941 $ -- $ -- $ --
--------------- --------- --------- --------- ---------
--------------- --------- --------- --------- ---------
Common stock issued in exchange for notes receivable........... $ 143 $ -- $ -- $ -- $ --
--------------- --------- --------- --------- ---------
--------------- --------- --------- --------- ---------
Deferred stock-based compensation.............................. $ -- $ -- $ 768 $ -- $ --
--------------- --------- --------- --------- ---------
--------------- --------- --------- --------- ---------
Discount on borrowings......................................... $ -- $ 298 $ 535 $ 535 $ 4,676
--------------- --------- --------- --------- ---------
--------------- --------- --------- --------- ---------
Stock issued in exchange for services.......................... $ -- $ -- $ -- $ -- $ 37
--------------- --------- --------- --------- ---------
--------------- --------- --------- --------- ---------
Stock issued for property and equipment........................ $ -- $ -- $ 116 $ -- $ --
--------------- --------- --------- --------- ---------
--------------- --------- --------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
NETOBJECTS, INC.
AND SUBSIDIARY
(A MAJORITY OWNED SUBSIDIARY OF IBM)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996, 1997, AND 1998
(INFORMATION AS OF DECEMBER 31, 1998 AND FOR THE THREE-MONTHS
ENDED DECEMBER 31, 1997 AND 1998 IS UNAUDITED)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) DESCRIPTION OF BUSINESS
NetObjects, Inc. (the Company) was incorporated in Delaware on November 21,
1995. On March 18, 1997, the Company, and certain stockholders of the Company,
entered into an agreement with International Business Machines Corporation (IBM)
whereby IBM would acquire all the Company's outstanding shares of Series B and C
Preferred Stock and the majority of the outstanding Series A Preferred Stock in
exchange for newly issued shares of common stock of IBM (the IBM Transaction).
The Series A, B and C Preferred Stock were then converted into Series E
Preferred Stock of the Company. The transaction closed on April 11, 1997, and as
a result, the Company became a majority owned subsidiary of IBM. The transaction
did not result in a new accounting basis for financial reporting purposes of the
Company.
NetObjects develops and markets software applications that enable businesses
to build and manage Internet and intranet web sites and applications. In fiscal
1998, the Company changed its fiscal year end from September 30 to the Saturday
nearest September 30. For presentation purposes, the consolidated financial
statements and notes refer to the calendar month end.
(B) PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiary, NetObjects Limited. All
intercompany accounts and transactions have been eliminated in consolidation.
(C) FOREIGN CURRENCY TRANSLATION
The functional currency of the Company's foreign subsidiary is their local
currency. Gains and losses arising from the translation of the subsidiary
financial statements are reflected as a separate component of stockholders'
deficit. Foreign currency transaction losses are shown net on the consolidated
statement of operations.
(D) BASIS OF PRESENTATION
The Company has incurred significant operating losses since inception and
has significant debt and a capital deficit as of September 30, 1998 that raises
substantial doubt about its ability to continue as a going concern. The Company
plans to finance its operations by raising additional capital through an initial
public offering of its common stock (IPO) and by generating revenues. The
Company's ability to continue as a going concern is dependent upon its
successfully completing the IPO. The accompanying financial statements have been
prepared assuming the Company will continue as a going concern, the basis of
which contemplates the realization of assets through continuing operations. No
adjustments have been made to reflect potentially lower realizable values of
assets should the Company be unable to continue its operations.
F-7
<PAGE>
NETOBJECTS, INC.
AND SUBSIDIARY
(A MAJORITY OWNED SUBSIDIARY OF IBM)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996, 1997, AND 1998
(INFORMATION AS OF DECEMBER 31, 1998 AND FOR THE THREE-MONTHS
ENDED DECEMBER 31, 1997 AND 1998 IS UNAUDITED)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
(E) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated using the
straight-line method over the estimated useful lives of the related assets,
ranging from three to five years. Leasehold improvements and assets recorded
under capital leases are amortized on a straight-line basis over the lesser of
the related asset's estimated useful life or the remaining lease term.
The Company evaluates long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying value of an asset may not be
recoverable. If such assets are considered to be impaired, the impairment to be
recognized is measured as the difference between the carrying amount of the
property and equipment and its fair value. To date, the Company has made no
adjustments to the carrying values of its long-lived assets.
(F) SOFTWARE DEVELOPMENT COSTS
Software development costs associated with new products and enhancements to
existing software products are expensed as incurred until technological
feasibility is established upon completion of a working model. To date, the
Company's software development has been completed concurrent with the
establishment of technological feasibility, and, accordingly, no costs have been
capitalized.
(G) INCOME TAXES
Income taxes are recorded using the asset and liability method. The
Company's tax provision for all years has been calculated on a stand-alone
basis. Deferred tax liabilities and assets are recognized for the expected
future tax consequences attributable to differences between the carrying amounts
and the tax bases of assets and liabilities. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. A valuation allowance is recorded to reduce deferred tax assets to an
amount whose realization is more likely than not. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
(H) CONCENTRATION OF CREDIT RISK
Accounts receivable potentially subject the Company to concentrations of
credit risk. The Company performs ongoing credit evaluations of its customers'
financial condition and generally does not require collateral for accounts
receivable. When required, the Company maintains allowances for credit losses,
and to date such losses have been within management's expectations.
For the years ended September 30, 1997 and 1998, software license fees to
one customer were 31% and 29%, of total revenues, respectively. Accounts
receivables from the customer represented 51% of accounts receivable as of
September 30, 1998. See Note 3 for a discussion of software license fees and
service revenues from IBM.
F-8
<PAGE>
NETOBJECTS, INC.
AND SUBSIDIARY
(A MAJORITY OWNED SUBSIDIARY OF IBM)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996, 1997, AND 1998
(INFORMATION AS OF DECEMBER 31, 1998 AND FOR THE THREE-MONTHS
ENDED DECEMBER 31, 1997 AND 1998 IS UNAUDITED)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
The Company's principal markets are North America, Europe and Japan. Export
sales represented approximately 15% and 16% of revenues for the fiscal years
ended September 30, 1997 and 1998, respectively. There were no revenues in
fiscal 1996.
(I) FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the Company's cash, accounts receivable, accounts payable
and short-term borrowings approximates their carrying values due to their short
maturity or variable-rate structure.
(J) 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 reported results of operations during the reporting period.
Actual results could differ from those estimates.
(K) REVENUE RECOGNITION
Through September 30, 1998, the Company recognized revenue in accordance
with American Institute of Certified Public Accountants (AICPA) Statement of
Position (SOP) 91-1, SOFTWARE REVENUE RECOGNITION. Software license fees were
generally recognized upon delivery to distributors, net of an allowance for
estimated returns and price protection, provided no significant obligations of
the Company remained and collection for the resulting receivable was probable.
Software license fees earned from products bundled with original equipment
manufacturer's (OEM) products are generally recognized upon the OEM shipping
bundled products to its customer. Service revenues from maintenance agreements
for support and upgrades of existing products are deferred and recognized
ratably over the term of the contract, which typically is 12 months. Service
revenues for training and consulting services are recognized as the services are
performed. Service revenues from third parties have been immaterial for all
periods presented. See Note 3(b) for a discussion of revenues from IBM.
In October 1997, the AICPA issued SOP 97-2, SOFTWARE REVENUE RECOGNITION,
which supersedes SOP 91-1. SOP 97-2 is effective for transactions entered into
during fiscal years beginning after December 15, 1997. Under SOP 97-2, software
license revenue is recognized upon delivery of the software and when persuasive
evidence of an agreement exists, provided the fee is fixed, determinable and
collectible and the arrangement does not involve significant customization of
the software. Maintenance and service revenue are recognized in a similar manner
as SOP 91-1. In addition, SOP 97-2 generally requires revenue earned on software
arrangements involving multiple elements to be allocated to each element based
on the relative fair values of the elements. The fair value of an element must
be based on evidence that is specific to the vendor. If a vendor does not have
evidence of the fair value for all elements in a multiple-element arrangement,
all revenue from the arrangement is deferred until such evidence exists or until
all elements are delivered.
F-9
<PAGE>
NETOBJECTS, INC.
AND SUBSIDIARY
(A MAJORITY OWNED SUBSIDIARY OF IBM)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996, 1997, AND 1998
(INFORMATION AS OF DECEMBER 31, 1998 AND FOR THE THREE-MONTHS
ENDED DECEMBER 31, 1997 AND 1998 IS UNAUDITED)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
In February 1998, the Accounting Standards Executive Committee (AcSEC) of
the AICPA issued SOP 98-4, "DEFERRAL OF THE EFFECTIVE DATE OF SOP 97-2". The SOP
defers the effective date for applying the provisions regarding vendor-specific
objective evidence ("VSOE") of fair value until the AcSEC can reconsider what
constitutes such VSOE.
In December 1998 AcSEC issued SOP 98-9 "SOFTWARE REVENUE RECOGNITION, WITH
RESPECT TO CERTAIN ARRANGEMENTS", which requires recognition of revenue using
the "residual method" in a multiple element arrangement when fair value does not
exist for one or more of the undelivered elements in the arrangement. Under the
"residual method", the total fair value of the undelivered elements is deferred
and subsequently recognized in accordance with SOP 97-2.
On October 1, 1998 the Company adopted the provisions of SOP 97-2, SOP 98-4
and SOP 98-9. The Company modified certain aspects of its business model such
that any impact from adopting SOP 97-2, SOP 98-4 and SOP 98-9 was not material.
(L) STOCK-BASED COMPENSATION
The Company accounts for its stock-based compensation plans using the
intrinsic value method. Deferred stock-based compensation expense is recorded,
if on the date of grant, the current market value of the underlying stock
exceeds the exercise price. The Company amortizes deferred stock-based
compensation in accordance with Financial Accounting Standards Board (FASB)
Interpretation No. 28.
(M) NET LOSS PER SHARE
Basic net loss per share is computed using the weighted-average number of
outstanding shares of common stock. Diluted net loss per share is computed using
the weighted-average number of shares of common stock outstanding and, when
dilutive, potential common shares from options and warrants to purchase common
stock using the treasury stock method and from convertible securities using the
if-converted basis. All potential common shares have been excluded from the
computation of diluted net loss per share for all periods presented because the
effect would have been antidilutive. See Notes 7 and 8 for a discussion of
potential common shares. Pursuant to the Securities and Exchange Commission
(SEC) Staff Accounting Bulletin No. 98, common stock and convertible preferred
stock issued for nominal consideration, prior to the anticipated effective date
of the IPO, are included in the calculation of basic and diluted net loss per
share as if they were outstanding for all periods presented. To date, the
Company has not had any issuances or grants for nominal consideration.
Diluted net loss per share for the year ended September 30, 1998, does not
include the effect of approximately 11,576,937 (on as if converted basis) shares
of convertible preferred stock outstanding, 2,472,343 stock options with a
weighted-average exercise price of $1.32 per share, 6,813,719 preferred stock
warrants with a weighted-average exercise price of $1.87 per share, or
F-10
<PAGE>
NETOBJECTS, INC.
AND SUBSIDIARY
(A MAJORITY OWNED SUBSIDIARY OF IBM)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996, 1997, AND 1998
(INFORMATION AS OF DECEMBER 31, 1998 AND FOR THE THREE-MONTHS
ENDED DECEMBER 31, 1997 AND 1998 IS UNAUDITED)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
88,177 shares of common stock issued and subject to repurchase by the Company at
a weighted-average price of $0.12 per share, because their effects are
antidilutive.
Diluted net loss per share for the three months ended December 31, 1998,
does not include the effect of approximately 11,965,826 (on as if converted
basis) shares of convertible preferred stock outstanding, approximately
1,246,257 shares from the assumed conversion of convertible debt, 2,629,575
stock options with a weighted-average exercise price of $2.38 per share,
6,813,719 preferred stock warrants with a weighted-average exercise price of
$1.87 per share, or 74,297 shares of common stock issued and subject to
repurchase by the Company at a weighted-average price of $0.12 per share,
because their effects are antidilutive.
(N) ACCUMULATED OTHER COMPREHENSIVE LOSSES
Accumulated other comprehensive losses consist entirely of cumulative
translation adjustments resulting from the Company's application of its foreign
currency translation policy. The tax effects of translation adjustments were not
significant.
(O) UNAUDITED INTERIM FINANCIAL INFORMATION
The consolidated financial information as of December 31, 1998 and for the
three-months ended December 31, 1997 and 1998 is unaudited, but includes all
adjustments (consisting only of normal recurring adjustments) that the Company
considers necessary for the fair presentation of the financial position at such
dates and the operations and cash flows for the periods then ended. Operating
results for the three-months ended December 31, 1998 are not necessarily
indicative of results that may be expected for the entire year.
(P) RECENT ACCOUNTING PRONOUNCEMENTS
The FASB recently issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS
AND HEDGING ACTIVITIES. SFAS No. 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as derivatives), and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. For a derivative not designated as a hedging
instrument, changes in the fair value of the derivative are recognized in
earnings in the period of change. The Company must adopt SFAS No. 133 by July 1,
1999. Management does not believe the adoption of SFAS No. 133 will have a
material effect on the financial position of the Company.
(Q) ADVERTISING EXPENSE
The cost of advertising is generally expensed as incurred. Such costs are
included in selling and marketing expense and totaled approximately $376,000,
$4.9 million and $5.8 million, during the period from November 21, 1995
(inception) through September 30, 1996, and for the years ended September 30,
1997 and 1998, respectively.
F-11
<PAGE>
NETOBJECTS, INC.
AND SUBSIDIARY
(A MAJORITY OWNED SUBSIDIARY OF IBM)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996, 1997, AND 1998
(INFORMATION AS OF DECEMBER 31, 1998 AND FOR THE THREE-MONTHS
ENDED DECEMBER 31, 1997 AND 1998 IS UNAUDITED)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
(R) EMPLOYEE BENEFIT PLAN
The Company has an Employee Savings and Retirement Plan under Section 401(k)
of the Internal Revenues Code for its eligible employees (the Benefit Plan). The
Benefit Plan is available to all domestic employees who meet minimum age and
service requirements, and provides employees with tax deferred salary deductions
and alternative investment options. Employees may contribute up to 15% of their
salary, subject to certain limitations. The Benefit Plan allows for
contributions by the Company at the discretion of the Company's Board of
Directors. The Company has not contributed to the Benefit Plan since its
inception.
(2) PROPERTY AND EQUIPMENT
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
Computer equipment and software............................................ $ 1,893 $ 2,166
Furniture and equipment.................................................... 475 559
Leasehold improvements..................................................... 253 795
--------- ---------
2,621 3,520
Less accumulated depreciation
and amortization........................................................... 785 1,880
--------- ---------
$ 1,836 $ 1,640
--------- ---------
--------- ---------
</TABLE>
Equipment recorded under capital leases is $1.2 million and the related
accumulated amortization is $638,000 as of September 30, 1998.
(3) RELATED PARTY TRANSACTIONS
(A) SHORT-TERM BORROWINGS
In December 1997, the Company entered into a line of credit with IBM Credit
Corporation (IBM Credit Corp.), a subsidiary of IBM, for $15 million, secured by
all tangible and intangible assets of the Company. IBM has guaranteed the line
of credit. Subsequently, the agreement was amended to increase the line of
credit to $19 million. The note is repayable on the earlier of the effective
date of an IPO or December 23, 1999. Interest is charged at LIBOR plus 1.5% (6%
as of September 30, 1998) per year. To maintain the line, the Company's net loss
measured on a 12-month basis must not be worse than $20 million. In the event of
default, IBM Credit Corp. has the right to convert amounts outstanding into
shares of Series E preferred stock using the lower of $6.68 per share or a
mutually agreed-upon conversion price.
F-12
<PAGE>
NETOBJECTS, INC.
AND SUBSIDIARY
(A MAJORITY OWNED SUBSIDIARY OF IBM)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996, 1997, AND 1998
(INFORMATION AS OF DECEMBER 31, 1998 AND FOR THE THREE-MONTHS
ENDED DECEMBER 31, 1997 AND 1998 IS UNAUDITED)
(3) RELATED PARTY TRANSACTIONS (CONTINUED)
In connection with the IBM Credit Corp. line of credit, the Company issued
warrants to purchase up to 83,333 shares of Series F preferred stock at an
exercise price of $10.80 per share. These warrants are exercisable at any time
and expire on the earlier of the closing of an IPO or December 23, 2002. IBM
Credit Corp. has the right to exercise the warrants without the payment of cash
by surrendering the warrants and receiving shares of preferred stock equal in
value at the exercise date to the value of the warrants so surrendered. The
Company determined the fair value of these warrants using the Black-Scholes
pricing model with the following assumptions: A risk-free interest rate of 5.6%;
an expected life of five years; volatility of 65%; and no dividend yield. The
resulting discount is being amortized over the term of the line of credit. As of
September 30, 1998, $18.6 million was outstanding under the line of credit, net
of a discount of $334,000.
Additionally, as of September 30, 1998, IBM has advanced the Company $2
million pursuant to certain note agreements. See Note 8.
As of September 30, 1998 the Company was not in compliance with certain
financial covenants on the aforementioned credit facility. The Company has
received a waiver of such non-compliance during the year ended September 30,
1998 from IBM Credit Corp.
(B) LICENSE AGREEMENT
On March 18, 1997, the Company entered into a Master License Agreement with
IBM. A summary of the salient terms of this agreement, as amended as of
September 30, 1998, is as follows (see Note 8):
- IBM may sublicense the Company's software products in exchange for per
unit royalty payments.
- Beginning on April 1, 1997, IBM will make seven quarterly nonrefundable
prepaid royalty payments of $1.5 million.
- At the Company's option, the Company can request the prepaid royalty
payments to be made in advance of the due date and pay 7.5% interest.
- The Company will perform services as requested by IBM in order to
integrate certain of the Company's software products into IBM's WebSphere
software products. In consideration for such services, IBM will pay the
Company for the cost of providing the services plus a mark up, however
amounts to be paid shall not exceed approximately $6.0 million. Amounts
owed to the Company under this arrangement can be deducted from the
prepaid royalty payments.
In February 1998 the Company entered into an agreement with Lotus to allow
Lotus to bundle up to 200,000 units of certain Company products for a
promotional period from February 1, 1998 through September 30, 1998 (the Special
Promotion), in exchange for per unit royalty payments substantially discounted
from the royalty rates with IBM under the Master License Agreement. The
royalties earned under this arrangement were also applied to the IBM deferred
revenue.
F-13
<PAGE>
NETOBJECTS, INC.
AND SUBSIDIARY
(A MAJORITY OWNED SUBSIDIARY OF IBM)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996, 1997, AND 1998
(INFORMATION AS OF DECEMBER 31, 1998 AND FOR THE THREE-MONTHS
ENDED DECEMBER 31, 1997 AND 1998 IS UNAUDITED)
(3) RELATED PARTY TRANSACTIONS (CONTINUED)
During the years ended September 30, 1997 and 1998, IBM had made payments of
$6.4 million and $4.5 million, respectively, in accordance with the license
agreement which have been recorded as deferred revenue until royalty and
services have been earned. For the year ended September 30, 1998 the Company
recognized approximately $166,000 in interest expense associated with such
advance payments.
During the years ended September 30, 1997 and 1998 and the three-month
period ended December 31, 1998, the Company recognized approximately $175,000,
$2.7 million and $1.3 million (unaudited), respectively, of the IBM prepaid
royalty payments as software license fees from IBM, primarily upon IBM shipping
to customers the Company's software products bundled with certain IBM products.
During the year ended September 30, 1998 and the three month period ended
December 31, 1998, the Company recognized approximately $2.9 million and $1.5
million (unaudited), respectively of the IBM prepaid royalty payments as service
revenues from IBM in connection with the integration of certain of the Company's
software with IBM's WebSphere software products. During the year ended September
30, 1998 and the three-month period ended December 31, 1998, the Company
incurred $2.9 million and $1.7 million in service costs, which includes $305,000
and $259,000 in overhead costs, respectively, in connection with the
arrangement. The Company is recognizing revenue using the
percentage-of-completion method and is deferring the recognition of profit on
this arrangement due to uncertainties related to the amount of profit ultimately
expected to be realized.
(C) NOTES RECEIVABLE FROM STOCKHOLDERS
Upon inception, the Company received promissory notes from its founders in
exchange for common stock for a total amount of $143,000. As of September 30,
1998, $30,000 was paid down by the stockholders. The notes bear interest at 8%.
(D) RAE TECHNOLOGY AND STUDIO ARCHETYPE
In December 1995, the Company issued 1,833,333 shares of Series A preferred
stock to the stockholders of Rae Technology, Inc. (Rae) and Studio Archetype,
upon formation of the Company, in exchange for the transfer of certain
technology and intellectual property rights. Rae's and Studio Archetype's
founders and significant shareholders also were the founders of the Company. The
exchange was recorded at predecessor book value.
In April 1997 the Company and Rae entered into a patent transfer and license
agreement whereby the Company assigned all of its rights to four U.S. patent
applications to Rae and the Company reserved a non-exclusive, perpetual, royalty
free license to such patents.
F-14
<PAGE>
NETOBJECTS, INC.
AND SUBSIDIARY
(A MAJORITY OWNED SUBSIDIARY OF IBM)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996, 1997, AND 1998
(INFORMATION AS OF DECEMBER 31, 1998 AND FOR THE THREE-MONTHS
ENDED DECEMBER 31, 1997 AND 1998 IS UNAUDITED)
(4) SHORT-TERM BORROWINGS
As of September 30, 1997, the Company had $2.1 million outstanding under a
line of credit granted by a financial institution. Borrowings under the line of
credit bear interest at the bank's prime rate plus 1% (9.5% as of September 30,
1997). In connection with the line of credit, the financial institution has
issued warrants to purchase 244,715 shares of Series C preferred stock at an
exercise price of $1.82 per share. See Note 7(c). The line of credit was repaid
with proceeds from the IBM Credit Corp. line of credit and, accordingly, no
amounts are outstanding as of September 30, 1998.
(5) COMMITMENTS
The Company leases its facilities under a noncancelable operating lease, and
has acquired computers and other equipment through operating and capital leases.
In connection with one of the property leases, the Company sublets the space.
Future minimum payments for both operating and capital leases as of September
30, 1998, are as follows (in thousands):
<TABLE>
<CAPTION>
OPERATING SUBLEASE NET OPERATING CAPITAL
YEAR ENDING SEPTEMBER 30, LEASES INCOME LEASES LEASES
- ---------------------------------------------------- ----------- ----------- --------------- -----------
<S> <C> <C> <C> <C>
1999................................................ $ 659 $ 338 $ 321 $ 338
2000................................................ 651 338 313 290
2001................................................ 181 -- 181 61
2002................................................ 83 -- 83 --
Thereafter,......................................... 34 -- 34 --
----------- ----- ----- -----
$ 1,608 $ 676 $ 932 689
----------- ----- -----
----------- ----- -----
Less amount representing interest................... 54
-----
Present value minimum lease payments................ 635
Less amounts due within one year.................... 299
-----
$ 336
-----
-----
</TABLE>
Total rent expense under the operating leases was $74,000, $341,000 and
$683,000 for the period from November 21, 1995 (inception) through September 30,
1996, and for the years ended September 30, 1997 and 1998, respectively. Total
rent expense paid to IBM under operating leases was $0, $12,000 and $93,000 for
the period from November 21, 1995 (inception) through September 30, 1996, and
for the years ended September 30, 1997 and 1998, respectively
As of September 30, 1998, approximately $200,000 of the Company's cash
balance is pledged as security for a lease line for furniture and fixtures.
F-15
<PAGE>
NETOBJECTS, INC.
AND SUBSIDIARY
(A MAJORITY OWNED SUBSIDIARY OF IBM)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996, 1997, AND 1998
(INFORMATION AS OF DECEMBER 31, 1998 AND FOR THE THREE-MONTHS
ENDED DECEMBER 31, 1997 AND 1998 IS UNAUDITED)
(6) INCOME TAXES
Significant components of the Company's deferred tax assets are as follows
(in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
Net operating loss carryforwards....................................... $ 9,306 $ 17,506
Research and development credit carryforwards.......................... 571 1,649
Accruals and reserves not currently deductible......................... 477 1,767
Property, plant and equipment.......................................... 268 488
--------- ---------
Gross deferred tax assets............................................ 10,622 21,410
Valuation allowance.................................................... (10,622) (21,410)
--------- ---------
Net deferred tax assets.............................................. $ -- $ --
--------- ---------
--------- ---------
</TABLE>
The Company's actual tax expense for the period from November 21, 1995
(inception) to September 30, 1996 and the years ended September 30, 1997 and
1998 differs from the benefit of the federal statutory tax rate of 34%, as
follows (in thousands):
<TABLE>
<CAPTION>
PERIOD FROM
NOVEMBER 21,
1995 YEAR ENDED SEPTEMBER
(INCEPTION) 30,
TO SEPTEMBER --------------------
30, 1996 1997 1998
------------- --------- ---------
<S> <C> <C> <C>
Expense at:
Statutory federal income tax rate......................... $ (2,292) $ (6,051) $ (7,556)
Losses not benefited...................................... 2,292 6,051 7,556
State taxes............................................... -- 1 1
Foreign taxes............................................. -- -- 59
------------- --------- ---------
$ -- $ 1 $ 60
------------- --------- ---------
------------- --------- ---------
</TABLE>
F-16
<PAGE>
NETOBJECTS, INC.
AND SUBSIDIARY
(A MAJORITY OWNED SUBSIDIARY OF IBM)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996, 1997, AND 1998
(INFORMATION AS OF DECEMBER 31, 1998 AND FOR THE THREE-MONTHS
ENDED DECEMBER 31, 1997 AND 1998 IS UNAUDITED)
(6) INCOME TAXES (CONTINUED)
The components of income taxes for the period from November 21, 1995
(inception) to September 30, 1996 and for the years ended September 30, 1997 and
1998, are as follows (in thousands):
<TABLE>
<CAPTION>
PERIOD FROM
NOVEMBER 21,
1995 YEAR ENDED SEPTEMBER
(INCEPTION) 30,
TO SEPTEMBER --------------------
30, 1996 1997 1998
------------- --------- ---------
<S> <C> <C> <C>
Current:
Foreign................................................... $ -- $ -- $ 59
State..................................................... -- 1 1
------------- --------- ---------
$ -- $ 1 $ 60
------------- --------- ---------
------------- --------- ---------
</TABLE>
The Company has recorded a valuation allowance on its deferred tax assets
due to uncertainty of future realization of such amounts.
As of September 30, 1998, the Company had net operating loss carryforwards
of approximately $40.9 million for both federal and state income tax purposes.
The federal net operating loss carryforwards expire in the years 2012 through
2019. The state net operating loss carryforwards expire in the year 2005. As of
September 30, 1998, the Company has research and development credit
carryforwards for federal and state tax purposes of approximately $964,000 and
$685,000, respectively. The federal research and development credit
carryforwards expire in the years 2012 through 2014. The state research and
development credits can be carried forward indefinitely.
The Tax Reform Act of 1986 and the California Tax Conformity Act of 1987,
limits the use of net operating loss carryforwards in certain situations where
changes occur in the stock ownership of a company. The Company had such an
ownership change, as defined, in April 1997. Accordingly, $11.5 million of the
Company's federal and state net operating loss carryforwards are limited in
their annual usage to $3.9 million per year on a cumulative basis.
F-17
<PAGE>
NETOBJECTS, INC.
AND SUBSIDIARY
(A MAJORITY OWNED SUBSIDIARY OF IBM)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996, 1997, AND 1998
(INFORMATION AS OF DECEMBER 31, 1998 AND FOR THE THREE-MONTHS
ENDED DECEMBER 31, 1997 AND 1998 IS UNAUDITED)
(7) STOCKHOLDERS' DEFICIT
(A) PREFERRED STOCK
The Company's restated certificate of incorporation authorizes 20,339,666
shares of preferred stock. As of September 30, 1997 and 1998, and December 31,
1998 the Company has designated and issued preferred stock as follows:
<TABLE>
<CAPTION>
OUTSTANDING SHARES
--------------------------------------------
SEPTEMBER 30,
DESIGNATED ---------------------------- LIQUIDATION
SHARES 1997 1998 PREFERENCE
------------- ------------- ------------- DECEMBER 31, -------------
1998
--------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Series A.............................. 750,000 651,945 651,945 651,945 $ 0.90
Series B.............................. 33,000 -- -- -- 1.20
Series C.............................. 2,833,333 -- -- -- 1.82
Series E.............................. 15,033,333 10,743,020 10,924,992 10,924,992 6.68
Series E-2............................ -- -- -- -- 6.68
Series F.............................. 916,666 -- -- -- 10.80
Series F-2............................ -- -- -- 388,889 9.00
------------- ------------- ------------- --------------
19,566,332 11,394,965 11,576,937 11,965,826
------------- ------------- ------------- --------------
------------- ------------- ------------- --------------
</TABLE>
The rights, preferences, and restrictions of the Series A, B, C, E and F
preferred stock are as follows:
- Each share of Series A, B, C, E and F preferred stock is convertible at
the option of the holder at any time into one share of common stock,
subject to certain antidilution provisions. Conversion of all Series A, B,
C, E and F preferred stock is automatic upon the closing of a firm
underwritten commitment public offering of shares of common stock of the
Company, which results in aggregate cash proceeds of at least $30 million.
- Holders of Series A, B, C, E and F preferred stock are entitled to receive
dividends at 8% per annum in preference to any dividend on common stock
when and if declared by the Board of Directors out of legally available
funds. Dividends are noncumulative. No dividends have been declared
through September 30, 1998.
- Series A, B, C, E and F preferred stock have a liquidation preference in
the amounts listed above plus all declared but unpaid dividends on such
shares plus an amount equal to an 8% annually compounded return calculated
from the original issue date through the liquidation date.
- Series A, B, C, E and F preferred stock have the same voting rights as the
number of shares of common stock issuable upon conversion of such shares.
The consent of a majority of the outstanding Series E preferred stock is
required for all major corporate actions. The holders
F-18
<PAGE>
NETOBJECTS, INC.
AND SUBSIDIARY
(A MAJORITY OWNED SUBSIDIARY OF IBM)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996, 1997, AND 1998
(INFORMATION AS OF DECEMBER 31, 1998 AND FOR THE THREE-MONTHS
ENDED DECEMBER 31, 1997 AND 1998 IS UNAUDITED)
(7) STOCKHOLDERS' DEFICIT (CONTINUED)
of the Series E preferred stock have a right to elect a majority of
directors of the Company until the outstanding shares of Series E
preferred stock and warrants to purchase such shares represent less than
45% of the fully diluted shares of voting securities of the Company or the
consummation of an IPO.
(B) COMMON STOCK
The Company's restated certificate of incorporation authorizes 28,333,333
shares of common stock. As of September 30, 1998, the Company has reserved
shares of common stock for future issuance as follows:
<TABLE>
<CAPTION>
SHARES
-------------
<S> <C>
Conversion of preferred stock:
Series A......................................................................................... 651,945
Series C......................................................................................... 2,250,500
Series E......................................................................................... 3,482,838
Series F......................................................................................... 1,833,333
</TABLE>
(C) PREFERRED STOCK WARRANTS
In fiscal 1996, as consideration for a lease line facility from a leasing
company, the Company issued warrants to purchase 33,000 shares of the Company's
Series B preferred stock at an exercise price of $1.20 per share. The shares
were exercised through a cashless exchange in fiscal 1997. There were no
warrants outstanding as of September 30, 1998.
In fiscal 1997, in consideration for a bank line of credit and an equipment
lease line facility with a financial institution and leasing company,
respectively (the lenders), the Company issued warrants to purchase 244,715
shares of Series C preferred stock at an exercise price of $1.82 per share, and
22,459 shares of Series E preferred stock at an exercise price of $6.68 per
share. The Company determined the fair value of these warrants using the
Black-Scholes pricing model with the following assumptions: A risk-free interest
rate of 5.6%; an expected life of three years; volatility of 65%; and no
dividend yield. The fair value of these warrants does not have a material effect
on the consolidated financial statements. During fiscal 1997, the lenders
exercised all warrants by foregoing the receipt of that number of shares of
preferred stock, that would otherwise have been issued upon exercise, equal in
value to the exercise price of all warrants exercised.
During fiscal 1997, the Company issued to holders of Series B preferred
stock, and a third party investor, warrants to purchase up to 6,863,426 shares
of Series C preferred stock at an exercise price of $1.82 per share. The fair
value of the warrants issued to existing stockholders was considered a dividend.
These warrants are exercisable at anytime and expire on the earlier of the
closing of an IPO or March 13, 2000. During fiscal 1997, warrants to purchase
4,612,926 shares of Series C
F-19
<PAGE>
NETOBJECTS, INC.
AND SUBSIDIARY
(A MAJORITY OWNED SUBSIDIARY OF IBM)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996, 1997, AND 1998
(INFORMATION AS OF DECEMBER 31, 1998 AND FOR THE THREE-MONTHS
ENDED DECEMBER 31, 1997 AND 1998 IS UNAUDITED)
(7) STOCKHOLDERS' DEFICIT (CONTINUED)
preferred stock were exercised. Warrants to purchase 2,250,500 shares of Series
C preferred stock have not been exercised as of September 30, 1998. Each warrant
holder has the right to exercise the warrant by foregoing the receipt of that
number of shares of preferred stock, that would otherwise have been issued upon
exercise, equal in value to the exercise price of all warrants exercised.
In connection with the IBM Transaction, the Company issued warrants to
purchase up to 833,333 shares of Series F preferred stock, previously Series D
preferred stock, at an exercise price of $10.80 per share to the holders of the
Series A, B, and C preferred stock for $48,000 in cash, net of expenses. In
addition, warrants to purchase up to 3,482,838 shares of Series E preferred
stock at an exercise price of $6.68 were issued to IBM for $250,000 in cash.
These warrants are exercisable at anytime and expire on the earlier of the
closing of an IPO or March 13, 2000. These warrants to purchase Series E and F
preferred stock have not been exercised as of September 30, 1998. Each warrant
holder has the right to exercise the warrant by foregoing the receipt of that
number of shares of preferred stock, that would otherwise have been issued upon
exercise, equal in value to the exercise price of all warrants exercised.
In connection with the IBM Transaction, the Company granted to its founders,
who are also employees, the right to repurchase 673,778 shares of Series E
preferred stock at an exercise price of $6.68 per share in three equal
installments prior to April 10, 1998. In June 1997, the four founders exercised
the first installment. Had the Company valued these stock rights pursuant to
SFAS No. 123 using the minimum value option pricing model, the Company's 1997
net loss would have been greater by approximately $111,000. This determination
was made using the following assumptions: a risk-free interest rate of 6.5%; an
expected life of one year; and no dividends.
During fiscal 1998, the Company entered into a line of credit agreement with
IBM Credit Corp. In connection with the line of credit, NetObjects issued
warrants to purchase 83,333 shares of Series F preferred stock at an exercise
price of $6.68. See Note 3.
(D) STOCK OPTION PLANS
Under the Company's 1996 Stock Option Plan (1996 Plan), a total of 1,658,943
shares of common stock were authorized for issuance. In connection with the IBM
Transaction, the 1996 Plan was terminated and the Company established the 1997
Stock Option Plan and the 1997 Special Stock Option Plan (the 1997 Plans). A
total of 2,158,943 and 1,041,056 shares of the Company's common stock have been
authorized for issuance under these plans, respectively. In April 1997, the
Company canceled the outstanding options under the 1996 Plan and granted
replacement options under the 1997 Plans with the same terms. The cancellation
and reissuance is not reflected in the stock option activity table below.
Options granted under the 1997 Plans may be designated as qualified or
nonqualified at the discretion of the Company's Board of Directors with exercise
prices not less than the fair value at the date of grant. Options granted under
the 1996 Plan, and the replacement options granted under
F-20
<PAGE>
NETOBJECTS, INC.
AND SUBSIDIARY
(A MAJORITY OWNED SUBSIDIARY OF IBM)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996, 1997, AND 1998
(INFORMATION AS OF DECEMBER 31, 1998 AND FOR THE THREE-MONTHS
ENDED DECEMBER 31, 1997 AND 1998 IS UNAUDITED)
(7) STOCKHOLDERS' DEFICIT (CONTINUED)
the 1997 Plans, are immediately exercisable upon grant, and the Company retains
the right to repurchase the unvested shares held at the time of termination of
employment at the original purchase price. Options generally vest 25% at the end
of the first year and monthly over the next three years. Options expire ten
years from the date of grant. As of September 30, 1998, 88,177 shares were
subject to the Company's right of repurchase.
The Company uses the intrinsic value method to account for the 1997 Plans.
Accordingly, compensation cost has been recognized for its stock options in the
accompanying financial statements if, on the date of grant, the current market
value of the underlying common stock exceeded the exercise price of the stock
options at the date of grant. During fiscal 1998, the Company granted options
with a weighted-average exercise price of $2.10 per share compared to the
weighted-average fair value of approximately $4.35 during the same period. For
the period from November 21, 1995 (inception) to September 30, 1996 and for the
year ended September 30, 1997, the weighted-average exercise price of options
granted approximated the weighted-average fair value. In connection with options
granted in fiscal year 1998, the Company has recorded deferred stock-based
compensation of $768,000 representing the difference between the exercise price
and the fair value of the Company's common stock at the date of grant. The
amount is being amortized over the vesting period for the individual options.
Amortization of deferred stock-based compensation of $227,000 was recognized
during the fiscal year ended September 30, 1998.
Pursuant to SFAS No. 123, the Company is required to disclose the pro forma
effects on the operating results of the Company as if the Company has elected to
use the fair value approach to account for all its stock-based employee
compensation plans. Had compensation cost for the Company's 1997 Plans been
determined consistent with the fair value approach enumerated in SFAS No. 123,
net loss for the period from November 21, 1995 (inception) to September 30, 1996
and for the years ended September 30, 1997 and 1998 would have been greater by
approximately $0, $52,000 and $193,000, respectively. The fair value of each
option is estimated using the minimum value method with the following
assumptions: a risk-free interest rate of 6.5%; an expected life of four years;
and no dividend yield.
F-21
<PAGE>
NETOBJECTS, INC.
AND SUBSIDIARY
(A MAJORITY OWNED SUBSIDIARY OF IBM)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996, 1997, AND 1998
(INFORMATION AS OF DECEMBER 31, 1998 AND FOR THE THREE-MONTHS
ENDED DECEMBER 31, 1997 AND 1998 IS UNAUDITED)
(7) STOCKHOLDERS' DEFICIT (CONTINUED)
The following table summarizes stock option activity during the year:
<TABLE>
<CAPTION>
PERIOD FROM NOVEMBER 21,
THREE
1995 (INCEPTION) TO YEAR ENDED SEPTEMBER 30, YEAR ENDED SEPTEMBER 30, MONTHS
ENDED
DECEMBER
SEPTEMBER 30, 1996 1997 1998 31, 1998
-------------------------- -------------------------- -------------------------- -----------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
NUMBER OF EXERCISE NUMBER OF EXERCISE NUMBER OF EXERCISE NUMBER OF
SHARES PRICE SHARES PRICE SHARES PRICE SHARES
----------- ------------- ----------- ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Shares under options
outstanding at
beginning of
period............... -- $ -- 738,051 $ 0.12 2,517,670 $ 1.20 2,472,343
Granted................ 1,017,305 0.12 2,251,557 1.08 341,340 2.10 436,081
Exercised.............. (259,254) 0.12 (126,353) 0.12 (144,432) 0.60 (103,030)
Canceled............... -- -- (365,585) 0.48 (242,235) 1.26 (175,819)
----------- ----------- ----------- -----------
Shares under options
outstanding at end of
period............... 758,051 0.12 2,517,670 1.20 2,472,343 1.32 2,629,575
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Shares vested at
period-end........... -- 128,388 852,158 875,081
<CAPTION>
WEIGHTED-
AVERAGE
EXERCISE
PRICE
-------------
<S> <C>
Shares under options
outstanding at
beginning of
period............... $ 1.32
Granted................ 7.44
Exercised.............. 0.72
Canceled............... 1.38
Shares under options
outstanding at end of
period............... 2.38
Shares vested at
period-end...........
</TABLE>
The following table summarizes information about stock options outstanding
as of September 30, 1998:
<TABLE>
<CAPTION>
OUTSTANDING
- ------------------------------------------
WEIGHTED-
AVERAGE
NUMBER REMAINING
OF CONTRACTUAL SHARES
EXERCISE PRICE SHARES LIFE VESTED
- --------------- ----------- ------------ ---------
<S> <C> <C> <C>
$ 0.12 305,942 7.50 years 15,416
0.30 81,948 8.25 37,740
0.60 83,333 8.25 40,036
1.50 1,456,540 8.50 512,265
1.65 225,000 8.50 84,375
2.10 319,577 9.75 12,249
----------- ---------
2,472,340 702,081
----------- ---------
----------- ---------
</TABLE>
(8) SUBSEQUENT EVENTS
On October 8, 1998, the Company entered into Convertible Note and Warrant
Purchase Agreements with IBM and a Series C preferred warrantholder, whereby the
Company may borrow up to $10.9 million, of which $8.3 million was received by
the Company as of December 31, 1998 and the
F-22
<PAGE>
NETOBJECTS, INC.
AND SUBSIDIARY
(A MAJORITY OWNED SUBSIDIARY OF IBM)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996, 1997, AND 1998
(INFORMATION AS OF DECEMBER 31, 1998 AND FOR THE THREE-MONTHS
ENDED DECEMBER 31, 1997 AND 1998 IS UNAUDITED)
(8) SUBSEQUENT EVENTS (CONTINUED)
remaining amount was received in January, 1999. A portion of the proceeds
received has been used to repay $2 million in notes payable due to IBM. The new
notes are due October 8, 2000, have a stated interest rate of 10% per annum, and
are convertible (principal and accrued interest) into Series E-2 preferred stock
at $6.68 per share at any time or automatically upon the completion of an IPO.
The Company has recorded a $3.8 million nonrecurring interest charge during the
three month period ended December 31, 1998 to account for the "in-the-money"
conversion right of the convertible notes.
In connection with the notes, the Company issued warrants to acquire 163,715
shares of Series E-2 preferred stock at an exercise price of $6.68 per share.
The warrants are exercisable at any time before October 8, 2003. The Company
determined the fair value of these warrants using the Black-Scholes pricing
model with the following assumptions: A risk-free interest rate of 6%; an
expected life of five years; volatility of 65%; and no dividend yield. The
resulting discount is being amortized over the term of the convertible note. As
of September 30, 1998, $7.6 million was outstanding under the convertible note,
net of a discount of $700,000.
On October 16, 1998, NetObjects entered into a Stock Purchase Agreement with
a company authorizing the sale and issuance of 333,333 shares of Series F-2
preferred stock at a purchase price of $9.00 per share for an aggregate price of
$3 million. The transaction closed on October 26, 1998. Warrants to acquire
16,666 shares of Series F-2 preferred stock were also issued at an exercise
price of $10.80 and are exercisable between January 1, 2001 and December 31,
2003 only in the event the Company has not completed an IPO prior to December
31, 2000.
On October 28, 1998, NetObjects entered into a Stock Purchase Agreement with
a company authorizing the sale and issuance of 55,555 shares of Series F-2
preferred stock at a purchase price of $9.00 per share, for an aggregate price
of $500,000. The transaction closed on November 10, 1998.
STOCK SPLIT
On December 9, 1998, the Board of Directors authorized a 1-for-6 reverse
split of all the outstanding shares of the Company's preferred and common stock.
Share information has been restated in the accompanying consolidated financial
statements to reflect the reverse stock split for all periods presented.
INITIAL PUBLIC OFFERING (UNAUDITED)
On February 4, 1999, the Board of Directors authorized the filing of a
registration statement with the SEC permitting the Company to sell shares of the
Company's common stock in connection with a proposed IPO. If the offering is
consummated under the terms presently anticipated, all currently outstanding
shares of preferred stock will automatically convert into approximately
F-23
<PAGE>
(8) SUBSEQUENT EVENTS (CONTINUED)
11,965,826 shares of common stock upon the closing of the proposed IPO. The
conversion of the preferred stock has been reflected in the pro forma balance
sheet as of December 31, 1998.
EMPLOYEE STOCK PURCHASE PLAN (UNAUDITED)
The Company's Board of Directors adopted the 1999 Employee Stock Purchase
Plan (the "1999 Purchase Plan") on February 4, 1999. A total of 300,000 shares
of common stock are proposed to be reserved for issuance under the 1999 Purchase
Plan.
IBM LICENSE AGREEMENT (UNAUDITED)
In January 1999 the Company and IBM amended the Master License Agreement as
follows:
- The Special Promotion period was extended to June 30, 1999 and the maximum
number of units to be shipped under the program was increased from 200,000
to 225,000.
- The maximum amount to be paid to the Company in connection with the
services provided to IBM was reduced to approximately $5.3 million, and
the related mark up on the services to be provided was reduced.
F-24
<PAGE>
INSIDE BACK COVER OF PROSPECTUS:
TITLE: BROADENING OUR REACH
INTRO PARAGRAPH:
As business use of the Internet and intranets matures, products alone are
not enough to fulfill customers' needs. We have built popular online resources,
including eFuse.com, that target communities of business users and provide
sources of information, products and services for building business web sites.
We also formed our Professional Services Group in October 1998 to provide
training, consulting and implementation services to our customers deploying
NetObjects Authoring Server.
GRAPHICS: four overlapping screen shots of web sites
CAPTIONS (ONE FOR EACH SCREEN SHOT; CLOCKWISE FROM TOP):
(1) eScriptZone.com: articles, tutorials, software and an online community for
webmasters and web application builders
(2) eFuse.com: integrated content, products, and solutions for small and
medium-sized businesses
(3) netobjects.com: information, products, partner solutions and support
(4) eSiteStore.com: software, components, books, merchandise and online services
<PAGE>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
YOU MAY RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE INFORMATION DIFFERENT FROM THAT CONTAINED IN
THIS PROSPECTUS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR THE SALE OF COMMON
STOCK MEANS THAT INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT AFTER THE
DATE OF THIS PROSPECTUS. THIS PROSPECTUS IS NOT AN OFFER TO SELL OR SOLICITATION
OF AN OFFER TO BUY THESE SHARES OF COMMON STOCK IN ANY CIRCUMSTANCES UNDER WHICH
THE OFFER OR SOLICITATION IS UNLAWFUL.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 8
Use of Proceeds................................ 23
Dividend Policy................................ 23
Capitalization................................. 24
Dilution....................................... 25
Selected Consolidated Financial Data........... 26
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 28
Business....................................... 40
Management..................................... 55
Certain Transactions........................... 62
Principal Stockholders......................... 67
Description of Capital Stock................... 69
Shares Eligible for Future Sale................ 71
Underwriting................................... 73
Legal Matters.................................. 74
Experts........................................ 75
Change in Auditors............................. 75
Additional Information......................... 75
Index to Consolidated Financial Statements..... F-1
</TABLE>
--------------
DEALER PROSPECTUS DELIVERY OBLIGATION:
Until , 1999 (25 days after the date of this Prospectus), all
dealers that buy, sell or trade these shares of 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.
SHARES
[LOGO]
COMMON STOCK
-----------------
P R O S P E C T U S
-----------------
BT ALEX. BROWN
BANCBOSTON ROBERTSON STEPHENS
PIPER JAFFRAY INC.
, 1999
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee............ $ 21,100
NASD Filing Fee................................................ 8,090
Nasdaq National Market Listing Fee............................. 95,000
Legal Fees and Expenses........................................ *
Accountants' Fees and Expenses................................. *
Printing and Engraving Expenses................................ *
Directors' and Officers' Liability Insurance................... *
Transfer Agent and Registrar Fees.............................. 5,000
Miscellaneous Expenses......................................... *
---------
Total........................................................ $ *
---------
---------
</TABLE>
- ------------------------
All expenses other than the Securities and Exchange Commission Registration Fee,
the NASD Filing Fee and the Nasdaq National Market Listing Fee are estimates.
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law (the "DGCL") authorizes
a court to award, or a corporation's board of directors to grant, indemnity to
directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended (the "Securities Act").
As permitted by the DGCL, the Amended and Restated Bylaws of the Registrant
provide that the Registrant shall indemnify its directors and officers, and may
indemnify its employees and other agents, to the fullest extent permitted by
law. The Amended and Restated Bylaws also permit the Registrant to secure
insurance on behalf of any officer, director, employee or other agent for any
liability arising out of his or her actions in such capacity, regardless of
whether the Amended and Restated Bylaws would permit indemnification. The
Registrant has obtained officer and director liability insurance with respect to
liabilities arising out of certain matters, including matters arising under the
Securities Act.
The Registrant also has entered into agreements with its directors and
executive officers that, among other things, indemnify them for certain expenses
(including attorneys' fees), judgments, fines and settlement amounts incurred by
them in any action or proceeding, including any action by or in the right of the
Registrant, arising out of such person's services as a director or officer of
the Registrant, any subsidiary of the Registrant or any other company or
enterprise to which the person provides services at the request of the
Registrant.
Reference is also made to Section 8 of the form of Underwriting Agreement to
be filed as Exhibit 1.1 to this Registration Statement for certain provisions
regarding the indemnification of officers and directors of the Registrant by the
underwriters.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since November 21, 1995, the Registrant has issued and sold unregistered
securities as follows:
(1) An aggregate of 1,583,333 shares of common stock were issued in a
private placement on December 21, 1995 to the Company's founders. The aggregate
consideration received was promissory notes in the aggregate principal amount of
$142,500.
(2) An aggregate of 1,833,332 shares of Series A preferred stock were issued
in a private placement on December 21, 1995 to Studio Archetype (formerly
Clement Mok Designs) and Rae Technology. The aggregate consideration received
was certain technology and intellectual property rights.
(3) An aggregate of 4,466,666 shares of Series B preferred stock were issued
in a private placement on February 2, 1996 to certain accredited investors. The
aggregate consideration received was $5.3 million.
(4) Warrants for the purchase of up to 6,863,426 shares of Series C
preferred stock were issued in a private placement in December 1996 to certain
institutional investors. No consideration was received in connection with the
issuance of such warrants. During 1997 4,612,926 of the Series C preferred stock
warrants were exercised on various dates between December 1996 and March 1997.
The aggregate consideration received was approximately $8.4 million.
(5) A warrant to purchase up to 3,482,838 shares of Series E preferred stock
was issued in a private placement on April 11, 1997 to IBM. The aggregate
consideration received in connection with the issuance of such warrant was
approximately $250,000.
(6) An aggregate of 10,495,968 shares of Series E preferred stock were
issued in a private placement on April 11, 1997 to IBM in exchange for 1,181,388
shares of Series A preferred stock and all outstanding shares of Series B and C
preferred stock.
(7) An aggregate of [406,566] shares of Series E preferred stock were issued
in private placements on various dates between June, 1997 and March, 1998 to the
Company's founders. The aggregate consideration received was approximately $2.7
million.
(8) Warrants to purchase of up to 833,333 shares of Series F preferred
stock, (originally classified as Series D preferred stock) pursuant to an option
agreement made in connection with IBM's acquisition of approximately 80% of our
stock were issued in a private placement on March 12, 1997 to certain accredited
investors. The aggregate consideration received in connection with the issuance
of such warrants was $48,000, net of expenses.
(9) A warrant to purchase up to 83,333 shares of Series F preferred stock
was issued to IBM Credit Corp. in a private placement effective as of December
23, 1997 in connection with a $15 million (subsequently increased to $19
million) loan pursuant to a Revolving Loan and Security Agreement.
(10) Units for the purchase of 10% Senior Subordinated Secured Convertible
Promissory Notes ("Convertible Notes") representing the right to acquire upon
conversion or exercise up to 1,633,538 shares of Series E-2 preferred stock were
issued in a private placement on October 8, 1998 to IBM and Perseus Capital LLC
for an aggregate consideration of $10.9 million, $2.6 million of which was
received from IBM on January 5, 1999. The aggregate consideration received in
connection with the issuance of such warrants was approximately $92,000. In
February 1999, the Company and IBM agreed that the Company has an option to
raise up to $3.45 million from the sale of notes to IBM.
(11) A warrant for the purchase of up to 16,666 shares of Series F-2
preferred stock was issued in a private placement of shares of preferred stock
and warrants for the purchase of preferred stock
II-2
<PAGE>
on October 16, 1998 to Novell, Inc. No additional consideration was received in
connection with the issuance of such warrants.
(12) As of December 31, 1998, an aggregate of 633,069 shares of common stock
had been issued to employees and consultants on exercise of options. The
aggregate consideration received for such shares was $242,000.
No underwriters were engaged in connection with these issuances and sales.
Each of the transactions noted above was made in reliance upon the exemption
from registration provided by either Section 3(b) or 4(2) of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement
3.1 Restated Certificate of Incorporation of the Registrant
3.1.1 Form of Restated Certificate of Incorporation to be in effect at the closing of the offering made
under this Registration Statement
3.2 Bylaws of the Registrant as amended through the date of this Registration Statement
3.2.1 Form of Amended and Restated Bylaws to be in effect upon the closing of the offering made under this
Registration Statement
4.1** Specimen stock certificate
4.2 Form of Series C Preferred Stock Warrant
4.2.1 Amendment to Series C Preferred Stock Warrant
4.3 Form of Series E Preferred Stock Warrant
4.4 Form of Series E-2 Preferred Stock Warrant
4.5 Form of Series F Preferred Stock Warrant
5.1** Opinion of Graham & James LLP
9.1 Voting Agreement between NetObjects, Inc. and International Business Machine Corporation
10.1 NetObjects, Inc. 1997 Stock Option Plan
10.1.1 NetObjects, Inc. Amended and Restated 1997 Stock Option Plan to be in effect upon the closing of the
offering made under this Registration Statement
10.1.2 Form of Stock Option Agreement under the 1997 Stock Option Plan
10.1.3 Form of Restricted Stock Purchase Agreement under the 1997 Stock Option Plan
10.1.4 Form of Restricted Stock Transfer Agreement under the 1997 Stock Option Plan
10.2 NetObjects, Inc. 1997 Special Stock Option Plan
10.3 1999 Employee Stock Purchase Plan
10.4* IBM Software License Agreement (NetObjects License Agreement #L97063) by and between NetObjects and
IBM dated as of March 18, 1997
10.4.1* Amendment Number 1 to NetObjects License Agreement L97063 dated as of April 30, 1997
10.4.2 Second Amendment to NetObjects License Agreement L97063 dated as of October 7, 1997
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
10.4.3* Third Amendment to NetObjects License Agreement L97063 dated as of December 16, 1997
10.4.4* Fourth Amendment to NetObjects License Agreement L97063 dated as of April 27, 1998
10.4.5* Fifth Amendment to NetObjects License Agreement L97063 dated as of January 14, 1999
10.4.6* Amendment No. 6 to NetObjects License Agreement L97063 dated as of September 18, 1998
10.4.7* Seventh Amendment to NetObjects License Agreement L97063 effective January 15, 1999
10.4.8* Eighth Amendment to NetObjects License Agreement L97063 dated September 18, 1998
10.4.9* Amendment No. 9 to NetObjects License Agreement effective January 21, 1999
10.4.10 Amendment No. 10 to NetObjects License Agreement dated as of February 4, 1999
10.4.11* Letter Agreement modifying NetObjects License Agreement L97063 dated as of February 6, 1998
10.4.12* Letter Agreement modifying NetObjects License Agreement L97063 dated as of June 30, 1998
10.4.13* Letter Agreement modifying NetObjects License Agreement L97063 dated as of January 14, 1999
10.5 IBM Patent License Agreement by and between NetObjects and IBM dated as of April 10, 1997
10.6 Lease Agreement by and between NetObjects and Metropolitan Life Insurance Company dated July 24, 1998
10.7 Lease Agreement by and between NetObjects Limited and HQ Executive Offices (UK) LTD dated September
1, 1998
10.8 Revolving Loan and Security Agreement by and between NetObjects, Inc. and IBM Credit Corp. dated as
of December 23, 1997
10.8.1 Amendment to Revolving Loan and Security Agreement dated July 1998
10.9 Note and Warrant Purchase Agreement by and among NetObjects and IBM and Persues dated as of October
8, 1998
10.9.1 Supplement to Note and Warrant Purchase Agreement dated as of February 4, 1999
10.10 Technology Transfer Agreement between Rae Technology, Inc. and NetObjects, Inc. dated February 2,
1996
10.10.1** Amendment to Technology Transfer Agreement by and between Rae Technology and NetObjects dated as of
March 18, 1997
10.11** Patent Transfer and License Agreement by and between Rae Technology LLC and NetObjects, Inc. dated as
of April 10, 1997, as amended
10.12 Technology License Agreement by and between NetObjects and Clement Mok Designs dated as of December
21, 1995
10.13* Distribution Agreement by and between Ingram Micro, Inc. and NetObjects, Inc. dated March 6, 1997
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
10.14* Commercial Application Partner Agreement by and between Sybase, Inc. and NetObjects, Inc. dated June
30, 1997
10.15* Master Distributor Agreement by and between Mitsubishi Corporation and NetObjects, Inc. dated
September 30, 1997
10.16* Standard Inbound License Agreement by and between NetObjects and Novell effective September 30, 1998
10.17* Build-It License Agreement dated as of February 2, 1999
10.18* IBM Trademark License Agreement dated as of January 19, 1999
16.1 Letter from Ernst & Young LLP dated February 5, 1999 regarding change in certifying accountant
21.1 Subsidiaries of the Registrant
23.1 Consent of Graham & James LLP (included in its opinion to be filed as Exhibit 5.1 hereto)
23.2 Consent of KPMG LLP
24.1 Power of Attorney (included in signature page hereto)
27.1 Financial Data Schedule
</TABLE>
- ------------------------
* Confidential treatment requested.
** To be filed by amendment.
(b) FINANCIAL STATEMENT SCHEDULE
<TABLE>
<S> <C>
Independent Auditors' Report on Schedule
Schedule II--Valuation and Qualifying Accounts
</TABLE>
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes to provide to the underwriters,
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be a part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Redwood City, State of
California, on February 5, 1999.
<TABLE>
<S> <C> <C>
NETOBJECTS, INC.
By: /s/ SAMIR ARORA
-----------------------------------------
Samir Arora
CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
Each person whose individual signature appears below hereby authorizes and
appoints Samir Arora and Michael J. Shannahan, and each of them, with full power
of substitution and resubstitution and full power to act without the other, as
his or her true and lawful attorney-in-fact and agent to act in his or her name,
place and stead and to execute in the name and on behalf of each person,
individually and in each capacity stated below, and to file, any and all
amendments to this Registration Statement, including any and all post-effective
amendments and amendments thereto and any registration statement relating to the
same offering as this Registration Statement that is to be effective upon filing
pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing, ratifying and confirming all that said
attorneys-in-fact and agents or any of them or their and his substitute or
substitutes, may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated below on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
Chairman of the Board,
/s/ SAMIR ARORA Chief Executive Officer,
- ------------------------------ President (Principal February 5, 1999
Samir Arora Executive Officer)
/s/ MICHAEL J. SHANNAHAN Chief Financial Officer
- ------------------------------ (Principal Financial and February 5, 1999
Michael J. Shannahan Accounting Officer)
/s/ JOHN SCULLEY
- ------------------------------ Director February 5, 1999
John Sculley
/s/ LEE A. DAYTON
- ------------------------------ Director February 5, 1999
Lee A. Dayton
/s/ MICHAEL D. ZISMAN
- ------------------------------ Director February 5, 1999
Michael D. Zisman
/s/ ROBERT G. ANDEREGG
- ------------------------------ Director February 5, 1999
Robert G. Anderegg
/s/ CHRISTOPHER M. STONE*
- ------------------------------ Director February 5, 1999
Christopher M. Stone
</TABLE>
* Mr. Stone will become a director of our Company on the closing date of the
offering.
II-6
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement
3.1 Restated Certificate of Incorporation of the Registrant
3.1.1 Form of Restated Certificate of Incorporation to be in effect at the closing of the offering made
under this Registration Statement
3.2 Restated Bylaws of the Registrant as amended through the date of this Registration Statement
3.2.1 Form of Amended and Restated Bylaws to be in effect upon the closing of the offering made under this
Registration Statement
4.1** Specimen stock certificate
4.2 Form of Series C Preferred Stock Warrant
4.2.1 Amendment to Series C Preferred Stock Warrant
4.3 Form of Series E Preferred Stock Warrant
4.4 Form of Series E-2 Preferred Stock Warrant
4.5 Form of Series F Preferred Stock Warrant
5.1** Opinion of Graham & James LLP
9.1 Voting Agreement between NetObjects, Inc. and International Business Machine Corporation
10.1 NetObjects, Inc. 1997 Stock Option Plan
10.1.1 NetObjects, Inc. Amended and Restated 1997 Stock Option Plan to be in effect upon the closing of the
offering made under this Registration Statement
10.1.2 Form of Stock Option Agreement under the 1997 Stock Option Plan
10.1.3 Form of Restricted Stock Purchase Agreement under the 1997 Stock Option Plan
10.1.4 Form of Restricted Stock Transfer Agreement under the 1997 Stock Option Plan
10.2 NetObjects, Inc. 1997 Special Stock Option Plan
10.3 1999 Employee Stock Purchase Plan
10.4* IBM Software License Agreement (NetObjects License Agreement #L97063) by and between NetObjects and
IBM dated as of March 18, 1997
10.4.1* Amendment Number 1 to NetObjects License Agreement L97063 dated as of April 30, 1997
10.4.2 Second Amendment to NetObjects License Agreement L97063 dated as of October 7, 1997
10.4.3* Third Amendment to NetObjects License Agreement L97063 dated as of December 16, 1997
10.4.4* Fourth Amendment to NetObjects License Agreement L97063 dated as of April 27, 1998
10.4.5* Fifth Amendment to NetObjects License Agreement L97063 dated as of January 14, 1999
10.4.6* Amendment No. 6 to NetObjects License Agreement L97063 dated as of September 18, 1998
10.4.7* Seventh Amendment to NetObjects License Agreement L97063 effective January 15, 1999
10.4.8* Eighth Amendment to NetObjects License Agreement L97063 dated September 18, 1998
10.4.9* Amendment No. 9 to NetObjects License Agreement effective January 21, 1999
10.4.10 Amendment No. 10 to NetObjects License Agreement dated as of February 4, 1999
10.4.11* Letter Agreement modifying NetObjects License Agreement L97063 dated as of February 6, 1998
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
10.4.12* Letter Agreement modifying NetObjects License Agreement L97063 dated as of June 30, 1998
10.4.13* Letter Agreement modifying NetObjects License Agreement L97063 dated as of January 14, 1999
10.5 IBM Patent License Agreement by and between NetObjects and IBM dated as of April 10, 1997
10.6 Lease Agreement by and between NetObjects and Metropolitan Life Insurance Company dated July 24, 1998
10.7 Lease Agreement by and between NetObjects Limited and HQ Executive Offices (UK) LTD dated September
1, 1998
10.8 Revolving Loan and Security Agreement by and between NetObjects, Inc. and IBM Credit Corp. dated as
of December 23, 1997
10.8.1 Amendment to Revolving Loan and Security Agreement dated July 1998
10.9 Note and Warrant Purchase Agreement by and among NetObjects and IBM and Persues dated as of October
8, 1998
10.9.1 Supplement to Note and Warrant Purchase Agreement dated as of February 4, 1999
10.10 Technology Transfer Agreement between Rae Technology, Inc. and NetObjects, Inc. dated February 2,
1996
10.10.1** Amendment to Technology Transfer Agreement by and between Rae Technology and NetObjects dated as of
March 18, 1997
10.11** Patent Transfer and License Agreement by and between Rae Technology LLC and NetObjects, Inc. dated as
of April 10, 1997, as amended
10.12 Technology License Agreement by and between NetObjects and Clement Mok Designs dated as of December
21, 1995
10.13* Distribution Agreement by and between Ingram Micro, Inc. and NetObjects, Inc. dated March 6, 1997
10.14* Commercial Application Partner Agreement by and between Sybase, Inc. and NetObjects, Inc. dated June
30, 1997
10.15* Master Distributor Agreement by and between Mitsubishi Corporation and NetObjects, Inc. dated
September 30, 1997
10.16* Standard Inbound License Agreement by and between NetObjects and Novell effective September 30, 1998
10.17* Build-It License Agreement dated as of February 2, 1999
10.18* IBM Trademark License Agreement dated as of January 19, 1999
16.1 Letter from Ernst & Young LLP dated February 5, 1999 regarding change in certifying accountant
21.1 Subsidiaries of the Registrant
23.1 Consent of Graham & James LLP (included in its opinion to be filed as Exhibit 5.1 hereto)
23.2 Consent of KPMG LLP
24.1 Power of Attorney (included in signature page hereto)
27.1 Financial Data Schedule
</TABLE>
- ------------------------
* Confidential treatment requested.
** To be filed by amendment.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Net Objects, Inc:
Under date of December 21, 1998, we reported on the consolidated balance
sheets of NetObjects, Inc. and subsidiary as of September 30, 1997 and 1998, and
the related consolidated statements of operations, stockholders' deficit, and
cash flows for the period from November 21, 1995 (inception) to September 30,
1996, and for each of the years in the two-year period ended September 30, 1998,
which are included in the prospectus. In connection with our audits of the
aforementioned consolidated financial statements, we also audited the related
consolidated financial statement schedules in the registration statement. These
financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statement schedules based on our audits.
In our opinion, such financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
The accompanying consolidated financial statement schedules have been
prepared assuming that the Company will continue as a going concern. As
discussed in note 1(d) to the consolidated financial statements, the Company has
suffered recurring losses from operations and has a net capital deficiency that
raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in note 1(d).
The consolidated financial statement schedules do not include any adjustments
that might result from the outcome of this uncertainty.
KPMG LLP
Mountain View, California
December 21, 1998
S-1
<PAGE>
NETOBJECTS, INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS--
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF COSTS AND DEDUCTIONS-- END OF
FISCAL YEAR EXPENSES WRITEOFFS FISCAL YEAR
------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Period from November 21, 1995 (inception)
to September 30, 1996
Allowance for doubtful accounts, returns and price
protection.................................................. -- -- -- --
Year ended September 30, 1997
Allowance for doubtful accounts, returns and price
protection.................................................. -- $ 1,905,810 $ (1,150,228) $ 755,582
Year ended September 30, 1998
Allowance for doubtful accounts, returns and price
protection.................................................. $ 755,582 $ 4,691,000 $ (3,183,475) $ 2,263,107
</TABLE>
S-2
<PAGE>
_______________ Shares
NetObjects, Inc.
Common Stock
($ Par Value)
UNDERWRITING AGREEMENT
_______________, 1999
BT Alex. Brown Incorporated
BancBoston Robertson Stephens
Piper Jaffray Inc.
As Representatives of the
Several Underwriters
c/o BT Alex. Brown Incorporated
One South Street
Baltimore, Maryland 21202
Ladies and Gentlemen:
NetObjects, Inc., a Delaware corporation (the "Company"), proposes to sell
to the several underwriters (the "Underwriters") named in Schedule I hereto for
whom you are acting as Representatives (the "Representatives"), an aggregate of
__________ shares of the Company's Common Stock, $_____ par value (the "Firm
Shares"). The respective amounts of the Firm Shares to be so purchased by the
several Underwriters are set forth opposite their names in Schedule I hereto.
The Company also proposes to sell at the Underwriters' option an aggregate of up
to __________ additional shares of the Company's Common Stock (the "Option
Shares") as set forth below. In addition, International Business Machines
Corp., a New York corporation (the "Principal Stockholder"), is a party to this
Agreement for purposes of Sections 1, 6 and 10 through 14, inclusive.
As the Representatives, you have advised the Company (a) that you are
authorized to enter into this Agreement on behalf of the several Underwriters,
and (b) that the several Underwriters are willing, acting severally and not
jointly, to purchase the numbers of Firm Shares set forth opposite their
respective names in Schedule I, plus their pro rata portion of the Option Shares
if you elect to exercise the over-allotment option in whole or in part for the
<PAGE>
2
accounts of the several Underwriters. The Firm Shares and the Option Shares (to
the extent the aforementioned option is exercised) are herein collectively
called the "Shares."
In consideration of the mutual agreements contained herein and of the
interests of the parties in the transactions contemplated hereby, the parties
hereto agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE PRINCIPAL
STOCKHOLDER.
(a) The Company represents and warrants to each of the Underwriters as
follows:
(i) A registration statement on Form S-1 (File No. 333-______) with
respect to the Shares has been prepared by the Company in conformity with the
requirements of the Securities Act of 1933, as amended (the "Act"), and the
Rules and Regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") thereunder and has been filed with the
Commission. Copies of such registration statement, including any amendments
thereto, the preliminary prospectuses (meeting the requirements of the Rules and
Regulations) contained therein and the exhibits, financial statements and
schedules, as finally amended and revised, have heretofore been delivered by the
Company to you. Such registration statement (as described in the preceding
sentence), together with any registration statement filed by the Company
pursuant to Rule 462(b) of the Act, herein referred to as the "Registration
Statement," which shall be deemed to include all information omitted therefrom
in reliance upon Rule 430A and contained in the Prospectus referred to below,
has become effective under the Act and no post-effective amendment to the
Registration Statement has been filed as of the date of this Agreement.
"Prospectus" means the form of prospectus first filed with the Commission
pursuant to Rule 424(b)(1). Each preliminary prospectus included in the
Registration Statement prior to the time it becomes effective is herein referred
to as a "Preliminary Prospectus."
(ii) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Delaware, with
corporate power and authority to own or lease its properties and conduct its
business as presently conducted and as described in the Registration Statement.
The sole subsidiary of the Company, NetObjects, Ltd. (the "Subsidiary"), has
been duly organized and is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation, with corporate power
and authority to own or lease its properties and conduct its business as
presently conducted and as described in the Registration Statement. The
Subsidiary is the only subsidiary, direct or indirect, of the Company. The
Company and the Subsidiary are duly qualified to transact business in all
jurisdictions in which the conduct of their business requires such qualification
except where the failure to so qualify does not have a material adverse effect
on the condition (financial or other), business, properties, net worth or
results of operations of the Company and the Subsidiary taken as a whole. The
outstanding shares of capital stock of the Subsidiary have been duly authorized
and validly issued, are fully paid and non-assessable and are owned by the
Company free and clear of all liens, encumbrances and equities and claims; and
no options, warrants or other rights to purchase, agreements or other
obligations to issue or other rights to convert any obligations into shares of
capital stock or ownership interests in the Subsidiary are outstanding.
<PAGE>
3
(iii) The outstanding shares of Common Stock of the Company have been
duly authorized and validly issued and are fully paid and non-assessable; the
Shares to be issued and sold to the Underwriters by the Company have been duly
authorized and when issued and paid for as contemplated herein will be validly
issued, fully paid and non-assessable; and no preemptive rights of stockholders
exist with respect to any of the Shares or the issue and sale thereof. Neither
the filing of the Registration Statement nor the offering or sale of the Shares
as contemplated by this Agreement gives rise to any rights, except as described
in the Prospectus (and any amendment or supplement thereto) and other than those
which have been waived or satisfied, for or relating to the registration of any
shares of Common Stock.
(iv) The information set forth under the caption "Capitalization" in
the Prospectus is true and correct. All of the Shares conform to the
description thereof contained in the Registration Statement. The form of
certificates for the Shares conforms to the corporate law of the jurisdiction of
the Company's incorporation.
(v) The Commission has not issued an order preventing or suspending
the use of any Prospectus relating to the proposed offering of the Shares or
instituted proceedings for that purpose. The Registration Statement contains,
and the Prospectus and any amendments or supplements thereto will contain, all
statements which are required to be stated therein by, and will conform to, the
requirements of the Act and the Rules and Regulations. The Registration
Statement and any amendment thereto do not contain, and will not contain, any
untrue statement of a material fact and do not omit, and will not omit, to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading. The Prospectus and any amendments and
supplements thereto do not contain, and will not contain, any untrue statement
of material fact; and do not omit, and will not omit, to state any material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading;
PROVIDED, however, that the Company makes no representations or warranties as to
information contained in or omitted from the Registration Statement or the
Prospectus, or any such amendment or supplement, in reliance upon, and in
conformity with, written information furnished to the Company by or on behalf of
any Underwriter through the Representatives [or by the Principal Stockholder],
specifically for use in the preparation thereof.
(vi) The financial statements of the Company and the Subsidiary,
together with related notes and schedules as set forth in the Registration
Statement, present fairly the financial position and the results of operations
and cash flows of the Company and the Subsidiary, at the indicated dates and for
the indicated periods. Such financial statements and related schedules have
been prepared in accordance with generally accepted accounting principles,
consistently applied throughout the periods involved, except as disclosed
therein, and all adjustments necessary for a fair presentation of results for
such periods have been made. The summary financial and statistical data included
in the Registration Statement
<PAGE>
4
present fairly the information shown therein and such data have been compiled
on a basis consistent with the financial statements presented therein and the
books and records of the Company.
(vii) KPMG 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 Act.
(viii) There is no action, suit, claim or proceeding pending or, to
the knowledge of the Company, threatened against the Company or the Subsidiary
before any court or administrative agency or otherwise which if determined
adversely to the Company or the Subsidiary might result in a material adverse
effect on the condition (financial or other), business, properties, net worth or
results of operations of the Company and the Subsidiary taken as a whole or to
prevent the consummation of the transactions contemplated hereby, except as set
forth in the Registration Statement.
(ix) The Company and the Subsidiary have good and marketable title to
all of the properties and assets reflected in the financial statements (or as
described in the Registration Statement) hereinabove described, subject to no
lien, mortgage, pledge, charge or encumbrance of any kind except those reflected
in such financial statements (or as described in the Registration Statement) or
which are not material in amount. The Company or the Subsidiary occupies their
leased properties under valid and binding leases.
(x) The Company and the Subsidiary have filed all federal, state,
local and foreign tax returns which have been required to be filed and have paid
all taxes indicated by said returns and all assessments received by them or any
of them to the extent that such taxes have become due or are being contested in
good faith and for which an adequate reserve for accrual has been established in
accordance with generally accepted accounting principles. All tax liabilities
have been adequately provided for in the financial statements of the Company,
and the Company does not know of any actual or proposed additional material tax
assessments.
(xi) Since the respective dates as of which information is given in
the Registration Statement, as it may be amended or supplemented, there has not
been any material adverse change or any development involving a material adverse
effect on the condition (financial or other), business, properties, net worth or
results of operations of the Company and the Subsidiary taken as a whole whether
or not occurring in the ordinary course of business, and there has not been any
material transaction entered into or any material transaction that is probable
of being entered into by the Company or the Subsidiary, other than transactions
in the ordinary course of business and changes and transactions described in the
Registration Statement, as it may be amended or supplemented. The Company and
the Subsidiary have no material contingent obligations which are not disclosed
in the Company's financial statements that are included in the Registration
Statement.
<PAGE>
5
(xii) Neither the Company nor the Subsidiary is, or with the giving of
notice or lapse of time or both will be, in violation of or in default under
its Restated Certificate of Incorporation or Restated 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 is of material significance in respect of the condition, financial or
otherwise, of the Company and the Subsidiary taken as a whole or the business,
management, properties, assets, rights, operations, condition (financial or
otherwise) or prospects of the Company and the Subsidiary taken as a whole. The
execution and delivery of this Agreement and the consummation of the
transactions herein contemplated and the fulfillment of the terms hereof will
not conflict with or result in a breach of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of trust or other
agreement or instrument to which the Company or the Subsidiary is a party, or of
the Restated Certificate of Incorporation or Restated Bylaws of the Company or
any order, rule or regulation applicable to the Company or the Subsidiary of any
court or of any regulatory body or administrative agency or other governmental
body having jurisdiction.
(xiii) 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 transactions herein
contemplated (except such additional steps as may be required by the Commission,
the National Association of Securities Dealers, Inc. (the "NASD") or such
additional steps as may be necessary to qualify the Shares for public offering
by the Underwriters under state securities or Blue Sky laws) has been obtained
or made and is in full force and effect.
(xiv) The Company and the Subsidiary hold all material licenses,
certificates and permits from governmental authorities which are necessary to
the conduct of their businesses as described in the Registration Statement; and
neither the Company nor the Subsidiary has infringed any patents, patent rights,
trade names, trademarks or copyrights, which infringement is material to the
business, as described in the Registration Statement, of the Company and the
Subsidiary taken as a whole. Except as otherwise disclosed in writing to the
Underwriters, the Company knows of no material infringement by others of
patents, patent rights, trade names, trademarks or copyrights owned by or
licensed to the Company.
(xv) Neither the Company, nor to the Company's knowledge, any of its
affiliates, has taken or may take, directly or indirectly, any action designed
to cause or result in, or which has constituted or which might reasonably be
expected to constitute, the stabilization or manipulation of the price of the
shares of Common Stock to facilitate the sale or resale of the Shares. The
Company acknowledges that the Underwriters may engage in passive market making
transactions in the Shares on The Nasdaq Stock Market in accordance
<PAGE>
6
with Regulation M under the Securities Exchange Act of 1934, as amended (the
"Exchange Act").
(xvi) Neither the Company nor the Subsidiary is an "investment
company" within the meaning of such term under the Investment Company Act of
1940, (as amended, the A1940 Act@) and the rules and regulations of the
Commission thereunder.
(xvii) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are executed
in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(xviii) The Company and the Subsidiary carry, or are covered by,
insurance in such amounts and covering such risks as is adequate for the conduct
of their respective businesses as described in the Registration Statement and
the value of their respective properties and as is customary for companies
engaged in similar industries.
(xix) To the Company=s knowledge, there are no affiliations or
associations between any member of the NASD and any of the Company=s officers,
directors or 5% or greater securityholders, except as set forth in the
Registration Statement.
(xx) The Company and the Subsidiary have implemented procedures to
analyze and address the risk that the computer hardware and software used by
them may be unable to recognize and properly execute date-sensitive functions
involving certain dates after December 31, 1999 (the "Year 2000 Problem"), and
has determined, to the best of its knowledge, that such risk will be remedied on
a timely basis without material expense and will not have a material adverse
effect upon the financial condition and results of operations of the Company and
the Subsidiary, taken as a whole; and the Company believes, after due inquiry,
that each supplier, vendor, customer or financial service organization used or
serviced by the Company and the Subsidiary has remedied or will remedy on a
timely basis the Year 2000 Problem, except to the extent that a failure to
remedy by any such supplier, vendor, customer or financial service organization
would not have a material adverse effect on the Company and the Subsidiary,
taken as a whole.
(b) The Principal Stockholder represents and warrants to each of the
Underwriters as follows:
(i) Without having undertaken to determine independently the accuracy
or completeness of either the representations and warranties of the Company
contained herein
<PAGE>
7
or the information contained in the Registration Statement, except as
provided for in Section 1(b)(ii) and 1(b)(iii) below, the Principal
Stockholder has no reason to believe that the representations and warranties
of the Company contained in this Section 1(a) are not true and correct.
(ii) Each Preliminary Prospectus did not, and the Registration
Statement and the Prospectus and any amendments or supplements thereto, when
they become effective or are filed with the Commission, as the case may be, did
not and 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.
(iii) The information related to the Principal Stockholder, including
information related to the Principal Stockholder set forth under the captions
"Relationship with IBM", "Risk Factors--Dependence on IBM and Potential
Conflicts", "Management's Discussion and Analysis of Financial Condition and
Results of Operation", "Business", "Management", "Certain Transactions" and
"Principal Stockholders" in the Prospectus is complete and accurate in all
material respects, and the Prospectus fairly describes in all material respects
the relationship between the Company and the Principal Stockholder, including
the investment risks associated therewith as described under the caption "Risk
Factors--Dependence on IBM Relationship and Potential Conflicts."
2. PURCHASE, SALE AND DELIVERY OF THE FIRM SHARES.
(a) On the basis of the representations, warranties and covenants
herein contained, and subject to the conditions herein set forth, the Company
agrees to sell to the Underwriters and each Underwriter agrees, severally and
not jointly, to purchase, at a price of $_____ per share, the number of Firm
Shares set forth opposite the name of each Underwriter in Schedule I hereof,
subject to adjustments in accordance with Section 9 hereof.
(b) Payment for the Firm Shares to be sold hereunder is to be made by
wire transfer in Federal (same day) funds against delivery of certificates
therefor to the Representatives for the several accounts of the Underwriters.
Such payment and delivery are to be made through the facilities of the
Depository Trust Company, New York, New York at 10:00 a.m., New York time, on
the third business day after the date of this Agreement or at such other time
and date not later than five business days thereafter as you and the Company
shall agree upon, such time and date being herein referred to as the "Closing
Date." If the Representatives so elect, delivery of the Firm Shares may be made
by credits through full fast transfer to the accounts at the Depositary Trust
Company designated by the Representatives. (As used herein, "business day"
means a day on which the New York Stock Exchange is open for trading and on
which banks in New York are open for business and are not permitted by law or
executive order to be closed.)
<PAGE>
8
(c) In addition, on the basis of the representations and
warranties herein contained and subject to the terms and conditions herein
set forth, the Company hereby grants an option to the several Underwriters to
purchase the Option Shares at the price per share as set forth in the first
paragraph of this Section 2. The option granted hereby may be exercised in
whole or in part by giving written notice (i) at any time before the Closing
Date and (ii) only once thereafter within 30 days after the date of this
Agreement, by you, as Representatives of the several Underwriters, to the
Company setting forth the number of Option Shares as to which the several
Underwriters are exercising the option, the names and denominations in which
the Option Shares are to be registered and the time and date at which such
certificates are to be delivered. The time and date at which the Option
Shares are to be delivered shall be determined by the Representatives but
shall not be earlier than three nor later than 10 full business days after
the exercise of such option, nor in any event prior to the Closing Date (such
time and date being herein referred to as the "Option Closing Date"). If the
date of exercise of the option is three or more days before the Closing Date,
the notice of exercise shall set the Closing Date as the Option Closing Date.
The number of Option Shares to be purchased by each Underwriter shall be in
the same proportion to the total number of Option Shares being purchased as
the number of Firm Shares being purchased by such Underwriter bears to the
total number of Firm Shares purchased by the Underwriters, adjusted by you in
such manner as to avoid fractional shares. The option with respect to the
Option Shares granted hereunder may be exercised only to cover
over-allotments in the sale of the Firm Shares by the Underwriters. You, as
Representatives of the several Underwriters, may cancel such option at any
time prior to its expiration by giving written notice of such cancelation to
the Company. To the extent, if any, that the option is exercised, payment
for the Option Shares shall be made on the Option Closing Date, by wire
transfer, in Federal (same day funds) through the facilities of the
Depository Trust Company in New York, New York drawn to the order of the
Company.
3. OFFERING BY THE UNDERWRITERS.
It is understood that the several Underwriters are to make a public
offering of the Firm Shares as soon as the Representatives deem it advisable to
do so. The Firm Shares are to be initially offered to the public at the initial
public offering price set forth in the Prospectus. The Representatives may from
time to time thereafter change the public offering price and other selling
terms. To the extent, if at all, that any Option Shares are purchased pursuant
to Section 2 hereof, the Underwriters will offer them to the public on the
foregoing terms.
It is further understood that you will act as the Representatives for
the Underwriters in the offering and sale of the Shares in accordance with a
Master Agreement Among Underwriters entered into by you and the several other
Underwriters.
4. COVENANTS OF THE COMPANY.
<PAGE>
9
The Company covenants and agrees with the several Underwriters that:
(a) The Company will (A) use its best efforts to cause the
Registration Statement to become effective or, if the procedure in Rule 430A of
the Rules and Regulations is followed, to prepare and timely file with the
Commission under Rule 424(b) of the Rules and Regulations a Prospectus in a form
approved by the Representatives containing information previously omitted at the
time of effectiveness of the Registration Statement in reliance on Rule 430A of
the Rules and Regulations and (B) not file any amendment to the Registration
Statement or supplement to the Prospectus of which the Representatives shall not
previously have been advised and furnished with a copy or to which the
Representatives shall have reasonably objected in writing or which is not in
compliance with the Rules and Regulations.
(b) The Company will advise the Representatives promptly (A) when the
Registration Statement or any post-effective amendment thereto shall have become
effective, (B) of receipt of any comments from the Commission, (C) of any
request of the Commission for amendment of the Registration Statement or for
supplement to the Prospectus or for any additional information, and (D) of the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement or the use of the Prospectus or of the institution of any
proceedings for that purpose. The Company will use its best efforts to prevent
the issuance of any such stop order preventing or suspending the use of the
Prospectus and to obtain as soon as possible the lifting thereof, if issued.
(c) The Company will cooperate with the Representatives in endeavoring
to qualify the Shares for sale under the securities laws of such jurisdictions
as the Representatives may reasonably have designated in writing and will make
such applications, file such documents, and furnish such information as may be
reasonably required for that purpose, PROVIDED the Company shall not be required
to qualify as a foreign corporation or to file a general consent to service of
process in any jurisdiction where it is not now so qualified or required to file
such a consent. 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 the Representatives may
reasonably request for distribution of the Shares.
(d) The Company will deliver to, or upon the order of, the
Representatives, from time to time, as many copies of any Preliminary Prospectus
as the Representatives may reasonably request. The Company will deliver to, or
upon the order of, the Representatives during the period when delivery of a
Prospectus is required under the Act, as many copies of the Prospectus in final
form, or as thereafter amended or supplemented, as the Representatives may
reasonably request. The Company will deliver to the Representatives at or
before the Closing Date, four signed copies of the Registration Statement and
all amendments thereto including all exhibits filed therewith, and will deliver
to the Representatives such number of copies of the Registration Statement
(including such number
<PAGE>
10
of copies of the exhibits filed therewith that may reasonably be requested),
and of all amendments thereto, as the Representatives may reasonably request.
(e) The Company will comply with the Act and the Rules and
Regulations, and the Exchange Act and the rules and regulations of the
Commission thereunder, so as to permit the completion of the distribution of the
Shares as contemplated in this Agreement and the Prospectus. If during the
period in which a prospectus is required by law to be delivered by an
Underwriter or dealer, any event shall occur as a result of which, in the
judgment of the Company or in the reasonable opinion of the Underwriters, it
becomes necessary to amend or supplement the Prospectus in order to make the
statements therein, in the light of the circumstances existing at the time the
Prospectus is delivered to a purchaser, not misleading, or, if it is necessary
at any time to amend or supplement the Prospectus to comply with any law, the
Company promptly will prepare and file with the Commission an appropriate
amendment to the Registration Statement or supplement to the Prospectus so that
the Prospectus as so amended or supplemented will not, in the light of the
circumstances when it is so delivered, be misleading, or so that the Prospectus
will comply with the law.
(f) The Company will make generally available to its security holders,
as soon as it is practicable to do so, but in any event not later than 15 months
after the effective date of the Registration Statement, an earnings statement
(which need not be audited) in reasonable detail, covering a period of at least
12 consecutive months beginning after the effective date of the Registration
Statement, which earning statement shall satisfy the requirements of Section
11(a) of the Act and Rule 158 of the Rules and Regulations and will advise you
in writing when such statement has been so made available.
(g) Prior to the Closing Date, if available, the Company will furnish
to the Underwriters, as soon as they have been prepared by or are available to
the Company, a copy of any unaudited interim financial statements of the Company
for any period subsequent to the period covered by the most recent financial
statements appearing in the Registration Statement and the Prospectus.
(h) No offering, sale, short sale or other disposition of any shares
of Common Stock of the Company or other securities convertible into or
exchangeable or exercisable for shares of Common Stock or derivative of Common
Stock (or agreement for such) will be made for a period of 180 days after the
date of this Agreement, directly or indirectly, by the Company otherwise than
hereunder or with the prior written consent of BT Alex. Brown Incorporated.
(i) The Company will use its best efforts to list, subject to notice
of issuance, the Shares on the Nasdaq Stock Market.
(j) The Company has caused each officer and director and certain
stockholders of the Company to furnish to you, on or prior to the date of this
agreement, a letter or letters,
<PAGE>
11
in form and substance satisfactory to the Underwriters, pursuant to which
each such person shall agree (the "Lockup Agreements") that, without the
prior written consent of BT Alex. Brown, he or she shall not, directly or
indirectly offer, sell, pledge, contract to sell (including any short sale),
grant any option to purchase or otherwise dispose of any shares of Common
Stock (including, without limitation, Shares which may be deemed to be
beneficially owned on the date hereof in accordance with the rules and
regulations of the Securities and Exchange Commission and shares of Common
Stock which may be issued upon exercise of a stock option or warrant) or
enter into any Hedging Transaction (as defined below) relating to the Shares
(each of the foregoing referred to as a "Disposition") for a period of 180
days after the effective date of the registration statement relating to the
Public Offering (the "Lock-Up Period"). The foregoing restriction is
expressly intended to preclude such person from engaging in any Hedging
Transaction or other transaction which is designed to or reasonably expected
to lead to or result in a Disposition during the Lock-Up Period even if the
securities would be disposed of by someone other than such officer, director
and stockholder. "Hedging Transaction" means any short sale (whether or not
against the box) or any purchase, sale or grant of any right (including,
without limitation, any put or call option) with respect to any security
(other than a broad-based market basket or index) that includes, relates to
or derives any significant part of its value from the Shares.
Notwithstanding the foregoing, such officer, director or stockholder may
transfer any or all of the Shares by gift (including a gift to a "charitable
organization" as described in section 501(c)(3) of the Internal Revenue Code
of 1986, as amended), will or intestacy. Notwithstanding the foregoing, a
stockholder which is a venture capital fund may distribute its Shares to any
of its then-current or former partners. It shall be a condition to any such
permitted transfer by gift, will, or intestacy or distribution by a venture
capital fund that the transferee execute an agreement obliging such person to
hold the transferred Shares subject to the provisions of the Lockup Agreement.
(k) The Company shall apply the net proceeds of its sale of the Shares
as set forth in the Prospectus, including payments to [the Principal Stockholder
and its affiliates] [IBM Credit Corp., a wholly owned subsidiary of the
Principal Stockholder], and shall file such reports with the Commission with
respect to the sale of the Shares and the application of the proceeds therefrom
as may be required in accordance with Rule 463 under the Act.
(l) The Company shall not invest, or otherwise use, the proceeds
received by the Company from its sale of the Shares in such a manner as would
require the Company or the Subsidiary to register as an investment company under
the 1940 Act.
(m) The Company will maintain a transfer agent and, if necessary under
the jurisdiction of incorporation of the Company, a registrar for the Common
Stock.
(n) The Company will not take, directly or indirectly, any action
designed to cause or result in, or that has constituted or might reasonably be
expected to constitute, the stabilization or manipulation of the price of any
securities of the Company.
<PAGE>
12
(o) KPMG LLP shall have reissued their independent auditors' report
on the Company's consolidated financial statements as of September 30, 1997
and 1998 and for the period from November 21, 1995 (inception) to September
30, 1996, and for the two year period ended September 30, 1998. Such report
shall include the explanatory paragraph that states that the Company's
recurring losses and net capital deficiency raise substantial doubt about our
ability to continue as a going concern.
(p) The Company shall deliver all other certificates and documents
reasonably requested by the Underwriters or their counsel.
(q) The Company shall have the Underwriters named as additional
insureds on the directors' and officers liability insurance policy and such
insurance shall remain in effect for three years and two months.
5. COSTS AND EXPENSES.
The Company will pay all costs, expenses and fees incident to the
performance of the obligations of the Company under this Agreement, including,
without limiting the generality of the foregoing, the following: accounting
fees of the Company; the fees and disbursements of counsel for the Company; the
cost of printing and delivering to, or as requested by, the Underwriters copies
of the Registration Statement, Preliminary Prospectuses, the Prospectus, this
Agreement, the Underwriters' Selling Memorandum, the Underwriters' Invitation
Letter, the Listing Application, the Blue Sky Survey and any supplements or
amendments thereto; the filing fees of the Commission; the filing fees and
expenses (including legal fees and disbursements) incident to securing any
required review by the National Association of Securities Dealers, Inc. (the
"NASD") of the terms of the sale of the Shares; the Listing Fee of the Nasdaq
Stock Market; and the expenses, including the fees and disbursements of counsel
for the Underwriters, incurred in connection with the qualification of the
Shares under state securities or Blue Sky laws. The Company agrees to pay all
costs and expenses of the Underwriters incident to the offer and sale of
directed shares of the Common Stock by the Underwriters to employees and persons
having business relationships with the Company and the Subsidiary. The Company
shall not, however, be required to pay for any of the Underwriters' expenses
(other than those related to qualification under NASD regulation and State
securities or Blue Sky laws) except that, if this Agreement shall not be
consummated because the conditions in Section 6 hereof are not satisfied, or
because this Agreement is terminated by the Representatives pursuant to
Section 11 hereof, or by reason of any failure, refusal or inability on the part
of the Company to perform any undertaking or satisfy any condition of this
Agreement or to comply with any of the terms hereof on its part to be performed,
unless such failure to satisfy said condition or to comply with said terms be
due to the default or omission of any Underwriter, then the Company shall
reimburse the several Underwriters for reasonable out-of-pocket expenses,
including fees and disbursements of counsel, reasonably incurred in connection
with investigating, marketing and proposing to market the Shares or in
contemplation of performing their obligations hereunder; but the Company shall
not in any event be liable to any of the several Underwriters for damages on
account of loss of anticipated profits from the sale by them of the Shares.
6. CONDITIONS OF OBLIGATIONS OF THE UNDERWRITERS.
<PAGE>
13
The several obligations of the Underwriters to purchase the Firm
Shares on the Closing Date and the Option Shares, if any, on the Option Closing
Date are subject to the accuracy, as of the Closing Date or the Option Closing
Date, as the case may be, of the representations and warranties of the Company
and the Principal Stockholder contained herein, and to the performance by the
Company of its covenants and obligations hereunder and to the following
additional conditions:
(a) The Registration Statement and all post-effective amendments
thereto shall have become effective and any and all filings required by Rule 424
and Rule 430A of the Rules and Regulations shall have been made, and any request
of the Commission for additional information (to be included in the Registration
Statement or otherwise) shall have been disclosed to the Representatives and
complied with to their reasonable satisfaction. No stop order suspending the
effectiveness of the Registration Statement, as amended from time to time, shall
have been issued and no proceedings for that purpose shall have been taken or,
to the knowledge of the Company, are contemplated by the Commission and no
injunction, restraining order, or order of any nature by a federal or state
court of competent jurisdiction shall have been issued as of the Closing Date
which would prevent the issuance of the Shares.
(b) The Representatives shall have received on the Closing Date or
the Option Closing Date, as the case may be, the opinion of Graham & James LLP,
counsel for the Company, dated the Closing Date or the Option Closing Date, as
the case may be, addressed to the Underwriters (and stating that it may be
relied upon by counsel to the Underwriters) to the effect that:
(i) The Company has been duly organized and is validly existing
as a corporation in good standing under the laws of the State of Delaware,
with corporate power and authority to own or lease its properties and
conduct its business as presently conducted and as described in the
Registration Statement; the Subsidiary has been duly organized and is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, with corporate power and authority to
own or lease its properties and conduct its business as presently conducted
and as described in the Registration Statement; the Company and the
Subsidiary are duly qualified to transact business in all jurisdictions in
which the conduct of their business requires such qualification, or in
which the failure to qualify would have a materially adverse effect upon
the business of the Company and the Subsidiary taken as a whole; and the
outstanding shares of capital stock of the Subsidiary have been duly
authorized and validly issued and are fully paid and non-assessable and are
owned by the Company; and, to the best of such counsel's knowledge, the
outstanding shares of capital stock of the Subsidiary are owned free and
clear of all liens, encumbrances and equities and claims, and no options,
warrants or other rights to purchase, agreements or other obligations to
issue or other rights to convert any obligations into any shares of capital
stock or of ownership interests in the Subsidiary are outstanding.
<PAGE>
14
(ii) The Company has authorized and outstanding capital stock as
set forth under the caption "Capitalization" in the Prospectus; the
authorized shares of the Company's Common Stock have been duly authorized;
the outstanding shares of the Company's Common Stock have been duly
authorized and validly issued and are fully paid and non-assessable; all of
the Shares conform to the description thereof contained in the Prospectus;
the certificates for the Shares, assuming they are in the form filed with
the Commission, are in due and proper form; the shares of Common Stock,
including the Option Shares, if any, to be sold by the Company pursuant to
this Agreement have been duly authorized and will be validly issued, fully
paid and non-assessable when issued and paid for as contemplated by this
Agreement
(iii) Except as described in or contemplated by the Prospectus,
to the knowledge of such counsel, there are no outstanding securities of
the Company convertible or exchangeable into or evidencing the right to
purchase or subscribe for any shares of capital stock of the Company and
there are no outstanding or authorized options, warrants or rights of any
character obligating the Company to issue any shares of its capital stock
or any securities convertible or exchangeable into or evidencing the right
to purchase or subscribe for any shares of such stock; and except as
described in the Prospectus, to the knowledge of such counsel, no holder of
any securities of the Company or any other person has the right,
contractual or otherwise, which has not been satisfied or effectively
waived, to cause the Company to sell or otherwise issue to them, or to
permit them to underwrite the sale of, any of the Shares or the right to
have any Common Shares or other securities of the Company included in the
Registration Statement or the right, as a result of the filing of the
Registration Statement, to require registration under the Act of any shares
of Common Stock or other securities of the Company.
(iv) The Registration Statement has become effective under the
Act and, to the best of the knowledge of such counsel, no stop order
proceedings with respect thereto have been instituted or are pending or
threatened under the Act.
(v) The Registration Statement, the Prospectus and each
amendment or supplement thereto comply as to form in all material respects
with the requirements of the Act and the applicable rules and regulations
thereunder (except that such counsel need express no opinion as to the
financial statements and related schedules therein).
(vi) The statements under the captions "____________,"
"___________," "Description of Capital Stock" and "Shares Eligible for
Future Sale" in the Prospectus, insofar as such statements constitute a
summary of documents referred to therein or matters of law, fairly
summarize in all material respects the information called for with respect
to such documents and matters.
<PAGE>
15
(vii) Such counsel does not know of any contracts or documents
required to be filed as exhibits to the Registration Statement or described
in the Registration Statement or the Prospectus which are not so filed or
described as required, and such contracts and documents as are summarized
in the Registration Statement or the Prospectus are fairly summarized in
all material respects.
(viii) Such counsel knows of no material legal or governmental
proceedings pending or threatened against the Company or the Subsidiary
except as set forth in the Prospectus.
(ix) The execution and delivery of this Agreement and the
consummation of the transactions herein contemplated do not and will not
conflict with or result in a breach of any of the terms or provisions of,
or constitute a default under, the Restated Certificate of Incorporation or
Restated Bylaws of the Company, or any agreement or instrument known to
such counsel to which the Company or the Subsidiary is a party or by which
the Company or the Subsidiary may be bound.
(x) This Agreement has been duly authorized, executed and
delivered by the Company.
(xi) No approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body is necessary in connection with the execution and
delivery of this Agreement and the consummation of the transactions herein
contemplated (other than as may be required by the NASD or as required by
state securities and Blue Sky laws as to which such counsel need express no
opinion) except such as have been obtained or made, specifying the same.
(xii) The Company is not, and will not become, as a result of
the consummation of the transactions contemplated by this Agreement and
application of the net proceeds therefrom as described in the Prospectus,
required to register as an investment company under the 1940 Act.
(xiii) To the knowledge of such counsel and except as described
in the Prospectus (and any amendments or supplement thereto), the Company
and the Subsidiary hold all material licenses, certificates and permits
from governmental authorities which are necessary to the conduct of their
businesses as described in the Registration Statement. To the knowledge of
such counsel and except as described in the Prospectus (and any amendments
or supplement thereto), neither the Company nor the Subsidiary has
infringed any patents, patent rights, trade names, trademarks
<PAGE>
16
or copyrights, which infringement is material to the business of the
Company and the Subsidiary taken as a whole as described int he
Registration Statement.
In rendering such opinion Graham & James LLP may rely as to matters
governed by the laws of states other than Delaware or California or Federal laws
on local counsel in such jurisdictions, PROVIDED that in each case Graham &
James LLP shall state that they believe that they and the Underwriters are
justified in relying on such other counsel. In addition to the matters set
forth above, such opinion shall also include a statement to the effect that
nothing has come to the attention of such counsel which leads them to believe
that (i) the Registration Statement, at the time it became effective under the
Act (but after giving effect to any modifications incorporated therein pursuant
to Rule 430A under the Act) and as of the Closing Date or the Option Closing
Date, as the case may be, contained an 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, and (ii) the Prospectus, or any
supplement thereto, on the date it was filed pursuant to the Rules and
Regulations and as of the Closing Date or the Option Closing Date, as the case
may be, contained an untrue statement of a material fact or omitted to state a
material fact necessary in order to make the statements, in the light of the
circumstances under which they are made, not misleading (except that such
counsel need express no view as to financial statements, schedules and
statistical information therein). With respect to such statement, Graham &
James may state that their belief is based upon the procedures set forth
therein, but is without independent check and verification.
(c) The Representatives shall have received from Cravath, Swaine &
Moore, counsel for the Underwriters, an opinion dated the Closing Date or the
Option Closing Date, as the case may be, substantially to the effect specified
in subparagraphs (ii), (iii), (iv) and (ix) of Paragraph (b) of this Section 6,
and that the Company is a duly organized and validly existing corporation under
the laws of the State of Delaware. In rendering such opinion Cravath, Swaine &
Moore may rely as to all matters governed other than by the laws of the States
of Delaware or New York or Federal laws on the opinion of counsel referred to in
Paragraph (b) of this Section 6. In addition to the matters set forth above,
such opinion shall also include a statement to the effect that nothing has come
to the attention of such counsel which leads them to believe that (i) the
Registration Statement, or any amendment thereto, as of the time it became
effective under the Act (but after giving effect to any modifications
incorporated therein pursuant to Rule 430A under the Act) as of the Closing Date
or the Option Closing Date, as the case may be, contained an 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, and (ii) the
Prospectus, or any supplement thereto, on the date it was filed pursuant to the
Rules and Regulations and as of the Closing Date or the Option Closing Date, as
the case may be, contained an untrue statement of a material fact or omitted to
state a material fact necessary in order to make the statements, in the light of
the circumstances under which they are made, not misleading (except that such
counsel need
<PAGE>
17
express no view as to financial statements, schedules and statistical
information therein). With respect to such statement, Cravath, Swaine &
Moore may state that their belief is based upon the procedures set forth
therein, but is without independent check and verification.
(d) The Representatives shall have received at or prior to the
Closing Date from Cravath, Swaine & Moore a memorandum or summary, in form and
substance satisfactory to the Representatives, with respect to the qualification
for offering and sale by the Underwriters of the Shares under the state
securities or Blue Sky laws of such jurisdictions as the Representatives may
reasonably have designated to the Company.
(e) You shall have received, on each of the dates hereof, the
Closing Date and the Option Closing Date, as the case may be, a letter dated
the date hereof, the Closing Date or the Option Closing Date, as the case may
be, in form and substance satisfactory to you, of KPMG LLP confirming that
they are independent public accountants within the meaning of the Act and the
applicable published Rules and Regulations thereunder and stating that in
their opinion the financial statements and schedules examined by them and
included in the Registration Statement comply in form in all material
respects with the applicable accounting requirements of the Act and the
related published Rules and Regulations; and containing such other statements
and information as is ordinarily included in accountants' "comfort letters"
to Underwriters with respect to the financial statements and certain
financial and statistical information contained in the Registration Statement
and Prospectus, including a report with respect to a review of unaudited
interim financial information of the Company for the eight quarters ended
December 31, 1998 in accordance with Statement on Auditing Standards No. 71.
(f) The Representatives shall have received on the Closing Date or
the Option Closing Date, as the case may be, a certificate or certificates of
the Chief Executive Officer and the Chief Financial Officer of the Company to
the effect that, as of the Closing Date or the Option Closing Date, as the case
may be, each of them severally represents as follows:
(i) The Registration Statement has become effective under the
Act and no stop order suspending the effectiveness of the Registration Statement
has been issued, and no proceedings for such purpose have been taken or are, to
his knowledge, contemplated by the Commission;
(ii) The representations and warranties of the Company contained
in Section 1 hereof are true and correct as of the Closing Date or the Option
Closing Date, as the case may be;
(iii) All filings required to have been made pursuant to Rules
424 or 430A under the Act have been made;
<PAGE>
18
(iv) He or she has carefully examined the Registration Statement
and the Prospectus (and any amendments or supplements thereto) and, in his or
her opinion, as of the effective date of the Registration Statement, the
statements contained in the Registration Statement were true and correct, and
such Registration Statement and Prospectus did not omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein not misleading, and since the effective date of the Registration
Statement, no event has occurred which should have been set forth in a
supplement to or an amendment of the Prospectus which has not been so set forth
in such supplement or amendment; and
(v) Since the respective dates as of which information is given
in the Registration Statement and Prospectus (and any amendments or supplements
thereto), there has not been any material adverse change or any development
involving a prospective material adverse change in or affecting the condition,
financial or otherwise, of the Company and the Subsidiary taken as a whole or
the earnings, business, management, properties, assets, rights, operations,
condition (financial or otherwise) or prospects of the Company and the
Subsidiary taken as a whole, whether or not arising in the ordinary course of
business.
(g) The Company shall have furnished to the Representatives such
further certificates and documents confirming the representations and
warranties, covenants and conditions contained herein and related matters as the
Representatives may reasonably have requested.
(h) The Firm Shares and Option Shares, if any, shall have been
approved for designation upon notice of issuance on the Nasdaq Stock Market.
(i) The Lockup Agreements described in Section 4 (j) shall be in full
force and effect.
If any of the conditions hereinabove provided for in this Section 6
shall not have been fulfilled when and as required by this Agreement to be
fulfilled, the obligations of the Underwriters hereunder may be terminated by
the Representatives by notifying the Company of such termination in writing or
by telegram at or prior to the Closing Date or the Option Closing Date, as the
case may be.
In such event, the Company and the Underwriters shall not be under any
obligation to each other (except to the extent provided in Sections 5 and 8
hereof).
7. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY.
The obligations of the Company to sell and deliver the portion of the
Shares required to be delivered as and when specified in this Agreement are
subject to the conditions that at the Closing Date or the Option Closing Date,
as the case may be, no stop order
<PAGE>
19
suspending the effectiveness of the Registration Statement shall have been
issued and in effect or proceedings therefor initiated or threatened.
8. INDEMNIFICATION.
(a) The Company agrees:
(1) to indemnify and hold harmless each Underwriter and each person,
if any, who controls any Underwriter within the meaning of the Act, against
any losses, claims, damages or liabilities to which such Underwriter or any
such controlling person may become subject under the Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) arise out of or are based upon (i) any
untrue statement or alleged untrue statement of any material fact contained
in the Registration Statement, any Preliminary Prospectus, the Prospectus
or any amendment or supplement thereto, (ii) the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or (iii) any
alleged act or failure to act by any Underwriter in connection with, or
relating in any manner to, the Shares or the offering contemplated hereby,
and which is included as part of or referred to in any loss, claim, damage,
liability or action arising out of or based upon matters covered by clause
(i) or (ii) above (PROVIDED, that the Company shall not be liable under
this clause (iii) to the extent that it is determined in a final judgment
by a court of competent jurisdiction that such loss, claim, damage,
liability or action resulted directly from any such acts or failures to act
undertaken or omitted to be taken by such Underwriter through its gross
negligence or willful misconduct); PROVIDED, however, that the Company will
not be liable in any such case to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement, or omission or alleged omission made in the
Registration Statement, any Preliminary Prospectus, the Prospectus, or such
amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by or through the Representatives
specifically for use in the preparation thereof.
(2) to reimburse each Underwriter and each such controlling person
upon demand for any legal or other out-of-pocket expenses reasonably
incurred by such Underwriter or such controlling person in connection with
investigating or defending any such loss, claim, damage or liability,
action or proceeding or in responding to a subpoena or governmental inquiry
related to the offering of the Shares, whether or not such Underwriter or
controlling person is a party to any action or proceeding. In the event
that it is finally judicially determined that the Underwriters were not
entitled to receive payments for legal and other expenses pursuant to this
subparagraph, the Underwriters will promptly return all sums that had been
advanced pursuant hereto.
<PAGE>
20
(b) Each Underwriter severally and not jointly will indemnify and
hold harmless the Company, each of its directors and each of its officers who
have signed the Registration Statement, and each person, if any, who controls
the Company within the meaning of the Act, against any losses, claims, damages
or liabilities to which the Company, or any such director, officer, or
controlling person may become subject under the Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions or proceedings in
respect thereof) arise out of or are based upon (i) any untrue statement or
alleged untrue statement of any material fact contained in the Registration
Statement, any Preliminary Prospectus, the Prospectus or any amendment or
supplement thereto, or (ii) the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances under which
they were made; and will reimburse any legal or other expenses reasonably
incurred by the Company, or any such director, officer, or controlling person
upon demand in connection with investigating or defending any such loss, claim,
damage, liability, action or proceeding; PROVIDED, however, that each
Underwriter will be liable in each case to the extent, but only to the extent,
that such untrue statement or alleged untrue statement or omission or alleged
omission has been made in the Registration Statement, any Preliminary
Prospectus, the Prospectus or such amendment or supplement, in reliance upon and
in conformity with written information furnished to the Company by or through
the Representatives specifically for use in the preparation thereof. This
indemnity agreement will be in addition to any liability which such Underwriter
may otherwise have.
(c) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to this Section 8, such person (the "indemnified party") shall
promptly notify the person against whom such indemnity may be sought (the
"indemnifying party") in writing. No indemnification provided for in Section
8(a) or (b) shall be available to any party who shall fail to give notice as
provided in this Section 8(c) if the party to whom notice was not given was
unaware of the proceeding to which such notice would have related and was
materially prejudiced by the failure to give such notice, but the failure to
give such notice shall not relieve the 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 the provisions of Section 8(a) or (b). In case any
such proceeding shall be brought against any indemnified party and it shall
notify the indemnifying party of the commencement thereof, the indemnifying
party shall be entitled to participate therein and, to the extent that it shall
wish, jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel reasonably satisfactory to such indemnified
party and shall pay as incurred the fees and disbursements of such counsel
related to such proceeding. In any such proceeding, any indemnified party shall
have the right to retain its own counsel at its own expense. Notwithstanding
the foregoing, the indemnifying party shall pay as incurred (or within 30 days
of presentation) the fees and expenses of the counsel retained by the
indemnified party in the event (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel, (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and
<PAGE>
21
representation of both parties by the same counsel would beinappropriate due
to actual or potential differing interests between them or (iii) the
indemnifying party shall have failed to assume the defense and employ counsel
reasonably satisfactory to the indemnified party within a reasonable period
of time after notice of commencement of the action. It is understood that
the indemnifying party shall not, in connection with any proceeding or
related proceedings in the same jurisdiction, be liable for the reasonable
fees and expenses of more than one separate firm for all such indemnified
parties. Such firm shall be designated in writing by BT Alex. Brown
Incorporated in the case of parties indemnified pursuant to Section 8(a),
and by the Company in the case of parties indemnified pursuant to Section
8(b). The indemnifying party shall not be liable for any settlement of any
proceeding effected without its written consent but if settled with such
consent or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party from and against any loss or
liability by reason of such settlement or judgment. In addition, the
indemnifying party will not, without the prior written consent of the
indemnified party, settle or compromise or consent to the entry of any
judgment in any pending or threatened claim, action or proceeding of which
indemnification may be sought hereunder (whether or not any indemnified party
is an actual or potential party to such claim, action or proceeding) unless
such settlement, compromise or consent includes an unconditional release of
each indemnified party from all liability arising out of such claim, action
or proceeding.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
Section 8(a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to therein,
then each indemnifying party shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) in such proportion as
is appropriate to reflect the relative benefits received by the Company on the
one hand and the Underwriters on the other from the offering of the Shares. If,
however, the allocation provided by the immediately preceding sentence is not
permitted by applicable law, then each indemnifying party shall contribute to
such amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company on the one hand and the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities, (or actions or proceedings in respect thereof),
as well as any other relevant equitable considerations. The relative benefits
received by the Company on the one hand and the Underwriters on the other shall
be deemed to be in the same proportion as the total net proceeds from the
offering (before deducting expenses) received by the Company bear to the total
underwriting discounts and commissions received by the Underwriters, in each
case as set forth in the table on the cover page of the Prospectus. The
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 the
Company on the one hand or the Underwriters on the other
<PAGE>
22
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
The Company and the Underwriters agree that it would not be just and
equitable if contributions pursuant to this Section 8(d) were 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 account of the
equitable considerations referred to above in this Section 8(d). The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) referred
to above in this Section 8(d) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection (d), (i) no Underwriter shall be required to
contribute any amount in excess of the underwriting discounts and commissions
applicable to the Shares purchased by such Underwriter and (ii) no person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations in this Section
8(d) to contribute are several in proportion to their respective underwriting
obligations and not joint.
(e) In any proceeding relating to the Registration Statement, any
Preliminary Prospectus, the Prospectus or any supplement or amendment thereto,
each party against whom contribution may be sought under this Section 8 hereby
consents to the jurisdiction of any court having jurisdiction over any other
contributing party, agrees that process issuing from such court may be served
upon him or it by any other contributing party and consents to the service of
such process and agrees that any other contributing party may join him or it as
an additional defendant in any such proceeding in which such other contributing
party is a party.
(f) Any losses, claims, damages, liabilities or expenses for which an
indemnified party is entitled to indemnification or contribution under this
Section 8 shall be paid by the indemnifying party to the indemnified party as
such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 8 and the
representations and warranties of the Company set forth in this Agreement shall
remain operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter, the Company, its directors or officers or any persons
controlling the Company, (ii) acceptance of any Shares and payment therefor
hereunder, and (iii) any termination of this Agreement. A successor to any
Underwriter, or to the Company, its directors or officers, or any person
controlling the Company, shall be entitled to the benefits of the indemnity,
contribution and reimbursement agreements contained in this Section 8.
9. DEFAULT BY UNDERWRITERS.
<PAGE>
23
If on the Closing Date or the Option Closing Date, as the case may be,
any Underwriter shall fail to purchase and pay for the portion of the Shares
which such Underwriter has agreed to purchase and pay for on such date
(otherwise than by reason of any default on the part of the Company), you, as
Representatives of the Underwriters, shall use your reasonable efforts to
procure within 36 hours thereafter one or more of the other Underwriters, or any
others, to purchase from the Company such amounts as may be agreed upon and upon
the terms set forth herein, the Firm Shares or Option Shares, as the case may
be, which the defaulting Underwriter or Underwriters failed to purchase. If
during such 36 hours you, as such Representatives, shall not have procured such
other Underwriters, or any others, to purchase the Firm Shares or Option Shares,
as the case may be, agreed to be purchased by the defaulting Underwriter or
Underwriters, then (a) if the aggregate number of shares with respect to which
such default shall occur does not exceed 10% of the Firm Shares or Option
Shares, as the case may be, covered hereby, the other Underwriters shall be
obligated, severally, in proportion to the respective numbers of Firm Shares or
Option Shares, as the case may be, which they are obligated to purchase
hereunder, to purchase the Firm Shares or Option Shares, as the case may be,
which such defaulting Underwriter or Underwriters failed to purchase, or (b) if
the aggregate number of shares of Firm Shares or Option Shares, as the case may
be, with respect to which such default shall occur exceeds 10% of the Firm
Shares or Option Shares, as the case may be, covered hereby, the Company or you
as the Representatives of the Underwriters will have the right, by written
notice given within the next 36-hour period to the parties to this Agreement, to
terminate this Agreement without liability on the part of the non-defaulting
Underwriters or of the Company except to the extent provided in Section 8
hereof. In the event of a default by any Underwriter or Underwriters, as set
forth in this Section 9, the Closing Date or Option Closing Date, as the case
may be, may be postponed for such period, not exceeding seven days, as you, as
Representatives, and the Company may determine in order that the required
changes in the Registration Statement or in the Prospectus or in any other
documents or arrangements may be effected. The term "Underwriter" includes any
person substituted for a defaulting Underwriter. Any action taken under this
Section 9 shall not relieve any defaulting Underwriter from liability in respect
of any default of such Underwriter under this Agreement.
10. NOTICES.
All communications hereunder shall be in writing and, except as
otherwise provided herein, will be mailed, delivered, telecopied or telegraphed
and confirmed as follows: if to the Underwriters, to BT Alex. Brown
Incorporated, One South Street, Baltimore, Maryland 21202, Attention: Daniel E.
McIntyre; with a copy to BT Alex. Brown Incorporated, One Bankers Trust Plaza,
130 Liberty Street, New York, New York 10006, Attention: General Counsel; if to
the Company, to NetObjects, Inc., 301 Galveston Drive, Redwood City, California
94063, Attention: General Counsel; if to the Principal Stockholder, to
International Business Machines Corp., New Orchard Road, Armonk, New York 10504,
Attention: Archie W. Colburn, Corp. Development Executive and Andrew Bonzani,
Senior Counsel.
<PAGE>
24
11. TERMINATION.
(a) This Agreement may be terminated by you by notice to the Company
at any time prior to the Closing Date if any of the following has occurred: (i)
since the respective dates as of which information is given in the Registration
Statement and the Prospectus, any material adverse change or any development
involving a prospective material adverse change in or affecting the condition,
financial or otherwise, of the Company and the Subsidiary taken as a whole or
the earnings, business, management, properties, assets, rights, operations,
condition (financial or otherwise) or prospects of the Company and the
Subsidiary taken as a whole, whether or not arising in the ordinary course of
business, (ii) any outbreak or escalation of hostilities or declaration of war
or national emergency or other national or international calamity or crisis or
change in economic or political conditions if the effect of such outbreak,
escalation, declaration, emergency, calamity, crisis or change on the financial
markets of the United States would, in your reasonable judgment, make it
impracticable or inadvisable to market the Shares or to enforce contracts for
the sale of the Shares, or (iii) suspension of trading in securities generally
on the New York Stock Exchange or the American Stock Exchange or limitation on
prices (other than limitations on hours or numbers of days of trading) for
securities on either such Exchange, (iv) the enactment, publication, decree or
other promulgation of any statute, regulation, rule or order of any court or
other governmental authority which in your opinion materially and adversely
affects or may materially and adversely affect the business or operations of the
Company, (v) declaration of a banking moratorium by United States or New York
State authorities, (vi) the suspension of trading of the Company's common stock
by the Nasdaq Stock Market, the Commission, or any other governmental authority
or (vii) the taking of any action by any governmental body or agency in respect
of its monetary or fiscal affais which in your reasonable opinion has a material
adverse effect on the securities markets in the United States; or (b) as
provided in Sections 6 and 9 of this Agreement.
12. SUCCESSORS.
This Agreement has been and is made solely for the benefit of the
Underwriters, the Company and the Principal Stockholder and their respective
successors, executors, administrators, heirs and assigns, and the officers,
directors and controlling persons referred to herein, and no other person will
have any right or obligation hereunder. No purchaser of any of the Shares from
any Underwriter shall be deemed a successor or assign merely because of such
purchase.
13. INFORMATION PROVIDED BY UNDERWRITERS.
The Company and the Underwriters acknowledge and agree that the only
information furnished or to be furnished by any Underwriter to the Company for
inclusion in any Prospectus or the Registration Statement consists of the
information set forth in the last
<PAGE>
25
paragraph on the front cover page (insofar as such information relates to the
Underwriters), legends required by Item 502(d) of Regulation S-K under the
Act and the information under the caption "Underwriting" in the Prospectus.
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 its directors or officers and (c) delivery of and payment for the Shares
under this Agreement.
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 Maryland.
<PAGE>
26
If the foregoing letter is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Company, the Principal
Stockholder as to Sections 1, 6 and 10 through 14, inclusive, and the several
Underwriters in accordance with its terms.
Very truly yours,
NETOBJECTS, INC.
By:
-------------------------------------
Name:
Title:
INTERNATIONAL BUSINESS MACHINES CORP.
By:
-------------------------------------
Name:
Title:
<PAGE>
27
The foregoing Underwriting Agreement
is hereby confirmed and accepted as
of the date first above written.
BT ALEX. BROWN INCORPORATED
BANCBOSTON ROBERTSON STEPHENS
PIPER JAFFRAY INC.
- -------------------------------------
As Representatives of the several
Underwriters listed on Schedule I
By: BT ALEX. BROWN INCORPORATED
By:
----------------------------------
Authorized Officer
<PAGE>
28
SCHEDULE I
SCHEDULE OF UNDERWRITERS
<TABLE>
<CAPTION>
Number of Firm Shares
Underwriter to be Purchased
----------- ---------------------
<S> <C>
BT Alex. Brown Incorporated ..............
BancBoston Robertson Stephens ............
Piper Jaffray Inc. .......................
---------
Total
---------
</TABLE>
<PAGE>
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
NetObjects, Inc., a corporation organized and existing under the laws of
the State of Delaware, hereby certifies as follows:
1. The name of the corporation is NetObjects, Inc. NetObjects, Inc. was
originally incorporated under the same name, and the original Certificate of
Incorporation of the corporation was filed with the Secretary of the State of
Delaware on November 21, 1995.
2. Pursuant to Section 245 of the General Corporation Law of the State
of Delaware, this Restated Certificate of Incorporation merely restates and
integrates the provisions of the Certificate of Incorporation of this
corporation.
3. The text of the Restated Certificate of Incorporation as heretofore
amended or supplemented is hereby restated and integrated to read in its
entirety as set forth in Appendix I attached hereto.
IN WITNESS WHEREOF, this Restated Certificate of Incorporation has been
signed by its President and attested to by its Secretary on December 14, 1998.
/s/ Samir Arora
----------------------------
Samir Arora, President
/s/ Alan B. Kalin
- ----------------------------
Alan B. Kalin, Secretary
<PAGE>
APPENDIX I
RESTATED CERTIFICATE OF INCORPORATION
of
NETOBJECTS, INC.
ARTICLE I
CORPORATE NAME
The name of the corporation is NetObjects, Inc. (the "CORPORATION").
ARTICLE II
REGISTERED OFFICE
The address of the Corporation's registered office in the State of
Delaware is: 1013 Centre Road, City of Wilmington, County of New Castle. The
name of its registered agent at such address is The Prentice-Hall Corporation
System, Inc.
ARTICLE III
CORPORATE PURPOSE
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General
Corporation Law of the State of Delaware (the "DGCL").
ARTICLE IV
CAPITAL STOCK
SECTION 1. CLASSES OF STOCK. The Corporation is authorized to issue
two classes of stock, designated "COMMON STOCK" and "PREFERRED STOCK,"
respectively. The total number of shares of Common Stock, par value
$0.00000001 per share, the Corporation shall have authority to issue is
200,000,000, and the total number of shares of Preferred Stock, par value
$0.00000001 per share, the Corporation shall have authority to issue is
136,898,000. 4,500,000 shares of Preferred Stock shall be designated Series
A Preferred Stock (the "SERIES A PREFERRED STOCK"), 198,000 shares of
Preferred Stock shall be designated Series B Preferred Stock (the "SERIES B
PREFERRED STOCK"), 17,000,000 shares of Preferred Stock shall be designated
Series C Preferred Stock (the "SERIES C PREFERRED STOCK"), 90,200,000 shares
of Preferred Stock shall be designated Series E Preferred Stock (the "SERIES
E PREFERRED STOCK"), 12,000,000 shares of Preferred Stock shall be designated
Series E-2
<PAGE>
Preferred Stock (the "SERIES E-2 PREFERRED STOCK") which shall be issued only
upon conversion of Senior Subordinated Secured Convertible Promissory Notes
("Senior Notes") or exercise of the Warrants issued pursuant to the Note and
Warrant Purchase Agreement dated as of October 8, 1998 (the "Note and Warrant
Purchase Agreement"), 5,500,000 shares of Preferred Stock shall be designated
Series F Preferred Stock (the "SERIES F PREFERRED STOCK"), and 2,500,000
shares of Preferred Stock shall be designated Series F-2 Preferred Stock (the
"SERIES F-2 PREFERRED STOCK"). Each series of Preferred Stock is referred to
herein as a "SERIES". In addition, the Board of Directors is authorized,
subject to limitations prescribed by law and the provisions of this Article
IV, to provide for the issuance of the shares of Preferred Stock in one or
more new Series (each, a "NEW SERIES"), to establish from time to time the
number of shares to be included in each such Series by filing a certificate
pursuant to the applicable law of the State of Delaware and to fix the
designation, powers, preferences and rights of the shares of each such Series
and the qualifications, limitations, or restrictions thereof.
The authority of the Board of Directors with respect to each Series
shall include, but not be limited to, determination of the following:
(i) the number of shares constituting that Series and the
distinctive designation of that Series;
(ii) the dividend rate on the shares of that Series, whether
dividends shall be cumulative, and, if so, from which date or dates, and the
relative rights of priority, if any, of payment of dividends on shares of
that Series;
(iii) whether that Series shall have voting rights, in
addition to the voting rights provided by law, and, if so, the terms of such
voting rights;
(iv) whether that Series shall have conversion privileges,
and, if so, the terms and conditions of such conversion, including provision
for adjustment of the conversion rate in such events as the Board of
Directors shall determine;
(v) whether or not the shares of that Series shall be
redeemable, and, if so, the terms and conditions of such redemption,
including the date or dates upon or after which they shall be redeemable, and
the amount per share payable in case of redemption, which amount may vary
under different conditions and at different redemption dates;
(vi) whether that Series shall have a sinking fund for the
redemption or purchase of shares of that Series, and, if so, the terms and
amount of such sinking fund;
2
<PAGE>
(vii) the rights of the shares of that Series in the event of
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, and the relative rights of priority, if any, of payment of
shares of that Series;
(viii) how the relative rights, preferences and limitations of
that Series will apply and relate to the provisions set forth in Article V
with respect to the other Series of Preferred Stock (including, without
limitation, how the ranking, dividend payment priority, liquidation
preference priority and conversion provisions will operate after giving
effect to the issuance of shares of that Series); and
(ix) any other relative rights, preferences and limitations
of that Series.
SECTION 2. RESERVATION OF SHARES. (a) The Corporation shall at all
times reserve and keep available, free and clear of preemptive and
subscription rights, out of its authorized but unissued shares of Common
Stock the full number of shares deliverable upon the conversion of all
outstanding shares of Preferred Stock. For this purpose, the number of shares
of Common Stock deliverable upon conversion of all outstanding shares of
Preferred Stock shall be computed as if at the time of computation all shares
outstanding were held by a single holder.
(b) If at any time the number of shares of Common Stock or
Preferred Stock reserved hereunder is insufficient to effect the issuances
and conversions referred to in this Section, the Corporation will take such
corporate action as is necessary to increase its authorized but unissued
shares of Common Stock and Preferred Stock to such number of shares as shall
be sufficient for such purposes.
(c) The number of shares reserved pursuant to this Section shall
be adjusted proportionately for stock splits, stock combinations and stock
dividends. The number of shares reserved pursuant to this Section shall also
be adjusted for any dilutive event for which an adjustment to the Series A
Conversion Price, the Series B Conversion Price, the Series C Conversion
Price, the Series E Conversion Price, the Series E-2 Conversion Price, the
Series F Conversion Price, or the Series F-2 Conversion Price is made in
Article V.
ARTICLE V
PREFERRED STOCK
SECTION 1. RANK. The Preferred Stock shall, with respect to dividend
rights and rights on liquidation, dissolution or winding up, rank prior to
the Common Stock and to any other capital stock of the Corporation.
3
<PAGE>
SECTION 2. DIVIDENDS. Holders of Preferred Stock shall be entitled to
receive dividends, out of any funds legally available therefor, prior and in
preference to any declaration or payment of any dividend on the Common Stock,
at the per annum rate of (t) $0.15 per share of Series A Preferred Stock, (u)
$0.016 per share of Series B Preferred Stock, (v) $0.024 per share of Series
C Preferred Stock, (w) $0.089 per share of Series E Preferred Stock, (x)
$0.089 per share of Series E-2 Preferred Stock, (y) $0.144 per share of
Series F Preferred Stock, and (z) $0.144 per share of Series F-2 Preferred
Stock, when and as declared with respect to each Series of Preferred Stock by
the Board of Directors. The right to such dividends shall not be cumulative,
and no right shall accrue to holders of Preferred Stock by reason of the fact
that dividends on such shares are not declared or paid in any prior year. In
the event that any dividend is declared at less than the full rates provided
herein, or if, on any dividend payment date, the Corporation does not have
funds legally available to pay such dividend at the full rates provided
herein, then on such dividend payment date dividends shall be paid FIRST, on
all outstanding shares of Series E Preferred Stock, Series E-2 Preferred
Stock and Series C Preferred Stock, pro rata based on the applicable
foregoing dividend rates to the extent such dividends have been declared or
funds are legally available therefor, SECOND, on all outstanding shares of
Series B Preferred Stock, pro rata based on the applicable foregoing dividend
rate to the extent such dividend has been declared or funds are legally
available therefor, THIRD, on all outstanding shares of Series A Preferred
Stock, pro rata based on the applicable foregoing dividend rate to the extent
such dividend has been declared or funds are legally available therefor,
FOURTH, on all outstanding shares of Series F, pro rata based on the
applicable foregoing dividend rate to the extent such dividend has been
declared or funds are legally available therefor, and FIFTH, on all
outstanding shares of Series F-2, pro rata based on the applicable foregoing
dividend rate to the extent such dividend has been declared or funds are
legally available therefor.
SECTION 3. LIQUIDATION. (a) The Preferred Stock shall rank prior to
the Common Stock and the shares of any other class of capital stock of the
Corporation, so that in the event of any liquidation, dissolution or winding
up of the Corporation, whether voluntary or involuntary, the holders of the
Preferred Stock shall be entitled to receive out of the assets of the
Corporation available for distribution to its stockholders, whether from
capital, surplus or earnings, before any distribution is made to holders of
Common Stock or shares of any other such junior stock, an amount equal to the
Liquidation Preference.
(b) The Series A Preferred Stock shall be entitled to a
liquidation preference equal to the sum of (A) $0.15 per share plus (B) an
amount per share equal to 8% per annum on the amount in clause (A) calculated
from the Original Issue Date of the Series A Preferred Stock through the
Liquidation Date (the "SERIES A LIQUIDATION PREFERENCE"). The Series B
Preferred Stock shall be entitled to a liquidation preference equal to the
sum of (A) $0.20
4
<PAGE>
per share plus (B) an amount per share equal to 8% per annum on the amount in
clause (A) calculated from the Original Issue Date of the Series B Preferred
Stock through the Liquidation Date (the "SERIES B LIQUIDATION PREFERENCE").
The Series C Preferred Stock shall be entitled to a liquidation preference
equal to the sum of (a) $0.3035413 per share plus (B) an amount per share
equal to 8% per annum on the amount in clause (A) calculated from the
Original Issue Date of the Series C Preferred Stock through the Liquidation
Date (the "SERIES C LIQUIDATION PREFERENCE"). The Series E Preferred Stock
shall be entitled to a liquidation preference equal to the sum of (A)
$1.1131258 per share plus (B) an amount per share equal to 8% per annum on
the amount in clause (A) calculated from the Original Issue Date of the
Series E Preferred Stock through the Liquidation Date (the "SERIES E
LIQUIDATION PREFERENCE"). The Series E-2 Preferred Stock shall be entitled
to a liquidation preference equal to the sum of (A) $1.1131258 per share
plus (B) an amount per share equal to 8% per annum on the amount in clause
(A) from the Original Issue Date of the Series E-2 Preferred Stock through
the Liquidation Date (the "SERIES E-2 LIQUIDATION PREFERENCE"). The Series F
Preferred Stock shall be entitled to a liquidation preference equal to the
sum of (A) $1.80 per share plus (B) an amount per share equal to 8% per annum
on the amount in clause (A) calculated from the Original Issue Date of the
Series F Preferred Stock through the Liquidation Date (the "SERIES F
LIQUIDATION PREFERENCE"). The Series F-2 Preferred Stock shall be entitled to
a liquidation preference equal to the sum of (A) $1.50 per share plus (B) an
amount per share equal to 8% per annum on the amount in clause (A) calculated
from the Original Issue Date of the Series F-2 Preferred Stock through the
Liquidation Date (the "SERIES F-2 LIQUIDATION PREFERENCE"). The Series A
Liquidation Preference, the Series B Liquidation Preference, the Series C
Liquidation Preference, the Series E Liquidation Preference, the Series E-2
Liquidation Preference, the Series F Liquidation Preference, and the Series
F-2 Liquidation Preference are collectively referred to herein as the
"LIQUIDATION PREFERENCE"). As used herein, the "ORIGINAL ISSUE DATE" with
respect to any Series of Preferred Stock shall mean the first date as of
which the Corporation issues any shares of the series of Preferred Stock and
THE "LIQUIDATION DATE" shall mean the date of effectiveness of a certificate
of dissolution under Section 275(f) of the DGCL or upon the effective date of
any Control Transaction treated as a liquidation, dissolution or winding up
pursuant to Section 3(e). The Series A Liquidation Preference, the Series B
Liquidation Preference, the Series C Liquidation Preference, the Series E
Liquidation Preference, the Series E-2 Liquidation Preference, the Series F
Liquidation Preference, and the Series F-2 Liquidation Preference shall be
adjusted for any combinations, consolidations or stock contributions or
dividends with respect to such shares and shall be increased by an amount per
share equal to all dividends declared and unpaid on the Preferred Stock to
the date of the final distribution (in the case of the Series E-2 Liquidation
Preference, such adjustments shall be made with respect to any of the
foregoing events that occur on or after September 30, 1998 even if no shares
of Series E-2 Preferred Stock had been issued as of the date of such event).
5
<PAGE>
(c) In the event that the assets of the Corporation are
insufficient to pay the full Liquidation Preference, the assets available for
distribution shall be allocated first among the holders of the Series E
Preferred Stock and the Series E-2 Preferred Stock in the ratio that the
aggregate liquidation preference attributable to each respective series
(based on shares outstanding) bears to their aggregate Liquidation
Preference. After the Series E Liquidation Preference and the Series E-2
Liquidation Preference shall have been paid in full, the remaining assets
available for distribution shall be allocated among the holders of the Series
B Preferred Stock and the Series C Preferred Stock in the ratio that the
aggregate liquidation preference attributable to each respective series
(based on shares outstanding) bears to their aggregate Liquidation
Preference. After the Liquidation Preference shall have been paid in full to
the holders of Series B Preferred Stock and Series C Preferred Stock, the
remaining assets of the Corporation shall be allocated to the holders of the
Series A Preferred Stock until the Series A Liquidation Preference shall have
been paid in full. After the Series A Liquidation Preference shall have been
paid in full, the remaining assets of the Corporation shall be allocated to
the holders of the Series F Preferred Stock and the Series F-2 Preferred
Stock in the ratio that the aggregate liquidation preference attributable to
each respective series (based on shares outstanding) bears to their aggregate
Liquidation Preference, until the Series F Liquidation Preference and the
Series F-2 Liquidation Preference shall have been paid in full.
(d) After the Liquidation Preference has been paid in full to the
holders of Preferred Stock, the remaining assets of the Corporation shall be
distributed ratably to the holders of Common Stock.
(e) For purposes of this Section 3, a Control Transaction shall be
treated as a liquidation, dissolution or winding up of the Corporation if the
holders of a majority of the outstanding Preferred Stock so elect by giving
written notice to the Corporation before such Control Transaction becomes
effective. If no such notice is given, such Control Transaction shall not be
so treated and the applicable provisions of Section 4(d) shall apply to such
Control Transaction (subject to any applicable requirement pursuant to
Section 6(c) for the consent of the holders of Series E Preferred Stock to
such Control Transaction).
SECTION 4. CONVERSION.
(a) GENERAL. On the terms and subject to the conditions of this
Section 4, the holder of a share of Preferred Stock shall have the right, at
its option, at any time, to convert such share into that number of shares of
Common Stock (calculated as to each conversion to the nearest 1/100th of a
share) obtained by dividing (i) (A) in the case of the Series A Preferred
Stock, $0.15, (B) in the case of the Series B Preferred, Stock $0.20, (C) in
the case of Series C Preferred Stock, $0.3035414, (D) in the case of the
Series E Preferred Stock,
6
<PAGE>
$1.1131258, (E) in the case of the Series E-2 Preferred Stock, $1.1131258,
(F) in the case of the Series F Preferred Stock, $1.80, and (G) in the case
of Series F-2 Preferred Stock, $1.50, by (ii) the Applicable Conversion Price
(as hereinafter defined) for the respective Series of Preferred Stock and by
surrender of such share pursuant to Section 4(b) (the Common Stock issuable
upon such conversion being called "CONVERSION SHARES"). Upon conversion, the
holder of a share of Preferred Stock shall receive, in addition to the
Conversion Shares, a number of shares of any other security distributed pro
rata to all the holders of the Common Stock at any time after the Effective
Time and prior to conversion of such Preferred Stock equal to the number of
shares of such security that a holder of the Conversion Shares would have
been entitled to had it held the Conversion Shares prior to the conversion,
if such securities were not previously distributed to the holders of
Preferred Stock.
(b) CONVERSION PROCEDURES. In order to exercise the conversion
privilege set forth in Section 4(a), the holder of each share of Preferred
Stock to be converted shall surrender the certificate representing such share
at the office of the Corporation, with a written notice stating that such
holder elects to convert all or a specified whole number of such shares
pursuant to this Section 4 and specifying the name or names in which such
holder wishes the certificate or certificates for Conversion Shares to be
issued. Unless the Conversion Shares are to be issued in the same name as the
name in which such Preferred Stock is registered, each share surrendered for
conversion shall be accompanied by instruments of transfer, in form
satisfactory to the Corporation, duly executed by the holder or its duly
authorized attorney-in-fact. Upon conversion of any Preferred Stock, the
holder thereof shall be entitled to receive an amount equal to all declared
and unpaid dividends on such shares through the date of such conversion. No
payment or adjustment shall be made on conversion for dividends on Conversion
Shares. As promptly as practicable after such surrender of certificates for
Preferred Stock, and in any event within five business days (i) the
Corporation shall issue and deliver at such office to such holder, or on such
holder's written order, (A) a certificate or certificates for the applicable
number of full Conversion Shares and (B) if less than the full number of
shares of Preferred Stock evidenced by the surrendered certificate or
certificates is being converted, a new certificate or certificates, of like
tenor, for the number of shares evidenced by such surrendered certificates
less the number of shares being converted and (ii) the Corporation shall
deliver at such office to such holder, or on such holder's written order, (A)
the cash payment in settlement of fractional Conversion Shares provided for
in Section 4(c) and (B) payment for any such declared and unpaid dividends in
cash, by wire transfer of immediately available funds or by certified or bank
check.
Each conversion shall be deemed to have been effected immediately
prior to the close of business on the date on which the certificate for the
Preferred Stock is surrendered and such notice received by the Corporation
7
<PAGE>
as aforesaid, and the Person or Persons in whose name or names any
certificate or certificates for Conversion Shares are issuable shall be
deemed to have become the holder or holders of record of such Conversion
Shares at such time on such date and such conversion shall be at the
Conversion Price in effect at such time on such date, unless the stock
transfer books of the Corporation are closed on that date, in which event
such Person or Persons shall be deemed to have become such holder or holders
of record at the close of business on the next day on which such stock
transfer books are open (PROVIDED that, if such books shall remain closed for
five days, such fifth day shall be the date any such Person shall become a
holder), but such conversion shall be at the Conversion Price in effect on
the date upon which such shares were surrendered and such notice was
received. Upon delivery, all Conversion Shares shall be duly authorized,
validly issued, fully paid, nonassessable, free of all liens and charges and
not subject to any preemptive or subscription rights.
(c) SETTLEMENT OF FRACTIONAL CONVERSION SHARES. No fractional
shares or scrip representing fractions of Conversion Shares shall be issued
upon conversion of Preferred Stock. Instead of any fractional Conversion
Share otherwise deliverable, the Corporation shall pay to the holder of the
converted share an amount in cash equal to the Current Market Price of such
fractional Conversion Share on the day on which such converted share is
deemed to have been converted. If more than one share is surrendered for
conversion at one time by the same holder, the number of full Conversion
Shares shall be computed on the basis of the aggregate number of shares so
surrendered. The "CURRENT MARKET PRICE" per share of Common Stock on any day
is the average of the Daily Market Prices for the 20 consecutive Trading Days
immediately prior to the day in question. The "DAILY MARKET PRICE" of a share
of Common Stock is the price of a share of Common Stock on the relevant day,
determined on the basis of the last reported sale price, regular way, of the
Common Stock as reported on the composite tape, or similar reporting system,
for issues listed or admitted to trading on the New York Stock Exchange (or,
if the Common Stock is not then listed or admitted to trading on the New York
Stock Exchange, on the principal national securities exchange on which the
Common Stock is then listed or admitted to trading) or, if there is no such
reported sale on the day in question, on the basis of the average of the
closing bid and asked quotations as so reported or, if the Common Stock is
not then listed or admitted to trading on any national securities exchange,
on the basis of the average of the high bid and low asked quotations on the
day in question in the over-the-counter market as reported by the National
Association of Securities Dealers' Automated Quotations System or, if not so
quoted, as reported by National Quotation Bureau, Incorporated, or a similar
organization. If the Current Market Price is not determinable as aforesaid,
it shall be determined in good faith by the Board of Directors of the
Corporation (the "BOARD") and evidence of such determination shall be filed
with the minutes of the Corporation. A "TRADING DAY" is a day on which the
principal national securities exchange on which the Common Stock is
8
<PAGE>
listed or admitted to trading is open for the transaction of business or, if
the Common Stock is not then listed or admitted to trading on any national
securities exchange, any day other than a Saturday, Sunday or Federal holiday.
(d) CONVERSION PRICE. The "SERIES A CONVERSION PRICE" shall mean
the amount of $0.15; the "SERIES B CONVERSION PRICE" shall mean the amount of
$0.20, the "SERIES C CONVERSION PRICE" shall mean the amount of $0.3035413;
the "SERIES E CONVERSION PRICE" shall mean the amount of $1.1131258; the
"SERIES E-2 CONVERSION PRICE" shall mean the amount of $1.1131258, the
"SERIES F CONVERSION PRICE" shall mean the amount of $1.80, and the "SERIES
F-2 CONVERSION PRICE" shall mean the amount of $1.50, as used herein, the
"APPLICABLE CONVERSION PRICE" shall mean, with respect to any Series, the
conversion price applicable to such Series, in each case as adjusted pursuant
to this Section 4 (it being understood that the Applicable Conversion Price
shall be calculated on the date of any conversion as if the Applicable
Conversion Price as of such date had been the original Applicable Conversion
Price on the Effective Time and as if all adjustments required pursuant to
this Section 4 for events occurring after the Effective Time had been made to
such original Applicable Conversion Price from time to time as required and
the Series E-2 Conversion Price shall be adjusted to reflect all adjustments
required pursuant to this Section 4 for events occurring on or after
September 30, 1998 even if no shares of Series E-2 Preferred Stock had been
issued as of the date of such event; provided that, notwithstanding anything
in this Restated Certificate of Incorporation to the contrary, (x) no
adjustment shall be made to the Series F Conversion Price except as provided
in Section 4(d)(i)), and (y) no adjustment shall be made to the Series E-2
Conversion Price pursuant to Section 4(d)(ii) if at the time such adjustment
would be made the Series E-2 Conversion Price has already been reduced
pursuant to Section 4(d)(xvi) and the Series E-2 Conversion Price as adjusted
pursuant to the terms of Section 4(d)(xvi) is less than the Series E-2
Conversion Price would be if adjusted pursuant to Section 4(d)(ii)).
The Applicable Conversion Price (and the kind and amount of
consideration receivable by holders of each Series of Preferred Stock upon
conversion) shall be adjusted from time to time as follows:
(i) If the Corporation (A) pays a dividend or makes a
distribution on the Common Stock in Common Stock, (B) subdivides or combines
its outstanding shares of Common Stock into a greater or smaller number of
shares or (C) issues by reclassification of the Common Stock any shares of
capital stock of the Corporation, the Applicable Conversion Price in effect
immediately prior to such action shall be adjusted so that the holder of such
Series of Preferred Stock thereafter surrendered for conversion shall be
entitled to receive, at the time of such conversion, the number of shares of
Common Stock or other capital stock of the Corporation that it would have
owned or been
9
<PAGE>
entitled to receive immediately following such action had such share been
converted immediately prior thereto or on the record date therefor, whichever
is earlier. Such adjustment shall become effective immediately after the
record date, in the case of a dividend or distribution, or immediately after
the effective date, in the case of a subdivision, combination or
reclassification.
(ii) If the Corporation issues any Additional Shares for a
consideration per share less than the Applicable Conversion Price in effect
immediately prior to such issuance (determined on a Share Equivalent basis),
the Applicable Conversion Price shall be adjusted by multiplying the
Applicable Conversion Price in effect immediately prior to such issuance by a
fraction (A) the numerator of which shall be the number of shares of Common
Stock and Share Equivalents outstanding immediately prior to the issuance of
such Additional Shares plus the number of shares of Common Stock that the
aggregate consideration for such Additional Shares would purchase at a
consideration per share equal to the Applicable Conversion Price and (B) the
denominator of which shall be the number of shares of Common Stock and Share
Equivalents outstanding immediately prior to the issuance of such Additional
Shares plus the number of Additional Shares so issued.
"ADDITIONAL SHARES" shall mean any Voting Securities, except
(i) Common Stock, warrants or options that qualify as Permitted Issuances to
the extent that any such Permitted Issuance does not trigger the antidilution
protection of any security issued by the Company, (ii) Common Stock issuable
upon the exercise of warrants and options which are outstanding as of the
date hereof, (iii) Common Stock issuable upon the conversion of Preferred
Stock, and (iv) Series E-2 Preferred Stock and Common Stock issuable upon the
conversion of Series E-2 Preferred Stock.
"SHARE EQUIVALENTS" shall mean the Common Stock deliverable
upon conversion or exercise of all outstanding Preferred Stock, convertible
securities, options, warrants and rights of the Corporation. Such adjustment
shall become effective immediately after the issuance of such Additional
Shares. For purposes hereof, the issuance of any Additional Shares or other
securities, warrants, options or rights includes any reissuance or resale.
"VOTING SECURITIES" shall mean the Common Stock and any other
securities of the Corporation entitled to vote generally in the election of
directors of the Corporation and any other securities (including rights,
warrants, options and convertible debt) convertible into, exchangeable for or
exercisable for any Common Stock or other securities referred to above
(whether or not presently convertible, exchangeable or exercisable),
including the Preferred Stock.
10
<PAGE>
"PERMITTED ISSUANCES" shall mean (x) shares of Common Stock
issued upon exercise of options granted pursuant to the Stock Option Plans
and options granted and issued pursuant to the Stock Options Plans, to the
extent that the total number of shares subject to outstanding options granted
under the Stock Option Plans plus the number of outstanding shares issued
upon exercise of options granted under the Stock Option Plans does not exceed
19,200,000* at any time, and (y) shares of Common Stock owned by lending
institutions that were acquired in connection with loans to the Corporation
and by equipment leasing companies that were acquired in connection with
financing for the Corporation and warrants for Common Stock issued or to be
issued to the foregoing entities in connection with such transactions, to the
extent that all such warrants and shares issued and exercised were approved
by the Board of Directors. The number of shares of Common Stock referenced in
the foregoing sentence shall be adjusted proportionately for stock splits,
combinations and stock dividends subsequent to April 11, 1997. In no event
shall any options granted and issued pursuant to the Stock Option Plans prior
to August 31, 1997, or any share issuable pursuant to any such options,
constitute Additional Shares or trigger any adjustment in the Applicable
Conversion Price of any Series of Preferred Stock under this Restated
Certificate.
* Except as may be provided by subsequent amendment, the
preceding paragraph is intended to reflect the understanding of International
Business Machines Corporation ("IBM") and the Corporation that: Additional
Shares do not include (i) any of the 16,200,000 shares designated as "New
Options" in the Agreement and Plan of Merger dated as of March 18, 1997 (the
"Merger Agreement"), (which consisted of 6,246,338 shares reserved for
issuance under the Corporation's Special Stock Option Plan and 9,953,662
shares reserved for issuance under the Corporation's 1997 Stock Option Plan),
or (ii) any of the 3,000,000 additional shares reserved for issuance under
the 1997 Stock Option Plan pursuant to the approval of the Board of Directors
and the stockholders effective as of April 16, 1997. Furthermore, as
contemplated by IBM and the Corporation, the resulting total of 19,200,000
shares is also equal to the sum of (A) 15,424,566 shares taken into account
in determining the "Share Price" (as defined in the Merger Agreement), plus
(B) 775,434 shares, (which is the difference remaining, after subtracting the
amount in (A), (15,424,566), from 16,200,000 shares (determined by adding
9,000,000 shares reserved for issuance under the Corporation's 1996 Stock
Option Plan and 7,200,000 additional shares intended for issuance in
connection with the Merger Agreement)), plus (C) 3,000,000 additional shares
reserved for issuance as of April 16, 1997.
"STOCK OPTION PLANS" shall mean the Corporation's 1997 Stock
Option Plan and the Corporation's Special Stock Option Plan.
11
<PAGE>
(iii) If the Corporation issues any warrants, options or other
rights entitling the holders thereof to subscribe for or purchase either any
Additional Shares or evidences of debt, shares of stock or other securities
that are convertible into or exchangeable for, with or without payment of
additional consideration, Additional Shares (such warrants, options or other
rights being called "RIGHTS" and such convertible or exchangeable evidences
of debt, shares of stock or other securities being called "CONVERTIBLE
SECURITIES"), and the consideration per share for which Additional Shares may
at any time thereafter be issuable pursuant to such Rights or pursuant to
such Convertible Securities (when added to the consideration per share of
Common Stock, if any, received for such Rights), is less than the Applicable
Conversion Price, the Applicable Conversion Price shall be adjusted as
provided in Section 4(d)(ii) on the basis that (A) the maximum number of
Additional Shares issuable pursuant to all such Rights or necessary to effect
the conversion or exchange of all such Convertible Securities shall be deemed
to have been issued and (B) the aggregate consideration (plus the
consideration, if any, received for such Rights) for such maximum number of
Additional Shares shall be deemed to be the consideration received and
receivable by the Corporation for the issuance of such Additional Shares
pursuant to such Rights or Convertible Securities as set forth in Section
4(d)(viii).
(iv) If the Corporation issues Convertible Securities and the
consideration per share for which Additional Shares may at any time
thereafter be issuable pursuant to such Convertible Securities is less than
the Applicable Conversion Price, the Applicable Conversion Price shall be
adjusted as provided in Section 4(d)(ii) on the basis that (A) the maximum
number of Additional Shares necessary to effect the conversion or exchange of
all such Convertible Securities shall be deemed to have been issued and (B)
the aggregate consideration for such maximum number of Additional Shares
shall be deemed to be the consideration received and receivable by the
Corporation for the issuance of such Additional Shares pursuant to such
Convertible Securities as set forth in Section 4(d)(viii). No adjustment of
the Applicable Conversion Price shall be made under this Section 4(d)(iv)
upon the issuance of any Convertible Securities issued pursuant to the
exercise of any Rights to the extent that such adjustment was previously made
upon the issuance of such Rights pursuant to Section 4(d)(iii).
(v) For purposes of Sections 4(d)(iii) and 4(d)(iv), the
relevant Applicable Conversion Price shall be the Applicable Conversion Price
in effect immediately prior to the earlier of (A) the record date for the
holders of Common Stock entitled to receive the Rights or Convertible
Securities and (B) the initial issuance of the Rights or Convertible
Securities, and the adjustment provided for in either such Section shall
become effective immediately after the earlier of the times specified in
subclauses (A) and (B) of this Section 4(d)(v).
12
<PAGE>
(vi) No adjustment of the Applicable Conversion Price shall
be made under Section 4(d)(ii) upon the issuance of any Additional Shares
pursuant to the exercise of any Rights or any conversion or exchange rights
pursuant to any Convertible Securities, if such adjustment was previously
made in connection with the issuance of such Rights or Convertible Securities
(or in connection with the issuance of any Rights therefor) pursuant to
Section 4(d)(iii) or 4(d)(iv).
(vii) If any Rights (or any portions thereof) that gave rise
to an adjustment pursuant to Section 4(d)(iii) or any conversion or exchange
rights pursuant to any Convertible Securities that gave rise to an adjustment
pursuant to Section 4(d)(iii) or 4(d)(iv) expire or terminate without the
exercise thereof and/or if by reason of such Rights or Convertible Securities
there has been any increase, with the passage of time or otherwise, in the
consideration payable upon the exercise thereof, the Applicable Conversion
Price shall be readjusted (but to no greater extent than previously adjusted
as a result of the issuance of such Rights or Convertible Securities) on the
basis of (A) eliminating from the computation Additional Shares corresponding
to such expired or terminated Rights or conversion or exchange rights, (B)
treating the Additional Shares, if any, actually issued or issuable pursuant
to the previous exercise of such Rights or conversion or exchange rights as
having been issued for the consideration actually received and receivable
therefor and (C) treating any such Rights or conversion or exchange rights
that remain outstanding as being subject to exercise on the basis of the
consideration payable upon the exercise thereof as in effect at such time;
PROVIDED, HOWEVER, that any consideration actually received by the
Corporation in connection with the issuance of such Rights or such
Convertible Securities shall form part of the readjustment computation even
though such Rights or such conversion or exchange rights expired without
being exercised. The Applicable Conversion Price shall be adjusted as
provided in Section 4(d)(ii) and any applicable provisions of Section
4(d)(iii) and 4(d)(iv) as a result of any increase in the number of
Additional Shares issuable, or any decrease in the consideration payable upon
any issuance of Additional Shares, pursuant to any antidilution provisions of
any Rights or Convertible Securities.
(viii) (A) If any Additional Shares, Convertible Securities or
Rights are issued for cash, the consideration received therefor shall be
deemed to be the amount of cash received.
(B) If any Additional Shares, Convertible Securities or
Rights are offered by the Corporation for subscription, the consideration
received therefor shall be deemed to be the subscription price.
(C) If any Additional Shares, Convertible Securities or
Rights are sold to underwriters or dealers for public offering without a
13
<PAGE>
subscription offering, the consideration received therefor shall be deemed to
be the public offering price.
(D) In any case covered by Section 4(d)(viii)(B) or
(C), in determining the amount of any consideration received by the
Corporation in whole or in part other than in cash, the amount of such
consideration shall be deemed to be the fair market value of such
consideration as determined in good faith by the Board, and evidence of such
determination shall be filed with the minutes of the Corporation. If
Additional Shares are issued as part of a unit with Rights, the consideration
received for the Rights shall be deemed to be the portion of the
consideration received for such unit determined in good faith at the time of
issuance by the Board, and evidence of such determination shall be filed with
the minutes of the Corporation. If the Board does not make any such
determination prior to the due date for adjustment of the Applicable
Conversion Price, the consideration received for the Rights shall be deemed
to be zero. In either event, the consideration received for the Additional
Shares shall be deemed to be the consideration received for such unit less
the consideration deemed to have been received for the Rights.
(E) In any case covered by Section 4(d)(viii)(A), (B),
(C) or (D), in determining the amount of consideration received by the
Corporation, (I) any amounts paid or receivable for accrued interest or
accrued dividends shall be excluded and (II) any compensation, underwriting
commissions or concessions or expenses paid or incurred in connection
therewith shall not be deducted.
(F) In any case covered by Section 4(d)(viii)(A), (B),
(C) or (D), there shall be added to the consideration received by the
Corporation at the time of issuance or sale (I) the minimum aggregate amount
of additional consideration payable to the Corporation upon the exercise of
Rights that relate to Convertible Securities and (II) the minimum aggregate
amount of consideration payable upon the conversion or exchange thereof.
(G) If any Additional Shares, Convertible Securities or
Rights are issued in connection with any merger, consolidation or other
reorganization in which the Corporation is the surviving corporation, the
amount of consideration therefor shall be deemed to be the fair market value,
as determined in good faith by the Board, of such portion of the assets and
business of the non-surviving Person or Persons as the Board determines to be
attributable to such Additional Shares, Convertible Securities or Rights, and
evidence of such determination shall be filed with the minutes of the
Corporation.
(ix) If the Corporation effects any consolidation, merger or
other reorganization to which the Corporation is a party (other than a merger
or consolidation in which the Corporation is the surviving corporation), any
sale or
14
<PAGE>
conveyance to another Person of all or substantially all the assets of the
Corporation or any statutory exchange of securities with another Person
(including any exchange effected in connection with a merger of a third
Person into the Corporation), the holder of each share of such Series of
Preferred Stock then outstanding shall have the right thereafter to convert
such share into the kind and amount of consideration receivable pursuant to
such transaction by a holder of the number of shares of Common Stock into
which such share of Preferred Stock might have been converted immediately
prior to such transaction, assuming such holder of Common Stock failed to
exercise its rights of election, if any, as to the kind or amount of
consideration receivable upon such transaction (PROVIDED that, if the kind or
amount of consideration receivable pursuant to such transaction is not the
same for each share of Common Stock in respect of which such rights of
election shall not have been exercised ("NONELECTING SHARE"), then, for
purposes of this Section 4(d)(ix), the kind and amount of consideration
receivable pursuant to such transaction for each Nonelecting Share shall be
deemed to be the kind and amount so receivable per share by a plurality of
the Nonelecting Shares). Thereafter, the holders of such Series of Preferred
Stock shall be entitled to appropriate adjustments with respect to their
conversion rights to the end that the provisions set forth in this Section 4
shall correspondingly be made applicable, as nearly as may reasonably be, to
any consideration thereafter deliverable on conversion of such Series of
Preferred Stock. Notwithstanding the foregoing, this Section 4(d)(ix) shall
not apply to any event which is treated as a liquidation, dissolution or
winding up of the Corporation pursuant to Section 3.
(x) If a purchase, tender or exchange offer is made to the
holders of outstanding Common Stock and, upon the consummation of such offer,
the Person having made such offer (together with its affiliates) beneficially
owns 50% or more of the outstanding Common Stock, the Corporation shall not
effect any consolidation, merger or other reorganization with, or sale, lease
or other disposition of material assets to, or issuance of securities to, the
Person having made such offer or any affiliate of such Person, unless prior
to the consummation thereof each holder of such Series of Preferred Stock
shall have been given a reasonable opportunity to elect to receive, upon
conversion of such Series of Preferred Stock then held by such holder (in
lieu of the kind and amount of consideration otherwise receivable upon
conversion pursuant to the provisions of this Section 4(d)), the
consideration that would have been received pursuant to such offer by a
holder of that number of shares of Common Stock into which one share of such
Series of Preferred Stock might then be converted if all such shares had been
tendered and accepted pursuant to such offer. Notwithstanding the foregoing,
this Section 4(d)(x) shall not apply to any event which is treated as a
liquidation, dissolution or winding up of the Corporation pursuant to Section
3.
15
<PAGE>
(xi) If the Corporation distributes generally to holders of
its outstanding Common Stock or any other securities entitled generally to
participate in the earnings or assets of the Corporation ("COMMON EQUITY")
but not to holders of such Series of Preferred Stock (on an as converted to
Common Stock basis) evidences of its debt, securities or other assets
(excluding any cash dividend and excluding any dividends or distributions
payable in Rights or Convertible Securities for which adjustment is otherwise
made pursuant to this Section 4(d)), the Applicable Conversion Price shall be
adjusted by multiplying the Applicable Conversion Price in effect immediately
prior to the record date for such dividend or distribution by a fraction of
which (A) the numerator shall be the Current Market Price per share of the
Common Equity (determined, if the Common Equity is not Common Stock, in the
same way that the current market price for Common Stock is determined) on
such record date less the then fair market value, as determined in good faith
by the Board, of the portion of the evidences of debt, securities or other
assets so distributed or applicable to the holder of one share of Common
Equity and (B) the denominator shall be such Current Market Price per share
of the Common Equity, and evidence of such determination shall be filed with
the minutes of the Corporation. Such adjustment shall become effective
immediately after the record date for such dividend or distribution and will
be rescinded if such dividend or distribution is not paid or made.
(xii) If a state of facts not specifically controlled by the
provisions of this Section 4(d) occurs or is proposed that would result in
the conversion provisions of the such Series of Preferred Stock not being
fairly protected in accordance with the essential intent and principles of
such provisions, the Board shall make an adjustment in the application of
such provisions, in accordance with such essential intent and principles, so
as to protect such conversion provisions, and evidence of the Board's
determination of such adjustment shall be filed with the minutes of the
Corporation.
(xiii) No adjustment in the Applicable Conversion Price shall
be required to be made unless it would require an increase or decrease of at
least one cent, but any adjustments not made because of this Section
4(d)(xiii) shall be carried forward and taken into account in any subsequent
adjustment otherwise required. All calculations under this Section 4(d)
shall be made to the nearest cent or to the nearest 1/100th of a share, as
the case may be. All adjustments with respect to a transaction or event
shall apply to subsequent such transactions and events. Anything in this
Section 4(d) to the contrary notwithstanding, the Board shall be entitled to
make such irrevocable reduction in the Applicable Conversion Price, in
addition to the adjustments required by this Section 4(d), as in its
discretion it shall determine to be advisable in order to avoid or diminish
any income deemed to be received for Federal income tax purposes by any
holder of Common Stock or Preferred Stock resulting from any event or
occurrence giving rise to an adjustment pursuant to this Section 4(d) or
16
<PAGE>
from any similar event or occurrence, and evidence of the Board's
determination of such adjustment shall be filed with the minutes of the
Corporation.
(xiv) Whenever the Applicable Conversion Price is adjusted
pursuant to this Section 4(d), (A) the Corporation shall promptly file with
the minutes of the Corporation a certificate setting forth the Applicable
Conversion Price (and any change in the kind or amount of consideration to be
received by holders of shares of such Series of Preferred Stock upon
conversion) after such adjustment and setting forth a brief statement of the
facts requiring such adjustment and the manner of computing the same and (B)
the Corporation shall forthwith mail a notice stating that the Applicable
Conversion Price has been adjusted, stating the effective date of such
adjustment and enclosing such certificate, to the holders of such Series of
Preferred Stock at their addresses as shown on the stock books of the
Corporation.
(xv) If as a result of an adjustment pursuant to this
Section 4(d) the holder of such Series of Preferred Stock converts into any
consideration other than Common Stock, (A) the Applicable Conversion Price
with respect to such other consideration shall be subject to adjustment from
time to time in a manner and on terms as nearly equivalent as practicable to
the provisions with respect to Common Stock contained in this Section 4(d)
and (B) in the case such consideration shall consist of Common Stock and some
other kind of consideration or of two or more kinds of consideration, the
Board shall determine in good faith the fair allocation of the adjusted
Applicable Conversion Price between or among such types of consideration, and
evidence of such determination shall be filed with the minutes of the
Corporation.
(xvi) The Series E-2 Conversion Price shall be reduced to the
Applicable Conversion Price set forth below if the Corporation has not
consummated a Qualified Financing or repaid all amounts due under the Senior
Notes issued under the Note and Warrant Purchase Agreement by the applicable
date specified below:
<TABLE>
<CAPTION>
Series E-2 Preferred
Applicable Conversion
Date Price
--------------- ---------------------
<S> <C>
April 8, 1999 $0.891
October 8, 1999 $0.669
April 8, 2000 $0.447
</TABLE>
The Applicable Conversion Price computed in accordance with
this Section 4(d)(xvi) shall be further adjusted to reflect all adjustments
required by this Section 4 for all events occurring on or after September 30,
1998
17
<PAGE>
even if no shares of Series E Preferred Stock had been issued as of the date
of such event.
"Qualified Financing" means the sale by the Corporation of any
Voting Securities in (x) a public offering or (y) cumulatively, in one or
more private placements to accredited investors (as defined in Rule 501(a) of
Regulation D of under the Securities Act of 1933, as amended), but excluding
sales pursuant to Rule 701 under such Act, which, in either case, result in
the Corporation's receipt of aggregate net proceeds of at least $20 million
at a price per share not less than the Series E-2 Conversion Price in effect
as of the date the Qualified Financing shall be deemed to occur (computed
without regard to the adjustments set forth in Section 4(d)(ii) or this
Section 4(d)(xvi)). The transaction price per share shall be computed as a
weighted average in case there is more than one private placement. The
Qualified Financing shall be deemed to occur as of the earliest date on which
either of the tests set forth in the preceding sentence has been satisfied by
the Corporation.
By way of example, a Qualified Financing would be deemed to
have occurred if the Corporation receives $12.6 million of net proceeds from
the sale of 7,000,000 shares of a newly authorized series of Preferred Stock
to one accredited investor at $1.80 per share in one transaction when the
Applicable Conversion Price of Series E-2 Preferred Stock is $1.1131258, and
seven months later receives $8 million of net proceeds from the sale of
10,000,000 shares of another newly authorized series of Preferred Stock to 20
accredited investors at $0.80 per share when the Applicable Conversion Price
of the Series E-2 Preferred Stock is $0.896 per share. In this example, the
Corporation has received net proceeds of $20.6 million at a weighted average
price of $1.212 per share; and the Qualified Financing would be deemed to
occur upon the closing of the second transaction.
(d) NOTICE OF SPECIFIED EVENTS. For purposes of this Section
4(e), a "SPECIFIED EVENT" occurs if (i) the Corporation takes any action that
would require any adjustment in any conversion price pursuant to Section
4(d), (ii) the Corporation authorizes the granting to the holders of the
Common Stock of any Rights or of any other rights, (iii) there is any capital
stock reorganization or reclassification of the Common Stock (other than a
subdivision or combination of the outstanding Common Stock and other than a
change in the par value of the Common Stock), or any consolidation, merger or
other reorganization to which the Corporation is a party or any statutory
exchange of securities with another Person and for which approval of any
stockholders of the Corporation is required, or any sale or transfer of all
or substantially all the assets of the Corporation, (iv) there is any other
Control Transaction or (v) there is a voluntary liquidation, dissolution or
winding up of the Corporation. If a Specified Event occurs, the Corporation
shall cause to be filed with the minutes of the Corporation, and shall cause
to be mailed to the holders of the Preferred Stock
18
<PAGE>
at their addresses as shown on the stock books of the Corporation, at least
10 days prior to the applicable date specified below, a notice describing the
Specified Event and stating (A) the record date for any distribution or
Rights relating to such Specified Event or, if a record is not to be taken,
the date as of which the holders of Common Stock of record to be entitled to
such distribution or Rights are to be determined or (B) the date on which the
capital stock reorganization, reclassification, consolidation, merger, other
reorganization, statutory exchange, sale, transfer, other Control
Transaction, dissolution, liquidation or winding up relating to such
Specified Event is expected to become effective and the date as of which it
is expected that holders of Common Stock of record shall be entitled to
exchange their Common Stock for securities or other property deliverable upon
such Specified Event.
(e) LISTING. The Corporation shall use its best efforts to list
any securities required to be delivered upon conversion of the Preferred
Stock prior to such delivery upon each securities exchange, if any, upon
which such securities are listed at the time of such delivery. Prior to the
delivery of any such securities, the Corporation shall use its best efforts
to comply with all laws and regulations thereunder requiring any registration
of such securities with or consent to the delivery thereof by, or any
approval of, notice to or filing with, any governmental authority.
(f) TAXES. The Corporation shall pay all documentary, stamp or
similar issue or transfer taxes payable in respect of the issue or delivery
of securities on conversion of Preferred Stock.
(g) MANDATORY CONVERSION. Immediately upon the consummation of
the Initial Public Offering: (i) All authorized and unissued shares of
Preferred Stock shall be converted (without further action by the
Corporation) into that number of authorized shares of Common Stock into which
such Preferred Stock would then be convertible under this Section 4 if such
shares were issued and outstanding at the time; and (ii) all issued and
outstanding shares of Preferred Stock shall be deemed to have been converted
into, and shall (without any action of the holder thereof) become, that
number of fully paid and nonassessable shares of Common Stock into which such
Preferred Stock is then convertible in accordance with the provisions of this
Section 4.
"INITIAL PUBLIC OFFERING" shall mean a sale by the Corporation of
Common Stock, in a bona fide public offering on an underwritten firm
commitment basis pursuant to a registration statement filed with and declared
effective by the Securities and Exchange Commission pursuant to the
Securities Act of 1933 and the rules and regulations thereunder, which public
offering results in aggregate cash proceeds of at least $30 million.
19
<PAGE>
SECTION 5. CONVERSION OR REDEMPTION OF PREFERRED STOCK. Upon any
conversion or any redemption, repurchase or other acquisition by the
Corporation of Preferred Stock, the Preferred Stock so converted, redeemed,
repurchased or acquired shall be retired and canceled and shall not be
available for reissuance.
SECTION 6. VOTING. (a) The holders of Preferred Stock shall have the
following voting rights set forth in this Section 6 and in Article VIII
hereof, in addition to any voting rights to which they may be entitled under
the DGCL.
(b) The holders of Preferred Stock shall have the right to vote,
together with the holders of all outstanding shares of Common Stock and not
by classes (except as otherwise provided herein or by applicable law), on all
matters on which holders of Common Stock have the right to vote. Each holder
of Preferred Stock shall have the right, for each share of Preferred Stock
held by such holder on the applicable record date, to cast that number of
votes on each such matter equal to the number of shares of Common Stock into
which such Preferred Stock might be converted as of such record date
multiplied by the number of votes per share which the holders of Common Stock
then have with respect to such matter.
(c) The consent of a majority of the outstanding shares of Series
E Preferred Stock shall be required before the Corporation shall (or shall
permit any of its subsidiaries to):
(i) either directly or indirectly or through merger,
consolidation or other reorganization with any other Person, (A) increase or
decrease the aggregate number of authorized shares of Preferred Stock; (B)
increase or decrease the par value of the Preferred Stock; (C) effect an
exchange, reclassification, or cancellation of all or part of the Preferred
Stock; (D) effect an exchange, or create a right of exchange, of all or any part
of the shares of another class into Preferred Stock; (E) change the
designations, preferences, limitations or relative rights of the Preferred
Stock; (F) change the Preferred Stock into the same or different number of
shares, either with or without par value, of the same class or another class;
(G) create a new class of shares having rights and preferences substantially
equal to or prior or superior to the Preferred Stock or increase the rights and
preferences or the number of authorized shares of any class having rights and
preferences substantially equal to or prior or superior to the Preferred Stock;
(H) divide the Preferred Stock into series and fix and determine the designation
of such series and the variations in the relative rights and preferences between
the shares of such series, or authorize the Board so to do; (I) cancel or
otherwise affect dividends on the Preferred Stock which have been declared; (J)
authorize the issuance of any shares of any equity security of the Corporation
other than Permitted Issuances;
20
<PAGE>
(K) amend, alter or repeal any of the provisions of the Certificate of
Incorporation; or (L) amend, alter or repeal the Corporation's By-laws;
(ii) enter into any Control Transaction with any Person; or
(iii) voluntarily liquidate, dissolve or wind up the
Corporation.
"CONTROL TRANSACTION" shall mean (A) any transaction or series
of transactions, in which all stockholders of the Corporation are entitled to
participate and pursuant to which shares representing more than fifty percent
(50%) of the Corporation's outstanding Voting Securities are purchased by a
Person not controlled by, in control of or under common control with any
holder of Preferred Stock, (B) the merger or consolidation of the Corporation
with another entity (other than a merger or consolidation in which the
holders of Voting Securities of the Corporation immediately before the merger
or consolidation own, immediately after the merger or consolidation, Voting
Securities of the surviving or acquiring corporation or of a parent party of
such surviving or acquiring corporation, possessing more than fifty percent
(50%) of the voting power of the surviving or acquiring corporation or parent
party) resulting in the exchange of the outstanding shares of capital stock
of the Corporation for cash, securities or other property or (C) any merger,
sale, lease, license, exchange or other disposition (whether in one
transaction or a series of related transactions) of more than fifty percent
(50%) of the assets of the Corporation.
ARTICLE VI
DIRECTORS' LIABILITY AND INDEMNIFICATION OF AGENTS
SECTION 1. LIMITATION OF DIRECTORS' LIABILITY. The liability of the
directors of the Corporation for monetary damages (or breach of fiduciary
duty as directors) shall be eliminated to the fullest extent permissible
under Section 102(b)(7) of the DGCL as now or hereafter in effect.
SECTION 2. REPEAL OR MODIFICATION. Any repeal or modification of the
foregoing provisions of this Article VI shall not adversely affect any
limitation of liability of an agent of the Corporation relating to acts or
omissions occurring prior to such repeal or modification.
ARTICLE VII
STOCKHOLDER MATTERS
SECTION 1. GENERAL. In anticipation that IBM will be a substantial
stockholder of the Corporation, and in recognition that the Corporation and
such stockholder may engage in the same or similar activities or lines of
business and
21
<PAGE>
have an interest in the same area of corporate opportunities, and in further
recognition of the benefits to be derived by the Corporation through its
continued contractual, corporate and business relations with such stockholder
(including service of employees and former employees of such stockholder as
directors of the Corporation), the provisions of this Article VII are set
forth to regulate and define the conduct of certain affairs of the
Corporation as they may involve such stockholder and its officers and
employees, and the powers, rights, duties and liabilities of the Corporation
and its officers, directors and stockholders in connection therewith.
SECTION 2. FREEDOM OF ACTION. IBM shall not have any duty to refrain
from any of the following: (a) engaging in the same or similar activities or
lines of business as the Corporation or developing or marketing products or
services that compete, directly or indirectly, with those of the Corporation;
(b) doing business with any client or customer of the Corporation; (c)
investing (publicly or privately) in, or developing other relationships with,
other Persons or entities in the same or similar businesses as that of the
Corporation; and (d) employing or otherwise engaging any officer or employee
or former officer or employee of the Corporation. Neither IBM nor any
officer, director or employee of IBM shall have any obligation, or be liable,
to the Corporation or its stockholders (i) for or arising out of the conduct
described in (a), (b), (c) and (d) above, (ii) for exercising its rights
under the Stockholders Agreement or any other agreement contemplated thereby
to which it is or will be a party, (iii) for exercising or failing to
exercise its rights as a stockholder of the Corporation or (iv) for breach of
any fiduciary or other duty to the Corporation or its stockholders by reason
of the conduct described in (i), (ii) or (iii) above or such officers',
directors' or employees' participation therein or such employees actions as
directors of the Corporation.
SECTION 3. CORPORATE OPPORTUNITIES. In the event that IBM or any
officer, director or employee of IBM acquires knowledge of a potential
transaction or matter which may be a corporate opportunity for both IBM and
the Corporation, neither IBM nor its officers, directors or employees shall
have any duty to communicate or offer such corporate opportunity to the
Corporation and neither IBM nor its officers, directors or employees shall be
liable to the Corporation or its stockholders for breach of any fiduciary or
other duty, as a stockholder or otherwise, by reason of the fact that IBM
pursues or acquires such corporate opportunity for itself, directs such
corporate opportunity to another Person or entity, or does not communicate
such corporate opportunity or information regarding such corporate
opportunity to the Corporation.
SECTION 4. CONSENT AND WAIVER. Any Person or other entity purchasing
or otherwise acquiring any interest in shares of the capital stock of the
Corporation shall be deemed to have consented to the provisions of this
Article VII. The waivers set forth in this Article VII shall be effective to
the maximum extent permitted by law.
22
<PAGE>
SECTION 5. DEFINITIONS. Any reference to "IBM" in this Article VII
shall mean IBM and its Affiliates. "Affiliate" shall mean, when used with
respect to a specified Person, another Person that directly, or indirectly
through one or more intermediaries, controls or is controlled by or is under
common control with the Person specified.
ARTICLE VIII
BOARD OF DIRECTORS
The number of directors of the Corporation shall be between five and
seven, as specified from time to time by the Board of Directors. The holders
of the outstanding shares of Series E Preferred Stock shall at all times
until the earlier to occur of (i) the date of consummation of an Initial
Public Offering and (ii) the date on which the outstanding shares of Series E
Preferred Stock and the outstanding warrants to purchase shares of Series E
Preferred Stock fail to represent at least 45% of the Fully Diluted Shares of
Voting Securities of the Company, be entitled, voting together as a separate
series, to elect four directors of the Corporation by majority vote at each
election of directors. The remaining members of the Board of Directors shall
be elected by the holders of the Common Stock and the Preferred Stock, voting
together as a single class.
ARTICLE IX
DEFINITIONS AND CONSTRUCTION
SECTION 1. CERTAIN DEFINITIONS. As used in this Certificate of
Incorporation:
(a) The definitions in Sections 1 and 2 shall apply equally to
both the singular and plural forms of the terms defined and whenever the
context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms.
(b) Any reference to "BUSINESS DAY" means any day (other than a
day which is a Saturday, Sunday or legal holiday in the State of New York) on
which banks are open for business in New York, New York.
(c) "EFFECTIVE TIME" means the effective time of the Merger of
Net Acquisition Corp. with and into the Corporation pursuant to the Merger
Agreement.
(d) Any reference to "HEREIN", "HEREOF", "HEREUNDER" and other
like words mean or refer, when used herein, to this Certificate of
Incorporation in its entirety.
(e) "IBM" means International Business Machines Corporation, a
New York corporation.
23
<PAGE>
(f) Any reference to "INCLUDE" or "INCLUDING" shall be deemed to
be followed by the phrase "WITHOUT LIMITATION".
(g) Any reference to "OUTSTANDING", when used with reference to
shares of stock, means issued shares, excluding shares held by the
Corporation or a subsidiary.
(h) "PERSON" means any individual, firm, corporation,
partnership, trust, joint venture, Governmental Authority or other entity,
and shall include any successor (by merger or otherwise) of such entity.
(i) "MERGER AGREEMENT" means the Agreement and Plan of Merger
dated as of March 18, 1997 among the Corporation, IBM, Net Acquisition Corp.
and the stockholders listed on the signature pages thereto.
(j) "STOCKHOLDERS AGREEMENT" means the Stockholders Agreement
dated as of March 18, 1997 among IBM, the Corporation and the stockholders
listed on the signature pages thereof.
(k) "FULLY DILUTED SHARES" shall mean the number of fully
diluted shares of Voting Securities (including without limitation upon
exercise of all outstanding warrants, options, convertible securities and
other rights to purchase Voting Securities).
(l) References to Certificate and Sections are to Certificate
and Sections of this Restated Certificate of Incorporation.
(m) Headings are for convenience of reference only and shall not
define, limit or affect any of the provisions hereof.
SECTION 2. ADDITIONAL DEFINITIONS.
<TABLE>
<CAPTION>
DEFINED TERM SECTION DEFINED IN
<S> <C>
"Additional Shares" Art. V Sec. 4(d)(ii)
"Affiliate" Art. VII Sec. 5
"Board" Art. V Sec. 4(c)
"Common Equity" Art. V Sec. 4(d)(xi)
"Common Stock" Art. IV Sec. 1
"Control Transaction" Art. V Sec. 6(c)(iii)
"Conversion Shares" Art. V Sec. 4(a)
"Convertible Securities" Art. V Sec. 4(d)(iii)
"Corporation" Art. I
"Current Market Price" Art. V Sec. 4(c)
"Daily Market Price" Art. V Sec. 4(c)
"DGCL" Art. III
24
<PAGE>
"Fully Diluted Shares" Art. VIII
"Initial Public Offering" Art. V Sec. 4(h)
"Liquidation Preference" Art. V Sec. 3(b)
"Liquidation Date" Art. V Sec. 3(b)
"Nonelecting Share" Art. V Sec. 4(d)(ix)
"Note and Warrant Purchase Art. V Sec. 1
Agreement
"Original Issue Date" Art. V Sec. 3(b)
"Participating Dividends" Art. V Sec. 2
"Permitted Issuances" Art. V Sec. 4(d)(ii)
"Preferred Stock" Art. IV Sec. 1
"Qualified Financing" Art. V Sec. 4(d)(xvi)
"Rights" Art. V Sec. 4(d)(iii)
"Senior Notes" Art. V Sec. 1
"Series A Conversion Price" Art. V Sec. 4(d)
"Series A Liquidation Art. V Sec. 3(b)
Preference"
"Series A Preferred Stock" Art. IV Sec. 1
"Series B Conversion Price" Art. V Sec. 4(d)
"Series B Liquidation Art. V Sec. 3(b)
Preference"
"Series B Preferred Stock" Art. IV Sec. 1
"Series C Conversion Price" Art. V Sec. 4(d)
"Series C Liquidation Art. V Sec. 3(b)
Preference"
"Series C Preferred Stock" Art. IV Sec. 1
"Series E Conversion Price" Art. V Sec. 4(d)
"Series E Liquidation Art. V Sec. 3(b)
Preference"
"Series E Preferred Stock" Art. IV Sec. 1
"Series E-2 Conversion Price" Art. V Sec. 4(d)
"Series E-2 Liquidation Art. V Sec. 3(b)
Preference"
"Series E-2 Preferred Stock" Art. IV Sec. 1
"Series F Conversion Price" Art. V Sec. 4(d)
"Share Equivalents" Art. V Sec. 4(d)(ii)
"Series F Liquidation Art. V Sec. 3(b)
Preference"
"Series F Preferred Stock" Art. IV Sec. 1
"Series F-2 Conversion Price" Art. V Sec. 4(d)
"Series F-2 Liquidation Art. V Sec. 3(b)
Preference"
"Series F-2 Preferred Stock" Art. IV Sec. 1
"Specified Event" Art. V Sec. 4(i)
25
<PAGE>
"Stock Option Plans" Art. V Sec. 4(d)(ii)
"Trading Day" Art. V Sec. 4(c)
"Voting Securities" Art. V Sec. 4(d)(ii)
</TABLE>
26
<PAGE>
Exhibit 3.1.1
RESTATED CERTIFICATE OF INCORPORATION
NetObjects, Inc., a corporation organized and existing under the laws of
the State of Delaware, hereby certifies as follows:
The name of the corporation is NetObjects, Inc. NetObjects, Inc. was
originally incorporated under the same name, and the original Certificate of
Incorporation of the corporation was filed with the Secretary of the State of
Delaware on November 21, 1995.
NetObjects, Inc. intends to undertake an "Initial Public Offering," which
is hereby defined to mean a sale by NetObjects, Inc. of its Common Stock, in a
bona fide public offering on an underwritten firm commitment basis pursuant to a
registration statement filed with and declared effective by the Securities and
Exchange Commission ("SEC") pursuant to the Securities Act of 1933 and the rules
and regulations thereunder ("Securities Act"), which public offering results in
aggregate cash proceeds of at least $30 million.
Pursuant to Sections 228, 242 and 245 of the General Corporation Law of
the State of Delaware, the Restated Certificate of Incorporation set forth in
Appendix I attached hereto restates and integrates and further amends the
provisions of the Restated Certificate of Incorporation of this corporation.
Effective on the same date as the closing of the sale of Common Stock to
underwriters in the Initial Public Offering, the Restated Certificate of
Incorporation of NetObjects, Inc. in effect at the time immediately prior
thereto shall be amended and restated in its entirety as set forth in Appendix I
attached hereto.
IN WITNESS WHEREOF, this Amended and Restated Certificate of
Incorporation has been signed by its President and attested to by its Secretary
on _____________ ____, 1999.
------------------------------
Samir Arora, President
- ----------------------------
Alan B. Kalin, Secretary
<PAGE>
RESTATED CERTIFICATE OF INCORPORATION
OF
NETOBJECTS, INC.
ARTICLE I
The name of the corporation is NetObjects, Inc. (the "Corporation").
ARTICLE II
The address of the Corporation's registered office in the State of
Delaware is: 1013 Centre Road, City of Wilmington, County of New Castle. The
name of its registered agent at such address is The Prentice-Hall Corporation
System, Inc.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
Delaware.
ARTICLE IV
SECTION 1. The total number of shares of all classes of stock which
the Corporation has authority to issue is Sixty-Six Million (66,000,000) shares,
consisting of two classes: Sixty Million (60,000,000) shares of Common Stock,
$0.01 par value per share, and Six Million (6,000,000) shares of Preferred
Stock, $0.01 par value per share.
SECTION 2. The board of directors ("Board of Directors") is
authorized, subject to any limitations prescribed by the law of the State of
Delaware, to provide for the issuance of the shares of Preferred Stock in one or
more series, and, by filing a certificate of designation pursuant to the
applicable law of the State of Delaware, to establish from time to time the
number of shares to be included in each such series, to fix the designation,
powers, preferences and rights of the shares of each such series and any
qualifications, limitations or restrictions thereof, and to increase or decrease
the number of shares of any such series (but not below the number of shares of
such series then outstanding). The number of authorized shares of Preferred
Stock may also be increased or decreased (but not below the number of shares
thereof then outstanding) by the affirmative vote of the holders of a majority
of the stock of the Corporation entitled to vote, unless a vote of any other
holders is required pursuant to a certificate or certificates establishing a
series of Preferred Stock.
Except as otherwise expressly provided in any certificate of designation
<PAGE>
designating any series of Preferred Stock pursuant to the foregoing provisions
of this Article IV, any new series of Preferred Stock may be designated, fixed
and determined as provided herein by the Board of Directors without approval of
the holders of Common Stock or the holders of Preferred Stock, or any series
thereof, and any such new series may have powers, preferences and rights,
including, without limitation, voting rights, dividend rights, liquidation
rights, redemption rights and conversion rights, senior to, junior to or pari
passu with the rights of the Common Stock, the Preferred Stock, or any future
class or series of Preferred Stock or Common Stock.
SECTION 3. Upon the effectiveness of this Restated Certificate of
Incorporation following its filing with the Secretary of State of the State of
Delaware, every six shares of issued and outstanding Common Stock, par value
$.00000001 per share, of the Corporation, shall be changed and reclassified into
one share of Common Stock, par value $.01 per share, of the Corporation, thereby
giving effect to a one-for-six reverse stock split. The total number of shares
of authorized capital stock of the Corporation set forth in Section 1 of this
Article IV sets forth the total authorized stock of the corporation after giving
effect to this one-for-six reverse stock split. No fractional shares resulting
from the reverse split of Common Stock shall be issued; instead, the Corporation
shall pay to the holder of each fractional share an amount in cash as determined
by the Board of Directors, in its sole discretion.
ARTICLE V
During the term of the Voting Agreement dated as of February __,
1999 between the Corporation and International Business Machines Corporation
("IBM"), a vacancy on the Board of Directors created by the death or resignation
of an "IBM Representative," as defined in such Voting Agreement, shall be filled
by the approval of the remaining directors only with an IBM Representative
designated in writing by IBM, notwithstanding any other provision in the bylaws
of the Corporation to the contrary.
ARTICLE VI
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to make, alter, amend or repeal
the bylaws of the Corporation.
ARTICLE VII
SECTION 1. To the fullest extent permitted by the General Corporation
Law of Delaware as the same exists or as may hereafter be amended, no director
of the Corporation shall be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director.
Neither any amendment nor repeal of this Article, nor the adoption of any
provision of this
2
<PAGE>
Amended and Restated Certificate of Incorporation inconsistent with this
Article, shall eliminate or reduce the effect of this Article in respect of any
matter occurring, or any cause of action, suit or claim that, but for this
Article, would accrue or arise, prior to such amendment, repeal or adoption of
an inconsistent provision.
SECTION 2. To the extent permitted by applicable law, this Corporation
is also authorized to provide indemnification of (and advancement of expenses
to) agents (and any other persons to which Delaware law permits this Corporation
to provide indemnification) through bylaw provisions, agreements with such
agents or other persons, vote of stockholders or disinterested directors or
otherwise, in excess of the indemnification and advancement otherwise permitted
by Section 145 of the Delaware General Corporation Law, subject only to limits
created by applicable Delaware law (statutory or non-statutory), with respect to
actions for breach of duty to the Corporation, its stockholders, and others.
SECTION 3. Neither any amendment nor repeal of any of the foregoing
provisions of this Article VII, nor the adoption of any provision of this
Amended and Restated Certificate of Incorporation inconsistent with this Article
VII, shall eliminate, reduce or otherwise adversely affect any limitation on the
personal liability of a director of the Corporation existing at the time of such
amendment, repeal or adoption of such an inconsistent provision.
ARTICLE VIII
The Corporation shall not be subject to or governed by the provisions of
Section 203 of the General Corporation Law of Delaware, or any amendment or
successor provisions thereto, with respect to business combinations between the
Corporation and interested stockholders.
ARTICLE IX
The Corporation reserves the right at any time, and from time to time, to
amend, alter, change or repeal any provision contained in this Restated
Certificate of Incorporation, and other provisions authorized by the laws of the
State of Delaware at the time in force may be added or inserted, in the manner
now or hereafter prescribed by law; and all rights, preferences and privileges
of whatsoever nature conferred upon stockholders, directors or any other persons
whomsoever by and pursuant to this Restated Certificate of Incorporation in its
present form or as hereafter amended are granted subject to the rights reserved
in this article.
ARTICLE X
SECTION 1. In recognition that IBM is a substantial stockholder of the
Corporation, and that the Corporation and such stockholder may engage in the
3
<PAGE>
same or similar activities or lines of business and have an interest in the same
area of corporate opportunities, and in further recognition of the benefits to
be derived by the Corporation through its continued contractual, corporate and
business relations with such stockholder (including service of employees and
former employees of such stockholder as directors of the Corporation), the
provisions of this Article X are set forth to regulate and define the conduct of
certain affairs of the Corporation as they may involve such stockholder and its
officers and employees, and the powers, rights, duties and liabilities of the
Corporation and its officers, directors and stockholders in connection
therewith.
SECTION 2. IBM shall not have any duty to refrain from any of the
following: (a) engaging in the same or similar activities or lines of business
as the Corporation or developing or marketing products or services that compete,
directly or indirectly, with those of the Corporation; (b) doing business with
any client or customer of the Corporation; (c) investing (publicly or privately)
in, or developing other relationships with, other Persons (as defined in Section
6 below) or entities in the same or similar businesses as that of the
Corporation; and (d) employing or otherwise engaging any officer or employee or
former officer or employee of the Corporation. Neither IBM nor any officer,
director or employee of IBM shall have any obligation, or be liable, to the
Corporation or its stockholders (i) for or arising out of the conduct described
in (a), (b), (c) and (d) above, (ii) for exercising its rights under the Voting
Agreement or any other agreement to which it is a party or (iii) for breach of
any fiduciary or other duty to the Corporation or its stockholders by reason of
the conduct described in (i) or (ii) above or such officers', directors' or
employees' participation therein or such employees' actions as directors of the
Corporation.
SECTION 3. In the event that IBM or any officer, director or employee
of IBM acquires knowledge of a potential transaction or matter which may be a
corporate opportunity for both IBM and the Corporation, neither IBM nor its
officers, directors or employees shall have any duty to communicate or offer
such corporate opportunity to the Corporation and neither IBM nor its officers,
directors or employees shall be liable to the Corporation or its stockholders
for breach of any fiduciary or other duty, as a stockholder or otherwise, by
reason of the fact that IBM pursues or acquires such corporate opportunity for
itself, directs such corporate opportunity to another Person or entity, or does
not communicate such corporate opportunity or information regarding such
corporate opportunity to the Corporation.
SECTION 4. No action taken by the Board of Directors of the
Corporation shall be void or voidable or give rise to any liability for breach
of fiduciary duty or otherwise solely by reason of the fact that (i) a majority
of the members of such Board of Directors are affiliated with IBM and/or its
Affiliates (as defined in Section 6 below) and/or (ii) such action shall be, or
shall be deemed to be, beneficial to IBM, provided, however, that the
stockholders shall not be deemed to have
4
<PAGE>
waived any claim that would otherwise arise from any action of the Board of
Directors that results in a transfer of tangible assets or an assignment of
intellectual property rights of the Corporation to IBM or any Affiliate of IBM
on other than on commercially reasonable terms.
SECTION 5. Any Person or other entity purchasing or otherwise
acquiring any interest in shares of the capital stock of the Corporation shall
be deemed to have consented to the provisions of this Article X. The provisions
and the waivers set forth in this Article IX shall be effective to the maximum
extent permitted by law.
SECTION 6. Any reference to "IBM" shall mean IBM and its Affiliates.
"Affiliate" shall mean any Person that directly, or indirectly through one or
more intermediaries, controls or is controlled by or is under common control
with IBM. "Person" in this Article X shall mean any individual, firm,
corporation, partnership, trust, joint venture, governmental authority or other
entity, and shall include any successor (by merger or otherwise) of such entity.
SECTION 7. This Article X may be amended only by the affirmative vote
of the holders of at least ninety percent (90%) of the Corporation's outstanding
Voting Securities. All provisions and waivers of this Article X shall terminate
and be of no further force and effect at such time as the Voting Securities of
the Corporation held directly or indirectly by IBM represent less than ten
percent (10%) of all Voting Securities of the Corporation on a Fully Diluted
basis. Once so terminated, Article X shall not automatically revive if IBM's
share of Voting Securities of the Corporation shall thereafter or from time to
time rise above ten percent (10%). If terminated, the provisions and waivers of
this Article X nonetheless shall remain effective as to all events arising prior
to the time of such termination. "Voting Securities" shall mean the Common
Stock and any other securities of the Corporation entitled to vote generally in
the election of directors of the Corporation and any other securities (including
rights, warrants, options and convertible debt) convertible into, exchangeable
for or exercisable for any Common Stock or other securities referred to above
(whether or not presently convertible, exchangeable or exercisable, including
preferred stock of the Corporation). "Fully Diluted" shall mean the number of
fully diluted shares of Voting Securities (including without limitation upon
exercise of all outstanding warrants, options, convertible securities and other
rights to purchase Voting Securities).
5
<PAGE>
EXHIBIT 3.2
RESTATED BYLAWS
OF
NETOBJECTS, INC.
A DELAWARE CORPORATION
ADOPTED APRIL 11, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I CORPORATE OFFICES . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Registered Office . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Other Offices . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II MEETINGS OF STOCKHOLDERS . . . . . . . . . . . . . . . . . . . 1
2.1 Place of Meetings . . . . . . . . . . . . . . . . . . . . . . . 1
2.2 Annual Meetings . . . . . . . . . . . . . . . . . . . . . . . . 1
2.3 Special Meetings . . . . . . . . . . . . . . . . . . . . . . . 1
2.4 Notice of Stockholders' Meetings . . . . . . . . . . . . . . . 2
2.5 Manner of Giving Notice; Affidavit of Notice . . . . . . . . . 2
2.6 Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.7 Adjourned Meeting; Notice . . . . . . . . . . . . . . . . . . . 2
2.8 Conduct of Business . . . . . . . . . . . . . . . . . . . . . . 2
2.9 Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.10 Waiver of Notice . . . . . . . . . . . . . . . . . . . . . . . 3
2.11 Stockholder Action by Written Consent Without a Meeting . . . . 3
2.12 Record Date for Stockholder Notice; Voting; Giving Consents . . 3
2.13 Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.14 List of Stockholders Entitled to Vote . . . . . . . . . . . . . 4
ARTICLE III DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.1 Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.2 Number of Directors . . . . . . . . . . . . . . . . . . . . . . 4
3.3 Election, Qualification and Term of Office of Directors . . . . 5
3.4 Resignation and Vacancies . . . . . . . . . . . . . . . . . . . 5
3.5 Place of Meetings; Meetings by Telephone . . . . . . . . . . . 6
3.6 Regular Meetings . . . . . . . . . . . . . . . . . . . . . . . 6
3.7 Special Meetings; Notice . . . . . . . . . . . . . . . . . . . 6
3.8 Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.9 Waiver of Notice . . . . . . . . . . . . . . . . . . . . . . . 7
3.10 Board Action by Written Consent Without a Meeting . . . . . . . 7
3.11 Fees and Compensation of Directors . . . . . . . . . . . . . . 7
3.12 Approval of Loans to Officers . . . . . . . . . . . . . . . . . 7
3.13 Removal of Directors . . . . . . . . . . . . . . . . . . . . . 7
i
<PAGE>
TABLE OF CONTENTS (CONT'D)
PAGE
----
ARTICLE IV COMMITTEES . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.1 Committees of Directors . . . . . . . . . . . . . . . . . . . . 7
4.2 Committee Minutes . . . . . . . . . . . . . . . . . . . . . . . 8
4.3 Meetings and Action of Committees . . . . . . . . . . . . . . . 8
ARTICLE V OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.1 Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.2 Appointment of Officers . . . . . . . . . . . . . . . . . . . . 9
5.3 Subordinate Officers . . . . . . . . . . . . . . . . . . . . . 9
5.4 Removal and Resignation of Officers . . . . . . . . . . . . . . 9
5.5 Vacancies in Offices . . . . . . . . . . . . . . . . . . . . . 9
5.6 Chairman of the Board . . . . . . . . . . . . . . . . . . . . . 9
5.7 President . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.8 Chief Creative Officer . . . . . . . . . . . . . . . . . . . . 9
5.9 Vice Presidents . . . . . . . . . . . . . . . . . . . . . . . . 10
5.10 Secretary . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.11 Chief Financial Officer . . . . . . . . . . . . . . . . . . . . 10
5.12 Assistant Secretary . . . . . . . . . . . . . . . . . . . . . . 11
5.13 Assistant Treasurer . . . . . . . . . . . . . . . . . . . . . . 11
5.14 Representation of Shares of Other Corporations . . . . . . . . 11
5.15 Authority and Duties of Officers . . . . . . . . . . . . . . . 11
ARTICLE VI INDEMNITY . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
6.1 Third Party Actions . . . . . . . . . . . . . . . . . . . . . . 11
6.2 Actions by or in the Right of the Corporation . . . . . . . . . 12
6.3 Successful Defense . . . . . . . . . . . . . . . . . . . . . . 12
6.4 Determination of Conduct . . . . . . . . . . . . . . . . . . . 12
6.5 Payment of Expenses in Advance . . . . . . . . . . . . . . . . 12
6.6 Indemnity Not Exclusive . . . . . . . . . . . . . . . . . . . . 13
6.7 Insurance Indemnification . . . . . . . . . . . . . . . . . . . 13
6.8 The Corporation . . . . . . . . . . . . . . . . . . . . . . . . 13
6.9 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . 13
6.10 Indemnity Fund . . . . . . . . . . . . . . . . . . . . . . . . 13
6.11 Indemnification of Other Persons . . . . . . . . . . . . . . . 14
6.12 Savings Clause . . . . . . . . . . . . . . . . . . . . . . . . 14
6.13 Continuation of Indemnification and Advancement of Expenses . . 14
ii
<PAGE>
TABLE OF CONTENTS (CONT'D)
PAGE
----
ARTICLE VII RECORDS AND REPORTS . . . . . . . . . . . . . . . . . . . . . . 14
7.1 Maintenance and Inspection of Records . . . . . . . . . . . . . 14
7.2 Inspection by Directors . . . . . . . . . . . . . . . . . . . . 15
7.3 Annual Statement to Stockholders . . . . . . . . . . . . . . . 15
ARTICLE VIII GENERAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . 15
8.1 Checks . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
8.2 Execution of Corporate Contracts and Instruments . . . . . . . 15
8.3 Stock Certificates; Partly Paid Shares . . . . . . . . . . . . 15
8.4 Special Designation on Certificates . . . . . . . . . . . . . . 16
8.5 Lost Certificates . . . . . . . . . . . . . . . . . . . . . . . 16
8.6 Construction; Definitions . . . . . . . . . . . . . . . . . . . 16
8.7 Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
8.8 Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . 17
8.9 Seal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
8.10 Transfer of Stock . . . . . . . . . . . . . . . . . . . . . . . 17
8.11 Stock Transfer Agreements . . . . . . . . . . . . . . . . . . . 17
8.12 Registered Stockholders . . . . . . . . . . . . . . . . . . . . 17
ARTICLE IX AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
iii
<PAGE>
BYLAWS
OF
NETOBJECTS, INC.
A DELAWARE CORPORATION
ARTICLE I
CORPORATE OFFICES
1.1 REGISTERED OFFICE. The registered office of the corporation shall
be in the City of Wilmington, County of Newcastle, State of Delaware. The
name of the registered agent of the corporation at such location is The
Prentice-Hall Corporation System, Inc.
1.2 OTHER OFFICES. The board of directors may at any time establish
other offices at any place or places where the corporation is qualified to do
business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 PLACE OF MEETINGS. Meetings of stockholders shall be held at any
place, within or outside the State of Delaware, designated by the board of
directors. In the absence of any such designation, stockholders' meetings
shall be held at the registered office of the corporation.
2.2 ANNUAL MEETINGS. The annual meeting of stockholders shall be held
each year on a date and at a time designated by the board of directors. At
the meeting, directors shall be elected and any other proper business may be
transacted.
2.3 SPECIAL MEETINGS. A special meeting of the stockholders may be
called at any time by the board of directors, or by the chairman of the
board, or by the president, or by one or more stockholders holding shares in
the aggregate entitled to cast not less than ten percent (10%) of the votes
at that meeting.
If a special meeting is called by any person or persons other than
the board of directors, the request shall be in writing, specifying the time
of such meeting and the general nature of the business proposed to be
transacted, and shall be delivered personally or sent by registered mail or
by telegraphic or other facsimile transmission to the chairman of the board,
the president or the secretary of the corporation. No business may be
transacted at such special meeting otherwise than specified in such notice.
The officer receiving the request shall cause notice to be promptly given to
the stockholders entitled to vote, in accordance with the provisions of
Sections 2.4 and 2.5 of this Article II, that a meeting will be held at the
time requested by the person or persons who called the meeting, not less than
thirty-five (35) nor more
<PAGE>
than sixty (60) days after the receipt of the request. If the notice is not
given within twenty (20) days after the receipt of the request, the person or
persons requesting the meeting may give the notice. Nothing contained in
this paragraph of this Section 2.3 shall be construed as limiting, fixing, or
affecting the time when a meeting of stockholders called by action of the
board of directors may be held.
2.4 NOTICE OF STOCKHOLDERS' MEETINGS. All notices of meetings of
stockholders shall be in writing and shall be sent or otherwise given in
accordance with Section 2.5 of these bylaws not less than ten (10) nor more
than sixty (60) days before the date of the meeting to each stockholder
entitled to vote at such meeting. The notice shall specify the place, date,
and hour of the meeting, and in the case of a special meeting, the purpose or
purposes for which the meeting is called.
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE. Written notice of
any meeting of stockholders, if mailed, is given when deposited in the United
States mail, postage prepaid, directed to the stockholder at his address as
it appears on the records of the corporation. Written notice may also be
given by facsimile, in which case notice shall be deemed given upon the
earlier of receipt or twenty four (24) hours after transmission. An
affidavit of the secretary or an assistant secretary or of the transfer agent
of the corporation that the notice has been given shall, in the absence of
fraud, be prima facie evidence of the facts stated therein.
2.6 QUORUM. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum is not present or
represented at any meeting of the stockholders, then either (i) the chairman
of the meeting or (ii) the stockholders entitled to vote thereat, present in
person or represented by proxy, shall have power to adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum is present or represented. At such adjourned meeting at which a
quorum is present or represented, any business may be transacted that might
have been transacted at the meeting as originally noticed.
2.7 ADJOURNED MEETING; NOTICE. When a meeting is adjourned to another
time or place, unless these bylaws otherwise require, notice need not be
given of the adjourned meeting if the time and place thereof are announced at
the meeting at which the adjournment is taken. At the adjourned meeting the
corporation may transact any business that might have been transacted at the
original meeting. If the adjournment is for more than thirty (30) days, or
if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each stockholder
of record entitled to vote at the meeting.
2.8 CONDUCT OF BUSINESS. The chairman of any meeting of stockholders
shall determine the order of business and the procedure at the meeting,
including such regulation of the manner of voting and the conduct of business.
2
<PAGE>
2.9 VOTING. The stockholders entitled to vote at any meeting of
stockholders shall be determined in accordance with the provisions of Section
2.12 of these bylaws, subject to the provisions of Sections 217 and 218 of
the General Corporation Law of Delaware (relating to voting rights of
fiduciaries, pledgors and joint owners of stock and to voting trusts and
other voting agreements).
Except as provided in the last paragraph of this Section 2.9, or as
may be otherwise provided in the certificate of incorporation, each
stockholder shall be entitled to one vote for each share of capital stock
held by such stockholder.
2.10 WAIVER OF NOTICE. Whenever notice is required to be given under
any provision of the General Corporation Law of Delaware or of the
certificate of incorporation or these bylaws, a written waiver thereof,
signed by the person entitled to notice, whether before or after the time
stated therein, shall be deemed equivalent to notice. Attendance of a person
at a meeting shall constitute a waiver of notice of such meeting, except when
the person attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the
stockholders need be specified in any written waiver of notice unless so
required by the certificate of incorporation or these bylaws.
2.11 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Unless
otherwise provided in the certificate of incorporation, any action required
by this article to be taken at any annual or special meeting of stockholders
of the corporation, or any action that may be taken at any annual or special
meeting of such stockholders, may be taken without a meeting, without prior
notice, and without a vote if a consent in writing, setting forth the action
so taken, is signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted.
Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing. If the action which is
consented to is such as would have required the filing of a certificate under
any section of the General Corporation Law of Delaware if such action had
been voted on by stockholders at a meeting thereof, then the certificate
filed under such section shall state, in lieu of any statement required by
such section concerning any vote of stockholders, that written notice and
written consent have been given as provided in Section 228 of the General
Corporation Law of Delaware.
2.12 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS. In
order that the corporation may determine the stockholders entitled to notice
of or to vote at any meeting of stockholders or any adjournment thereof, or
entitled to express consent to corporate action in writing without a meeting,
or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of
3
<PAGE>
any other lawful action, the board of directors may fix, in advance, a record
date, which shall not be more than sixty (60) nor less than ten (10) days
before the date of such meeting, nor more than sixty (60) days prior to any
other action.
If the board of directors does not so fix a record date:
(i) The record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day
on which the meeting is held.
(ii) The record date for determining stockholders entitled to
express consent to corporate action in writing without a meeting, when no
prior action by the board of directors is necessary, shall be the day on
which the first written consent is expressed.
(iii) The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the board of
directors adopts the resolution relating thereto.
A determination of stockholders of record entitled to notice of or
to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the board of directors may fix a new record
date for the adjourned meeting.
2.13 PROXIES. Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him by a
written proxy, signed by the stockholder and filed with the secretary of the
corporation, but no such proxy shall be voted or acted upon after three (3)
years from its date, unless the proxy provides for a longer period. A proxy
shall be deemed signed if the stockholder's name is placed on the proxy
(whether by manual signature, typewriting, telegraphic transmission or
otherwise) by the stockholder or the stockholder's attorney-in-fact. The
revocability of a proxy that states on its face that it is irrevocable shall
be governed by the provisions of Section 212(c) of the General Corporation
Law of Delaware.
2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE. The officer who has charge
of the stock ledger of the corporation shall prepare and make, at least ten
(10) days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior
to the meeting, either at a place within the city where the meeting is to be
held, which place shall be specified in the notice of the meeting, or, if not
so specified, at the place where the meeting is to be held. The list shall
also be produced and kept at the time and place of the meeting during the
whole time thereof, and may be inspected by any
4
<PAGE>
stockholder who is present. Such list shall presumptively determine the
identify of the stockholders entitled to vote at the meeting and the number
of shares held by each of them.
ARTICLE III
DIRECTORS
3.1 POWERS. Subject to the provisions of the General Corporation Law
of Delaware and any limitation in the certificate of incorporation or these
bylaws relating to action required to be approved by the stockholders or by
the outstanding shares, the business and affairs of the corporation shall be
managed and all corporate powers shall be exercised by or under the direction
of the board of directors.
3.2 NUMBER OF DIRECTORS. The corporation shall have the number of
directors specified in the certificate of incorporation of the corporation.
No reduction of the authorized number of directors shall have the
effect of removing any director before that director's term of office expires.
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS. Except as
provided in Section 3.4 of these bylaws, directors shall be elected at each
annual meeting of stockholders to hold office until the next annual meeting.
Directors need not be stockholders unless so required by the certificate of
incorporation or these bylaws, wherein other qualifications for directors may
be prescribed. Each director, including a director elected to fill a
vacancy, shall hold office until his successor is elected and qualified or
until his earlier resignation or removal.
Elections of directors need not be by written ballot.
3.4 RESIGNATION AND VACANCIES. Any director may resign at any time
upon written notice to the attention of the secretary of the corporation.
When one or more directors so resigns and the resignation is effective at a
future date, a majority of the directors then in office, including those who
have so resigned, shall have power to fill such vacancy or vacancies, the
vote thereon to take effect when such resignation or resignations shall
become effective, and each director so chosen shall hold office as provided
in this section in the filling of other vacancies.
Unless otherwise provided in the certificate of incorporation or
these bylaws:
(i) Vacancies and newly created directorships resulting from any
increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled by a
majority of the directors then in office, although less than a quorum, or by
a sole remaining director.
(ii) Whenever the holders of any class or classes of stock or
series thereof are entitled to elect one or more directors by the provisions
of the certificate of incorporation, vacancies and newly created
directorships of such class or classes or
5
<PAGE>
series may be filled by a majority of the directors elected by such class or
classes or series thereof then in office, or by a sole remaining director so
elected.
If at any time, by reason of death or resignation or other cause,
the corporation should have no directors in office, then any officer or any
stockholder or any executor, administrator, trust or guardian of a
stockholder, or other fiduciary entrusted with like responsibility for the
person or estate of a stockholder, may call a special meeting of stockholders
in accordance with the provisions of the certificate of incorporation or
these bylaws, or may apply to the Court of Chancery for a decree summarily
ordering an election as provided in Section 211 of the General Corporation
Law of Delaware.
If, at the time of filling any vacancy or any newly created
directorship, the directors then in office constitute less than a majority of
the whole board (as constituted immediately prior to any such increase),
then the Court of Chancery may, upon application of any stockholder or
stockholders holding at least ten percent (10%) of the total number of the
shares at the time outstanding having the right to vote for such directors,
summarily order an election to be held to fill any such vacancies or newly
created directorships, or to replace the directors chosen by the directors
then in office as aforesaid, which election shall be governed by the
provisions of Section 211 of the General Corporation Law of Delaware as far
as applicable.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE. The board of directors
of the corporation may hold meetings, both regular and special, either within
or outside the State of Delaware.
Unless otherwise restricted by the certificate of incorporation or
these bylaws, members of the board of directors, or any committee designated
by the board of directors, may participate in a meeting of the board of
directors, or any committee, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
3.6 REGULAR MEETINGS. Regular meetings of the board of directors may
be held without notice at such time and at such place as shall from time to
time be determined by the board.
3.7 SPECIAL MEETINGS; NOTICE. Special meetings of the board of
directors for any purpose or purposes may be called at any time by the
chairman of the board, the president, any vice president, the secretary or
any two (2) directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
facsimile, charges prepaid, addressed to each director at that director's
address as it is shown on the records of the corporation. If the notice is
mailed, it shall be deposited in the United States mail at least four (4)
days before the time of the holding of the meeting. If the notice is
delivered personally or by telephone or by facsimile, it shall be delivered
6
<PAGE>
personally or by telephone or to the facsimile telephone number at least
forty-eight (48) hours before the time of the holding of the meeting. Any
oral notice given personally or by telephone may be communicated either to
the director or to a person at the office of the director who the person
giving the notice has reason to believe will promptly communicate it to the
director. The notice need not specify the purpose or the place of the
meeting, if the meeting is to be held at the principal executive office of
the corporation.
3.8 QUORUM. At all meetings of the board of directors, a majority of
the authorized number of directors shall constitute a quorum for the
transaction of business and the act of a majority of the directors present at
any meeting at which there is a quorum shall be the act of the board of
directors, except as may be otherwise specifically provided by statute or by
the certificate of incorporation. If a quorum is not present at any meeting
of the board of directors, then the directors present thereat may adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum is present.
A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the required quorum for that
meeting.
3.9 WAIVER OF NOTICE. Whenever notice is required to be given under
any provision of the General Corporation Law of Delaware or of the
certificate of incorporation or these bylaws, a written waiver thereof,
signed by the person entitled to notice, whether before or after the time
stated therein, shall be deemed equivalent to notice. Attendance of a person
at a meeting shall constitute a waiver of notice of such meeting, except when
the person attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor other purpose of, any regular or special meeting of the
directors, or members of a committee of directors, need be specified in any
written waiver of notice unless so required by the certificate of
incorporation or these bylaws.
3.10 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Unless
otherwise restricted by the certificate of incorporation or these bylaws, any
action required or permitted to be taken at any meeting of the board of
directors, or of any committee thereof, may be taken without a meeting if all
members of the board or committee, as the case may be, consent thereto in
writing and the writing or writings are filed with the minutes of proceedings
of the board or committee.
3.11 FEES AND COMPENSATION OF DIRECTORS. Unless otherwise restricted by
the certificate of incorporation or these bylaws, the board of directors
shall have the authority to fix the compensation of directors.
3.12 APPROVAL OF LOANS TO OFFICERS. The corporation may lend money to,
or guarantee any obligation of, or otherwise assist any officer or other
employee of the corporation or of its subsidiaries, including any officer or
employee who is a director of
7
<PAGE>
the corporation or its subsidiaries, whenever, in the judgment of the
directors, such loan, guaranty or assistance may reasonably be expected to
benefit the corporation. The loan, guaranty or other assistance may be with
or without interest and may be unsecured, or secured in such manner as the
board of directors shall approve, including, without limitation, a pledge of
shares of stock of the corporation. Nothing contained in this section shall
be deemed to deny, limit or restrict the powers of guaranty or warranty of
the corporation at common law or under any statute.
3.13 REMOVAL OF DIRECTORS. Unless otherwise restricted by statute, by
the certificate of incorporation or by these bylaws, any director or the
entire board of directors may be removed, with or without cause, by the
holders of a majority of the shares then entitled to elect such director.
ARTICLE IV
COMMITTEES
4.1 COMMITTEES OF DIRECTORS. The board of directors may, by resolution
passed by a majority of the whole board, designate one or more committees,
with each committee to consist of one or more of the directors of the
corporation. The board may designate one or more directors as alternate
members of any committee, who may replace any absent or disqualified member
at any meeting of the committee. In the absence or disqualification of a
member of a committee, the member or members thereof present at any meeting
and not disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another member of the board of directors to
act at the meeting in the place of any such absent or disqualified member.
Any such committee, to the extent provided in the resolution of the board of
directors or in the bylaws of the corporation, shall have and may exercise
all the powers and authority of the board of directors in the management of
the business and affairs of the corporation, and may authorize the seal of
the corporation to be affixed to all papers that may require it; but no such
committee shall have the power or authority to (i) amend the certificate of
incorporation (except that a committee may, to the extent authorized in the
resolution or resolutions providing for the issuance of shares of stock
adopted by the board of directors as provided in Section 151(a) of the
General Corporation Law of Delaware, fix the designation and any of the
preferences or rights of such shares relating to dividends, redemption,
dissolution, any distribution of assets of the corporation or the conversion
into, or the exchange of such shares for, shares of any other class or
classes or any other series of the same or any other class or classes of
stock of the corporation or fix the number of shares of any series of stock
or authorize the increase or decrease of the shares of any series), (ii)
adopt an agreement of merger or consolidation under Sections 251 or 252 of
the General Corporation Law of Delaware, (iii) recommend to the stockholders
the sale, lease or exchange of all or substantially all of the corporation's
property and assets, (iv) recommend to the stockholders a dissolution of the
corporation or a revocation of a dissolution, or (v) amend the bylaws of the
corporation; and, unless the board resolution establishing the committee, the
bylaws or the certificate of incorporation expressly so provide, no such
committee shall have the power or authority to declare a dividend, to
authorize the
8
<PAGE>
issuance of stock, or to adopt a certificate of ownership and merger pursuant
to Section 253 of the General Corporation Law of Delaware.
4.2 COMMITTEE MINUTES. Each committee shall keep regular minutes of
its meetings and report the same to the board of directors when required.
4.3 MEETINGS AND ACTION OF COMMITTEES. Meetings and actions of
committees shall be governed by, and held and taken in accordance with, the
provisions of Article III of these bylaws, Section 3.5 (place of meetings and
meetings by telephone), Section 3.6 (regular meetings), Section 3.7 (special
meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of notice),
and Section 3.10 (action without a meeting), with such changes in the context
of those bylaws as are necessary to substitute the committee and its members
for the board of directors and its members; provided, however, that the time
of regular meetings of committees may be determined either by resolution of
the board of directors or by resolution of the committee, that special
meetings of committees may also be called by resolution of the board of
directors and that notice of special meetings of committees shall also be
given to all alternate members, who shall have the right to attend all
meetings of the committee. The board of directors may adopt rules for the
government of any committee not inconsistent with the provisions of these
bylaws.
ARTICLE V
OFFICERS
5.1 OFFICERS. The officers of the corporation shall be a president, a
secretary, and a chief financial officer. The corporation may also have, at
the discretion of the board of directors, a chairman of the board, a chief
creative officer, one or more vice presidents, one or more assistant vice
presidents, one or more assistant secretaries, and one or more assistant
treasurers, and any such other officers as may be appointed in accordance
with the provisions of Section 5.3 of these bylaws. Any number of offices
may be held by the same person.
5.2 APPOINTMENT OF OFFICERS. The officers of the corporation, except
such officers as may be appointed in accordance with the provisions of
Sections 5.3 or 5.5 of these bylaws, shall be appointed by the board of
directors, subject to the rights, if any, of an officer under any contract of
employment.
5.3 SUBORDINATE OFFICERS. The board of directors may appoint, or
empower the president to appoint, such other officers as the business of the
corporation may require, each of whom shall hold office for such period, have
such authority, and perform such duties as are provided in these bylaws or as
the board of directors may from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS. Subject to the rights, if
any, of an officer under any contract of employment, any officer may be
removed, either with or without cause, by an affirmative vote of the majority
of the board of directors at any regular or special meeting of the board or,
except in the case of an officer chosen by
9
<PAGE>
the board of directors, by any officer upon whom such power of removal may be
conferred by the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless
otherwise specified in that notice, the acceptance of the resignation shall
not be necessary to make it effective. Any resignation is without prejudice
to the rights, if any, of the corporation under any contract to which the
officer is a party.
5.5 VACANCIES IN OFFICES. Any vacancy occurring in any office of the
corporation shall be filled by the board of directors.
5.6 CHAIRMAN OF THE BOARD. The chairman of the board, if such an
officer be elected, shall, if present, preside at meetings of the board of
directors and exercise and perform such other powers and duties as may from
time to time be assigned to him by the board of directors or as may be
prescribed by these bylaws. If there is no president, then the chairman of
the board shall also be the chief executive officer of the corporation and
shall have the powers and duties prescribed in Section 5.7 of these bylaws.
5.7 PRESIDENT. Subject to such supervisory powers, if any, as may be
given by the board of directors to the chairman of the board, if there be
such an officer, the president shall be the chief executive officer of the
corporation and shall, subject to the control of the board of directors, have
general supervision, direction, and control of the business and the officers
of the corporation. He shall preside at all meetings of the stockholders
and, in the absence or nonexistence of a chairman of the board, at all
meetings of the board of directors. He shall have the general powers and
duties of management usually vested in the office of president of a
corporation and shall have such other powers and duties as may be prescribed
by the board of directors or these bylaws.
5.8 CHIEF CREATIVE OFFICER. The chief creative officer of the Company
shall be responsible for the creative development, identity and
implementation of the Company's software products and marketing communication
materials and programs. With respect to product development, the chief
creative officer shall be responsible for the creative implementation of the
Company's software products, including structure templates and clip content
products. With respect to marketing and public relations, the chief creative
officer shall be responsible for the creative aspects and implementation of
the Company's marketing communication materials. The chief creative officer
shall have such other powers and perform such other duties as from time to
time may be prescribed by the board of directors, these bylaws, the president
or the chairman of the board.
5.9 VICE PRESIDENTS. In the absence or disability of the president,
the vice presidents, if any, in order of their rank as fixed by the board of
directors or, if not ranked, a vice president designated by the board of
directors, shall perform all the
10
<PAGE>
duties of the president and when so acting shall have all the powers of, and
be subject to all the restrictions upon, the president. The vice presidents
shall have such other powers and perform such other duties as from time to
time may be prescribed for them respectively by the board of directors, these
bylaws, the president or the chairman of the board.
5.10 SECRETARY. The secretary shall keep or cause to be kept, at the
principal executive office of the corporation or such other place as the
board of directors may direct, a book of minutes of all meetings and actions
of directors, committees of directors, and stockholders. The minutes shall
show the time and place of each meeting, whether regular or special (and, if
special, how authorized and the notice given), the names of those present at
directors' meetings or committee meetings, the number of shares present or
represented at stockholders' meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal
executive office of the corporation or at the office of the corporation's
transfer agent or registrar, as determined by resolution of the board of
directors, a share register, or a duplicate share register, showing the names
of all stockholders and their addresses, the number and classes of shares
held by each, the number and date of certificates evidencing such shares, and
the number and date of cancellation of every certificate surrendered for
cancellation.
The secretary shall give, or cause to be given, notice of all
meetings of the stockholders and of the board of directors required to be
given by law or by these bylaws. He shall keep the seal of the corporation,
if one be adopted, in safe custody and shall have such other powers and
perform such other duties as may be prescribed by the board of directors or
by these bylaws.
5.11 CHIEF FINANCIAL OFFICER. The chief financial officer shall keep
and maintain, or cause to be kept and maintained, adequate and correct books
and records of accounts of the properties and business transactions of the
corporation, including accounts of its assets, liabilities, receipts,
disbursements, gains, losses, capital retained earnings, and shares. The
books of account shall at all reasonable times be open to inspection by any
director.
The chief financial officer shall deposit all moneys and other
valuables in the name and to the credit of the corporation with such
depositories as may be designated by the board of directors. He shall
disburse the funds of the corporation as may be ordered by the board of
directors, shall render to the president and directors, whenever they request
it, an account of all his transactions as chief financial officer and of the
financial condition of the corporation, and shall have other powers and
perform such other duties as may be prescribed by the board of directors or
these bylaws.
The chief financial officer shall be the treasurer of the
corporation.
11
<PAGE>
5.12 ASSISTANT SECRETARY. The assistant secretary, or, if there is more
than one, the assistant secretaries in the order determined by the
stockholders or board of directors (or if there be no such determination,
then in the order of their election) shall, in the absence of the secretary
or in the event of his or her inability or refusal to act, perform the duties
and exercise the powers of the secretary and shall perform such other duties
and have such other powers as may be prescribed by the board of directors or
these bylaws.
5.13 ASSISTANT TREASURER. The assistant treasurer, or, if there is more
than one, the assistant treasurers, in the order determined by the
stockholders or board of directors (or if there be no such determination,
then in the order of their election), shall, in the absence of the chief
financial officer or in the event of his or her inability or refusal to act,
perform the duties and exercise the powers of the chief financial officer and
shall perform such other duties and have such other powers as may be
prescribed by the board of directors or these bylaws.
5.14 REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The chairman of
the board, the president, any vice president, the chief financial officer,
the secretary or assistant secretary of this corporation, or any other person
authorized by the board of directors or the president or a vice president,
is authorized to vote, represent, and exercise on behalf of this corporation
all rights incident to any and all shares of any other corporation or
corporations standing in the name of this corporation. The authority granted
herein may be exercised either by such person directly or by any other person
authorized to do so by proxy or power of attorney duly executed by such
person having the authority.
5.15 AUTHORITY AND DUTIES OF OFFICERS. In addition to the foregoing
authority and duties, all officers of the corporation shall respectively have
such authority and perform such duties in the management of the business of
the corporation as may be designated from time to time by the board of
directors or the stockholders.
ARTICLE VI
INDEMNITY
6.1 THIRD PARTY ACTIONS. Subject to the provisions of this Article VI,
the corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director or officer of the
corporation, or is or was serving at the request of the corporation as a
director, officer or employee of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement (if such settlement is
approved in advance by the corporation, which approval shall not be
unreasonably withheld) actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests
of the corporation, and, with respect to any criminal action or proceeding,
had no reasonable
12
<PAGE>
cause to believe his conduct was unlawful. The termination of any action,
suit or proceeding by judgment, order, settlement, conviction, or upon a plea
of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which
he reasonably believed to be in or not opposed to the best interest of the
corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
6.2 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION. Subject to the
provisions of this Article VI, the corporation shall indemnify any person who
was or is a party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that he is or was a
director, officer or employee of the corporation, or is or was serving at the
request of the corporation as a director, officer or employee of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by him
in connection with the defense or settlement of such action or suit, if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Delaware Court of Chancery or the
court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled
to indemnity for such expenses which the Delaware Court of Chancery or such
other court shall deem proper. Notwithstanding any other provision of this
Article VI, no person shall be indemnified hereunder for any expenses or
amounts paid in settlement with respect to any action to recover short-swing
profits under Section 16(b) of the Securities Exchange Act of 1934, as
amended.
6.3 SUCCESSFUL DEFENSE. To the extent that a director, officer or
employee of the corporation has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to in Sections 6.1 and
6.2, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
6.4 DETERMINATION OF CONDUCT. Any indemnification under Sections 6.1
and 6.2 (unless ordered by a court) shall be made by the corporation only as
authorized in the specific case upon a determination that the indemnification
of the director, officer or employee is proper in the circumstances because
he has met the applicable standard of conduct set forth in Sections 6.1 and
6.2. Such determination shall be made (i) by the Board of Directors by a
majority vote of a quorum consisting of directors who were not parties to
such action, suit or proceeding or (ii) if such quorum is not obtainable or,
even if obtainable, a quorum of disinterested directors so directs, by
independent legal counsel in a written opinion, or (iii) by the stockholders.
Notwithstanding the foregoing, a director, officer or employee of the
corporation shall be entitled to contest any determination that the director,
officer or employee has not met the applicable standard
13
<PAGE>
of conduct set forth in Sections 6.1 and 6.2 by petitioning a court of
competent jurisdiction.
6.5 PAYMENT OF EXPENSES IN ADVANCE. Expenses incurred in defending a
civil or criminal action, suit or proceeding, by an individual who may be
entitled to indemnification pursuant to Section 6.1 or 6.2, shall be paid by
the corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of the director,
officer or employee to repay such amount if it shall ultimately be determined
that he is not entitled to be indemnified by the corporation as authorized in
this Article VI.
6.6 INDEMNITY NOT EXCLUSIVE. The indemnification and advancement of
expenses provided by or granted pursuant to the other sections of this
Article VI shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under any
bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office.
6.7 INSURANCE INDEMNIFICATION. The corporation shall have the power to
purchase and maintain insurance on behalf of any person who is or was a
director, officer or employee of the corporation, or is or was serving at the
request of the corporation, as a director, officer or employee of another
corporation, partnership, joint venture, trust or other enterprise, against
any liability asserted against him and incurred by him in any such capacity
or arising out of his status as such, whether or not the corporation would
have the power to indemnify him against such liability under the provisions
of this Article VI.
6.8 THE CORPORATION. For purposes of this Article VI, references to
the "corporation" shall include, in addition to the resulting corporation,
any constituent corporation (including any constituent of a constituent)
absorbed in a consolidation or merger which, if its separate existence had
continued, would have had power and authority to indemnify its directors and
officers, so that any person who is or was a director, officer or employee of
such constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer or employee of another
corporation, partnership, joint venture, trust or other enterprise, shall
stand in the same position under and subject to the provisions of this
Article VI (including, without limitation, the provisions of Section 6.4)
with respect to the resulting or surviving corporation as he would have with
respect to such constituent corporation if its separate existence had
continued.
6.9 EMPLOYEE BENEFIT PLANS. For purposes of this Article VI,
references to "other enterprises" shall include employee benefit plans;
references to "fines" shall include any excise taxes assessed on a person
with respect to an employee benefit plan; and references to "serving at the
request of the corporation" shall include any service as a director, officer
or employee of the corporation which imposes duties on, or involves services
by, such director, officer or employee with respect to an employee benefit
plan, its participants, or beneficiaries; and a person who acted in good
faith and
14
<PAGE>
in a manner he reasonably believed to be in the interest of the participants
and beneficiaries of an employee benefit plan shall be deemed to have acted
in a manner "not opposed to the best interests of the corporation" as
referred to in this Article VI.
6.10 INDEMNITY FUND. Upon resolution passed by the Board, the
corporation may establish a trust or other designated account, grant a
security interest or use other means (including, without limitation, a letter
of credit), to ensure the payment of certain of its obligations arising under
this Article VI and/or agreements which may be entered into between the
corporation and its officers and directors from time to time.
6.11 INDEMNIFICATION OF OTHER PERSONS. The provisions of this Article
VI shall not be deemed to preclude the indemnification of any person who is
not a director or officer of the corporation or is not serving at the request
of the corporation as a director, officer or employee of another corporation,
partnership, joint venture, trust or other enterprise, but whom the
corporation has the power or obligation to indemnify under the provisions of
the General Corporation Law of the State of Delaware or otherwise. The
corporation may, in its sole discretion, indemnify an employee, trustee or
other agent as permitted by the General Corporation Law of the State of
Delaware. The corporation shall indemnify an employee, trustee or other
agent where required by law.
6.12 SAVINGS CLAUSE. If this Article VI or any portion thereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each person entitled to
indemnification hereunder against expenses (including attorney's fees),
judgments, fines and amounts paid in settlement with respect to any action,
suit, proceeding or investigation, whether civil, criminal or administrative,
and whether internal or external, including a grand jury proceeding and an
action or suit brought by or in the right of the corporation, to the full
extent permitted by any applicable portion of this Article that shall not
have been invalidated, or by any other applicable law.
6.13 CONTINUATION OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES. The
indemnification and advancement of expenses provided by, or granted pursuant
to, this Article VI shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director, officer or
employee and shall inure to the benefit of the heirs, executors and
administrators of such a person.
ARTICLE VII
RECORDS AND REPORTS
7.1 MAINTENANCE AND INSPECTION OF RECORDS. The corporation shall,
either at its principal executive office or at such place or places as
designated by the board of directors, keep a record of its stockholders
listing their names and addresses and the number and class of shares held by
each stockholder, a copy of these bylaws as amended to date, accounting
books, and other records.
Any stockholder of record, in person or by attorney or other agent,
shall, upon written demand under oath stating the purpose thereof, have the
right during the
15
<PAGE>
usual hours for business to inspect for any proper purpose the corporation's
stock ledger, a list of its stockholders, and its other books and records and
to make copies or extracts therefrom. A proper purpose shall mean a purpose
reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent in the person who seeks the right
to inspection, the demand under oath shall be accompanied by a power of
attorney or such other writing that authorizes the attorney or other agent so
to act on behalf of the stockholder. The demand under oath shall be directed
to the corporation at its registered office in Delaware or at its principal
place of business.
The officer who has charge of the stock ledger of the corporation
shall prepare and make, at least ten (10) days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, showing the address of each
stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten (10) days prior to the meeting, either at a place
within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at
the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
7.2 INSPECTION BY DIRECTORS. Any director shall have the right to
examine the corporation's stock ledger, a list of its stockholders, and its
other books and records for a purpose reasonably related to his position as a
director. The Court of Chancery is hereby vested with the exclusive
jurisdiction to determine whether a director is entitled to the inspection
sought. The Court may summarily order the corporation to permit the director
to inspect any and all books and records, the stock ledger, and the stock
list and to make copies or extracts therefrom. The Court may, in its
discretion, prescribe any limitations or conditions with reference to the
inspection, or award such other and further relief as the Court may deem just
and proper.
7.3 ANNUAL STATEMENT TO STOCKHOLDERS. The board of directors shall
present at each annual meeting, and at any special meeting of the
stockholders when called for by vote of the stockholders, a full and clear
statement of the business and condition of the corporation.
ARTICLE VIII
GENERAL MATTERS
8.1 CHECKS. From time to time, the board of directors shall determine
by resolution which person or persons may sign or endorse all checks, drafts,
other orders for payment of money, notes or other evidences of indebtedness
that are issued in the name of or payable to the corporation, and only the
persons so authorized shall sign or endorse those instruments.
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS. The board of
directors, except as otherwise provided in these bylaws, may authorize any
officer or
16
<PAGE>
officers, to enter into any contract or execute any instrument in the name of
and on behalf of the corporation; such authority may be general or confined
to specific instances. Unless so authorized or ratified by the board of
directors or within the agency power of an officer, no officer employee shall
have any power or authority to bind the corporation by any contract or
engagement or to pledge its credit or to render it liable for any purpose or
for any amount.
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES. The shares of the
corporation shall be represented by certificates, provided that the board of
directors of the corporation may provide by resolution or resolutions that
some or all of any or all classes or series of its stock shall be
uncertificated shares. Any such resolution shall not apply to shares
represented by a certificate until such certificate is surrendered to the
corporation. Notwithstanding the adoption of such a resolution by the board
of directors, every holder of stock represented by certificates and upon
request every holder of uncertificated shares shall be entitled to have a
certificate signed by, or in the name of the corporation by the chairman or
vice-chairman of the board of directors, or the president or vice president,
and by the chief financial officer or an assistant treasurer, or the
secretary or an assistant secretary of the corporation representing the
number of shares registered in certificate form. Any or all of the
signatures on the certificate may be a facsimile. In case any officer,
transfer agent or registrar who has signed or whose facsimile signature has
been placed upon a certificate has ceased to be such officer, transfer agent
or registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if he were such officer, transfer agent
or registrar at the date of issue.
The corporation may issue the whole or any part of its shares as
partly paid and subject to call for the remainder of the consideration to be
paid therefor. Upon the face or back of each stock certificate issued to
represent any such partly paid shares, upon the books and records of the
corporation in the case of uncertificated partly paid shares, the total
amount of the consideration to be paid therefor and the amount paid thereon
shall be stated. Upon the declaration of any dividend on fully paid shares,
the corporation shall declare a dividend upon partly paid shares of the same
class, but only upon the basis of the percentage of the consideration
actually paid thereon.
8.4 SPECIAL DESIGNATION ON CERTIFICATES. If the corporation is
authorized to issue more than one class of stock or more than one series of
any class, then the powers, the designations, the preferences, and the
relative, participating, optional or other special rights of each class of
stock or series thereof and the qualifications, limitations or restrictions
of such preferences and/or rights shall be set forth in full or summarized on
the face of back of the certificate that the corporation shall issue to
represent such class or series of stock; provided, however, that, except as
otherwise provided in Section 202 of the General Corporation Law of Delaware,
in lieu of the foregoing requirements there may be set forth on the face or
back of the certificate that the corporation shall issue to represent such
class or series of stock a statement that the corporation will furnish
without charge to each stockholder who so requests the
17
<PAGE>
powers, the designations, the preferences, and the relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights.
8.5 LOST CERTIFICATES. Except as provided in this Section 8.5, no new
certificates for shares shall be issued to replace a previously issued
certificate unless the latter is surrendered to the corporation and cancelled
at the same time. The corporation may issue a new certificate of stock or
uncertificated shares in the place of any certificate theretofore issued by
it, alleged to have been lost, stolen or destroyed, and the corporation may
require the owner of the lost, stolen or destroyed certificate, or his legal
representative, to give the corporation a bond sufficient to indemnify it
against any claim that may be made against it on account of the alleged loss,
theft or destruction of any such certificate or the issuance of such new
certificate or uncertificated shares.
8.6 CONSTRUCTION; DEFINITIONS. Unless the context requires otherwise,
the general provisions, rules of construction, and definitions in the
Delaware General Corporation Law shall govern the construction of these
bylaws. Without limiting the generality of this provision, the singular
number includes the plural, the plural number includes the singular, and the
term "person" includes both a corporation and a natural person.
8.7 DIVIDENDS. The directors of the corporation, subject to any
restrictions contained in (i) the General Corporation Law of Delaware or (ii)
the corporation's certificate of incorporation, may declare and pay dividends
upon the shares of its capital stock. Dividends may be paid in cash, in
property, or in shares of the corporation's capital stock.
The directors of the corporation may set apart out of any of the
funds of the corporation available for dividends a reserve or reserves for
any proper purpose and may abolish any such reserve. Such purposes shall
include but not be limited to equalizing dividends, repairing or maintaining
any property of the corporation, and meeting contingencies.
8.8 FISCAL YEAR. The fiscal year of the corporation shall be fixed by
resolution of the board of directors and may be changed by the board of
directors.
8.9 SEAL. The corporation may adopt a corporate seal, which shall be
adopted and which may be altered by the board of directors, and may use the
same by causing it or a facsimile thereof to be impressed or affixed or in
any other manner reproduced.
8.10 TRANSFER OF STOCK. Upon surrender to the corporation or the
transfer agent of the corporation of a certificate for shares duly endorsed
or accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the corporation to issue a new certificate
to the person entitled thereto, cancel the old certificate, and record the
transaction in its books.
18
<PAGE>
8.11 STOCK TRANSFER AGREEMENTS. The corporation shall have power to
enter into and perform any agreement with any number of stockholders of any
one or more classes of stock of the corporation to restrict the transfer of
shares of stock of the corporation of any one or more classes owned by such
stockholders in any manner not prohibited by the General Corporation Law of
Delaware.
8.12 REGISTERED STOCKHOLDERS. The corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends and to vote as such owner, shall be
entitled to hold liable for calls and assessments the person registered on
its books as the owner of shares, and shall not be bound to recognize any
equitable or other claim to or interest in such share or shares on the part
of another person, whether or not it shall have express or other notice
thereof, except as otherwise provided by the laws of Delaware.
ARTICLE IX
AMENDMENTS
The bylaws of the corporation may be adopted, amended or repealed by an
affirmative vote of the holders of a majority of the outstanding shares of
Preferred Stock and Common Stock voting as a single class.
19
<PAGE>
CERTIFICATE OF ADOPTION OF AMENDMENT OF BYLAWS
OF
NETOBJECTS, INC., A DELAWARE CORPORATION
Certificate by Secretary of Amendment of Bylaws:
The undersigned hereby certifies that he is the duly elected, qualified,
and acting Secretary of NetObjects, Inc., a Delaware Corporation and that the
foregoing bylaws, comprising eighteen (18) pages, including this page, were
adopted as the Bylaws of the corporation as of April 11, 1997, by the
stockholders of the corporation.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and
affixed the corporate seal as of April 11, 1997,
/s/ Alan B. Kalin
------------------------------
Alan B. Kalin, Secretary
20
<PAGE>
Exhibit A to Amended Bylaws
3.14 Matters Requiring Board Approval. The corporation may not take any
of the following actions without the affirmative vote of a majority of the
members of the board of directors of the corporation:
(1) hiring or termination of any officer of the corporation or any
substantial change in the title, function or duties of any officer of the
corporation;
(2) amendment of or waiver by the corporation of its rights under any
Operative Agreement (as defined in the Agreement and Plan of Merger dated as
of March 18, 1997, among international Business Machines Corporation, Net
Acquisition Corp., NetObjects, Inc. and the holders listed on the signature
pages thereto (the "Merger Agreements"));
(3) sale, transfer, exchange, lease, license, assignment, mortgage,
pledge, hypothecation or other disposition of any software, patents or
know-how of the corporation (other than in the ordinary course of business);
(4) sale, transfer, exchange, lease, license, assignment, mortgage,
pledge, hypothecation or other disposition of assets (tangible or intangible)
of the corporation not covered in the preceding clause (3) having a value
exceeding $500,000 in any one transaction or series of related transaction
(exclusive of licenses granted in the ordinary course of business), or any
such transaction not in the ordinary course of business;
(5) acquisition of tangible capital assets by the corporation for an
acquisition price exceeding $500,000 in any transaction or series of related
transactions;
(6) any investment or series of related investments by the corporation
exceeding $500,000, including acquisitions or sales of securities (other than
normal bank deposits/short term liquid assets);
(7) incurrence by the corporation of (a) obligations for borrowed money
(whether secured or unsecured), (b) obligations representing the deferred
purchase price of property or services other than accounts payable arising in
the ordinary course of business, (c) obligations that would be shown as a
liability on a balance sheet of the corporation under generally accepted
accounting principles in respect of leases of property that would be
capitalized on such balance sheet, (d) obligations evidenced by any bond,
note, debenture or other evidence of indebtedness and (e) obligations under
guarantees (direct or indirect and however denominated) in respect of any
obligations of third parties referred to in clauses (a) through (d), if the
aggregate of such obligations incurred during any fiscal year exceeds
$100,000;
1
<PAGE>
(8) entry by the corporation into any other contract or the incurrence
of any other obligation of a type not otherwise described in clauses (3)
through (7) above other than in the ordinary course of business or involving
payments or other consideration in excess of $500,000 in any one transaction
or series or related transactions (including the purchase, lease, license or
other acquisition of personal property or purchase of services);
(9) purchase or other acquisition of any real property or interest
therein or the entry into any lease respecting real property;
(10) acquisition by the corporation of an existing business from another
entity, the entry by the corporation into a partnership or formal joint
venture or the creation by the corporation of any subsidiary or the taking of
any action to cause any other person to become a stockholder in any
subsidiary;
(11) approval of the annual budget of the corporation and each annual
and any long-range or other business plan of the corporation;
(12) any material change to, or deviation from, the most recently
approved annual business plan and any expenditures not contemplated by such
business plan aggregating more than 5% of the annual expense budget of the
corporation for the then current fiscal year;
(13) declaration or payment of any dividend or other distribution by the
corporation (whether in cash or by issuance of shares of capital stock) on
any shares of capital stock of the corporation, or the direct or indirect
redemption, retirement, purchase or other acquisition of any capital stock of
the corporation (other than the redemption, retirement, purchase or other
acquisition of capital stock pursuant to any incentive compensation plan
previously approved pursuant to paragraph (15));
(14) commencement (including the filing of a counterclaim) or settlement
of any claim or litigation, regulatory proceeding or arbitration;
(15) adoption of or revision to any employee incentive compensation
program, including programs relating to bonuses, profit sharing or deferred
compensation, or any stock option, restricted stock, phantom stock, stock
appreciation rights or similar employee stock plan or the increase in the
number of shares or share equivalents available thereunder;
(16) adoption of or revision to any form of employment agreement,
employee noncompetition agreement or confidentiality agreement utilized by
the corporation;
(17) adoption, amendment or termination of any collectors bargaining
agreement;
2
<PAGE>
(18) appointment, engagement or removal of public accountants, auditors
or outside counsel by the corporation;
(19) appointment or termination of the general counsel of the
corporation;
(20) any increase or decrease in the compensation (including the payment
of any discretionary cash bonuses) of any officer of the corporation or of
any other employee of the corporation whose base cash compensation is or
would become greater than $100,000 (exclusive of the value of any award
pursuant to any stock based incentive or bonus program previously approved by
the board of directors);
(21) award or issuance of stock-based bonuses or any share, share
equivalents, options or rights pursuant to any program or plan previously
approved by the board of directors;
(22) entry into any material product development, marketing or
distribution agreements, including any subcontracting agreement but excluding
any agreement with an original equipment manufacturer consistent with the
most recently adopted annual business plan;
(23) adoption or revision of any accounting or tax principle, policy or
procedure to be employed by the corporation;
(24) adoption or revision of any policy or practice relating to the
protection of intellectual property (including patents);
(25) giving of any notice of default (howsoever called) by the
corporation under any Operative Agreement or the termination by the
corporation of any Operative Agreement for the breach by another party of
such Operative Agreement;
(26) filings with, or public comments to, Governmental Authorities (as
defined in the Merger Agreement), other than routine permits, licenses and
filings in the ordinary course of business; and
(27) political and charitable contributions.
In each instance where an amount or a time period is set forth in this
Section 3.14, such amount or time period is subject to change by the board of
directors by a majority vote of all the members or the board of directors.
3
<PAGE>
AMENDED AND RESTATED BYLAWS
OF
NETOBJECTS, INC.
A DELAWARE CORPORATION
ADOPTED EFFECTIVE AS OF __________ ___, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I CORPORATE OFFICES..................................................1
1.1 Registered Office....................................................1
1.2 Other Offices........................................................1
ARTICLE II MEETINGS OF STOCKHOLDERS..........................................1
2.1 Place of Meetings....................................................1
2.2 Annual Meetings......................................................1
2.3 Special Meetings.....................................................1
2.4 Notice of Stockholders' Meetings.....................................2
2.5 Manner of Giving Notice; Affidavit of Notice.........................2
2.6 Items of Business at Meetings........................................2
2.7 Quorum...............................................................4
2.8 Adjourned Meeting; Notice............................................4
2.9 Conduct of Business..................................................4
2.10 Voting..............................................................4
2.11 Waiver of Notice....................................................4
2.12 Stockholder Action by Written Consent Without a Meeting.............5
2.13 Record Date for Stockholder Notice; Voting; Giving Consents.........5
2.14 Proxies.............................................................6
2.15 List of Stockholders Entitled to Vote...............................6
ARTICLE III DIRECTORS........................................................6
3.1 Powers...............................................................6
3.2 Number, Election.....................................................7
3.3 Qualification and Term of Office of Directors........................7
3.4 Resignation and Vacancies............................................7
3.5 Place of Meetings; Meetings by Telephone.............................8
3.6 Regular Meetings.....................................................8
3.7 Special Meetings; Notice.............................................8
3.8 Quorum...............................................................9
3.9 Waiver of Notice.....................................................9
3.10 Board Action by Written Consent Without a Meeting...................9
3.11 Fees and Compensation of Directors..................................9
3.12 Approval of Loans to Officers.......................................9
3.13 Removal of Directors...............................................10
ARTICLE IV COMMITTEES.......................................................10
4.1 Committees of Directors.............................................10
4.2 Committee Minutes...................................................11
4.3 Meetings and Action of Committees...................................11
i
<PAGE>
ARTICLE V OFFICERS..........................................................11
5.1 Officers............................................................11
5.2 Appointment of Officers.............................................11
5.3 Subordinate Officers................................................11
5.4 Removal and Resignation of Officers.................................11
5.5 Vacancies in Offices................................................12
5.6 Chairman of the Board...............................................12
5.7 President...........................................................12
5.8 Vice Presidents.....................................................12
5.9 Secretary...........................................................12
5.10 Chief Financial Officer............................................13
5.11 Assistant Secretary................................................13
5.12 Assistant Treasurer................................................13
5.13 Representation of Shares of Other Corporations.....................14
5.14 Authority and Duties of Officers...................................14
ARTICLE VI INDEMNITY........................................................14
6.1 Third Party Actions.................................................14
6.2 Actions by or in the Right of the Corporation.......................14
6.3 Successful Defense..................................................15
6.4 Determination of Conduct............................................15
6.5 Payment of Expenses in Advance......................................15
6.6 Indemnity Not Exclusive.............................................16
6.7 Insurance Indemnification...........................................16
6.8 The Corporation.....................................................16
6.9 Employee Benefit Plans..............................................16
6.10 Indemnity Fund.....................................................17
6.11 Indemnification of Other Persons...................................17
6.12 Savings Clause.....................................................17
6.13 Continuation of Indemnification and Advancement of Expenses........17
ARTICLE VII RECORDS AND REPORTS.............................................17
7.1 Maintenance and Inspection of Records...............................17
7.2 Inspection by Directors.............................................18
ARTICLE VIII GENERAL MATTERS................................................18
8.1 Checks..............................................................18
8.2 Execution of Corporate Contracts and Instruments....................18
8.3 Stock Certificates; Partly Paid Shares..............................18
8.4 Special Designation on Certificates.................................19
ii
<PAGE>
8.5 Lost Certificates...................................................19
8.6 Construction; Definitions...........................................20
8.7 Dividends...........................................................20
8.8 Fiscal Year.........................................................20
8.9 Seal 20
8.10 Transfer of Stock..................................................20
8.11 Stock Transfer Agreements..........................................20
8.12 Registered Stockholders............................................21
ARTICLE IX AMENDMENTS.......................................................21
</TABLE>
iii
<PAGE>
BYLAWS
OF
NETOBJECTS, INC.
A DELAWARE CORPORATION
ARTICLE I
CORPORATE OFFICES
1.1 REGISTERED OFFICE. The registered office of the Corporation shall be
in the City of Wilmington, County of Newcastle, State of Delaware. The name of
the registered agent of the Corporation at such location is The Prentice-Hall
Corporation System, Inc.
1.2 OTHER OFFICES. The Board of Directors may at any time establish other
offices at any place or places where the Corporation is qualified to do
business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 PLACE OF MEETINGS. Meetings of stockholders shall be held at any
place, within or outside the State of Delaware, designated by the Board of
Directors. In the absence of any such designation, stockholders' meetings shall
be held at the registered office of the Corporation.
2.2 ANNUAL MEETINGS. The annual meeting of stockholders shall be held
each year on a date and at a time designated by the Board of Directors. At the
meeting, directors shall be elected and any other proper business may be
transacted.
2.3 SPECIAL MEETINGS. Special meetings of stockholders of the Corporation
may be called only by the Board of Directors pursuant to a resolution adopted by
a majority of the total number of authorized directors (whether or not there
exist any vacancies in previously authorized directorships at the time any such
resolution is presented to the Board for adoption), the Chairman of the Board of
Directors, the Chief Executive Officer or any individual holder of twenty five
percent (25%) of the outstanding Common Stock of the Corporation.
If a special meeting is called by any person or persons other than the
Board of Directors, the request shall be in writing, specifying the time of such
meeting and the general nature of the business proposed to be transacted, and
shall be delivered personally or sent by registered mail or by telegraphic or
other facsimile transmission to the Chairman of the Board, the President or the
Secretary of the Corporation. No business may be transacted at such special
meeting otherwise than specified in such notice. The officer receiving the
request shall cause notice to be
<PAGE>
promptly given to the stockholders entitled to vote, in accordance with the
provisions of Sections 2.4 and 2.5 of this Article II, that a meeting will be
held at the time requested by the person or persons who called the meeting, not
less than thirty-five (35) nor more than sixty (60) days after the receipt of
the request. If the notice is not given within twenty (20) days after the
receipt of the request, the person or persons requesting the meeting may give
the notice. Nothing contained in this paragraph of this Section 2.3 shall be
construed as limiting, fixing, or affecting the time when a meeting of
stockholders called by action of the Board of Directors may be held.
2.4 NOTICE OF STOCKHOLDERS' MEETINGS. All notices of meetings of
stockholders shall be in writing and shall be sent or otherwise given in
accordance with Section 2.5 of these Bylaws not less than ten (10) nor more than
sixty (60) days before the date of the meeting to each stockholder entitled to
vote at such meeting. The notice shall specify the place, date, and hour of the
meeting, and in the case of a special meeting, the purpose or purposes for which
the meeting is called.
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE. Written notice of any
meeting of stockholders, if mailed, is given when deposited in the United States
mail, postage prepaid, directed to the stockholder at his address as it appears
on the records of the Corporation. Written notice may also be given by
facsimile, in which case notice shall be deemed given upon the earlier of
receipt or twenty four (24) hours after transmission. An affidavit of the
Secretary or an Assistant Secretary or of the transfer agent of the Corporation
that the notice has been given shall, in the absence of fraud, be prima facie
evidence of the facts stated therein.
2.6 ITEMS OF BUSINESS AT MEETINGS. Items of business at all meetings of
the stockholders shall be, insofar as applicable, as follows:
- Call to order.
- Proof of notice of meeting or waiver thereof.
- Appointment of inspectors of election, if necessary.
- A quorum being present.
- Reports.
- Election of directors.
- Other business specified in the notice of the meeting.
- Voting.
- Adjournment.
Any items of business not referred to in the foregoing may be taken up
at the meeting as the chairman of the meeting shall determine.
2
<PAGE>
No other business shall be transacted at any annual meeting of
stockholders, except business as may be: (i) specified in the notice of meeting
(including stockholder proposals included in the Corporation's proxy materials
under Rule 14a-8 of Regulation 14A under the Securities Exchange Act of 1934),
(ii) otherwise brought before the meeting by or at the direction of the Board of
Directors, or (iii) a proper subject for the meeting which is timely submitted
by a stockholder of the Corporation entitled to vote at such meeting who
complies with the notice requirements set forth below.
For business to be properly submitted by a stockholder before any
annual meeting under subparagraph (iii) above, a stockholder must give timely
notice in writing of such business to the Secretary of the Corporation. To be
considered timely, a stockholder's notice must be received by the Secretary at
the principal executive offices of the Corporation not less than 120 calendar
days nor more than 150 calendar days before the date of the Corporation's proxy
statement released to stockholders in connection with the prior year's annual
meeting.
However, if no annual meeting was held in the previous year, or if the
date of the applicable annual meeting has been changed by more than 30 days from
the date contemplated at the time of the previous year's proxy statement, a
stockholder's notice must be received by the Secretary not later than 60 days
before the date the Corporation commences mailing of its proxy materials in
connection with the applicable annual meeting.
A stockholder's notice to the Secretary to submit business to an
annual meeting of stockholders shall set forth: (i) the name and address of the
stockholder, (ii) the number of shares of stock held of record and beneficially
by such stockholder, (iii) the name in which all such shares of stock are
registered on the stock transfer books of the Corporation, (iv) a representation
that the stockholder intends to appear at the meeting in person or by proxy to
submit the business specified in such notice, (v) a brief description of the
business desired to be submitted to the annual meeting, including the complete
text of any resolutions intended to be presented at the annual meeting, and the
reasons for conducting such business at the annual meeting, (vi) any personal or
other material interest of the stockholder in the business to be submitted, and
(vii) all other information relating to the proposed business which may be
required to be disclosed under applicable law. In addition, a stockholder
seeking to submit such business at the meeting shall promptly provide any other
information reasonably requested by the Corporation.
The chairman of the meeting shall determine all matters relating to
the efficient conduct of the meeting, including, but not limited to, the items
of business, as well as the maintenance of order and decorum. The chairman
shall, if the facts warrant, determine and declare that any putative business
was not properly brought before the meeting in accordance with the procedures
described by this Section 2.6, in which case such business shall not be
transacted.
3
<PAGE>
Notwithstanding the foregoing provisions of this Section 2.6, a
stockholder who seeks to have any proposal included in the Corporation's proxy
materials shall comply with the requirements of Rule 14a-8 under Regulation 14A
of the Securities Exchange Act of 1934, as amended.
2.7 QUORUM. The holders of a majority of the stock issued and outstanding
and entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute or by the Certificate of
Incorporation of the Corporation. If, however, such quorum is not present or
represented at any meeting of the stockholders, then either (i) the chairman of
the meeting or (ii) the stockholders entitled to vote thereat, present in person
or represented by proxy, shall have power to adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum is
present or represented. At such adjourned meeting at which a quorum is present
or represented, any business may be transacted that might have been transacted
at the meeting as originally noticed.
2.8 ADJOURNED MEETING; NOTICE. When a meeting is adjourned to another
time or place, unless these Bylaws otherwise require, notice need not be given
of the adjourned meeting if the time and place thereof are announced at the
meeting at which the adjournment is taken. At the adjourned meeting the
Corporation may transact any business that might have been transacted at the
original meeting. If the adjournment is for more than thirty (30) days, or if
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting.
2.9 CONDUCT OF BUSINESS. The chairman of any meeting of stockholders
shall determine the order of business and the procedure at the meeting,
including such regulation of the manner of voting and the conduct of business.
2.10 VOTING. The stockholders entitled to vote at any meeting of
stockholders shall be determined in accordance with the provisions of Section
2.13 of these Bylaws, subject to the provisions of Sections 217 and 218 of the
General Corporation Law of Delaware (relating to voting rights of fiduciaries,
pledgors and joint owners of stock and to voting trusts and other voting
agreements).
Except as provided in the preceding paragraph of this Section 2.10, or
as may be otherwise provided in the Certificate of Incorporation, each
stockholder shall be entitled to one vote for each share of capital stock held
by such stockholder.
2.11 WAIVER OF NOTICE. Whenever notice is required to be given under any
provision of the General Corporation Law of Delaware or of the Certificate of
Incorporation or these Bylaws, a written waiver thereof, signed by the person
entitled to notice, whether before or after the time stated therein, shall be
deemed equivalent to notice. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting, except when the person attends a
meeting for the express purpose of
4
<PAGE>
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened. Neither the business to
be transacted at, nor the purpose of, any regular or special meeting of the
stockholders need be specified in any written waiver of notice unless so
required by the Certificate of Incorporation or these Bylaws.
2.12 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Unless
otherwise provided in the Certificate of Incorporation, any action required by
this article to be taken at any annual or special meeting of stockholders of the
Corporation, or any action that may be taken at any annual or special meeting of
such stockholders, may be taken without a meeting, without prior notice, and
without a vote if a consent in writing, setting forth the action so taken, is
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
Prompt notice of the taking of the corporate action without a meeting
by less than unanimous written consent shall be given to those stockholders who
have not consented in writing. If the action which is consented to is such as
would have required the filing of a certificate under any section of the General
Corporation Law of Delaware if such action had been voted on by stockholders at
a meeting thereof, then the certificate filed under such section shall state, in
lieu of any statement required by such section concerning any vote of
stockholders, that written notice and written consent have been given as
provided in Section 228 of the General Corporation Law of Delaware.
2.13 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS. In order
that the Corporation may determine the stockholders entitled to notice of or to
vote at any meeting of stockholders or any adjournment thereof, or entitled to
express consent to corporate action in writing without a meeting, or entitled to
receive payment of any dividend or other distribution or allotment of any
rights, or entitled to exercise any rights in respect of any change, conversion
or exchange of stock or for the purpose of any other lawful action, the Board of
Directors may fix, in advance, a record date, which shall be sixty (60) days
shall not be more than sixty (60) nor less than ten (10) days before the date of
such meeting.
If the Board of Directors does not so fix a record date:
(i) The record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held.
(ii) The record date for determining stockholders entitled to
express consent to corporate action in writing without a meeting, when no prior
action by the
5
<PAGE>
Board of Directors is necessary, shall be the day on which the first written
consent is expressed.
(iii) The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
PROVIDED, HOWEVER, that the Board of Directors may fix a new record date for the
adjourned meeting.
2.14 PROXIES. Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him by a
written proxy, signed by the stockholder and filed with the Secretary of the
Corporation, but no such proxy shall be voted or acted upon after three (3)
years from its date, unless the proxy provides for a longer period. A proxy
shall be deemed signed if the stockholder's name is placed on the proxy (whether
by manual signature, typewriting, telegraphic transmission or otherwise) by the
stockholder or the stockholder's attorney-in-fact. Furthermore, the Secretary
of the Corporation may determine in the interests of the Corporation to accept
proxies granting authority by the methods approved by Section 212(c) of the
General Corporation Law of Delaware. The revocability of a proxy that states on
its face that it is irrevocable shall be governed by the provisions of Section
212(e) of the General Corporation Law of Delaware.
2.15 LIST OF STOCKHOLDERS ENTITLED TO VOTE. The officer who has charge of
the stock ledger of the Corporation shall prepare and make, at least ten (10)
days before every meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order, and showing the
address of each stockholder and the number of shares registered in the name of
each stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten (10) days prior to the meeting, either at a
place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at
the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present. Such list shall presumptively
determine the identify of the stockholders entitled to vote at the meeting and
the number of shares held by each of them.
ARTICLE III
DIRECTORS
3.1 POWERS. Subject to the provisions of the General Corporation Law of
Delaware and any limitation in the Certificate of Incorporation or these Bylaws
relating
6
<PAGE>
to action required to be approved by the stockholders or by the outstanding
shares, the business and affairs of the Corporation shall be managed and all
corporate powers shall be exercised by or under the direction of the Board of
Directors.
3.2 NUMBER, ELECTION. The number of directors of the Corporation shall be
six (6).
Except as provided in Section 3.4 of these Bylaws, directors shall be
elected at each annual meeting of stockholders to hold office until the next
annual meeting.
3.3 QUALIFICATION AND TERM OF OFFICE OF DIRECTORS. All of the directors
shall be of legal age. Directors need not be stockholders unless so required by
the Certificate of Incorporation or these Bylaws, wherein other qualifications
for directors may be prescribed. Each director, including a director elected to
fill a vacancy, shall hold office until his successor is elected and qualified
or until his earlier resignation or removal.
Elections of directors need not be by written ballot.
3.4 RESIGNATION AND VACANCIES. Any director may resign at any time upon
written notice to the attention of the Secretary of the Corporation. When one
or more directors so resigns and the resignation is effective at a future date,
a majority of the directors then in office, including those who have so
resigned, shall have power to fill such vacancy or vacancies, the vote thereon
to take effect when such resignation or resignations shall become effective, and
each director so chosen shall hold office as provided in this section in the
filling of other vacancies.
Unless otherwise provided in the Certificate of Incorporation, by the
Voting Agreement dated as of February __, 1999 between the Corporation and
International Business Machines Corporation, or by these Bylaws:
(i) Vacancies and newly created directorships resulting from any
increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director.
(ii) Whenever the holders of any class or classes of stock or series
thereof are entitled to elect one or more directors by the provisions of the
Certificate of Incorporation, vacancies and newly created directorships of such
class or classes or series may be filled by a majority of the directors elected
by such class or classes or series thereof then in office, or by a sole
remaining director so elected.
If at any time, by reason of death or resignation or other cause, the
Corporation should have no directors in office, then any officer or any
stockholder or any executor, administrator, trust or guardian of a stockholder,
or other fiduciary
7
<PAGE>
entrusted with like responsibility for the person or estate of a stockholder,
may call a special meeting of stockholders in accordance with the provisions of
the Certificate of Incorporation or these Bylaws, or may apply to the Court of
Chancery for a decree summarily ordering an election as provided in Section 211
of the General Corporation Law of Delaware.
If, at the time of filling any vacancy or any newly created
directorship, the directors then in office constitute less than a majority of
the whole board (as constituted immediately prior to any such increase), then
the Court of Chancery may, upon application of any stockholder or stockholders
holding at least twenty-five percent (25%) of the total number of the shares at
the time outstanding having the right to vote for such directors, summarily
order an election to be held to fill any such vacancies or newly created
directorships, or to replace the directors chosen by the directors then in
office as aforesaid, which election shall be governed by the provisions of
Section 211 of the General Corporation Law of Delaware as far as applicable.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE. The Board of Directors of
the Corporation may hold meetings, both regular and special, either within or
outside the State of Delaware.
Unless otherwise restricted by the Certificate of Incorporation or
these Bylaws, members of the Board of Directors, or any committee designated by
the Board of Directors, may participate in a meeting of the Board of Directors,
or any committee, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at the meeting.
3.6 REGULAR MEETINGS. Regular meetings of the Board of Directors may be
held without notice at such time and at such place as shall from time to time be
determined by the board.
3.7 SPECIAL MEETINGS; NOTICE. Special meetings of the Board of Directors
for any purpose or purposes may be called at any time by the Chairman of the
Board, the president or any two (2) directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
facsimile, charges prepaid, addressed to each director at that director's
address as it is shown on the records of the Corporation. If the notice is
mailed, it shall be deposited in the United States mail at least four (4) days
before the time of the holding of the meeting. If the notice is delivered
personally or by telephone or by facsimile, it shall be delivered personally or
by telephone or to the facsimile telephone number at least forty-eight (48)
hours before the time of the holding of the meeting. Any oral notice given
personally or by telephone may be communicated either to the director or to a
person at the office of the director who the person giving the notice has reason
to believe will promptly communicate it to the director. The notice need not
specify the purpose or the place of
8
<PAGE>
the meeting, if the meeting is to be held at the principal executive office of
the Corporation.
3.8 QUORUM. At all meetings of the Board of Directors, a majority of the
authorized number of directors shall constitute a quorum for the transaction of
business and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the Board of Directors, except as
may be otherwise specifically provided by statute or by the Certificate of
Incorporation. If a quorum is not present at any meeting of the Board of
Directors, then the directors present thereat may adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
is present.
A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the required quorum for that
meeting.
3.9 WAIVER OF NOTICE. Whenever notice is required to be given under any
provision of the General Corporation Law of Delaware or of the Certificate of
Incorporation or these Bylaws, a written waiver thereof, signed by the person
entitled to notice, whether before or after the time stated therein, shall be
deemed equivalent to notice. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting, except when the person attends a
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor other purpose of, any
regular or special meeting of the directors, or members of a committee of
directors, need be specified in any written waiver of notice unless so required
by the Certificate of Incorporation or these Bylaws.
3.10 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Unless otherwise
restricted by the Certificate of Incorporation or these Bylaws, any action
required or permitted to be taken at any meeting of the Board of Directors, or
of any committee thereof, may be taken without a meeting if all members of the
board or committee, as the case may be, consent thereto in writing and the
writing or writings are filed with the minutes of proceedings of the board or
committee.
3.11 FEES AND COMPENSATION OF DIRECTORS. Unless otherwise restricted by
the Certificate of Incorporation or these Bylaws, the Board of Directors shall
have the authority to fix the compensation of directors.
3.12 APPROVAL OF LOANS TO OFFICERS. The Corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other employee
of the Corporation or of its subsidiaries, including any officer or employee who
is a director of the Corporation or its subsidiaries, whenever, in the judgment
of the directors, such loan, guaranty or assistance may reasonably be expected
to benefit the Corporation. The loan, guaranty or other assistance may be with
or without interest and may be unsecured, or secured in such manner as the Board
of Directors shall approve,
9
<PAGE>
including, without limitation, a pledge of shares of stock of the Corporation.
Nothing contained in this section shall be deemed to deny, limit or restrict the
powers of guaranty or warranty of the Corporation at common law or under any
statute.
3.13 REMOVAL OF DIRECTORS. Unless otherwise restricted by statute, by the
Certificate of Incorporation or by these Bylaws, any director or the entire
Board of Directors may be removed, with or without cause, by the holders of a
majority of the shares then entitled to elect such director.
ARTICLE IV
COMMITTEES
4.1 COMMITTEES OF DIRECTORS. The Board of Directors may, by resolution
passed by a majority of the whole board, designate one or more committees, with
each committee to consist of one or more of the directors of the Corporation.
The board may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee. In the absence or disqualification of a member of a committee,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member. Any such committee, to the extent
provided in the resolution of the Board of Directors or in the Bylaws of the
Corporation, shall have and may exercise all the powers and authority of the
Board of Directors in the management of the business and affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to all
papers that may require it; but no such committee shall have the power or
authority to (i) amend the Certificate of Incorporation (except that a committee
may, to the extent authorized in the resolution or resolutions providing for the
issuance of shares of stock adopted by the Board of Directors as provided in
Section 151(a) of the General Corporation Law of Delaware, fix the designation
and any of the preferences or rights of such shares relating to dividends,
redemption, dissolution, any distribution of assets of the Corporation or the
conversion into, or the exchange of such shares for, shares of any other class
or classes or any other series of the same or any other class or classes of
stock of the Corporation or fix the number of shares of any series of stock or
authorize the increase or decrease of the shares of any series), (ii) adopt an
agreement of merger or consolidation under Sections 251 or 252 of the General
Corporation Law of Delaware, (iii) recommend to the stockholdrs the sale, lease
or exchange of all or substantially all of the Corporation's property and
assets, (iv) recommend to the stockholders a dissolution of the Corporation or a
revocation of a dissolution, or (v) amend the Bylaws of the Corporation; and,
unless the board resolution establishing the committee, the Bylaws or the
Certificate of Incorporation expressly so provide, no such committee shall have
the power or authority to declare a dividend, to authorize the issuance of
stock, or to adopt a certificate of ownership and merger pursuant to Section 253
of the General Corporation Law of Delaware.
10
<PAGE>
4.2 COMMITTEE MINUTES. Each committee shall keep regular minutes of its
meetings and report the same to the Board of Directors when required.
4.3 MEETINGS AND ACTION OF COMMITTEES. Meetings and actions of committees
shall be governed by, and held and taken in accordance with, the provisions of
Article III of these Bylaws, Section 3.5 (place of meetings and meetings by
telephone), Section 3.6 (regular meetings), Section 3.7 (special meetings and
notice), Section 3.8 (quorum), Section 3.9 (waiver of notice), and Section 3.10
(action without a meeting), with such changes in the context of those Bylaws as
are necessary to substitute the committee and its members for the Board of
Directors and its members; PROVIDED, HOWEVER, that the time of regular meetings
of committees may be determined either by resolution of the Board of Directors
or by resolution of the committee, that special meetings of committees may also
be called by resolution of the Board of Directors and that notice of special
meetings of committees shall also be given to all alternate members, who shall
have the right to attend all meetings of the committee. The Board of Directors
may adopt rules for the government of any committee not inconsistent with the
provisions of these Bylaws.
ARTICLE V
OFFICERS
5.1 OFFICERS. The officers of the Corporation shall be a President, a
Secretary, and a Chief Financial Officer. The Corporation may also have, at the
discretion of the Board of Directors, a Chairman of the Board, one or more Vice
Presidents, one or more assistant vice presidents, one or more assistant
secretaries, and one or more Assistant Treasurers, and any such other officers
as may be appointed in accordance with the provisions of Section 5.3 of these
Bylaws. Any number of offices may be held by the same person.
5.2 APPOINTMENT OF OFFICERS. The officers of the Corporation, except such
officers as may be appointed in accordance with the provisions of Sections 5.3
or 5.5 of these Bylaws, shall be appointed by the Board of Directors, subject to
the rights, if any, of an officer under any contract of employment.
5.3 SUBORDINATE OFFICERS. The Board of Directors may appoint, or empower
the President to appoint, such other officers as the business of the Corporation
may require, each of whom shall hold office for such period, have such
authority, and perform such duties as are provided in these Bylaws or as the
Board of Directors may from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS. Subject to the rights, if any,
of an officer under any contract of employment, any officer may be removed,
either with or without cause, by an affirmative vote of the majority of the
Board of Directors at any regular or special meeting of the board or, except in
the case of an officer chosen by the Board of Directors, by any officer upon
whom such power of removal may be conferred by the Board of Directors.
11
<PAGE>
Any officer may resign at any time by giving written notice to the
Corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the Corporation under any contract to which the officer is a
party.
5.5 VACANCIES IN OFFICES. Any vacancy occurring in any office of the
Corporation shall be filled by the Board of Directors.
5.6 CHAIRMAN OF THE BOARD. The Chairman of the Board, if such an officer
be elected, shall, if present, preside at meetings of the Board of Directors and
exercise and perform such other powers and duties as may from time to time be
assigned to him by the Board of Directors or as may be prescribed by these
Bylaws. If there is no President, then the Chairman of the Board shall also be
the chief executive officer of the Corporation and shall have the powers and
duties prescribed in Section 5.7 of these Bylaws.
5.7 PRESIDENT. Subject to such supervisory powers, if any, as may be
given by the Board of Directors to the Chairman of the Board, if there be such
an officer, the President shall be the chief executive officer of the
Corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction, and control of the business and the officers of
the Corporation. He shall preside at all meetings of the stockholders and, in
the absence or nonexistence of a Chairman of the Board, at all meetings of the
Board of Directors. He shall have the general powers and duties of management
usually vested in the office of president of a corporation and shall have such
other powers and duties as may be prescribed by the Board of Directors or these
Bylaws.
5.8 VICE PRESIDENTS. In the absence or disability of the President, the
Vice Presidents, if any, in order of their rank as fixed by the Board of
Directors or, if not ranked, a Vice President designated by the Board of
Directors, shall perform all the duties of the President and when so acting
shall have all the powers of, and be subject to all the restrictions upon, the
President. The Vice Presidents shall have such other powers and perform such
other duties as from time to time may be prescribed for them respectively by the
Board of Directors, these Bylaws, the President or the Chairman of the Board.
5.9 SECRETARY. The Secretary shall keep or cause to be kept, at the
principal executive office of the Corporation or such other place as the Board
of Directors may direct, a book of minutes of all meetings and actions of
directors, committees of directors, and stockholders. The minutes shall show
the time and place of each meeting, whether regular or special (and, if special,
how authorized and the notice given), the names of those present at directors'
meetings or committee meetings, the
12
<PAGE>
number of shares present or represented at stockholders' meetings, and the
proceedings thereof.
The Secretary shall keep, or cause to be kept, at the principal
executive office of the Corporation or at the office of the Corporation's
transfer agent or registrar, as determined by resolution of the Board of
Directors, a share register, or a duplicate share register, showing the names of
all stockholders and their addresses, the number and classes of shares held by
each, the number and date of certificates evidencing such shares, and the number
and date of cancellation of every certificate surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all meetings
of the stockholders and of the Board of Directors required to be given by law or
by these Bylaws. He shall keep the seal of the Corporation, if one be adopted,
in safe custody and shall have such other powers and perform such other duties
as may be prescribed by the Board of Directors or by these Bylaws.
5.10 CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall keep and
maintain, or cause to be kept and maintained, adequate and correct books and
records of accounts of the properties and business transactions of the
Corporation, including accounts of its assets, liabilities, receipts,
disbursements, gains, losses, capital retained earnings, and shares. The books
of account shall at all reasonable times be open to inspection by any director.
The Chief Financial Officer shall deposit all moneys and other
valuables in the name and to the credit of the Corporation with such
depositories as may be designated by the Board of Directors. He shall disburse
the funds of the Corporation as may be ordered by the Board of Directors, shall
render to the President and directors, whenever they request it, an account of
all his transactions as Chief Financial Officer and of the financial condition
of the Corporation, and shall have other powers and perform such other duties as
may be prescribed by the Board of Directors or these Bylaws.
The Chief Financial Officer shall be the treasurer of the Corporation.
5.11 ASSISTANT SECRETARY. The Assistant Secretary, or, if there is more
than one, the assistant secretaries in the order determined by the stockholders
or Board of Directors (or if there be no such determination, then in the order
of their election) shall, in the absence of the Secretary or in the event of his
or her inability or refusal to act, perform the duties and exercise the powers
of the Secretary and shall perform such other duties and have such other powers
as may be prescribed by the Board of Directors or these Bylaws.
5.12 ASSISTANT TREASURER. The Assistant Treasurer, or, if there is more
than one, the Assistant Treasurers, in the order determined by the stockholders
or Board of Directors (or if there be no such determination, then in the order
of their election), shall,
13
<PAGE>
in the absence of the Chief Financial Officer or in the event of his or her
inability or refusal to act, perform the duties and exercise the powers of the
Chief Financial Officer and shall perform such other duties and have such other
powers as may be prescribed by the Board of Directors or these Bylaws.
5.13 REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The Chairman of the
Board, the President, any Vice President, the Chief Financial Officer, the
Secretary or Assistant Secretary of this Corporation, or any other person
authorized by the Board of Directors or the President or a Vice President, is
authorized to vote, represent, and exercise on behalf of this Corporation all
rights incident to any and all shares of any other corporation or corporations
standing in the name of this Corporation. The authority granted herein may be
exercised either by such person directly or by any other person authorized to do
so by proxy or power of attorney duly executed by such person having the
authority.
5.14 AUTHORITY AND DUTIES OF OFFICERS. In addition to the foregoing
authority and duties, all officers of the Corporation shall respectively have
such authority and perform such duties in the management of the business of the
Corporation as may be designated from time to time by the Board of Directors or
the stockholders.
ARTICLE VI
INDEMNITY
6.1 THIRD PARTY ACTIONS. Subject to the provisions of this Article VI,
the Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Corporation) by reason of the
fact that he is or was a director or officer of the Corporation, or is or was
serving at the request of the Corporation as a director, officer or employee of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement (if such settlement is approved in advance by the Corporation,
which approval shall not be unreasonably withheld) actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best interest
of the Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
6.2 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION. Subject to the
provisions of this Article VI, the Corporation shall indemnify any person who
was or is a party or is
14
<PAGE>
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer or employee of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer or employee of another Corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit, if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Delaware Court
of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Delaware Court of Chancery or
such other court shall deem proper. Notwithstanding any other provision of this
Article VI, no person shall be indemnified hereunder for any expenses or amounts
paid in settlement with respect to any action to recover short-swing profits
under Section 16(b) of the Securities Exchange Act of 1934, as amended.
6.3 SUCCESSFUL DEFENSE. To the extent that a director, officer or
employee of the Corporation has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to in Sections 6.1 and 6.2,
or in defense of any claim, issue or matter therein, he shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection therewith.
6.4 DETERMINATION OF CONDUCT. Any indemnification under Sections 6.1 and
6.2 (unless ordered by a court) shall be made by the Corporation only as
authorized in the specific case upon a determination that the indemnification of
the director, officer or employee is proper in the circumstances because he has
met the applicable standard of conduct set forth in Sections 6.1 and 6.2. Such
determination shall be made (i) by the Board of Directors by a majority vote of
a quorum consisting of directors who were not parties to such action, suit or
proceeding or (ii) if such quorum is not obtainable or, even if obtainable, a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, or (iii) by the stockholders. Notwithstanding the foregoing, a
director, officer or employee of the Corporation shall be entitled to contest
any determination that the director, officer or employee has not met the
applicable standard of conduct set forth in Sections 6.1 and 6.2 by petitioning
a court of competent jurisdiction.
6.5 PAYMENT OF EXPENSES IN ADVANCE. Expenses incurred in defending a
civil or criminal action, suit or proceeding, by an individual who may be
entitled to indemnification pursuant to Section 6.1 or 6.2, shall be paid by the
Corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of the director,
officer or employee to repay such amount if
15
<PAGE>
it shall ultimately be determined that he is not entitled to be indemnified by
the Corporation as authorized in this Article VI.
6.6 INDEMNITY NOT EXCLUSIVE; EFFECT OF INDEMNIFICATION AGREEMENTS. The
provisions of a written indemnification agreement between the Corporation and
any person subject to indemnity under this Article VI shall control over the
provisions of this Article VI, which shall not apply to the Corporation and the
person subject to indemnity under the written agreement. The indemnification
and advancement of expenses provided by or granted pursuant to the other
sections of this Article VI shall not be deemed exclusive of any other rights to
which those seeking indemnification or advancement of expenses may be entitled
under any bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office.
6.7 INSURANCE INDEMNIFICATION. The Corporation shall have the power to
purchase and maintain insurance on behalf of any person who is or was a
director, officer or employee of the Corporation, or is or was serving at the
request of the Corporation, as a director, officer or employee of another
corporation, partnership, joint venture, trust or other enterprise, against any
liability asserted against him and incurred by him in any such capacity or
arising out of his status as such, whether or not the Corporation would have the
power to indemnify him against such liability under the provisions of this
Article VI.
6.8 THE CORPORATION. For purposes of this Article VI, references to the
"Corporation" shall include, in addition to the resulting Corporation, any
constituent corporation (including any constituent of a constituent) absorbed in
a consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors and officers, so that
any person who is or was a director, officer or employee of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer or employee of another corporation, partnership, joint
venture, trust or other enterprise, shall stand in the same position under and
subject to the provisions of this Article VI (including, without limitation, the
provisions of Section 6.4) with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.
6.9 EMPLOYEE BENEFIT PLANS. For purposes of this Article VI, references
to "other enterprises" shall include employee benefit plans; references to
"fines" shall include any excise taxes assessed on a person with respect to an
employee benefit plan; and references to "serving at the request of the
corporation" shall include any service as a director, officer or employee of the
Corporation which imposes duties on, or involves services by, such director,
officer or employee with respect to an employee benefit plan, its participants,
or beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and
16
<PAGE>
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the corporation" as referred to in
this Article VI.
6.10 INDEMNITY FUND. Upon resolution passed by the Board, the Corporation
may establish a trust or other designated account, grant a security interest or
use other means (including, without limitation, a letter of credit), to ensure
the payment of certain of its obligations arising under this Article VI and/or
agreements which may be entered into between the Corporation and its officers
and directors from time to time.
6.11 INDEMNIFICATION OF OTHER PERSONS. The provisions of this Article VI
shall not be deemed to preclude the indemnification of any person who is not a
director or officer of the Corporation or is not serving at the request of the
Corporation as a director, officer or employee of another corporation,
partnership, joint venture, trust or other enterprise, but whom the Corporation
has the power or obligation to indemnify under the provisions of the General
Corporation Law of the State of Delaware or otherwise. The Corporation may, in
its sole discretion, indemnify an employee, trustee or other agent as permitted
by the General Corporation Law of the State of Delaware. The Corporation shall
indemnify an employee, trustee or other agent where required by law.
6.12 SAVINGS CLAUSE. If this Article VI or any portion thereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each person entitled to indemnification
hereunder against expenses (including attorney's fees), judgments, fines and
amounts paid in settlement with respect to any action, suit, proceeding or
investigation, whether civil, criminal or administrative, and whether internal
or external, including a grand jury proceeding and an action or suit brought by
or in the right of the Corporation, to the full extent permitted by any
applicable portion of this Article that shall not have been invalidated, or by
any other applicable law.
6.13 CONTINUATION OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES. The
indemnification and advancement of expenses provided by, or granted pursuant to,
this Article VI shall, unless otherwise provided when authorized or ratified,
continue as to a person who has ceased to be a director, officer or employee and
shall inure to the benefit of the heirs, executors and administrators of such a
person.
ARTICLE VII
RECORDS AND REPORTS
7.1 MAINTENANCE AND INSPECTION OF RECORDS. The Corporation shall, either
at its principal executive office or at such place or places as designated by
the Board of Directors, keep a record of its stockholders listing their names
and addresses and the number and class of shares held by each stockholder, a
copy of these Bylaws as amended to date, accounting books, and other records. A
stockholder of record shall have such rights to inspect such records of the
Corporation as are provided by the
17
<PAGE>
General Corporation Law of the State of Delaware, subject to such conditions and
restrictions on inspection rights as are provided by law.
The officer who has charge of the stock ledger of the Corporation
shall prepare and make, at least ten (10) days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, showing the address of each stockholder
and the number of shares registered in the name of each stockholder. Such list
shall be open to the examination of any stockholder, for any purpose germane to
the meeting, during ordinary business hours, for a period of at least ten (10)
days prior to the meeting, either at a place within the city where the meeting
is to be held, which place shall be specified in the notice of the meeting, or,
if not so specified, at the place where the meeting is to be held. The list
shall also be produced and kept at the time and place of the meeting during the
whole time thereof, and may be inspected by any stockholder who is present.
7.2 INSPECTION BY DIRECTORS. Any director shall have the right to examine
the Corporation's stock ledger, a list of its stockholders, and its other books
and records for a purpose reasonably related to his position as a director. The
Court of Chancery is hereby vested with the exclusive jurisdiction to determine
whether a director is entitled to the inspection sought. The Court may
summarily order the Corporation to permit the director to inspect any and all
books and records, the stock ledger, and the stock list and to make copies or
extracts therefrom. The Court may, in its discretion, prescribe any limitations
or conditions with reference to the inspection, or award such other and further
relief as the Court may deem just and proper.
ARTICLE VIII
GENERAL MATTERS
8.1 CHECKS. From time to time, the Board of Directors shall determine by
resolution which person or persons may sign or endorse all checks, drafts, other
orders for payment of money, notes or other evidences of indebtedness that are
issued in the name of or payable to the Corporation, and only the persons so
authorized shall sign or endorse those instruments.
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS. The Board of
Directors, except as otherwise provided in these Bylaws, may authorize any
officer or officers, to enter into any contract or execute any instrument in the
name of and on behalf of the Corporation; such authority may be general or
confined to specific instances. Unless so authorized or ratified by the Board
of Directors or within the agency power of an officer, no officer employee shall
have any power or authority to bind the Corporation by any contract or
engagement or to pledge its credit or to render it liable for any purpose or for
any amount.
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES. The shares of the Corporation
shall be represented by certificates, provided that the Board of Directors of
the Corporation may provide by resolution or resolutions that some or all of any
or all
18
<PAGE>
classes or series of its stock shall be uncertificated shares. Any such
resolution shall not apply to shares represented by a certificate until such
certificate is surrendered to the Corporation. Notwithstanding the adoption of
such a resolution by the Board of Directors, every holder of stock represented
by certificates and upon request every holder of uncertificated shares shall be
entitled to have a certificate signed by, or in the name of the Corporation by
the Chairman or Vice-Chairman of the Board of Directors, or the President or
Vice President, and by the Chief Financial Officer or an Assistant Treasurer, or
the Secretary or an Assistant Secretary of the Corporation representing the
number of shares registered in certificate form. Any or all of the signatures
on the certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate has ceased to be such officer, transfer agent or registrar before
such certificate is issued, it may be issued by the Corporation with the same
effect as if he were such officer, transfer agent or registrar at the date of
issue.
The Corporation may issue the whole or any part of its shares as
partly paid and subject to call for the remainder of the consideration to be
paid therefor. Upon the face or back of each stock certificate issued to
represent any such partly paid shares, upon the books and records of the
Corporation in the case of uncertificated partly paid shares, the total amount
of the consideration to be paid therefor and the amount paid thereon shall be
stated. Upon the declaration of any dividend on fully paid shares, the
Corporation shall declare a dividend upon partly paid shares of the same class,
but only upon the basis of the percentage of the consideration actually paid
thereon.
8.4 SPECIAL DESIGNATION ON CERTIFICATES. If the Corporation is authorized
to issue more than one class of stock or more than one series of any class, then
the powers, the designations, the preferences, and the relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights shall be set forth in full or summarized on the face of back of the
certificate that the Corporation shall issue to represent such class or series
of stock; PROVIDED, HOWEVER, that, except as otherwise provided in Section 202
of the General Corporation Law of Delaware, in lieu of the foregoing
requirements there may be set forth on the face or back of the certificate that
the Corporation shall issue to represent such class or series of stock a
statement that the Corporation will furnish without charge to each stockholder
who so requests the powers, the designations, the preferences, and the relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.
8.5 LOST CERTIFICATES. Except as provided in this Section 8.5, no new
certificates for shares shall be issued to replace a previously issued
certificate unless the latter is surrendered to the Corporation and cancelled at
the same time. The Corporation may issue a new certificate of stock or
uncertificated shares in the place of any certificate theretofore issued by it,
alleged to have been lost, stolen or destroyed,
19
<PAGE>
and the Corporation may require the owner of the lost, stolen or destroyed
certificate, or his legal representative, to give the Corporation a bond
sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate or uncertificated shares.
8.6 CONSTRUCTION; DEFINITIONS. Unless the context requires otherwise, the
general provisions, rules of construction, and definitions in the Delaware
General Corporation Law shall govern the construction of these Bylaws. Without
limiting the generality of this provision, the singular number includes the
plural, the plural number includes the singular, and the term "person" includes
both a corporation and a natural person.
8.7 DIVIDENDS. The directors of the Corporation, subject to any
restrictions contained in (i) the General Corporation Law of Delaware or (ii)
the Corporation's Certificate of Incorporation, may declare and pay dividends
upon the shares of its capital stock. Dividends may be paid in cash, in
property, or in shares of the Corporation's capital stock.
The directors of the Corporation may set apart out of any of the funds
of the Corporation available for dividends a reserve or reserves for any proper
purpose and may abolish any such reserve. Such purposes shall include but not
be limited to equalizing dividends, repairing or maintaining any property of the
Corporation, and meeting contingencies.
8.8 FISCAL YEAR. The fiscal year of the Corporation shall be fixed by
resolution of the Board of Directors and may be changed by the Board of
Directors.
8.9 SEAL. The Corporation may adopt a corporate seal, which shall be
adopted and which may be altered by the Board of Directors, and may use the same
by causing it or a facsimile thereof to be impressed or affixed or in any other
manner reproduced.
8.10 TRANSFER OF STOCK. Upon surrender to the Corporation or the transfer
agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate, and record the
transaction in its books.
8.11 STOCK TRANSFER AGREEMENTS. The Corporation shall have power to enter
into and perform any agreement with any number of stockholders of any one or
more classes of stock of the Corporation to restrict the transfer of shares of
stock of the Corporation of any one or more classes owned by such stockholders
in any manner not prohibited by the General Corporation Law of Delaware.
20
<PAGE>
8.12 REGISTERED STOCKHOLDERS. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends and to vote as such owner, shall be entitled to
hold liable for calls and assessments the person registered on its books as the
owner of shares, and shall not be bound to recognize any equitable or other
claim to or interest in such share or shares on the part of another person,
whether or not it shall have express or other notice thereof, except as
otherwise provided by the laws of Delaware.
ARTICLE IX
AMENDMENTS
The Bylaws of the Corporation may be adopted, amended or repealed by an
affirmative vote of the holders of a majority of the outstanding shares of
Preferred Stock and Common Stock voting as a single class.
21
<PAGE>
CERTIFICATE OF ADOPTION OF AMENDED AND RESTATED BYLAWS
OF
NETOBJECTS, INC., A DELAWARE CORPORATION
Certificate by Secretary of Amendment of Bylaws:
The undersigned hereby certifies that he is the duly elected, qualified,
and acting Secretary of NetObjects, Inc., a Delaware Corporation and that the
foregoing Amended and Restated Bylaws, comprising ____________ (__) pages,
including this page, were adopted as the Bylaws of the Corporation to be
effective as of ___________ __, 1999 by the stockholders of the Corporation.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and affixed
the corporate seal as of ________________ __, 1999.
------------------------------
Alan B. Kalin, Secretary
22
<PAGE>
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, OR HYPOTHECATED IN THE
ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES
UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION THAT
SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OF SUCH
ACT.
WARRANT TO PURCHASE STOCK
WARRANT NO. WC-__
CORPORATION: NetObjects, Inc., a Delaware corporation
NUMBER OF SHARES: See below.
CLASS OF STOCK: See below.
INITIAL EXERCISE PRICE: See below.
ISSUE DATE: December 18, 1996
EXPIRATION DATE: Upon the Expiration Date of the Put Right, as provided
in Section 2.5
THIS WARRANT CERTIFIES THAT, for the agreed upon value of $1.00 and for
other good and valuable consideration, __________ ("Holder") is entitled to
purchase the number of fully paid and nonassessable shares of Series C Preferred
Stock (the "Shares") of the corporation (the "Company") at the initial exercise
price per Share (the "Warrant Price") all as set forth herein and as adjusted
pursuant to Article 3 of this Warrant, subject to the provisions and upon the
terms and conditions set forth of this Warrant. The Warrant Price shall be
$0.3035413 per share. The number of Shares subject to this Warrant shall be the
quotient derived by dividing _____________________________ ($__________) by the
Warrant Price.
ARTICLE 1. EXERCISE.
1.1 METHOD OF EXERCISE. Holder may exercise this Warrant by
delivering a duly executed Notice of Exercise in substantially the form attached
as Appendix 1 to the principal office of the Company. Holder shall also deliver
to the Company a check for the aggregate Warrant Price for the Shares being
purchased; or at Holder's option, Holder may elect to cancel indebtedness of the
Company for money borrowed from Holder, including accrued and unpaid interest
thereon, as payment for the Shares, to the extent of any such indebtedness. In
lieu of exercising this Warrant as provided in the preceding sentence, at any
time on or after the effective date of a Form S-1 registration statement
relating to Common Stock of the Company filed by the Company pursuant to the
Securities Act of 1933, as amended (the "1933 Act"), Holder may elect to receive
shares equal to the value of this Warrant (or any portion thereof remaining
unexercised) by surrender of this Warrant at the principal office of the Company
together with notice of such election, in which event the Company shall issue to
Holder a number of shares of the Company's Common Stock (if Common Stock is then
issuable upon exercise of this Warrant pursuant to Section 3.2 hereof) computed
using the following formula:
X = Y (A-B)
-------
A
Where X = the number of shares of Common Stock to be issued to Holder.
Y = the number of shares of Common Stock purchasable under this
Warrant (at the date of such calculation).
A = the fair market value of one share of the Company's Common Stock
(at the date of such calculation).
B = Warrant Price (as adjusted to the date of such calculation).
<PAGE>
For purposes of this subsection, the fair market value of one
share of the Company's Common Stock shall mean the average of the daily closing
prices per share of the Common Stock as quoted on the Nasdaq Stock Market or on
any exchange on which the Common Stock is listed, whichever is applicable, as
published in the Western Edition of The Wall Street Journal for the five (5)
trading days prior to the date of determination of the fair market value.
1.2 DELIVERY OF CERTIFICATE AND NEW WARRANT. Promptly after Holder
exercises or converts this Warrant, the Company shall deliver to Holder
certificates for the Shares acquired and, if this Warrant has not been fully
exercised or converted and has not expired, a new Warrant representing the
Shares not so acquired.
1.3 REPLACEMENT OF WARRANTS. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company
or, in the case of mutilation, or surrender and cancellation of this Warrant,
the Company at its expense shall execute and deliver, in lieu of this Warrant, a
new warrant of like tenor.
1.4 OTHER AGREEMENTS AND INSTRUMENTS REGARDING THE SHARES. The
Shares, when acquired, may also be subject to such rights, preferences,
privileges and restrictions as may be set forth in the Company's Certificate of
Incorporation, as amended, and Bylaws, as amended, and as may be set forth in
the First Amended and Restated Investor Rights Agreement described in Exhibit B
hereto, a First Amended and Restated Co-Sale Agreement, an Amended and Restated
Voting Rights Agreement, and such other agreements as may be entered into from
time to time by the Company and the holders of Series C Preferred Stock, or
rights to acquire the same, prior to the exercise of this Warrant.
ARTICLE 2. EXERCISE RIGHTS FOLLOWING AN ACQUISITION.
2.1 DEFINITIONS. As used in this Article 2, the following terms have
the following meanings:
"ACQUISITION" shall mean an acquisition by any Person (an "ACQUIROR")
of Beneficial Ownership (including by way of merger) of securities of the
Company constituting 70% or more (but less than 100%) of the Voting Power of the
Company.
"AFFILIATE" shall mean, when used with respect to a specified Person,
another Person that directly, or indirectly through one or more intermediaries,
controls or is controlled by or is under common control with the specified
Person.
"BENEFICIAL OWNERSHIP" shall mean that a Person shall be deemed the
beneficial owner of, and shall be deemed to beneficially own any securities (a)
which such Person or any of its Affiliates is deemed to "beneficially own"
within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as
amended (the "1934 Act"), or (b) which such Person or any of its Affiliates has
the right to acquire (whether such right is exercisable immediately or only
after the passage of time) pursuant to any agreement, arrangement or
understanding or upon the exercise of any right of conversion or exchange,
warrant, option or otherwise.
"BUSINESS DAY" shall mean each Monday, Tuesday, Wednesday, Thursday and
Friday that is not a day on which banking institutions in the City of New York
are authorized or obligated by law or executive order to close.
"COMMON STOCK" shall mean common stock, par value $0.00000001 per share,
of the Company.
"EFFECTIVE TIME" shall mean the effective time of the Acquisition.
2
<PAGE>
"EXERCISE PERIOD" shall mean the period beginning on the second
anniversary of the Effective Time and ending on the earlier to occur of (i) the
364th day thereafter or (ii) the first day of a Suspension Period; PROVIDED,
HOWEVER, that if one or more Suspension Periods occur, the Exercise Period shall
be extended, following the termination of each such Suspension Period, until the
Exercise Period, as so extended, shall have comprised 365 days.
"GOVERNMENTAL ENTITY" shall mean any Federal, state, local or foreign
court, governmental or administrative agency or commission or other governmental
agency, authority, instrumentality or regulatory body.
"PERSON" shall mean any individual, firm, corporation, partnership,
limited liability company, trust, joint venture, Governmental Entity or other
entity, and shall include any successor (by merger or otherwise) of such entity.
"QUARTERLY DATE" shall mean, with respect to any date, the 90th day,
180th day, 270th day and 364th day thereafter.
"REGISTRATION APPROVAL DATE" shall mean a date on which the Board of
Directors of the Company approves the filing with the Securities and Exchange
Commission of a Registration Statement.
"REGISTRATION STATEMENT" shall mean a registration statement under the
1993 Act for an initial public offering of the Company's capital stock.
"REGISTRATION TERMINATION DATE" shall mean the date of Company action
having the effect of withdrawing, terminating or abandoning a Registration
Statement.
"SPECIAL EXERCISE DATE" shall mean (i) the second anniversary of the
Effective Time, and each Quarterly Date thereafter occurring during the Exercise
Period or (ii) if any Suspension Period shall have occurred, the day following
the end of such Suspension Period, and each Quarterly Date thereafter occurring
during the Exercise Period; provided, however, that, in the case of (i) or (ii)
above, if any such date shall not be a Business Day, the applicable Special
Exercise Date shall be the next Business Day.
"SUSPENSION PERIOD" shall mean a period beginning on a Registration
Approval Date and ending, if applicable, on the Registration Termination Date
next following such Registration Approval Date.
"VOTING POWER" shall mean the voting power of all securities of a Person
then outstanding generally entitled to vote for the election of directors of the
Person.
2.2 EXERCISE RIGHTS FOLLOWING AN ACQUISITION. Following the
Effective Time of an Acquisition, Holder shall (i) continue to have the right to
exercise this Warrant in accordance with Section 1.1 of this Warrant (a
"Conventional Exercise"), and (ii) have the additional right (the "Special
Exercise Right") to exercise this Warrant, in whole or in part, on any Special
Exercise Date by delivering a duly executed Notice of Special Exercise in the
form attached as Appendix 3 in accordance with Section 2.3, and to receive upon
such exercise and payment of the Warrant Price, cash in an amount equal to
$0.667 per share, in lieu of the number of shares of Series C Preferred Stock
otherwise issuable had this Warrant (or portion hereof) been exercised in a
Conventional Exercise (a "Special Exercise"); PROVIDED, HOWEVER, that Acquiror
shall have the right, following receipt of a Notice of Special Exercise, to
elect to purchase the portion of this Warrant with respect to which a Notice of
Special Exercise was delivered from Holder for a purchase price equal to the
product of (a) the difference between (x) $0.667 MINUS (y) the Warrant Price
MULTIPLIED by (b) the number of shares otherwise issuable had this Warrant (or
portion hereof) been exercised in a Conventional Exercise (a "Purchase
Election"). If Acquiror makes a Purchase Election and pays the purchase price,
and returns to Holder the Warrant Price of the shares of Series C Preferred
Stock tendered by Holder with the Notice of Special Exercise, this Warrant (or
portion hereof) shall not be deemed exercised but rather shall be transferred to
Acquiror in accordance with the transfer provisions hereof.
3
<PAGE>
2.3 SPECIAL EXERCISE PROCEDURES. In order to exercise the Special
Exercise Right, Holder shall deliver, not less than 10 Business Days nor more
than 20 Business Days prior to the applicable Special Exercise Date, to the
Company (with a copy to Acquiror) Holder's Notice of Special Exercise. Such
Notice of Special Exercise shall be irrevocable. On the Special Exercise Date,
the Company or Acquiror, as applicable, shall mail or deliver to Holder the
amounts then due as a result of the exercise of such Special Exercise Right or
Purchase Election, and the Company shall mail or deliver to Holder a new Warrant
representing the portion (if any) of this Warrant not theretofore exercised or
purchased.
2.4 SUSPENSION. The provisions of Sections 2.2 (other than
Section 2.2(i)) and 2.3 above shall be suspended and of no force and effect
during any Suspension Period; PROVIDED, HOWEVER, that, subject to Section 2.5
hereof, such provisions shall be reinstated upon the termination of such
Suspension Period.
2.5 FINAL TERMINATION. The Special Exercise Right shall expire upon
the earlier to occur of (i) the effective date of a Registration Statement or
(ii) the date on which the Exercise Period shall have been in effect for an
aggregate of 365 days.
2.6 CONDITIONS PRECEDENT. Notwithstanding any other term of this
Warrant, neither the Company nor Acquiror shall have an obligation under this
Article 2 with respect to any purported Special Exercise (i) unless any waiting
period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 applicable
to the purchase of all or a portion of this Warrant pursuant to this Article 2
shall have expired or been terminated, (ii) at any time when, in Acquiror's
reasonable opinion, purchase of all or a portion of this Warrant under this
Article 2 would violate any applicable law, including without limitation
Section 10(b) of the 1934 Act and/or Rule 10b-5 thereunder, or court order and
(iii) if such Special Exercise, when aggregated with each other Special Exercise
(and/or purchase pursuant to a Purchase Election) theretofore made by Holder
would result in the purchase of, and/or Special Exercise of, Series C Warrants
to purchase under this Warrant more than 208,282 shares of Series C Preferred
Stock of the Company.
2.7 EXPENSES. Whether or not the transactions contemplated by this
Article 2 are consummated, all costs and expenses incurred in connection with
this Article 2 and the transactions contemplated hereby shall be paid by the
party incurring such costs or expenses, except as otherwise provided in this
Article 2.
2.8 ACQUISITION. In the event that an Acquisition shall occur, then
proper provision shall be made so that Acquiror shall assume the obligations of
the Company in the event of a Special Exercise and shall have the right to make
a Purchase Election.
ARTICLE 3. ADJUSTMENTS TO THE SHARES.
3.1 STOCK DIVIDENDS, SPLITS, ETC. If the Company declares or pays a
dividend on its common stock (or the Shares if the Shares are securities other
than common stock) payable in common stock, or other securities, subdivides the
outstanding common stock into a greater amount of common stock, or, if the
Shares are securities other than common stock, subdivides the Shares in a
transaction that increases the amount of common stock into which the Shares are
convertible, then upon exercise of this Warrant, for each Share acquired, Holder
shall receive, without cost to Holder, the total number and kind of securities
to which Holder would have been entitled had Holder owned the Shares of record
as of the date the dividend or subdivision occurred.
3.2 RECLASSIFICATION, EXCHANGE OR SUBSTITUTION. Upon any
reclassification, exchange, substitution, or other event that results in a
change of the number and/or class of the securities issuable upon exercise or
conversion of this Warrant, Holder shall be entitled to receive, upon exercise
or conversion of this Warrant, the number and kind of securities and property
that Holder would have received for the Shares if this Warrant had been
exercised immediately before such reclassification, exchange, substitution, or
other event. Such an event shall include any automatic conversion of the
4
<PAGE>
outstanding or issuable securities of the Company of the same class or series as
the Shares to common stock pursuant to the terms of the Company's Certificate of
Incorporation upon the closing of a registered public offering of the Company's
common stock. The Company or its successor shall promptly issue to Holder a new
Warrant for such new securities or other property. The new Warrant shall provide
for adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Article 3 including, without limitation,
adjustments to the Warrant Price and to the number of securities or property
issuable upon exercise of the new Warrant. The provisions of this Section 3.2
shall similarly apply to successive reclassifications, exchanges, substitutions,
or other events. Under no circumstances shall this Warrant be exercisable to
purchase shares of Common Stock of International Business Machines Corporation
("IBM") as a result of the consummation of the transactions contemplated by that
certain Agreement and Plan of Merger dated as of March 18, 1997 by and among the
Company, IBM, Net Acquisition Corp. and the stockholders of the Company listed
on the signature page thereto.
3.3 ADJUSTMENTS FOR COMBINATIONS, ETC. If the outstanding Shares are
combined or consolidated, by reclassification or otherwise, into a lesser number
of shares, the Warrant Price shall be proportionately increased.
3.4 ADJUSTMENTS FOR DILUTING ISSUANCES. The number of shares of
common stock issuable upon conversion of the Shares, shall be subject to
adjustment from time to time in the manner set forth on Exhibit A.
3.5 NO IMPAIRMENT. The Company shall not, by amendment of its
Certificate of Incorporation or through a reorganization, transfer of assets,
consolidation, merger, dissolution, issue, or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed under this Warrant by the Company, but
shall at all times in good faith assist in carrying out of all the provisions of
this Article 3 and in taking all such action as may be necessary or appropriate
to protect Holder's rights under this Article against impairment. If the Company
takes any action affecting the Shares or its common stock other than as
described above that adversely affects Holder's rights under this Warrant, the
Warrant Price shall be adjusted downward and the number of Shares issuable upon
exercise of this Warrant shall be adjusted upward in such a manner that the
aggregate Warrant Price of this Warrant is unchanged.
3.6 FRACTIONAL SHARES. No fractional Shares shall be issuable upon
exercise or conversion of the Warrant and the number of Shares to be issued
shall be rounded down to the nearest whole Share. If a fractional share interest
arises upon any exercise or conversion of the Warrant, the Company shall
eliminate such fractional share interest by paying Holder amount computed by
multiplying the fractional interest by the fair market value of a full Share.
3.7 CERTIFICATE AS TO ADJUSTMENTS. Upon each adjustment of the
Warrant Price, the Company at its expense shall promptly compute such
adjustment, and furnish Holder with a certificate of its Chief Financial Officer
setting forth such adjustment and the facts upon which such adjustment is based.
The Company shall, upon written request, furnish Holder a certificate setting
forth the Warrant Price in effect upon the date thereof and the series of
adjustments leading to such Warrant Price.
ARTICLE 4. REPRESENTATIONS AND COVENANTS OF THE COMPANY.
4.1 REPRESENTATIONS AND WARRANTIES. The Company hereby represents
and warrants to the Holder that all Shares which may be issued upon the exercise
of the purchase right represented by this Warrant, and all securities, if any,
issuable upon conversion of the Shares, shall, upon issuance, be duly
authorized, validly issued, fully paid and nonassessable, and free of any liens
and encumbrances except for restrictions on transfer provided for herein or
under applicable federal and state securities laws.
4.2 NOTICE OF CERTAIN EVENTS. If the Company proposes at any time
(a) to declare any dividend or distribution upon its common stock, whether in
cash, property, stock, or other securities and whether or not a regular cash
dividend; (b) to offer for subscription pro rata to the holders of any class or
5
<PAGE>
series of its stock any additional shares of stock of any class or series or
other rights; (c) to effect any reclassification or recapitalization of common
stock; (d) to merge or consolidate with or into any other corporation, or sell,
lease, license, or convey all or substantially all of its assets, or to
liquidate, dissolve or wind up; or (e) offer holders of registration rights the
opportunity to participate in an underwritten public offering of the company's
securities for cash, then, in connection with each such event, the Company shall
give Holder (1) at least 20 days' prior written notice of the date on which a
record will be taken for such dividend, distribution, or subscription rights
(and specifying the date on which the holders of common stock will be entitled
thereto) or for determining rights to vote, if any, in respect of the matters
referred to in (c) and (d) above; (2) in the case of the matters referred to in
(c) and (d) above at least 20 days' prior written notice of the date when the
same will take place (and specifying the date on which the holders of common
stock will be entitled to exchange their common stock for securities or other
property deliverable upon the occurrence of such event); and (3) in the case of
the matter referred to in (e) above, the same notice as is given to the holders
of such registration rights.
4.3 REGISTRATION UNDER SECURITIES ACT OF 1933, AS AMENDED. The
Company agrees that the Shares or, if the Shares are convertible into common
stock of the Company, such common stock, shall be subject to the registration
rights set forth on Exhibit B, if attached.
ARTICLE 5. MISCELLANEOUS.
5.1 TERM; NOTICE OF EXPIRATION. This Warrant is exercisable, in
whole or in part, at any time and from time to time on or before the Expiration
Date set forth above. The Company shall give Holder written notice of Holder's
right to exercise this Warrant in the form attached as Appendix 2 not more than
90 days and not less than 30 days before the Expiration Date.
5.2 LEGENDS. This Warrant and the Shares (and the securities
issuable, directly or indirectly, upon conversion of the Shares, if any) shall
be imprinted with legends in substantially the following form:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, OR
HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH
RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO THE CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED
OR UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT.
THIS WARRANT IS ISSUED PURSUANT TO AN INVESTMENT AGREEMENT DATED AS OF
DECEMBER 17, 1996 AMONG THE COMPANY, THE HOLDER AND EACH OTHER ORIGINAL
HOLDER OF A WARRANT TO PURCHASE THE SHARES AND IS SUBJECT TO CERTAIN
RESTRICTIONS THEREUNDER, INCLUDING SECTION 5, WHICH PROVIDES FOR
MANDATORY DEEMED EXERCISE AND FORFEITURE OF THIS WARRANT UNDER CERTAIN
CIRCUMSTANCES.
In addition, the Company will place such legends on the Shares as shall
be necessary to comply with the applicable terms of agreements and instruments
referred to in Section 1.4.
5.3 COMPLIANCE WITH SECURITIES LAWS ON TRANSFER. This Warrant and
the Shares issuable upon exercise this Warrant (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) may not be
transferred or assigned in whole or in part without compliance with applicable
federal and state securities laws by the transferor and the transferee
(including, without limitation, the delivery of investment representation
letters and legal opinions reasonably satisfactory to the Company, as reasonably
requested by the Company). The Company shall not require Holder to provide an
opinion of counsel if the transfer is to an affiliate of Holder or if there is
no material question as to the availability of current information as referenced
in Rule 144(c), Holder represents that it has
6
<PAGE>
complied with Rule 144(d) and (e) in reasonable detail, the selling broker
represents that it has complied with Rule 144(f), and the Company is provided
with a copy of Holder's notice of proposed sale.
5.4 TRANSFER PROCEDURE. Subject to the provisions of Section 5.2,
Holder may transfer all or part of this Warrant or the Shares issuable upon
exercise of this Warrant (or the securities issuable, directly or indirectly,
upon conversion of the Shares, if any) by giving the Company notice of the
portion of the Warrant being transferred setting forth the name, address and
taxpayer identification number of the transferee and surrendering this Warrant
to the Company for reissuance to the transferee(s) (and Holder if applicable).
5.5 NOTICES. All notices and other communications from the Company
to the Holder, or vice versa, shall be deemed delivered and effective when given
personally or mailed by first-class registered or certified mail, postage
prepaid, at such address as may have been furnished to the Company or the
Holder, as the case may be, in writing by the Company or such holder from time
to time.
5.6 WAIVER. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought.
5.7 GOVERNING LAW. This Warrant shall be governed by and construed
in accordance with the laws of the State of California, without giving effect to
its principles regarding conflicts of laws.
"COMPANY"
NETOBJECTS, INC.
By
--------------------------------
Name
--------------------------------
(Print)
Title: President
7
<PAGE>
APPENDIX 1
NOTICE OF EXERCISE
1. The undersigned hereby elects to purchase ____________ shares of
the Series __ Preferred Stock of NetObjects, Inc. (the "Company") pursuant to
the terms of the attached Warrant, and (i) tenders herewith payment of the
purchase price of such shares in full, or (ii) releases and discharges the
Company's obligation to pay indebtedness for money loaned by the undersigned in
the amount of $________ and tenders payment for the balance of the purchase
price herewith.
2. Please issue a certificate or certificates representing said
shares in the name of the undersigned or in such other name as is specified
below:
--------------------
(Name)
--------------------
--------------------
(Address)
3. The undersigned represents it is acquiring the shares solely for
its own account and not as a nominee for any other party and not with a view
toward the resale or distribution thereof except in compliance with applicable
securities laws.
----------------------------------------
(Signature)
- -------------------
(Date)
<PAGE>
APPENDIX 2
NOTICE THAT WARRANT IS ABOUT TO EXPIRE
----------------------
(Name of Holder)
(Address of Holder)
Attn: Chief Financial Officer
Dear ___________________________:
This is to advise you that the Warrant issued to you described below
will expire on _____________________, 19____.
Issuer:
Issue Date: December 18, 1996
Class of Security Issuable: See Warrant.
Exercise Price per Share: See Warrant.
Number of Shares Issuable: See Warrant.
Procedure for Exercise:
Please contact [name of contact person at (phone number)] with any
questions you may have concerning exercise of the Warrant. This is your only
notice of pending expiration.
----------------------------------------
(Name of Issuer)
By
-------------------------------------
Its
-------------------------------------
<PAGE>
APPENDIX 3
NOTICE OF SPECIAL EXERCISE
1. The undersigned hereby elects to exercise this Warrant in a
Special Exercise pursuant to Article 2 hereof, subject to Acquiror's right to
make a Purchase Election, with respect to _____ shares of Series C Preferred
Stock of the Company otherwise issuable had this Warrant been exercised in a
Conventional Exercise, to receive $0.677 for each such share. The undersigned
hereby tenders herewith payment of the Warrant Price of such shares in full.
Capitalized terms used herein shall have the meanings ascribed to them in this
Warrant.
--------------------
(Signature)
- --------------------
(Date)
<PAGE>
EXHIBIT A
Anti-Dilution Provisions
After the Issue Date of the Warrant, the Shares issued or issuable under
the terms of the Warrant shall be entitled to the same anti-dilution protection
as provided for shares of Series C Preferred Stock in the Company's Certificate
of Incorporation with respect to dilutive issuances. Under no circumstances
shall the aggregate Warrant Price payable by the Holder upon exercise of the
Warrant increase as a result of any adjustment arising from the application of
the anti-dilution provisions in the Company's Certificate of Incorporation.
<PAGE>
EXHIBIT B
REGISTRATION RIGHTS
The Shares (if common stock), or the common stock issuable upon
conversion of the Shares, shall be deemed "registrable securities" or otherwise
entitled to registration rights in accordance with the terms of the First
Amended and Restated Investor Rights Agreement or similar agreement granting
registration rights to the holders of Series C Preferred Stock (the "Agreement")
between the Company and its investor(s).
The Company agrees that no amendments will be made to the Agreement
which would have an adverse impact on Holder's registration rights thereunder
without the consent of Holder. By acceptance of the Warrant to which this
Exhibit B is attached, Holder shall be deemed to be a party to the Agreement.
<PAGE>
AGREEMENT
This Agreement dated as of January __, 1999, by and among (i)
NetObjects, Inc., a Delaware corporation, and (ii) Perseus U.S.
Investors, L.L.C.; Venture Fund I, L.P.; AT&T Venture Fund II, L.P.; Norwest
Equity Partners V; Venrock Associates; Venrock Associates II, L.P.; Terence
Garnett; and John Sculley (individually, a "Holder" and collectively, the
"Holders").
W I T N E S S E T H :
WHEREAS, on December 18, 1996, the Company issued to each of the
Holders a warrant to acquire shares of the Company's Series C Preferred Stock
(individually, a "Warrant" and collectively, the "Warrants");
WHEREAS, the parties hereto wish to amend the terms of the Warrants as
provided herein;
NOW, THEREFORE, in consideration of the agreements set forth herein,
and other good and valuable consideration, and intending to be legally bound
hereby, the Company hereby agrees with each Holder as follows:
1. AMENDMENTS TO WARRANT. (a) Each Warrant is hereby amended by
adding the following provision as a new Section 1.5:
"1.5 AUTOMATIC CONVERSION. Immediately
prior to the consummation of an underwritten
offering of stock by the Company pursuant to a
Registration Statement (an "Offering"), this
Warrant automatically, without any action on
the part of Holder, shall be converted into the
number of shares of the Company's Common Stock
computed using the following formula:
X = Y(A-B)
------
A
Where X = the number of shares of Common Stock
to be issued to Holder
Y = the number of shares of Common Stock
purchasable under this Warrant
(immediately prior to the consummation
of such Offering and assuming full
conversion of all shares of Series C
Preferred Stock into shares of Common
Stock)
<PAGE>
A = the initial public offering price
for one share of the Company's
Common Stock in such Offering without
giving effect to any underwriter
compensation or discounts
B = Warrant Price (as adjusted to the
date of such calculation"
(b) Section 2.5(i) of each Warrant is hereby amended to read as follows:
"the consummation of an Offering or"
3. SAVINGS CLAUSE. In all other respects each Warrant shall remain in
full force and effect.
4. COUNTERPARTS; EFFECTIVENESS. This Agreement may be executed in
any number of counterparts, which taken together shall constitute one and the
same document. This Agreement and the amendment to the Warrants set forth
herein shall be effective as to each Holder and such Holder's Warrant upon
such Holder's execution and delivery of this Agreement, whether or not any
other Holders execute and deliver this Agreement.
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed and delivered by
the parties hereto, or their duly authorized agents, as of the date first
written above.
NETOBJECTS, INC.
By:
----------------------------------
Name:
----------------------------------
Title:
----------------------------------
PERSEUS U.S. INVESTORS, L.L.C.
By:
----------------------------------
Name:
----------------------------------
Title:
----------------------------------
VENTURE FUND I, L.P.
By:
----------------------------------
Name:
----------------------------------
Title:
----------------------------------
<PAGE>
AT&T VENTURE FUND II, L.P.
By:
----------------------------------
Name:
----------------------------------
Title:
----------------------------------
NORWEST EQUITY PARTNERS V
By:
----------------------------------
Name:
----------------------------------
Title:
----------------------------------
VENROCK ASSOCIATES
By:
----------------------------------
Name:
----------------------------------
Title:
----------------------------------
VENROCK ASSOCIATES II, L.P.
By:
----------------------------------
Name:
----------------------------------
Title:
----------------------------------
----------------------------------------
TERENCE GARNETT
----------------------------------------
JOHN SCULLEY
<PAGE>
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE
"ACT") OR THE SECURITIES LAWS OF ANY STATE. THIS WARRANT MAY NOT BE SOLD OR
OTHERWISE DISPOSED OF UNLESS IT IS AT THE TIME SO REGISTERED OR THE SALE OR
OTHER TRANSFER OR DISPOSITION THEREOF IS MADE PURSUANT TO AN EXEMPTION FROM
REGISTRATION PROVIDED BY THE ACT OR RULES AND REGULATIONS THEREUNDER AND
APPLICABLE STATE LAWS.
WARRANT
FOR THE PURCHASE OF SERIES E PREFERRED STOCK
PAR VALUE $.00000001 PER SHARE
of
NETOBJECTS, INC.
VOID AFTER APRIL 11, 2000
April 11, 1997
THIS CERTIFIES THAT, for value received, INTERNATIONAL BUSINESS MACHINES
CORPORATION ("IBM") or assigns (the "Holder") is entitled, in accordance with
the terms and conditions hereinafter set forth, at any time on or before
April 11, 2000, to purchase up to 20,897,020 as such number may be adjusted)
shares of Series E Preferred Stock, par value $.00000001 per share (the
"Series E Preferred Stock"), of NETOBJECTS, INC., a Delaware corporation
(hereinafter called the "Company"), at the exercise price hereinafter set forth,
and to receive a certificate or certificates for the shares of Series E
Preferred Stock so purchased, upon presentation and surrender of this Warrant,
at the principal office of the Company, which, as of the date hereof, is located
at 2055 Woodside Road, Redwood City, CA 94061, together with the exercise price
of the shares so purchased. The number of shares purchasable upon exercise of
this Warrant and the exercise price shall be subject to adjustment from time to
time as set forth below.
<PAGE>
1. RESERVATION OF SHARES. The Company shall at all times reserve and
keep available out of its authorized but unissued Series E Preferred Stock,
solely for issuance and delivery upon exercise of this Warrant, such number of
shares of Series E Preferred Stock as shall from time to time be issuable upon
exercise of this Warrant. All shares which may be issued upon the exercise of
this Warrant shall, upon issuance, be duly authorized, validly issued, fully
paid and nonassessable and be free from all taxes, liens and charges in respect
of the issuance thereof.
2. TERM. The purchase rights represented by this Warrant are exercisable
at the option of the Holder in whole at any time, or in part from time to time,
on or before April 11, 2000. In case of the purchase of fewer than all the
shares purchasable under this Warrant, the Company shall cancel this Warrant
upon surrender hereof and, provided the unexercised portion has not expired as
provided above, shall execute and deliver a new Warrant of like tenor and date
for the balance of the shares purchasable hereunder.
3. NO VOTING RIGHTS. This Warrant shall not entitle the Holder to any
voting rights or other rights whatsoever except the rights herein expressed, and
no dividend or interest shall be payable or accrue in respect of this Warrant or
the interest represented hereby or the shares purchasable hereunder until and
unless, and except to the extent that, this Warrant shall be exercised.
4. WARRANT UNREGISTERED. Neither this Warrant nor any of the shares to
be issued upon the exercise hereof have been registered under the Securities Act
of 1933, as amended (the "Act"). Accordingly, this Warrant and the shares of
Series E Preferred Stock issuable upon exercise of this Warrant may not be sold,
transferred or otherwise disposed of unless they are so registered or an
exemption from registration is available.
5. TRANSFERS AND EXCHANGES. Upon surrender by the Holder of this
Warrant, properly endorsed, at the office of the Company for registration of
transfer or for exchange, the Company at its expense shall execute and deliver
in exchange therefor a new Warrant or Warrants of the same tenor, in the name of
such Holder or registered as such Holder may request, evidencing, in the
aggregate, the right to purchase an equal number of shares of Series E Preferred
Stock as the Warrant so surrendered.
6. EXERCISE PRICE. The purchase price for each share of Series E
Preferred Stock which the Holder has the right to purchase hereunder
(hereinafter called the "Exercise Price") shall be $1.1131258. The Exercise
Price for the shares of Series E Preferred Stock which the Holder has the right
to purchase hereunder shall be paid in cash or by certified or official bank
check at the time of exercise. In lieu of exercising this Warrant as provided
in the preceding sentence, at any time on or after the effective date of a
Form S-1 registration statement relating to common stock of the Company
("Company Common Stock") filed by the Company pursuant to the Act, the Holder
may elect to receive shares equal to the value of this Warrant (or any portion
thereof remaining unexercised) by surrender of this Warrant at the principal
office of the
2
<PAGE>
Company together with notice of such election, in which event the Company shall
issue to the Holder a number of shares of Company Common Stock (if Company
Common Stock is then issuable upon exercise of this Warrant pursuant to
Section 7 hereof) computed using the following formula:
X = Y (A - B)
---------
A
Where X = the number of shares of Company Common Stock to be issued to
the Holder.
Y = the number of shares of Company Common Stock purchasable
under this Warrant (at the date of such calculation).
A = the fair market value of one share of Company Common Stock
(at the date of such calculation).
B = Exercise Price (as adjusted to the date of such
calculation).
For purposes of this subsection fair market value of one share of the
Company Common Stock shall mean the price of Company Common Stock quoted on the
Nasdaq Stock Market or on any exchange on which Company Common Stock is listed,
whichever is applicable, as published in the Western Edition of THE WALL STREET
JOURNAL for the five (5) trading days prior to the date of determination of the
fair market value.
7. ADJUSTMENTS TO THE SHARES; ANTIDILUTION PROVISION.
(a) If the Company (A) pays a dividend or makes a distribution on the
Series E Preferred Stock in Series E Preferred Stock, (B) subdivides or combines
its outstanding shares of Series E Preferred Stock into a greater or smaller
number of shares or (C) issues by reclassification of the Series E Preferred
Stock any shares of capital stock of the Company, the Exercise Price in effect
immediately prior to such action shall be adjusted so that the Holder of this
Warrant thereafter surrendered for exercise shall be entitled to receive, at the
time of such exercise, the number of shares of Series E Preferred Stock or other
capital stock of the Company that it would have owned or been entitled to
receive immediately following such action had this Warrant been exercised
immediately prior thereto or on the record date therefor, whichever is earlier.
Such adjustment shall become effective immediately after the record date, in the
case of a dividend or distribution, or immediately after the effective date, in
the case of a subdivision, combination or reclassification.
The shares of Series E Preferred Stock issued or issuable under
the terms of the Warrant shall be entitled to the same antidilution protection
as provided for shares of Series E Preferred Stock in the Company's Restated
Certificate of
3
<PAGE>
Incorporation as if such shares had been outstanding from the issue date of the
Warrant.
(b) Upon any reclassification, exchange, substitution, or other event
that results in a change of the number and/or class of the securities issuable
upon exercise or conversion of this Warrant, the Holder shall be entitled to
receive, upon exercise or conversion of this Warrant, the number and kind of
securities and property that the Holder would have received for the shares
issuable hereunder if this Warrant had been exercised immediately before such
reclassification, exchange, substitution, or other event. Such an event shall
include any automatic conversion of the outstanding or issuable securities of
the Company of the same class or series as the shares issuable hereunder to
common stock pursuant to the terms of the Company's Restated Certificate of
Incorporation upon the closing of a registered public offering of Company Common
Stock. The Company or its successor shall promptly issue to Holder a new
Warrant for such new securities or other property. The new Warrant shall
provide for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Article 7 including, without
limitation, adjustments to the Exercise Price and to the number of securities or
property issuable upon exercise of the new Warrant. The provisions of this
Section 7(b) shall similarly apply to successive reclassifications, exchanges,
substitutions, or other events.
8. STOCK CERTIFICATES. As soon as practicable after exercise of this
Warrant and in any event within two business days thereafter, the Company at its
expense shall cause to be issued in the name of the Holder hereof or (subject to
Section 4) any person designated by such Holder, a certificate or certificates
for the number of shares of Series E Preferred Stock to which such Holder shall
be entitled upon such exercise. The issuance of stock certificates upon the
exercise of this Warrant shall be made without charge to the Holder for any tax
in respect of the issuance thereof.
9. GOVERNING LAW. This Warrant shall be construed and enforced in
accordance with and governed by the laws of the State of New York.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its proper officers thereunto duly authorized and the Company's corporate
seal to be hereunto affixed this 11th day of April, 1997.
NETOBJECTS, INC.
By:
-----------------------------------
Title:
----------------------------------
4
<PAGE>
PURCHASE FORM
(To be executed upon exercise of Warrant)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant, to purchase shares of Series E Preferred
Stock as provided for herein and herewith tenders in payment for such shares of
Series E Preferred Stock payment of the purchase price in full in the form of
cash or a certified or official bank check payable to the order of NETOBJECTS,
INC., or a combination thereof in the amount of $ , all in accordance
with the terms hereof. The undersigned requests that a certificate for such
shares of Series E Preferred Stock be registered in the name of whose
address is and that such certificates shall be delivered to whose
address is . If said number of shares of Series E Preferred
Stock is fewer than all the shares of Series E Preferred Stock purchasable
hereunder, the undersigned requests that a new Warrant representing the right to
purchase the remaining balance of the shares of Series E Preferred Stock be
registered in the name of whose address is and that such
certificates shall be delivered to whose address is .
Dated:
----------------
----------------
(Insert social security or other identifying number of holder)
Signature:
-----------------------
Note: (Signature must conform in
all respects to name of
holder as specified on the
face of this Warrant in
every particular, without
alteration or enlargement
or any change whatsoever,
unless this Warrant has been
assigned.)
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto (Name and Address of Assignee Must be Printed or
Typewritten) the within Warrant, together with all right, title and interest
therein, and does hereby irrevocably constitute and appoint ,
Attorney, to transfer said Warrant on the books of the within-named Company,
with full power of substitution in the premises.
Dated:
------------------------
--------------------------------------------------
Signature of Registered Holder
Note: The above signature must correspond to the
name as written on the face of this Warrant
in every particular, without alteration or
enlargement or any change whatever.
<PAGE>
THE SECURITIES EVIDENCED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE SOLD,
TRANSFERRED, OR ASSIGNED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT
UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN ACCORDANCE WITH
RULE 144 UNDER THE SECURITIES ACT, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL
FOR THE HOLDER OF SUCH SECURITIES REASONABLY SATISFACTORY TO THE COMPANY STATING
THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.
No: One
WARRANT
TO PURCHASE SERIES E-2 PREFERRED STOCK
of
NETOBJECTS, INC.
(void after October 8, 2003)
1. ISSUANCE OF WARRANT. FOR VALUE RECEIVED, on and after the
Commencement Date (as defined below), and subject to the terms and conditions
herein set forth, the Holder (as defined below) is entitled to purchase from
NetObjects, Inc., a Delaware corporation (the "Company"), at any time before
5:00 p.m. California time on October 8, 2003 ("Termination Date"), at a price
per share equal to the Warrant Price (as defined below and subject to
adjustments as described below), the Warrant Stock (as defined below and subject
to adjustments as described below) upon exercise of this warrant (this
"Warrant") pursuant to Section 5 hereof.
2. DEFINITIONS. As used in this Warrant, the following terms shall have
the definitions ascribed to them below:
(a) "Business Day" means any day other than a Saturday, Sunday or
other day on which the national or state banks located in the State of
California or the State of New York are authorized to be closed.
(b) "Commencement Date" means the date of issue of this Warrant.
(c) "Common Stock" means the common stock, par value $0.00000001 per
share, of the Company.
(d) "Holder" means International Business Machines Corporation, or
its assigns.
(e) "Notes" shall mean the Senior Subordinated Secured Convertible
Promissory Notes issued by the Company to International Business Machines
Corporation and Perseus
<PAGE>
Capital, L.L.C. (collectively, the "Purchasers") pursuant to the Note and
Warrant Purchase Agreement by and among the Purchasers and the Company dated as
of October 8, 1998.
(f) "Warrant Price" means $1.1131258 per share.
(g) "Warrant Stock" means the shares of Series E-2 Preferred Stock
purchasable upon exercise of this Warrant or issuable upon conversion of this
Warrant. The total number of shares to be issued upon the exercise of the
Warrant shall equal the quotient obtained by dividing $551,217.67 by the Warrant
Price.
3. NO SHAREHOLDER RIGHTS. This Warrant, by itself, as distinguished from
any shares purchased hereunder, shall not entitle its Holder to any of the
rights of a shareholder of the Company.
4. RESERVATION OF STOCK. On and after the Commencement Date, the Company
will reserve from its authorized and unissued Series E-2 Preferred Stock a
sufficient number of shares to provide for the issuance of Warrant Stock upon
the exercise or conversion of this Warrant. Issuance of this Warrant shall
constitute full authority to the Company's officers who are charged with the
duty of executing stock certificates to execute and issue the necessary
certificates for shares of Warrant Stock issuable upon the exercise or
conversion of this Warrant.
5. EXERCISE OF WARRANT. This Warrant may be exercised in whole or part
by the Holder, at any time after the date hereof prior to the termination of
this Warrant, by the surrender of this Warrant, together with the Notice of
Exercise and Investment Representation Statement in the forms attached hereto as
ATTACHMENTS 1 AND 2, respectively, duly completed and executed at the principal
office of the Company, specifying the portion of the Warrant to be exercised and
accompanied by payment in full of the Warrant Price in cash or by check with
respect to the shares of Warrant Stock being purchased. This Warrant shall be
deemed to have been exercised immediately prior to the close of business on the
date of its surrender for exercise as provided above, and the person entitled to
receive the shares of Warrant Stock issuable upon such exercise shall be treated
for all purposes as the holder of such shares of record as of the close of
business on such date. As promptly as practicable after such date, the Company
shall issue and deliver to the person or persons entitled to receive the same a
certificate or certificates for the number of full shares of Warrant Stock
issuable upon such exercise. If this Warrant shall be exercised for less than
the total number of shares of Warrant Stock then issuable upon exercise,
promptly after surrender of this Warrant upon such exercise, the Company will
execute and deliver a new warrant, dated the date hereof, evidencing the right
of the Holder to the balance of the Warrant Stock purchasable hereunder upon
the same terms and conditions set forth herein.
6. CONVERSION. In lieu of exercising this Warrant or any portion hereof,
the Holder hereof shall have the right to convert this Warrant or any portion
hereof into Warrant Stock by executing and delivering to the Company at its
principal office the Investment Representation and the written Notice of
Conversion in the forms attached hereto as ATTACHMENTS 2 AND 3, specifying the
portion of the Warrant to be converted, and accompanied by this Warrant. The
number of shares of Warrant Stock to be issued to the Holder upon such
conversion shall be computed using the following formula:
2
<PAGE>
X=(P)(Y)(A-B)/A
where X = the number of shares of Series E-2 Preferred Stock to be issued
to the Holder for the portion of the Warrant being converted.
P = the portion of the Warrant being converted expressed as a
decimal fraction.
Y = the total number of shares of Series E-2 Preferred Stock
issuable upon exercise of the Warrant in full.
A = the fair market value of one share of Warrant Stock which
means (i) the fair market value of the Company's stock
issuable upon conversion of such shares as of the last
Business Day immediately prior to the date the notice of
conversion is received by the Company, as reported in the
principal market for such securities or, if no such market
exists, as determined in good faith by the Company's Board
of Directors, or (ii) if this Warrant is being converted in
conjunction with a public offering of stock the price to the
public per share pursuant to the offering.
B = the Warrant Price on the date of conversion.
Any portion of this Warrant that is converted shall be immediately canceled.
This Warrant or any portion hereof shall be deemed to have been converted
immediately prior to the close of business on the date of its surrender for
conversion as provided above, and the person entitled to receive the shares of
Warrant Stock issuable upon such conversion shall be treated for all purposes as
the holder of such shares of record as of the close of business on such date.
As promptly as practicable after such date, the Company shall issue and deliver
to the person or persons entitled to receive the same a certificate or
certificates for the number of full shares of Warrant Stock issuable upon such
conversion. If the Warrant shall be converted for less than the total number of
shares of Warrant Stock then issuable upon conversion, promptly after surrender
of the Warrant upon such conversion, the Company will execute and deliver a new
warrant, dated the date hereof, evidencing the right of the Holder to the
balance of the Warrant Stock purchasable hereunder upon the same terms and
conditions set forth herein.
7. COMPLIANCE WITH SECURITIES LAWS ON TRANSFER. This Warrant and the
Warrant Stock issuable upon exercise this Warrant (and the securities issuable,
directly or indirectly, upon conversion of the Warrant Stock, if any) may not be
transferred or assigned in whole or in part without compliance with applicable
federal and state securities laws by the transferor and the transferee
(including, without limitation, the delivery of investment representation
letters and legal opinions reasonably satisfactory to the Company, as reasonably
requested by the Company). The Company shall not require the Holder to provide
an opinion of counsel if the transfer is to an affiliate of the Holder or if
there is no material question as to the availability of current information as
referenced in Rule 144(c), the Holder represents that it has complied with
3
<PAGE>
Rule 144(d) and (e) in reasonable detail, the selling broker represents that it
has complied with Rule 144(f), and the Company is provided with a copy of the
Holder's notice of proposed sale.
8. TRANSFER PROCEDURE. The Holder may transfer all or part of this
Warrant or the Warrant Stock issuable upon exercise of this Warrant (or the
securities issuable, directly or indirectly, upon conversion of the Warrant
Stock, if any) by giving the Company notice of the portion of the Warrant being
transferred setting forth the name, address and taxpayer identification number
of the transferee and surrendering the Warrant to the Company for reissuance to
the transferee(s) (and the Holder if applicable).
9. TERMINATION. This Warrant shall terminate on 5:00 p.m. California
time on the Termination Date.
10. MISCELLANEOUS. This Warrant shall be governed by the laws of the
State of New York, as such laws are applied to contracts to be entered into and
performed entirely in New York by New York residents. In the event of any
dispute among the Holder and the Company arising out of the terms of this
Warrant, the parties hereby consent to the exclusive jurisdiction of the federal
and state courts located in the State of New York for resolution of such
dispute, and agree not to contest such exclusive jurisdiction or seek to
transfer any action relating to such dispute to any other jurisdiction. The
headings in this Warrant are for purposes of convenience and reference only, and
shall not be deemed to constitute a part hereof. Neither this Warrant nor any
term hereof may be changed or waived orally, but only by an instrument in
writing signed by the Company and the Holder of this Warrant. All notices and
other communications from the Company to the Holder of this Warrant shall be
delivered personally or by facsimile transmission or mailed by first class mail,
postage prepaid, to the address or facsimile number furnished to the Company in
writing by the last Holder of this Warrant who shall have furnished an address
or facsimile number to the Company in writing, and if mailed shall be deemed
given three days after deposit in the United States mail.
11. MARKET STAND-OFF AGREEMENT. The Holder agrees to be bound by the
terms of a standard lock-up agreement requested by the underwriters with respect
to an initial public offering of common stock of the Company which shall apply
to all Series E-2 Preferred Stock or Common Stock acquired pursuant to this
Warrant; provided that the lock-up period does not exceed 180 days and all other
principal shareholders of the Company are subject to similar agreements.
ISSUED: October 8, 1998
NETOBJECTS, INC.
By:
---------------------
Name:
-------------------
Title:
-------------------
4
<PAGE>
Attachment 1
NOTICE OF EXERCISE
TO: NETOBJECTS, INC.
1. The undersigned hereby elects to purchase _______________ shares of
the Warrant Stock of NetObjects, Inc. pursuant to the terms of the attached
Warrant, and tenders herewith payment of the purchase price in full, together
with all applicable transfer taxes, if any.
2. Please issue a certificate or certificates representing said shares of
Warrant Stock in the name of the undersigned or in such other name as is
specified below:
------------------------------
(Name)
-------------------------------
(Address)
- --------------------------------------- -----------------------------------
(Date) (Name of Warrant Holder)
By:
--------------------------------
Title:
-----------------------------
<PAGE>
Attachment 2
INVESTMENT REPRESENTATION STATEMENT
Shares of the Series E-2 Preferred Stock
(as defined in the attached Warrant) of
NETOBJECTS, INC.
In connection with the purchase of the above-listed securities, the
undersigned hereby represents to NetObjects, Inc. (the "Company") as follows:
(a) The securities to be received upon the exercise of the Warrant (the
"Securities") will be acquired for investment for its own account, not as a
nominee or agent, and not with a view to the sale or distribution of any part
thereof, and the undersigned has no present intention of selling, granting
participation in or otherwise distributing the same, but subject, nevertheless,
to any requirement of law that the disposition of its property shall at all
times be within its control. By executing this statement, the undersigned
further represents that it does not have any contract, undertaking, agreement or
arrangement with any person to sell, transfer, or grant participations to such
person or to any third person, with respect to any Securities issuable upon
exercise of the Warrant.
(b) The undersigned understands that the Securities issuable upon exercise
of the Warrant at the time of issuance may not be registered under the
Securities Act of 1933, as amended (the "Securities Act"), and applicable state
securities laws, on the ground that the issuance of such securities is exempt
pursuant to Section 4(2) of the Securities Act and state law exemptions relating
to offers and sales not by means of a public offering, and that the Company's
reliance on such exemptions is predicated on the undersigned's representations
set forth herein.
(c) The undersigned agrees that in no event will it make a disposition of
any Securities acquired upon the exercise of the Warrant unless and until (i) it
shall have notified the Company of the proposed disposition and shall have
furnished the Company with a statement of the circumstances surrounding the
proposed disposition, and (ii) it shall have furnished the Company with an
opinion of counsel satisfactory to the Company and Company's counsel to the
effect that (A) appropriate action necessary for compliance with the Securities
Act and any applicable state securities laws has been taken or an exemption from
the registration requirements of the Securities Act and such laws is available,
and (B) the proposed transfer will not violate any of said laws.
(d) The undersigned acknowledges that an investment in the Company is
highly speculative and represents that it is able to fend for itself in the
transactions contemplated by this statement, has such knowledge and experience
in financial and business matters as to be capable of evaluating the merits and
risks of its investments, and has the ability to bear the economic risks
(including the risk of a total loss) of its investment. The undersigned
represents that it has had the opportunity to ask questions of the Company
concerning the Company's business and assets and to obtain any additional
information which it considered necessary to verify the
1
<PAGE>
accuracy of or to amplify the Company's disclosures, and has had all questions
which have been asked by it satisfactorily answered by the Company
(e) The undersigned acknowledges that the Securities issuable upon exercise
or conversion of the Warrant must be held indefinitely unless subsequently
registered under the Securities Act or an exemption from such registration is
available. The undersigned is aware of the provisions of Rule 144 promulgated
under the Securities Act which permit limited resale of shares purchased in a
private placement subject to the satisfaction of certain conditions, including,
among other things, the existence of a public market for the shares, the
availability of certain current public information about the Company, the resale
occurring not less than one year after a party has purchased and paid for the
security to be sold from the Company or any affiliate of the Company, the sale
being through a "broker's transaction" or in transactions directly with a
"market maker" (as provided by Rule 144(f)) and the number of shares being sold
during any three month period not exceeding specified limitations.
Dated:
---------------------------------------
---------------------------------------
(Typed or Printed Name)
By:
------------------------------------
(Signature)
---------------------------------------
(Title)
2
<PAGE>
Attachment 3
NOTICE OF CONVERSION
TO: NETOBJECTS, INC.
1. The undersigned hereby elects to acquire _______________ shares of the
Warrant Stock of NetObjects, Inc. pursuant to the terms of the attached Warrant,
by conversion of _________ percent (_____%) of the Warrant.
2. Please issue a certificate or certificates representing said shares of
Warrant Stock in the name of the undersigned or in such other name as is
specified below:
------------------------------
(Name)
-------------------------------
(Address)
- ---------------------------------- -----------------------------------
(Date) (Name of Warrant Holder)
By:
--------------------------------
Title:
-------------------------------
(Title and signature of authorized person)
<PAGE>
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE
"ACT") OR THE SECURITIES LAWS OF ANY STATE. THIS WARRANT MAY NOT BE SOLD OR
OTHERWISE DISPOSED OF UNLESS IT IS AT THE TIME SO REGISTERED OR THE SALE OR
OTHER TRANSFER OR DISPOSITION THEREOF IS MADE PURSUANT TO AN EXEMPTION FROM
REGISTRATION PROVIDED BY THE ACT OR RULES AND REGULATIONS THEREUNDER AND
APPLICABLE STATE LAWS.
WARRANT
FOR THE PURCHASE OF SERIES F PREFERRED STOCK
PAR VALUE $.00000001 PER SHARE
of
NETOBJECTS, INC.
VOID AFTER DECEMBER 23, 2002
THIS CERTIFIES THAT, for value received, IBM Credit Corporation ("IBM
Credit") or assigns (the "Holder") is entitled, in accordance with the terms and
conditions hereinafter set forth, at any time on or before December 23, 2002, to
purchase up to 500,000 (as such number may be adjusted) shares of Series F
Preferred Stock, par value $.00000001 per share (the "Series F Preferred
Stock"), of NETOBJECTS, INC., a Delaware corporation (hereinafter called the
"Company"), at the exercise price hereinafter set forth, and to receive a
certificate or certificates for the shares of Series F Preferred Stock so
purchased, upon presentation and surrender of this Warrant, at the principal
office of the Company, which, as of the date hereof, is located at 602 Galveston
Drive, Redwood City, California 94063, together with the exercise price of the
shares so purchased. The number of shares purchasable upon exercise of this
Warrant and the exercise price shall be subject to adjustment from time to time
as set forth below. This Warrant is issued under and pursuant to the terms of
the Revolving Loan and Security Agreement dated December 23, 1997 (the "Loan
Agreement"), between the Company and IBM Credit.
1. RESERVATION OF SHARES. The Company shall at all times reserve and
keep available out of its authorized but unissued Series F Preferred Stock,
solely for issuance and delivery upon exercise of this Warrant, such number of
shares of Series F Preferred Stock as shall from time to time be issuable upon
exercise of this Warrant.
<PAGE>
All shares which may be issued upon the exercise of this Warrant shall, upon
issuance, be duly authorized, validly issued, fully paid and nonassessable
and be free from all taxes, liens and charges in respect of the issuance
thereof.
2. TERM. The purchase rights represented by this Warrant are exercisable
at the option of the Holder in whole at any time, or in part from time to time,
on or before December 23, 2002. In case of the purchase of fewer than all the
shares purchasable under this Warrant, the Company shall cancel this Warrant
upon surrender hereof and, provided the unexercised portion has not expired as
provided above, shall execute and deliver a new Warrant of like tenor and date
for the balance of the shares purchasable hereunder.
3. INVESTMENT REPRESENTATION. IBM Credit, by accepting this Warrant,
represents that this Warrant is acquired for IBM Credit's own account for
investment purposes and not with a view to any offering or distribution and that
IBM Credit has no present intention of selling or otherwise disposing of this
Warrant or any portion hereof or the underlying shares of Series F Preferred
Stock in violation of applicable securities laws.
4. NO VOTING RIGHTS. This Warrant shall not entitle the Holder to any
voting rights or other rights whatsoever except the rights herein expressed, and
no dividend or interest shall be payable or accrue in respect of this Warrant or
the interest represented hereby or the shares purchasable hereunder until and
unless, and except to the extent that, this Warrant shall be exercised.
5. WARRANT UNREGISTERED. Neither this Warrant nor any of the shares to
be issued upon the exercise hereof have been registered under the Securities Act
of 1933, as amended (the "Act"). Accordingly, this Warrant and the shares of
Series F Preferred Stock issuable upon exercise of this Warrant may not be sold,
transferred or otherwise disposed of unless they are so registered or an
exemption from registration is available.
6. TRANSFERS AND EXCHANGES. Upon surrender by the Holder of this
Warrant, properly endorsed, at the office of the Company for registration of
transfer or for exchange, the Company at its expense shall execute and deliver
in exchange therefor a new Warrant or Warrants of the same tenor, in the name of
such Holder or registered as such Holder may request, evidencing, in the
aggregate, the right to purchase an equal number of shares of Series F Preferred
Stock as the Warrant so surrendered.
7. EXERCISE PRICE. The purchase price for each share of Series F
Preferred Stock which the Holder has the right to purchase hereunder
(hereinafter called the "Exercise Price") shall be $1.80. The Exercise Price
for the shares of Series F Preferred Stock which the Holder has the right to
purchase hereunder shall be paid in cash or by certified or official bank check
at the time of exercise. In lieu of exercising this Warrant as provided in the
preceding sentence, at any time on or after the effective date of a Form S-1
registration statement relating to common stock of the Company ("Company Common
Stock") filed by the Company pursuant to the Act, the Holder may
2
<PAGE>
elect to receive shares equal to the value of this Warrant (or any portion
thereof remaining unexercised) by surrender of this Warrant at the principal
office of the Company together with notice of such election, in which event the
Company shall issue to the Holder a number of shares of Company Common Stock (if
Company Common Stock is then issuable upon exercise of this Warrant pursuant to
Section 8 hereof) computed using the following formula:
Y (A - B)
X = ---------
A
Where X = the number of shares of Company Common Stock to be issued to
the Holder.
Y = the number of shares of Company Common Stock purchasable
under this Warrant (at the date of such calculation).
A = the fair market value of one share of Company Common Stock
(at the date of such calculation).
B = Exercise Price (as adjusted to the date of such
calculation).
For purposes of this subsection fair market value of one share of the
Company Common Stock shall mean the average of the closing price of Company
Common Stock quoted on the Nasdaq Stock Market or on any exchange on which
Company Common Stock is listed, whichever is applicable, as published in the
Western Edition of THE WALL STREET JOURNAL for the five (5) trading days prior
to the date of determination of the fair market value.
8. ADJUSTMENTS TO THE SHARES; ANTIDILUTION PROVISION.
(a) If the Company (A) pays a dividend or makes a distribution on the
Series F Preferred Stock in shares of Series F Preferred Stock, (B) subdivides
or combines its outstanding shares of Series F Preferred Stock into a greater or
smaller number of shares or (C) issues by reclassification of the Series F
Preferred Stock any shares of capital stock of the Company, the Exercise Price
in effect immediately prior to such action shall be adjusted so that the Holder
of this Warrant thereafter surrendered for exercise shall be entitled to
receive, at the time of such exercise, the number of shares of Series F
Preferred Stock or other capital stock of the Company that it would have owned
or been entitled to receive immediately following such action had this Warrant
been exercised immediately prior thereto or on the record date therefor,
whichever is earlier. Such adjustment shall become effective immediately after
the
3
<PAGE>
record date, in the case of a dividend or distribution, or immediately after the
effective date, in the case of a subdivision, combination or reclassification.
The shares of Series F Preferred Stock issued or issuable under
the terms of the Warrant shall be entitled to the same antidilution protection
as provided for shares of Series F Preferred Stock in the Company's Restated
Certificate of Incorporation as if such shares had been outstanding from the
issue date of the Warrant.
(b) Upon any reclassification, exchange, substitution, or other event
that results in a change of the number and/or class of the securities issuable
upon exercise or conversion of this Warrant, the Holder shall be entitled to
receive, upon exercise or conversion of this Warrant, the number and kind of
securities and property that the Holder would have received for the shares
issuable hereunder if this Warrant had been exercised immediately before such
reclassification, exchange, substitution, or other event. Such an event shall
include any automatic conversion of the outstanding or issuable securities of
the Company of the same class or series as the shares issuable hereunder to
common stock pursuant to the terms of the Company's Restated Certificate of
Incorporation upon the closing of a registered public offering of Company Common
Stock. The Company or its successor shall promptly issue to Holder a new
Warrant for such new securities or other property. The new Warrant shall
provide for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 8 including, without
limitation, adjustments to the Exercise Price and to the number of securities or
property issuable upon exercise of the new Warrant. The provisions of this
Section 8(b) shall similarly apply to successive reclassifications, exchanges,
substitutions, or other events.
9. STOCK CERTIFICATES. As soon as practicable after exercise of this
Warrant and in any event within two business days thereafter, the Company at its
expense shall cause to be issued in the name of the Holder hereof or (subject to
Section 6) any person designated by such Holder, a certificate or certificates
for the number of shares of Series F Preferred Stock to which such Holder shall
be entitled upon such exercise. The issuance of stock certificates upon the
exercise of this Warrant shall be made without charge to the Holder for any tax
in respect of the issuance thereof.
10. REGISTRATION. The shares of Series F Preferred Stock issuable upon
exercise of this Warrant shall be entitled to the registration rights set forth
in a Registration Rights Agreement dated April 11, 1997 between the Company and
International Business Machines Corporation ("IBM"), as amended by a First
Amendment to Registration Rights Agreement among the Company, IBM and IBM Credit
dated December 23, 1997.
11. GOVERNING LAW. This Warrant shall be construed and enforced in
accordance with and governed by the laws of the State of New York.
4
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its proper officers thereunto duly authorized and the Company's corporate
seal to be hereunto affixed as of this 14th day of May 1998.
NETOBJECTS, INC.
By:
--------------------------------
Title:
-----------------------------
5
<PAGE>
PURCHASE FORM
(To be executed upon exercise of Warrant)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant, to purchase shares
of Series F Preferred Stock as provided for herein and herewith tenders in
payment for such shares of Series F Preferred Stock payment of the purchase
price in full in the form of cash or a certified or official bank check payable
to the order of NETOBJECTS, INC., or a combination thereof in the amount of
$ , all in accordance with the terms hereof. The
undersigned requests that a certificate for such shares of Series F Preferred
Stock be registered in the name of whose
address is and that such
certificates shall be delivered to whose address is
. If said number of
shares of Series F Preferred Stock is fewer than all the shares of Series F
Preferred Stock purchasable hereunder, the undersigned requests that a new
Warrant representing the right to purchase the remaining balance of the shares
of Series F Preferred Stock be registered in the name of whose
address is and that such
certificates shall be delivered to whose address is
.
Dated:
------------------------------
------------------------------
(Insert social security or other identifying number of holder)
Signature:
-----------------------------
Note: (Signature must conform in all
respects to name of holder as
specified on the face of this
Warrant in every particular,
<PAGE>
without alteration or
enlargement or any change
whatsoever, unless this
Warrant has been assigned.)
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto (Name and Address of Assignee
Must be Printed or Typewritten) the within Warrant, together with all right,
title and interest therein, and does hereby irrevocably constitute and appoint
, Attorney, to transfer said
Warrant on the books of the within-named Company, with full power of
substitution in the premises.
Dated:
-------------------------
--------------------------------------------
Signature of Registered Holder
Note: The above signature must correspond
to the name as written on the face
of this Warrant in every
particular, without alteration or
enlargement or any change
whatsoever.
<PAGE>
Exhibit 9.1
VOTING AGREEMENT
This Voting Agreement (the "Agreement") is made and entered into as of
February __, 1999 by and between NetObjects, Inc., a Delaware corporation (the
"Company"), and International Business Machines Corporation, a New York
corporation ("IBM").
R E C I T A L S
WHEREAS, the Company anticipates making an Initial Public Offering (as
defined below) of common stock, par value, $0.01 per share, (the "Common
Stock"); and
WHEREAS, the parties hereto desire to enter into this Agreement to
establish the composition of the Company's Board of Directors (the "Board").
NOW THEREFORE, in consideration of the mutual covenants contained herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.1 "Beneficial ownership" shall mean ownership of a security, directly or
indirectly, by any person who through any contract, arrangement, understanding,
relationship or otherwise has or shares (1) voting power, which includes the
power to vote, or to direct the voting of, such security, and/or (2) investment
power, which includes the power to dispose, or to direct the disposition of,
such security, and for purposes of this Agreement shall be determined in
accordance with Rule 13d-3 of the General Rules and Regulations under the
Securities Exchange Act of 1934, as amended.
1.2 "IBM Representative" shall mean a director, officer, employee or other
agent of IBM, or of an affiliate of IBM. For this purpose an "affiliate" is
defined as an individual, firm, corporation (other than NetObjects and its
subsidiaries), partnership, limited liability company, trust, joint venture or
other entity and any successor of such entity who directly, or indirectly
through one or more intermediaries, is controlled by or is under common control
with IBM.
1.3 "Initial Public Offering" shall mean a sale by the Company of Common
Stock, in a bona fide public offering on an underwritten firm commitment basis
pursuant to a registration statement filed with and declared effective by the
Securities and Exchange Commission pursuant to the Securities Act of 1933 as
<PAGE>
amended and the General Rules and Regulations thereunder, which public offering
results in aggregate cash proceeds of at least $30 million.
1.4 "Fully Diluted" shall mean the number of fully diluted shares of
Voting Securities (including without limitation upon exercise of all outstanding
warrants, options, convertible securities and other rights to purchase Voting
Securities).
1.5 "Voting Securities" shall mean the Common Stock and any other
securities of the Company entitled to vote generally in the election of
directors of the Company and any other securities (including rights, warrants,
options and convertible debt) convertible into, exchangeable for or exercisable
for any Common Stock or other securities referred to above (whether or not
presently convertible, exchangeable or exercisable, including preferred stock of
the Company).
ARTICLE II
VOTING
2.1 From and after the date of the closing of the sale of Common Stock to
the Company's underwriters in an Initial Public Offering until the termination
of this Agreement, IBM agrees to vote all shares of Common Stock beneficially
owned by IBM and any other Voting Securities of the Company beneficially owned
by IBM and shall take all other necessary or desirable actions within its
control (whether as a stockholder, through IBM representatives serving as
directors, members of a Board committee or officer of the Company or otherwise,
and including, without limitation, attendance at meetings in person or by proxy
for purposes of obtaining a quorum and execution of written consents in lieu of
meetings), and the Company shall take all necessary and desirable actions
(including, without limitation, calling special Board and stockholder meetings),
so that:
(i) the authorized number of directors on the Board shall be
established and remain at six directors; and
(ii) a total of three, and not more than three, IBM Representatives
designated in writing by IBM prior to their nomination shall be elected to serve
on the Board at any one time.
2.2 IBM designates Robert G. Anderegg, Lee A. Dayton and Michael D. Zisman
as the initial IBM Representatives under this Agreement. IBM represents and
warrants to the Company that IBM has full power and authority to enter into and
perform this Agreement and will direct the IBM Representatives to act in
accordance with the provisions of this Agreement.
2
<PAGE>
2.3 If the holders of a majority of outstanding voting stock of the
Company, approve an amendment of the Company's Certificate of Incorporation or
Bylaws changing the size of the Board notwithstanding opposition thereto by IBM
and the Company in conformance with this Agreement, this Agreement shall remain
in full force and effect, but IBM shall not be deemed in breach of this
Agreement by reason of such amendment. Notwithstanding the foregoing sentence,
IBM and the Company may mutually agree to modify this Agreement in accordance
with the terms of Section 4.3 hereof to provide for a decrease in the size of
the Board and a simultaneous decrease in the number of IBM Representatives on
the Board, provided that the IBM Representatives shall constitute fifty percent
(50%) or less of such reduced Board.
2.4 This Voting Agreement is coupled with an interest and may not be
revoked without the written consent of the Company and IBM.
2.5 Except as provided by this Agreement, IBM shall exercise the full
rights of a stockholder with respect to the shares of Common Stock and any other
Voting Securities beneficially owned by it.
ARTICLE III
EFFECT; TERMINATION
This Agreement shall continue in full force and effect with respect to
all Common Stock and other Voting Securities of the Company currently or
hereafter beneficially owned by IBM from the date hereof until such time as
IBM's share of all Voting Securities of the Company on a Fully Diluted basis,
shall be less than forty-five percent (45%) for a period of 180 consecutive
days, at which time this Agreement will be deemed to have terminated in its
entirety as of the last day of the 180-day period.
ARTICLE IV
MISCELLANEOUS
4.1 The Company and IBM hereby declare that the terms of this Agreement
shall be specifically enforceable. If any party hereto or such party's
successors or assigns institutes any action or proceeding to specifically
enforce the provisions hereof, any person against whom such action or
proceeding is brought hereby waives the claim or defense therein that such
party or such personal representative has an adequate remedy at law, and such
person shall not offer in any such action or proceeding the claim or defense
that such remedy at law exists.
3
<PAGE>
4.2 This Agreement, and the rights of the parties hereto, shall be
governed by and construed in accordance with the laws of the State of California
without regard to its principles governing conflicts of laws.
4.3 The rights and covenants provided herein are the sole and entire
agreement between IBM and the Company with respect to the subject matter hereof.
This Agreement may be amended at any time and from time to time, and particular
provisions of this Agreement may be waived as to IBM and the Company, only by an
instrument in writing signed by IBM and the Company.
4.4 If any provision of this Agreement is held to be invalid or
unenforceable, the validity and enforceability of the remaining provisions of
this Agreement shall not be affected thereby, provided that the principal
purpose of this Agreement is not materially affected thereby.
4.5 This Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective successors and assigns.
4.6 In the event that subsequent to the date of this Agreement any shares
or other securities (other than any shares or securities of another corporation
issued to the Company's stockholders pursuant to a reorganization transaction
that effects a change of control of the Company) are issued on, or in exchange
for, any of the Common Stock or other Voting Securities beneficially owned by
IBM by reason of any stock dividend, stock split, consolidation of shares,
reclassification or exchange of shares or the like involving the Company, such
shares or securities shall be deemed to be Common Stock for purposes of this
Agreement.
4.7 This Agreement may be executed in counterparts and transmitted by
facsimile, each of which when so executed and transmitted shall be deemed to be
an original, and such counterparts shall together constitute one and the same
instrument.
4.8 No delay or omission to exercise any right, power or remedy accruing
to any party, upon any breach or default of any other party under this
Agreement, shall impair any such right, power or remedy of such party nor shall
it be construed to be a waiver of any such breach or default, or an acquiescence
therein, or of any similar breach or default thereunder occurring; nor shall any
waiver of any single breach or default be deemed a waiver of any other breach or
default theretofore or thereafter occurring. Except as provided in Section 4.3,
any waiver, permit, consent or approval of any kind or character on the part of
any party of any breach or default under this Agreement, or any waiver on the
part of any party of any provisions or conditions of this Agreement, must be in
writing and shall be effective only to the extent specifically set forth in such
writing. All remedies, either under this Agreement, or by law or otherwise
afforded to any holder, shall be cumulative and not alternative.
4
<PAGE>
This Voting Agreement is hereby executed as of the date first above
written.
NETOBJECTS, INC.
By:
---------------------------------
Name:
Title:
INTERNATIONAL BUSINESS MACHINES CORPORATION
By:
---------------------------------
Name:
Title:
5
<PAGE>
NETOBJECTS, INC.
1997 STOCK OPTION PLAN
1. PURPOSES OF THE PLAN. The purposes of this Stock Option Plan are
to attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentives to Employees, Non-Employee
Directors and Consultants of the Company and its Subsidiaries, and to promote
the success of the Company's business. Options granted hereunder may be either
Incentive Stock Options or Nonstatutory Stock Options at the discretion of the
Committee. This is intended to be a stock option plan for purposes of
Section 408 of the California General Corporation Law.
2. DEFINITIONS. As used herein, and in any Option granted hereunder,
the following definitions shall apply:
(a) "BOARD" shall mean the Board of Directors of the Company.
(b) "CODE" shall mean the Internal Revenue Code of 1986, as
amended.
(c) "COMMON STOCK" shall mean the Common Stock of the Company.
(d) "COMPANY" shall mean NetObjects, Inc., a Delaware
corporation.
(e) "COMMITTEE" shall mean the Committee appointed by the Board
in accordance with paragraph (a) of Section 4 of the Plan. If the Board does not
appoint or ceases to maintain a Committee, the term "Committee" shall refer to
the Board.
(f) "CONSULTANT" shall mean any independent contractor retained
to perform services for the Company.
(g) "CONTINUOUS EMPLOYMENT" shall mean the absence of any
interruption or termination of service as an Employee or Non-Employee Director
by the Company or any Subsidiary. Continuous Employment shall not be considered
interrupted during any period of sick leave, military leave or any other leave
of absence approved by the Board or in the case of transfers between locations
of the Company or between the Company and any Parent, Subsidiary or successor of
the Company.
(h) "COVERED EMPLOYEE" shall mean any individual whose
compensation is subject to the limitations on tax deductibility provided by
Section 162(m) of the Code and any Treasury Regulations promulgated thereunder
in effect at the close of the taxable year of the Company in which an Option has
been granted to such individual.
<PAGE>
(i) "DISINTERESTED PERSON" shall mean a person who has not at
any time within one year prior to service as a member of the Committee (or
during such service) been granted or awarded Options or other equity securities
pursuant to the Plan or any other plan of the Company or any Parent or
Subsidiary. Notwithstanding the foregoing, a member of the Committee shall not
fail to be a Disinterested Person merely because he or she participates in a
plan meeting the requirements of Rule 16b-3(c)(2)(i)(A) or (B) promulgated under
the Exchange Act.
(j) "EMPLOYEE" shall mean any person, including officers
(whether or not they are directors), employed by the Company or any Subsidiary.
(k) "EXCHANGE ACT" shall mean the Securities Exchange Act of
1934, as amended.
(l) "INCENTIVE STOCK OPTION" shall mean any option granted under
this Plan and any other option granted to an Employee in accordance with the
provisions of Section 422 of the Code, and the regulations promulgated
thereunder.
(m) "NON-EMPLOYEE DIRECTOR" shall mean any director of the
Company or any Subsidiary who is not employed by the Company or such Subsidiary.
(n) "NONSTATUTORY STOCK OPTION" shall mean an Option granted
under the Plan that is subject to the provisions of Section 1.83-7 of the
Treasury Regulations promulgated under Section 83 of the Code.
(o) "OPTION" shall mean a stock option granted pursuant to the
Plan.
(p) "OPTION AGREEMENT" shall mean a written agreement between
the Company and the Optionee regarding the grant and exercise of Options to
purchase Shares and the terms and conditions thereof as determined by the
Committee pursuant to the Plan.
(q) "OPTIONED SHARES" shall mean the Common Stock subject to an
Option.
(r) "OPTIONEE" shall mean an Employee, Non-Employee Director or
Consultant who receives an Option.
(s) "OUTSIDE DIRECTOR" shall mean a director of the Company who
qualifies as an outside director as such term is used in Section 162(m) of the
Code and defined in any applicable Treasury Regulations promulgated thereunder.
(t) "PARENT" shall mean a "parent corporation," whether now or
hereafter existing, as defined by Section 424(e) of the Code.
(u) "PLAN" shall mean this 1997 Stock Option Plan.
(v) "REGISTRATION DATE" shall mean the effective date of the
first registration of any class of the Company's equity securities pursuant to
Section 12 of the Exchange Act.
2
<PAGE>
(w) "SECTION 162(m) EFFECTIVE DATE" shall mean the first date as
of which the limitations on the tax deductibility of certain compensation
provided by Section 162(m) of the Code and any Treasury Regulations promulgated
thereunder are applicable to Options granted under the Plan.
(x) "SECURITIES ACT" shall mean the Securities Act of 1933, as
amended.
(y) "SHARE" shall mean a share of the Common Stock subject to an
Option, as adjusted in accordance with Section 11 of the Plan.
(z) "SUBSIDIARY" shall mean a "subsidiary corporation," whether
now or hereafter existing, as defined in Section 424(f) of the Code.
3. SHARES SUBJECT TO THE PLAN. Subject to the provisions of
Section 11 of the Plan, the maximum aggregate number of Shares which may be
optioned and sold under the Plan is Twelve Million Nine Hundred Fifty-three
Thousand Six Hundred Sixty-two (12,953,662) Shares. The Shares may be authorized
but unissued or reacquired shares of Common Stock. If an Option expires or
becomes unexercisable for any reason without having been exercised in full, the
Shares which were subject to the Option but as to which the Option was not
exercised shall become available for other Option grants under the Plan, unless
the Plan shall have been terminated.
The total number of Shares subject to the Plan shall not exceed
the applicable percentage of total outstanding shares of capital stock of the
Company as calculated in accordance with the conditions and exclusions of
Section 260.140.45 of the Rules of the California Corporations Commissioner
based on the shares of the Company that are outstanding at the time the
calculation is made, unless a higher percentage is approved by at least
two-thirds (2/3) of the total outstanding shares of capital stock of the Company
entitled to vote on the matter. The foregoing limitation shall cease to apply to
the Plan at such time as, in the opinion of legal counsel to the Company, such
Rule is no longer deemed to apply to the offer or sale of Shares subject to the
Plan by the Company.
4. ADMINISTRATION OF THE PLAN.
(a) PROCEDURE. The Plan shall be administered by the Board. The
Board may appoint a Committee consisting of not less than two members of the
Board to administer the Plan, subject to such terms and conditions as the Board
may prescribe. Once appointed, the Committee shall continue to serve until
otherwise directed by the Board. From time to time, the Board may increase the
size of the Committee and appoint additional members thereof, remove members
(with or without cause) and appoint new members in substitution therefor, fill
vacancies, however caused, and remove all members of the Committee and,
thereafter, directly administer the Plan. Members of the Board or Committee who
are either eligible for Options or have been granted Options may vote on any
matters affecting the administration of the Plan or the grant of Options
pursuant to the Plan, except that no such member shall act upon the granting of
an Option to himself, but any such member may be counted in determining the
existence of a quorum at any meeting of the Board or the Committee during which
action is taken with respect to the granting of an Option to him or her.
3
<PAGE>
The Committee shall meet at such times and places and upon
such notice as the chairperson determines. A majority of the Committee shall
constitute a quorum. Any acts by the Committee may be taken at any meeting at
which a quorum is present and shall be by majority vote of those members
entitled to vote. Additionally, any acts reduced to writing or approved in
writing by all of the members of the Committee shall be valid acts of the
Committee.
(b) PROCEDURE AFTER REGISTRATION DATE. Notwithstanding
subsection (a) above, after the Registration Date, the Plan shall be
administered either by: (i) the full Board, provided that all members of the
Board are Disinterested Persons; or (ii) a Committee of two or more directors,
each of whom is a Disinterested Person. After such date, the Board shall take
all action necessary to administer the Plan in accordance with the then
effective provisions of Rule 16b-3 promulgated under the Exchange Act, provided
that any amendment to the Plan required for compliance with such provisions
shall be made consistent with the provisions of Section 13 of the Plan, and said
regulations. After such date, however, Options can be granted to members of the
Board or the Committee only if: (i) the Plan is being administered by a
Committee consisting solely of Disinterested Persons; or (ii) a majority of the
Board and a majority of the Directors acting with respect to such option grants
consists of Disinterested Persons.
(c) PROCEDURE AFTER SECTION 162(m) EFFECTIVE DATE.
Notwithstanding subsections (a) and (b) above, after the Section 162(m)
Effective Date the Plan and all Option grants shall be administered and approved
by a Committee comprised solely of two or more Outside Directors.
(d) POWERS OF THE COMMITTEE. Subject to the provisions of the
Plan, the Committee shall have the authority: (i) to determine, upon review of
relevant information, the fair market value of the Common Stock; (ii) to
determine the exercise price of Options to be granted, the Employees, Directors
or Consultants to whom and the time or times at which Options shall be granted,
and the number of Shares to be represented by each Option; (iii) to interpret
the Plan; (iv) to prescribe, amend and rescind rules and regulations relating to
the Plan; (v) to determine the terms and provisions of each Option granted under
the Plan (which need not be identical) and, with the consent of the holder
thereof, to modify or amend any Option; (vi) to authorize any person to execute
on behalf of the Company any instrument required to effectuate the grant of an
Option previously granted by the Committee; (vii) to accelerate or (with the
consent of the Optionee) defer an exercise date of any Option, subject to the
provisions of Section 9(a) of the Plan; (viii) to determine whether Options
granted under the Plan will be Incentive Stock Options or Nonstatutory Stock
Options; (ix) to make all other determinations deemed necessary or advisable for
the administration of the Plan.
(e) EFFECT OF COMMITTEE'S DECISION. All decisions,
determinations and interpretations of the Committee shall be final and binding
on all potential or actual Optionees, any other holder of an Option or other
equity security of the Company and all other persons.
5. ELIGIBILITY.
(a) PERSONS ELIGIBLE FOR OPTIONS. Options under the Plan may be
granted only to Employees, Non-Employee Directors or Consultants whom the
Committee, in its sole discretion, may designate from time to time. Incentive
Stock
4
<PAGE>
Options may be granted only to Employees. An Employee who has been granted an
Option, if he or she is otherwise eligible, may be granted an additional Option
or Options. However, the aggregate fair market value (determined in accordance
with the provisions of Section 8(a) of the Plan) of the Shares subject to one or
more Incentive Stock Options that are exercisable for the first time by an
Optionee during any calendar year (under all stock option plans of the Company
and its Parents and Subsidiaries) shall not exceed $100,000 (determined as of
the grant date). As of the Section 162(m) Effective Date, Options under the Plan
shall be granted to Covered Employees upon satisfaction of the conditions to
such grants provided pursuant to Section 162(m) and any Treasury Regulations
promulgated thereunder.
(b) NO RIGHT TO CONTINUING EMPLOYMENT. Neither the establishment
nor the operation of the Plan shall confer upon any Optionee or any other person
any right with respect to continuation of employment or other service with the
Company or any Subsidiary, nor shall the Plan interfere in any way with the
right of the Optionee or the right of the Company (or any Parent or Subsidiary)
to terminate such employment or service at any time.
6. TERM OF PLAN. The Plan shall become effective upon its adoption
by the Board or its approval by vote of the holders of the outstanding shares of
the Company entitled to vote on the adoption of the Plan (in accordance with the
provisions of Section 18 hereof), whichever is earlier. It shall continue in
effect for a term of ten years unless sooner terminated under Section 13 of the
Plan.
7. TERM OF OPTION. Unless the Committee determines otherwise, the
term of each Option granted under the Plan shall be ten years from the date of
grant. The term of the Option shall be set forth in the Option Agreement. No
Incentive Stock Option shall be exercisable after the expiration of ten years
from the date such Option is granted, provided that no Incentive Stock Option
granted to any Employee who, at the date such Option is granted, owns (within
the meaning of Section 424(d) of the Code) more than 10% of the total combined
voting power of all classes of stock of the Company or any Parent or Subsidiary
shall be exercisable after the expiration of five years from the date such
Option is granted.
8. OPTION PRICE AND CONSIDERATION.
(a) OPTION PRICE. Except as provided in subsections (b) and (c)
below, the option price for the Shares to be issued pursuant to any Option shall
be such price as is determined by the Committee, which shall in no event be less
than: (i) in the case of Incentive Stock Options, the fair market value of such
Shares on the date the Option is granted; or (ii) in the case of Nonstatutory
Stock Options, 85% of such fair market value. Fair market value of the Common
Stock shall be determined by the Committee, using such criteria as it deems
relevant; provided, however, that if there is a public market for the Common
Stock, the fair market value per Share shall be the average of the last reported
bid and asked prices of the Common Stock on the date of grant, as reported in
THE WALL STREET JOURNAL (or, if not so reported, as otherwise reported by
Nasdaq) or, in the event the Common Stock is listed on a national securities
exchange (within the meaning of Section 6 of the Exchange Act) or on the Nasdaq
National Market (or any successor national market system), the fair market value
per Share shall be the closing price on such exchange on the date of grant of
the Option, as reported in THE WALL STREET JOURNAL.
5
<PAGE>
(b) TEN PERCENT SHAREHOLDERS. No Incentive Stock Option shall be
granted to any Employee who, at the date such Option is granted, owns (within
the meaning of Section 424(d) of the Code) more than 10% of the total combined
voting power of all classes of stock of the Company or any Parent or Subsidiary,
unless the option price for the Shares to be issued pursuant to such Option is
at least equal to 110% of the fair market value of such Shares on the grant date
determined by the Committee in the manner set forth in subsection (a) above.
(c) SECTION 162(m) LIMITATIONS. After the Section 162(m)
Effective Date, the Option Price of any Option granted to a Covered Employee
shall be at least equal to the fair market value of the Shares as of the date of
grant as determined in the manner set forth in subsection (a) above.
(d) CONSIDERATION. The consideration to be paid for the Optioned
Shares shall be payment in cash or by check unless payment in some other manner,
including by promissory note, other shares of the Company's Common Stock or such
other consideration and method of payment for the issuance of Optioned Shares as
may be permitted under Sections 408 and 409 of the California General
Corporation Law, is authorized by the Committee at the time of the grant of the
Option. Any cash or other property received by the Company from the sale of
Shares pursuant to the Plan shall constitute part of the general assets of the
Company.
9. EXERCISE OF OPTION.
(a) VESTING PERIOD. Any Option granted hereunder shall be
exercisable at such times and under such conditions as determined by the
Committee and as shall be permissible under the terms of the Plan, which shall
be specified in the Option Agreement evidencing the Option. Unless the Committee
specifically determines otherwise at the time of the grant of the Option, each
Option shall vest and become exercisable, cumulatively, as to one-fourth (1/4)
of the Optioned Shares on the first anniversary of the date of the grant of the
Option, and as to one thirty-sixth (1/36) of the remaining Optioned Shares at
the end of each successive month thereafter, until all of the Optioned Shares
have vested, subject to the Optionee's Continuous Employment. Except as
otherwise permitted by the California Corporations Commissioner or under the
Rules of the California Corporations Commissioner, in no event shall the option
vest at a rate of less than one-fifth of the Optioned Shares per year during the
five (5)-year period following the date of the grant of the Option. An Option
may not be exercised for fractional shares or for less than ten Shares.
(b) EXERCISE PROCEDURES. An Option shall be deemed to be
exercised when written notice of such exercise has been given to the Company in
accordance with the terms of the Option by the person entitled to exercise the
Option and full payment for the Shares with respect to which the Option is
exercised has been received by the Company. After the Registration Date, in lieu
of delivery of a cash payment for the purchase price of the Shares with respect
to which the Option is exercised, the Optionee may deliver to the Company a sell
order to a broker for the Shares being purchased and an agreement to pay (or
have the broker remit payment for) the purchase price for the Shares being
purchased on or before the settlement date for the sale of such shares to the
broker. As soon as practicable following the exercise of an Option in the manner
set forth above, the Company shall issue or cause its transfer agent to issue
stock certificates representing the Shares purchased. Until the issuance of such
stock certificates (as evidenced by the appropriate entry on the books
6
<PAGE>
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a stockholder shall exist
with respect to the Optioned Shares notwithstanding the exercise of the Option.
No adjustment will be made for a dividend or other rights for which the record
date is prior to the date of the transfer by the Optionee of the consideration
for the purchase of the Shares, except as provided in Section 11 of the Plan.
(c) EXERCISE OF OPTION WITH STOCK. If an Optionee is permitted
to exercise an Option by delivering shares of the Company's Common Stock, the
Option Agreement covering such Option may include provisions authorizing the
Optionee to exercise the Option, in whole or in part, by (i) delivering whole
shares of the Company's Common Stock previously owned by such Optionee (whether
or not acquired through the prior exercise of a stock option) having a fair
market value equal to the Option price; or (ii) directing the Company to
withhold from the Shares that would otherwise be issued upon exercise of the
Option that number of whole Shares having a fair market value equal to the
Option price. Shares of the Company's Common Stock so delivered or withheld
shall be valued at their fair market value at the close of the last business day
immediately preceding the date of exercise of the Option, as determined by the
Committee. Any balance of the Option price shall be paid in cash. Any Shares
delivered or withheld in accordance with this provision shall again become
available for purposes of the Plan and for Options subsequently granted
thereunder. After the Registration Date, any exercise of an Option under
Section 9(c)(i) or 9(c)(ii) above by any person subject to short-swing trading
liability under Section 16(b) of the Exchange Act shall comply with the relevant
requirements of Rule 16b-3(d) or (e) promulgated under the Exchange Act.
(d) TERMINATION OF STATUS AS EMPLOYEE, NON-EMPLOYEE DIRECTOR OR
CONSULTANT. If an Optionee shall cease to be an Employee, Non-Employee Director
or Consultant for any reason other than disability or death, he or she may, but
only within 30 days (or such other period of time as is determined by the
Committee) after the date he or she ceases to be an Employee, Non-Employee
Director or Consultant, exercise his or her Option to the extent that he or she
was entitled to exercise it at the date of such termination, subject to the
condition that no Option shall be exercisable after the expiration of the Option
period.
(e) DISABILITY OF OPTIONEE. If an Optionee shall cease to be an
Employee, Non-Employee Director or Consultant due to a disability, and such
Optionee is, or was within the 90-day period prior to such termination, an
Employee, Non-Employee Director or Consultant and who was in Continuous
Employment as such from the date of the grant of the Option until the date of
disability or termination, the Option may be exercised at any time within 180
days following the date of termination, but only to the extent of the accrued
right to exercise at the time of the termination, subject to the condition that
no option shall be exercised after the expiration of the Option period.
(f) DEATH OF OPTIONEE. In the event of the death during the
Option period of an Optionee who is at the time of his or her death, or was
within the 90-day period immediately prior thereto, an Employee, Non-Employee
Director or Consultant and who was in Continuous Employment as such from the
date of the grant of the Option until the date of death, the Option may be
exercised, at any time within 180 days following the date of death, by the
Optionee's estate or by a person who acquired the right to exercise the Option
by bequest, inheritance or otherwise as a result of the Optionee's death, but
only to the extent of the accrued right to exercise at
7
<PAGE>
the time of the termination or death, whichever comes first, subject to the
condition that no option shall be exercised after the expiration of the Option
period.
(g) TAX WITHHOLDING. After the Registration Date, when an
Optionee is required to pay to the Company an amount with respect to tax
withholding obligations in connection with the exercise of an Option granted
under the Plan, the Optionee may elect prior to the date the amount of such
withholding tax is determined (the "Tax Date") to make such payment, or such
increased payment as the Optionee elects to make up to the maximum federal,
state and local marginal tax rates, including any related FICA obligation,
applicable to the Optionee and the particular transaction, by: (i) delivering
cash; (ii) delivering part or all of the payment in previously owned shares of
Common Stock (whether or not acquired through the prior exercise of an Option);
and/or (iii) irrevocably directing the Company to withhold from the Shares that
would otherwise be issued upon exercise of the Option that number of whole
Shares having a fair market value equal to the amount of tax required or elected
to be withheld (a "Withholding Election"). If an Optionee's Tax Date is deferred
beyond the date of exercise and the Optionee makes a Withholding Election, the
Optionee will initially receive the full amount of Optioned Shares otherwise
issuable upon exercise of the Option, but will be unconditionally obligated to
surrender to the Company on the Tax Date the number of Shares necessary to
satisfy his or her minimum withholding requirements, or such higher payment as
he or she may have elected to make, with adjustments to be made in cash after
the Tax Date.
After the Registration Date, any withholding of Shares with
respect to taxes arising in connection with the exercise of an Option by any
person subject to short-swing trading liability under Section 16(b) of the
Exchange Act shall satisfy the following conditions:
(i) An advance election to withhold Optioned Shares in
settlement of a tax liability must satisfy the requirements of
Rule 16b-3(d)(1)(i), regarding participant-directed transactions;
(ii) Absent such an election, the withholding of Optioned
Shares to settle a tax liability may occur only during the quarterly window
period described in Rule 16b-3(e);
(iii) Absent an advance election or window-period
withholding, the Optionee may deliver shares of Common Stock owned prior to the
exercise of an Option to settle a tax liability arising upon exercise of the
Option, in accordance with Rule 16b-3(f); or
(iv) The delivery of previously acquired shares of Common
Stock (but not the withholding of newly acquired Shares) will be allowed where
an election under Section 83(b) of the Code accelerates the Tax Date to a day
that occurs less than six months after the advance election and is not within
the quarterly window period described in Rule 16b-3(e).
Any adverse consequences incurred by the Optionee with respect to the
use of shares of Common Stock to pay any part of the Option Price or of any tax
in connection with the exercise of an Option, including without limitation any
adverse tax consequences arising as a result of a disqualifying disposition
within the meaning of Section 422 of the Code, shall be the sole responsibility
of the Optionee.
8
<PAGE>
10. NON-TRANSFERABILITY OF OPTIONS. An Option may not be sold,
pledged, assigned, hypothecated, transferred or disposed of in any manner other
than by will or by the laws of descent and distribution and may be exercised,
during the lifetime of the Optionee, only by the Optionee.
11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. Subject to any
required action by the shareholders of the Company, the number of Optioned
Shares covered by each outstanding Option, and the per share exercise price of
each such Option, shall be proportionately adjusted for any increase or decrease
in the number of issued shares of Common Stock resulting from a stock split,
reverse stock split, recapitalization, combination, reclassification, the
payment of a stock dividend on the Common Stock or any other increase or
decrease in the number of such shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration". Such adjustment shall be made by the
Committee, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issue by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to an Option.
The Committee may, if it so determines in the exercise of its sole
discretion, also make provision for proportionately adjusting the number or
class of securities covered by any Option, as well as the price to be paid
therefor, in the event that the Company effects one or more reorganizations,
recapitalizations, rights offerings, or other increases or reductions of shares
of its outstanding Common Stock, and in the event of the Company being
consolidated with or merged into any other corporation.
Unless otherwise determined by the Board, upon the dissolution or
liquidation of the Company the Options granted under the Plan shall terminate
and thereupon become null and void. Upon any merger or consolidation, if the
Company is not the surviving corporation, or if the Company is the surviving
corporation in a "triangular merger" transaction with a subsidiary of a "parent
corporation" (as such term is defined and used in Section 175 and Section 1101
of the California General Corporation Law), the Options granted under the Plan
shall either be assumed by the new entity or the parent corporation, or shall
terminate in accordance with the provisions of the preceding sentence.
12. TIME OF GRANTING OPTIONS. Unless otherwise specified by the
Committee, the date of grant of an Option under the Plan shall be the date on
which the Committee makes the determination granting such Option. Notice of the
determination shall be given to each Optionee to whom an Option is so granted
within a reasonable time after the date of such grant.
13. AMENDMENT AND TERMINATION OF THE PLAN. The Board may amend or
terminate the Plan from time to time in such respects as the Board may deem
advisable, except that, without approval of the shareholders of the Company, no
such revision or amendment shall change the number of Shares subject to the
Plan, change the designation of the class of employees eligible to receive
Options or add any material benefit to Optionees under the Plan. Any such
amendment or termination of the Plan shall not affect Options already granted,
and such Options shall remain in full
9
<PAGE>
force and effect as if the Plan had not been amended or terminated. After the
Section 162(m) Effective Date, the modification or addition of a material term
of the Plan (as determined under Section 162(m) and any applicable Treasury
Regulations promulgated thereunder) shall be approved by the shareholders in the
manner provided in Section 18 of the Plan.
14. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
with respect to an Option granted under the Plan unless the exercise of such
Option and the issuance and delivery of such Shares pursuant thereto shall
comply with all relevant provisions of law, including, without limitation, the
Securities Act, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the Shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance. As a condition to the exercise of an
Option, the Company may require the person exercising such Option to represent
and warrant at the time of any such exercise that the Shares are being purchased
only for investment and without any present intention to sell or distribute such
Shares if, in the opinion of counsel for the Company, such a representation is
required by any of the aforementioned relevant provisions of law.
15. RESERVATION OF SHARES. During the term of this Plan the Company
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan. Inability of the Company to
obtain from any regulatory body having jurisdiction and authority deemed by the
Company's counsel to be necessary to the lawful issuance and sale of any Shares
hereunder shall relieve the Company of any liability in respect of the
nonissuance or sale of such Shares as to which such requisite authority shall
not have been obtained.
16. INFORMATION TO OPTIONEE.
(a) ANNUAL REPORT AND FINANCIAL INFORMATION. During the term of
any Option granted under the Plan, the Company shall provide or otherwise make
available to each Optionee a copy of its annual report to Shareholders and
financial information which is provided to its shareholders in accordance with
the provisions of the Company's Bylaws and applicable law.
(b) FREEDOM OF ACTION BY IBM. The Company also shall provide to
the Optionee upon grant of an Option under the Plan a copy of the then current
Restated Certificate of Incorporation of the Company ("Restated Certificate"), a
copy of which Restated Certificate is attached hereto as Exhibit A. Upon receipt
of an Option granted under the Plan, the Optionee shall acknowledge that he or
she has received a copy of the Restated Certificate and has read and understood
it, including Article VII thereof, which contains provisions defining the rights
of International Business Machines Corporation, a New York corporation ("IBM"),
as a substantial stockholder of the Company.
17. OPTION AGREEMENT. Options granted under the Plan shall be
evidenced by Option Agreements.
18. SHAREHOLDER APPROVAL. The Plan shall be subject to approval by
the shareholders of the Company within 12 months before or after the Plan is
adopted. Except as provided otherwise in Section 3, any amendments to the Plan
requiring shareholder approval must be approved by the affirmative vote of the
holders of a
10
<PAGE>
majority of the outstanding shares of voting stock present or represented and
entitled to vote at a duly held meeting at which a quorum is present, or by
the written consent of the shareholders in the manner provided by Delaware
law.
11
<PAGE>
Exhibit 10.1.1
NETOBJECTS, INC.
AMENDED AND RESTATED
1997 STOCK OPTION PLAN
1. PURPOSE OF THE PLAN. The purposes of this Stock Option Plan are
to attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentives to Employees, Directors and
Consultants of the Company and its Subsidiaries, and to promote the success of
the Company's business. Options granted hereunder may be either Incentive Stock
Options or Nonstatutory Stock Options at the discretion of the Committee.
2. DEFINITIONS. As used herein, and in any Option granted
hereunder, the following definitions shall apply:
(a) "BOARD" shall mean the Board of Directors of the Company.
(b) "CODE" shall mean the Internal Revenue Code of 1986, as
amended.
(c) "COMMON STOCK" shall mean the Common Stock of the Company.
(d) "COMPANY" shall mean NetObjects, Inc., a Delaware
corporation.
(e) "COMMITTEE" shall mean the Committee appointed by the Board
in accordance with paragraph (a) of Section 4 of the Plan. If the Board does not
appoint or ceases to maintain a Committee, the term "Committee" shall refer to
the Board.
(f) "CONSULTANT" shall mean any independent contractor retained
to perform services for the Company or any Subsidiary.
(g) "CONTINUOUS EMPLOYMENT" shall mean the absence of any
interruption or termination of service as an Employee or Director by the Company
or any Subsidiary. Continuous Employment shall not be considered interrupted
during any period of sick leave, military leave or any other leave of absence
approved by the Board or in the case of transfers between locations of the
Company or between the Company and any Parent, Subsidiary or successor of the
Company.
(h) "COVERED EMPLOYEE" shall mean any Employee who is as of the
close of any taxable year of the Company a "covered employee" as such term is
<PAGE>
used in Section 162(m) of the Code and defined in any applicable Treasury
Regulations promulgated thereunder.
(i) "DIRECTOR" shall mean an individual serving on the Board
only so long as such individual is serving on the Board.
(j) "EMPLOYEE" shall mean any person, including officers
(whether or not they are Directors), employed by the Company or any Subsidiary.
(k) "EXCHANGE ACT" shall mean the Securities Exchange Act of
1934, as amended.
(l) "INCENTIVE STOCK OPTION" shall mean any option granted under
this Plan and any other option granted to an Employee in accordance with the
provisions of Section 422 of the Code, and the regulations promulgated
thereunder.
(m) "NON-EMPLOYEE DIRECTOR" shall mean a Director of the Company
who qualifies as a "non-employee director," as such term is used in Rule 16b-3
promulgated under the Exchange Act.
(n) "NONSTATUTORY STOCK OPTION" shall mean an Option granted
under the Plan that is subject to the provisions of Section 1.83-7 of the
Treasury Regulations promulgated under Section 83 of the Code.
(o) "OPTION" shall mean a stock option granted pursuant to the
Plan.
(p) "OPTION AGREEMENT" shall mean a written agreement between
the Company and the Optionee regarding the grant and exercise of Options to
purchase Shares and the terms and conditions thereof as determined by the
Committee pursuant to the Plan.
(q) "OPTIONED SHARES" shall mean the Common Stock subject to an
Option.
(r) "OPTIONEE" shall mean an Employee, Director or Consultant
who receives an Option.
(s) "OUTSIDE DIRECTOR" shall mean a Director of the Company who
qualifies as an "outside Director," as such term is used in Section 162(m) of
the Code and defined in any applicable Treasury Regulations promulgated
thereunder.
(t) "PARENT" shall mean a "parent corporation," whether now or
hereafter existing, as defined by Section 424(e) of the Code.
(u) "PLAN" shall mean this Amended and Restated 1997 Stock
Option Plan.
2
<PAGE>
(v) "REGISTRATION DATE" shall mean the effective date of the
first registration of any class of the Company's equity securities pursuant to
Section 12 of the Exchange Act.
(w) "SECTION 162(m) EFFECTIVE DATE" shall mean the first date as
of which Options granted under the Plan will, if held by Covered Employees, be
subject to the limitations on the tax deductibility of certain compensation
provided by Section 162(m) of the Code and any Treasury Regulations promulgated
thereunder.
(x) "SECURITIES ACT" shall mean the Securities Act of 1933, as
amended.
(y) "SHARE" shall mean a share of the Common Stock subject to an
Option, as adjusted in accordance with Section 11 of the Plan.
(z) "SUBSIDIARY" shall mean a "subsidiary corporation," whether
now or hereafter existing, as defined in Section 424(f) of the Code.
3. SHARES SUBJECT TO THE PLAN. Subject to the provisions of
Section 11 of the Plan, the maximum aggregate number of Shares which may be
optioned and sold under the Plan is Four Million Five Hundred Thousand
(4,500,000) Shares. The Shares may be authorized but unissued or reacquired
shares of Common Stock. If an Option expires or becomes unexercisable for any
reason without having been exercised in full, the Shares which were subject to
the Option but as to which the Option was not exercised shall become available
for other Option grants under the Plan, unless the Plan shall have been
terminated.
4. ADMINISTRATION OF THE PLAN.
(a) PROCEDURE. The Plan shall be administered by the Board. The Board may
appoint a Committee consisting of not less than two members of the Board to
administer the Plan, subject to such terms and conditions as the Board may
prescribe. Once appointed, the Committee shall continue to serve until otherwise
directed by the Board. From time to time, the Board may increase the size of the
Committee and appoint additional members thereof, remove members (with or
without cause) and appoint new members in substitution therefor, fill vacancies,
however caused, and remove all members of the Committee and, thereafter,
directly administer the Plan. Members of the Board or Committee who are either
eligible for Options or have been granted Options may vote on any matters
affecting the administration of the Plan or the grant of Options pursuant to the
Plan, except that no such member shall act upon the granting of an Option to
himself, but any such member may be counted in determining the existence of a
quorum at any meeting of the Board or the Committee during which action is taken
with respect to the granting of an Option to him or her.
The Committee shall meet at such times and places and upon such
notice as the chairperson determines. A majority of the Committee shall
constitute a
3
<PAGE>
quorum. Any acts by the Committee may be taken at any meeting at which a quorum
is present and shall be by majority vote of those members entitled to vote.
Additionally, any acts reduced to writing or approved in writing by all of the
members of the Committee shall be valid acts of the Committee.
(b) PROCEDURE AFTER REGISTRATION DATE. Notwithstanding
subsection (a) above, after the Registration Date, if (i) an Option is granted
to an Optionee who at the time of grant is subject to the reporting requirements
of Section 16 of the Exchange Act, and (ii) the Option is not granted either by
the full Board or a Committee consisting solely of two or more Non-Employee
Directors, then the grant shall be ratified by the full Board.
(c) PROCEDURE AFTER SECTION 162(m) EFFECTIVE DATE.
Notwithstanding subsections (a) and (b) above, after the Section 162(m)
Effective Date the Plan and all Option grants shall be administered and approved
by a Committee comprised solely of two or more Outside Directors.
(d) POWERS OF THE COMMITTEE. Subject to the provisions of the
Plan, the Committee shall have the authority: (i) to determine, upon review of
relevant information, the fair market value of the Common Stock; (ii) to
determine the exercise price of Options to be granted, the Employees, Directors
or Consultants to whom and the time or times at which Options shall be granted,
and the number of Shares to be represented by each Option; (iii) to interpret
the Plan; (iv) to prescribe, amend and rescind rules and regulations relating to
the Plan; (v) to determine the terms and provisions of each Option granted under
the Plan (which need not be identical) and, with the consent of the holder
thereof, to modify or amend any Option; (vi) to authorize any person to execute
on behalf of the Company any instrument required to effectuate the grant of an
Option previously granted by the Committee; (vii) to accelerate or (with the
consent of the Optionee) defer an exercise date of any Option, subject to the
provisions of Section 9(a) of the Plan; (viii) to determine whether Options
granted under the Plan will be Incentive Stock Options or Nonstatutory Stock
Options; (ix) to make all other determinations deemed necessary or advisable for
the administration of the Plan.
(e) EFFECT OF COMMITTEE'S DECISION. All decisions,
determinations and interpretations of the Committee shall be final and binding
on all potential or actual Optionees, any other holder of an Option or other
equity security of the Company and all other persons.
4
<PAGE>
5. ELIGIBILITY.
(a) PERSONS ELIGIBLE FOR OPTIONS. Options under the Plan may be
granted only to Employees, Directors or Consultants whom the Committee, in its
sole discretion, may designate from time to time. Incentive Stock Options may be
granted only to Employees. An Employee who has been granted an Option, if he or
she is otherwise eligible, may be granted an additional Option or Options.
However, the aggregate fair market value (determined in accordance with the
provisions of Section 8(a) of the Plan) of the Shares subject to one or more
Incentive Stock Options that are exercisable for the first time by an Optionee
during any calendar year (under all stock option plans of the Company and its
Parents and Subsidiaries) shall not exceed $100,000 (determined as of the grant
date). After the Section 162(m) Effective Date, the Committee shall not grant
Options to an Optionee during any calendar year that cover more than One Million
(1,000,000) Shares in the aggregate.
(b) GRANTS TO NEW DIRECTORS. The provision set forth in this
Section 5(b) shall not be amended more than once every six months, other than to
comply with changes in the Code, the Employee Retirement Income Security Act of
1974, as amended, or the rules thereunder. Directors who are not Employees at
the date of grant upon first joining the Board shall be automatically granted an
Option to purchase Twenty Thousand (20,000) Shares, decreased or increased as
provided in Section 11 hereof.
(i) The terms of an Option granted pursuant to this Section
5(b) shall be as follows:
(A) the term of the Option shall be six years;
(B) except as provided in Section 9 of the Plan, the
Option shall be exercisable only while the Director remains a Director;
(C) the exercise price per share of Common Stock shall
be 100% of the fair market value on the date of grant of the Option (determined
in accordance with Section 8(a) of the Plan);
(D) the Option shall become exercisable in
installments cumulatively with respect to 1/48 of the Optioned Shares on the
first day of each month following the date of grant; provided, however, that in
no event shall any Option be exercisable prior to obtaining shareholder approval
of the Plan.
(c) NO RIGHT TO CONTINUING EMPLOYMENT. Neither the establishment nor the
operation of the Plan shall confer upon any Optionee or any other person any
right with respect to continuation of employment or other service with the
Company or any Subsidiary, nor shall the Plan interfere in any way with the
right of the Optionee or the right of the Company (or any Parent or Subsidiary)
to terminate such employment or service at any time.
5
<PAGE>
6. TERM OF PLAN. The Plan shall become effective upon its adoption
by the Board or its approval by vote of the holders of the outstanding shares of
the Company entitled to vote on the adoption of the Plan (in accordance with the
provisions of Section 18 hereof), whichever is earlier. It shall continue in
effect for a term of ten years unless sooner terminated under Section 13 of the
Plan.
7. TERM OF OPTION. Unless the Committee determines otherwise, the
term of each Option granted under the Plan shall be ten years from the date of
grant. The term of the Option shall be set forth in the Option Agreement. No
Incentive Stock Option shall be exercisable after the expiration of ten years
from the date such Option is granted, provided that no Incentive Stock Option
granted to any Employee who, at the date such Option is granted, owns (within
the meaning of Section 424(d) of the Code) more than 10% of the total combined
voting power of all classes of stock of the Company or any Parent or Subsidiary
shall be exercisable after the expiration of five years from the date such
Option is granted.
8. OPTION PRICE AND CONSIDERATION.
(a) OPTION PRICE. Except as provided in subsections (b) and (c)
below, the option price for the Shares to be issued pursuant to any Option shall
be such price as is determined by the Committee, which shall in no event be less
than: (i) in the case of Incentive Stock Options, the fair market value of such
Shares on the date the Option is granted; or (ii) in the case of Nonstatutory
Stock Options, 85% of such fair market value. Fair market value of the Common
Stock shall be determined by the Committee, using such criteria as it deems
relevant; provided, however, that if there is a public market for the Common
Stock, the fair market value per Share shall be the average of the last reported
bid and asked prices of the Common Stock on the date of grant, as reported in
THE WALL STREET JOURNAL (or, if not so reported, as otherwise reported by
Nasdaq) or, in the event the Common Stock is listed on a national securities
exchange (within the meaning of Section 6 of the Exchange Act) or on the Nasdaq
National Market (or any successor national market system), the fair market value
per Share shall be the closing price on such exchange on the date of grant of
the Option, as reported in THE WALL STREET JOURNAL.
(b) TEN PERCENT SHAREHOLDERS. No Incentive Stock Option shall
be granted to any Employee who, at the date such Option is granted, owns (within
the meaning of Section 424(d) of the Code) more than 10% of the total combined
voting power of all classes of stock of the Company or any Parent or Subsidiary,
unless the option price for the Shares to be issued pursuant to such Option is
at least equal to 110% of the fair market value of such Shares on the grant date
determined by the Committee in the manner set forth in subsection (a) above.
(c) SECTION 162(m) LIMITATIONS. After the Section 162(m)
Effective Date, the Option Price of any Option granted to a Covered Employee
shall be
6
<PAGE>
at least equal to the fair market value of the Shares as of the date of grant as
determined in the manner set forth in subsection (a) above.
(d) CONSIDERATION. The consideration to be paid for the
Optioned Shares shall be payment in cash or by check unless payment in some
other manner, including by promissory note, other shares of the Company's Common
Stock or such other consideration and method of payment for the issuance of
Optioned Shares as may be authorized by the Committee at the time of the grant
of the Option. Any cash or other property received by the Company from the sale
of Shares pursuant to the Plan shall constitute part of the general assets of
the Company.
9. EXERCISE OF OPTION.
(a) VESTING PERIOD. Any Option granted hereunder shall be
exercisable at such times and under such conditions as determined by the
Committee and as shall be permissible under the terms of the Plan, which shall
be specified in the Option Agreement evidencing the Option. Unless the Committee
specifically determines otherwise at the time of the grant of the Option, each
Option shall vest and become exercisable, cumulatively, as to one-fourth (1/4)
of the Optioned Shares on the first anniversary of the date of the grant of the
Option, and as to one thirty-sixth (1/36) of the remaining Optioned Shares at
the end of each successive month thereafter, until all of the Optioned Shares
have vested, subject to the Optionee's Continuous Employment.
(b) EXERCISE PROCEDURES. An Option shall be deemed to be
exercised when written notice of such exercise has been given to the Company in
accordance with the terms of the Option by the person entitled to exercise the
Option and full payment for the Shares with respect to which the Option is
exercised has been received by the Company. After the Registration Date, in lieu
of delivery of a cash payment for the purchase price of the Shares with respect
to which the Option is exercised, the Optionee may deliver to the Company a sell
order to a broker for the Shares being purchased and an agreement to pay (or
have the broker remit payment for) the purchase price for the Shares being
purchased on or before the settlement date for the sale of such shares by the
broker. As soon as practicable following the exercise of an Option in the manner
set forth above, the Company shall issue or cause its transfer agent to issue
stock certificates representing the Shares purchased. Until the issuance of such
stock certificates (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company), no right to vote
or receive dividends or any other rights as a stockholder shall exist with
respect to the Optioned Shares notwithstanding the exercise of the Option. No
adjustment will be made for a dividend or other rights for which the record date
is prior to the date of the transfer by the Optionee of the consideration for
the purchase of the Shares, except as provided in Section 11 of the Plan.
(c) EXERCISE OF OPTION WITH STOCK. If an Optionee is permitted
to exercise an Option by delivering shares of the Company's Common Stock, the
7
<PAGE>
Option Agreement covering such Option may include provisions authorizing the
Optionee to exercise the Option, in whole or in part, by (i) delivering whole
shares of the Company's Common Stock previously owned by such Optionee (whether
or not acquired through the prior exercise of a stock option) having a fair
market value equal to the Option price; or (ii) directing the Company to
withhold from the Shares that would otherwise be issued upon exercise of the
Option that number of whole Shares having a fair market value equal to the
Option price. Shares of the Company's Common Stock so delivered or withheld
shall be valued at their fair market value at the close of the last business day
immediately preceding the date of exercise of the Option, as determined by the
Committee. Any balance of the Option price shall be paid in cash. Any Shares
delivered or withheld in accordance with this provision shall again become
available for purposes of the Plan and for Options subsequently granted
thereunder.
(d) TERMINATION OF STATUS AS EMPLOYEE, DIRECTOR OR CONSULTANT.
If an Optionee shall cease to be an Employee, Director or Consultant for any
reason other than disability or death, he or she may, but only within 30 days
(or such other period of time as is determined by the Committee) after the date
he or she ceases to be an Employee, Director or Consultant, exercise his or her
Option to the extent that he or she was entitled to exercise it at the date of
such termination, subject to the condition that no Option shall be exercisable
after the expiration of the Option period.
(e) DISABILITY OF OPTIONEE. If an Optionee shall cease to be an
Employee, Director or Consultant due to a disability, and such Optionee is, or
was within the 90-day period prior to such termination, an Employee, Director or
Consultant and who was in Continuous Employment as such from the date of the
grant of the Option until the date of disability or termination, the Option may
be exercised at any time within 180 days following the date of termination, but
only to the extent of the accrued right to exercise at the time of the
termination, subject to the condition that no option shall be exercised after
the expiration of the Option period.
(f) DEATH OF OPTIONEE. In the event of the death during the
Option period of an Optionee who is at the time of his or her death, or was
within the 90-day period immediately prior thereto, an Employee, Director or
Consultant and who was in Continuous Employment as such from the date of the
grant of the Option until the date of death, the Option may be exercised, at any
time within 180 days following the date of death, by the Optionee's estate or by
a person who acquired the right to exercise the Option by bequest, inheritance
or otherwise as a result of the Optionee's death, but only to the extent of the
accrued right to exercise at the time of the termination or death, whichever
comes first, subject to the condition that no option shall be exercised after
the expiration of the Option period.
(g) TAX WITHHOLDING. After the Registration Date, when an
Optionee is required to pay to the Company an amount with respect to tax
withholding obligations in connection with the exercise of an Option granted
under the Plan, the Optionee may elect prior to the date the amount of such
withholding tax is determined
8
<PAGE>
(the "Tax Date") to make such payment, or such increased payment as the Optionee
elects to make up to the maximum federal, state and local marginal tax rates,
including any related FICA obligation, applicable to the Optionee and the
particular transaction, by: (i) delivering cash; (ii) delivering part or all of
the payment in previously owned shares of Common Stock (whether or not acquired
through the prior exercise of an Option); and/or (iii) irrevocably directing the
Company to withhold from the Shares that would otherwise be issued upon exercise
of the Option that number of whole Shares having a fair market value equal to
the amount of tax required or elected to be withheld (a "Withholding Election").
If an Optionee's Tax Date is deferred beyond the date of exercise and the
Optionee makes a Withholding Election, the Optionee will initially receive the
full amount of Optioned Shares otherwise issuable upon exercise of the Option,
but will be unconditionally obligated to surrender to the Company on the Tax
Date the number of Shares necessary to satisfy his or her minimum withholding
requirements, or such higher payment as he or she may have elected to make, with
adjustments to be made in cash after the Tax Date.
Any adverse consequences incurred by the Optionee with respect to the
use of shares of Common Stock to pay any part of the Option Price or of any tax
in connection with the exercise of an Option, including without limitation any
adverse tax consequences arising as a result of a disqualifying disposition
within the meaning of Section 422 of the Code, shall be the sole responsibility
of the Optionee.
10. NON-TRANSFERABILITY OF OPTIONS. An Option may not be sold,
pledged, assigned, hypothecated, transferred or disposed of in any manner other
than by will or by the laws of descent and distribution and may be exercised,
during the lifetime of the Optionee, only by the Optionee.
11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. Subject to any
required action by the shareholders of the Company, the number of Shares then
subject to the Plan, the number of Optioned Shares covered by each outstanding
Option, and the per share exercise price of each such Option, shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split, reverse stock split,
recapitalization, combination, reclassification, the payment of a stock dividend
on the Common Stock or any other increase or decrease in the number of such
shares of Common Stock effected without receipt of consideration by the Company;
provided, however, that conversion of any convertible securities of the Company
shall not be deemed to have been "effected without receipt of consideration".
Such adjustment shall be made by the Committee, whose determination in that
respect shall be final, binding and conclusive. Except as expressly provided
herein, no issue by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Common Stock subject to an Option.
9
<PAGE>
The Committee may, if it so determines in the exercise of its sole
discretion, also make provision for proportionately adjusting the number or
class of securities covered by any Option, as well as the price to be paid
therefor, in the event that the Company effects one or more reorganizations,
recapitalizations, rights offerings, or other increases or reductions of shares
of its outstanding Common Stock, and in the event of the Company being
consolidated with or merged into any other corporation.
Unless otherwise determined by the Board, upon the dissolution or
liquidation of the Company the Options granted under the Plan shall terminate
and thereupon become null and void. Upon any merger or consolidation, if the
Company is not the surviving corporation, or if the Company is the surviving
corporation in a "triangular merger" transaction with a subsidiary of a "parent
corporation" (as such term is defined and used in Section 175 and Section 1101
of the California General Corporation Law), the Options granted under the Plan
shall either be assumed by the new entity or the parent corporation, or shall
terminate in accordance with the provisions of the preceding sentence.
12. TIME OF GRANTING OPTIONS. Unless otherwise specified by the
Committee, the date of grant of an Option under the Plan shall be the date on
which the Committee makes the determination granting such Option. Notice of the
determination shall be given to each Optionee to whom an Option is so granted
within a reasonable time after the date of such grant.
13. AMENDMENT AND TERMINATION OF THE PLAN. The Board may amend or
terminate the Plan from time to time in such respects as the Board may deem
advisable; provided, however, that any such amendment (a) shall comply with all
applicable laws and stock exchange listing requirements, and (b) with respect to
Incentive Stock Options granted or to be granted under the Plan, shall be
subject to any approval by shareholders of the Company required under the Code.
Any such amendment or termination of the Plan shall not affect Options already
granted, and such Options shall remain in full force and effect as if the Plan
had not been amended or terminated.
14. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
with respect to an Option granted under the Plan unless the exercise of such
Option and the issuance and delivery of such Shares pursuant thereto shall
comply with all relevant provisions of law, including, without limitation, the
Securities Act, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the Shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance. As a condition to the exercise of an
Option, the Company may require the person exercising such Option to represent
and warrant at the time of any such exercise that the Shares are being purchased
only for investment and without any present intention to sell or
10
<PAGE>
distribute such Shares if, in the opinion of counsel for the Company, such a
representation is required by any of the aforementioned relevant provisions of
law.
15. RESERVATION OF SHARES. During the term of this Plan the Company
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan. Inability of the Company to
obtain from any regulatory body having jurisdiction and authority deemed by the
Company's counsel to be necessary to the lawful issuance and sale of any Shares
hereunder shall relieve the Company of any liability in respect of the
nonissuance or sale of such Shares as to which such requisite authority shall
not have been obtained.
16. INFORMATION TO OPTIONEE.
(a) ANNUAL REPORT AND FINANCIAL INFORMATION. During the term of
any Option granted under the Plan, the Company shall provide or otherwise make
available to each Optionee a copy of its annual report to Shareholders and
financial information which is provided to its shareholders in accordance with
the provisions of the Company's Bylaws and applicable law.
(b) FREEDOM OF ACTION BY IBM. The Company also shall provide to
the Optionee upon grant of an Option under the Plan a copy of the then current
Restated Certificate of Incorporation of the Company ("Restated Certificate"), a
copy of which Restated Certificate is attached hereto as Exhibit A. Upon receipt
of an Option granted under the Plan, the Optionee shall acknowledge that he or
she has received a copy of the Restated Certificate and has read and understood
it, including Article VII thereof, which contains provisions defining the rights
of International Business Machines Corporation, a New York corporation ("IBM"),
as a substantial stockholder of the Company.
17. OPTION AGREEMENT. Options granted under the Plan shall be
evidenced by Option Agreements.
18. SHAREHOLDER APPROVAL. The Plan shall be subject to approval by
the shareholders of the Company within 12 months before or after the Plan is
adopted.
11
<PAGE>
EXHIBIT 10.1.2
NETOBJECTS, INC.
STOCK OPTION AGREEMENT
NetObjects, Inc., a Delaware corporation (the "Company"), hereby
grants to (the "Optionee"), an option (the "Option") to purchase a total of ( )
shares of Common Stock (the "Shares") of the Company, at the price set forth
herein, and in all respects subject to the terms, definitions and provisions of
the Company's 1997 Stock Option Plan (the "Plan"), which is incorporated herein
by this reference.
1. NATURE OF THE OPTION. The Option is intended to be an incentive
stock option within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code").
2. OPTION PRICE. The Option Price is ( ) for each Share.
3. VESTING AND EXERCISE OF OPTION. The Option shall vest and become
exercisable during its term in accordance with the provisions of Section 9 of
the Plan as follows:
(a) Vesting and Right to Exercise.
(i) The Option shall vest and become exercisable with
respect to twenty-five (25%) of the Shares subject to the Option on the first
anniversary of the Vesting Commencement Date set forth in the signature page
of this Agreement, and one thirty-sixth (1/36) of the remaining Shares
subject to the Option at the end of each successive month thereafter, until
all of the Shares have vested, subject to the Optionee's Continuous
Employment with the Company. Subject to the provisions of subparagraphs (ii)
and (iii) below, the Optionee can exercise any portion of the Option which
has vested until the expiration of the Option term.
(ii) In the event of the Optionee's death, disability
or other termination of employment, the exercisability of the Option shall be
governed by Sections 9(d), (e) and (f) of the Plan, as the case may be.
(iii) The Option may not be exercised for fractional
shares or for less than ten (10) Shares.
(b) METHOD OF EXERCISE. In order to exercise any portion of
this Option which has vested, the Optionee shall notify the Company in
writing of the election to exercise the Option and the number of shares in
respect of which the Option is being exercised, by executing and delivering
the Notice of Exercise of Stock Option in the form attached as Exhibit B
hereto, and shall execute and deliver to the Chief Financial Officer of the
Company the Restricted Stock Transfer Agreement, together with the Stock
Assignments, Escrow Agreement and, if applicable, the Consent of
<PAGE>
Spouse, forms of which are attached as exhibits to the Purchase Agreement.
The Restricted Stock Transfer Agreement must be accompanied by payment in
full of the aggregate purchase price for the Shares to be purchased. The
certificate or certificates representing Shares as to which this Option has
been exercised shall be registered in the name of the Optionee.
(c) RESTRICTIONS ON EXERCISE. This Option may not be
exercised if the issuance of the Shares upon such exercise or the method of
payment of consideration for such shares would constitute a violation of any
applicable Federal or state securities law or other law or regulation.
Furthermore, the method and manner of payment of the Option Price will be
subject to the rules under Part 207 of Title 12 of the Code of Federal
Regulations ("Regulation G") as promulgated by the Federal Reserve Board if
such rules apply to the Company at the date of exercise. As a condition to
the exercise of this Option, the Company may require the Optionee to make any
representation or warranty to the Company at the time of exercise of this
Option as in the opinion of legal counsel for the Company may be required by
any applicable law or regulation, including the execution and delivery of an
appropriate representation statement. Accordingly, the stock certificates for
the Shares issued upon exercise of this Option may bear appropriate legends
restricting transfer.
4. NON-TRANSFERABILITY OF OPTION. This Option may be exercised
during the lifetime of the Optionee only by the Optionee and, subject to the
provisions of Section 9(f) of the Plan, may not be transferred in any manner
other than by will or by the laws of descent and distribution. The terms of
this Option shall be binding upon the executors, administrators, heirs and
successors of the Optionee.
5. METHOD OF PAYMENT. Payment of the exercise price shall be by
any of the following, or a combination thereof, at the election of the
Optionee:
(a) cash;
(b) certified or bank cashier's check; or
(c) in the event there exists a public market for the
Company's Common Stock on the date of exercise, by surrender of shares of the
Company's Common Stock, provided that if such shares were acquired upon
exercise of an incentive stock option, the Optionee must have first satisfied
the holding period requirements under Section 422(a)(1) of the Code. In this
case payment shall be made as follows:
(i) In addition to the execution and delivery of the
Restricted Stock Transfer Agreement, Optionee shall deliver to the Secretary
of the Company a written notice which shall set forth the portion of the
purchase price the Optionee wishes to pay with Common Stock, and the number
of shares of such Common Stock the Optionee intends to surrender pursuant to
the exercise of this Option, which shall be determined by dividing the
aforementioned portion of the
<PAGE>
purchase price by the average of the last reported bid and asked prices per
share of Common Stock of the Company, as reported in THE WALL STREET JOURNAL
(or, if not so reported, as otherwise reported by Nasdaq or, in the event the
Common Stock is listed on a national securities exchange, or on the Nasdaq
National Market (or any successor national market system), the closing price
of Common Stock of the Company on such exchange as reported in THE WALL
STREET JOURNAL, for the day on which the notice of exercise is sent or
delivered;
(ii) Fractional shares shall be disregarded and the
Optionee shall pay in cash an amount equal to such fraction multiplied by the
price determined under subparagraph (i) above;
(iii) The written notice shall be accompanied by a duly
endorsed blank stock power with respect to the number of Shares set forth in
the notice, and the certificate(s) representing said Shares shall be
delivered to the Company at its principal offices within three (3) working
days from the date of the notice of exercise;
(iv) The Optionee hereby authorizes and directs the
Secretary of the Company to transfer so many of the Shares represented by
such certificate(s) as are necessary to pay the purchase price in accordance
with the provisions herein;
(v) If any such transfer of Shares requires the
consent of the California Commissioner of Corporations or of some other
agency under the securities laws of any other state, or an opinion of counsel
for the Company or Optionee that such transfer may be effected under
applicable Federal and state securities laws, the time periods specified
herein shall be extended for such periods as the necessary request for
consent to transfer is pending before said Commissioner or other agency, or
until counsel renders such an opinion, as the case may be. All parties agree
to cooperate in making such request for transfer, or in obtaining such
opinion of counsel, and no transfer shall be effected without such consent or
opinion if required by law; and
(vi) Notwithstanding any other provision herein, the
Optionee shall only be permitted to pay the purchase price with Shares of the
Company's Common Stock owned by him as of the exercise date in the manner and
within the time periods allowed under 17 CFR Section 240.16b-3 promulgated
under the Securities Exchange Act of 1934 as such regulation is presently
constituted, as it is amended from time to time, and as it is interpreted now
or hereafter by the Securities and Exchange Commission.
6. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER. The
number of Shares covered by this Option shall be adjusted in accordance with
the provisions of Section 11 of the Plan in the event of changes in the
capitalization or organization of the Company, or if the Company is a party
to a merger or other
<PAGE>
corporate reorganization.
7. TERM OF OPTION. This Option may not be exercised more than
ten (10) years from the Vesting Commencement Date set forth in the signature
page of this Agreement, and may be exercised during such term only in
accordance with the Plan and the terms of this Option.
8. REPURCHASE RIGHTS. The Optionee hereby agrees that any Shares
acquired upon the exercise of this Option shall be subject to the rights of
the Company to repurchase such Shares and to certain restrictions on transfer
specified in the Restricted Stock Transfer Agreement.
9. NOT EMPLOYMENT CONTRACT. Nothing in this Agreement or in the
Plan shall confer upon the Optionee any right to continue in the employ of
the Company or shall interfere with or restrict in any way the rights of the
Company, which are hereby expressly reserved, to discharge the Optionee at
any time for any reason whatsoever, with or without cause, subject to the
provisions of applicable law. This is not an employment contract.
10. INCOME TAX WITHHOLDING.
(a) The Optionee authorizes the Company to withhold in
accordance with applicable law from any compensation payable to him or her
any taxes required to be withheld by Federal, state or local laws as a result
of the exercise of this Option. The Optionee agrees to notify the Company
immediately in the event of any disqualifying disposition (within the meaning
of Section 421(b) of the Code) of the shares acquired upon exercise of an
incentive stock option. Furthermore, in the event of any determination that
the Company has failed to withhold a sum sufficient to pay all withholding
taxes due in connection with the exercise of this Option, or a disqualifying
disposition of the shares acquired upon exercise of an incentive stock
option, the Optionee agrees to pay the Company the amount of such deficiency
in cash within five (5) days after receiving a written demand from the
Company to do so, whether or not Optionee is an employee of the Company at
that time.
(b) After the effective date of the first registration
statement filed by the Company pursuant to Section 12(g) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), at such time as the
Optionee is required to pay to the Company an amount with respect to tax
withholding obligations as set forth in paragraph (a), the Optionee may elect
prior to the date the amount of such withholding tax is determined to make
such payment, or such increased payment as the Optionee elects to make up to
the maximum federal, state and local marginal tax rates (including any
related FICA obligation) applicable to the Optionee and the particular
transaction in accordance with the provisions of Section 9(g) of the Plan.
(c) Any adverse consequences incurred by an Optionee with
respect to the use of shares of Common Stock to pay any part of the Option
Price or of
<PAGE>
any tax in connection with the exercise of an Option, including, without
limitation, any adverse tax consequences arising as a result of a
disqualifying disposition within the meaning of Section 422 of the Code shall
be the sole responsibility of the Optionee.
VESTING COMMENCEMENT DATE: ____________, 19___
NetObjects, Inc.
By:_________________________________
Title:______________________________
The Optionee acknowledges receipt of a copy of the Plan and the
exhibits referred to therein, the Option Agreement and the exhibits referred to
therein, the Restricted Stock Transfer Agreement and the exhibits referred to
therein, and he or she represents and warrants as follows:
1. The Optionee is familiar with the terms and provisions of these
documents, and hereby accepts this Option subject to all of the terms and
provisions thereof.
2. The Optionee is aware of and familiar with the restrictions
and limitations imposed on the transfer by the Optionee of any shares of
Common Stock, including, without limitation, the restrictions contained in
the Restricted Stock Transfer Agreement. The Optionee is aware of and
familiar with the restrictions on ownership of the Common Stock, including,
without limitation, certain rights of first refusal and call rights contained
in the Restricted Stock Transfer Agreement. The Optionee is aware that he or
she shall have no right to transfer any shares of Common Stock in any manner,
except as expressly permitted by the Restricted Stock Transfer Agreement, or
to require the registration of any shares of Common Stock, except as
expressly permitted by the Restricted Stock Transfer Agreement.
3. The Optionee is aware of and familiar with the provisions of
the Restated Certificate of Incorporation of the Company ("Restated
Certificate") and the Stockholders Agreement dated as of March 18, 1997 among
IBM, the Company and certain investors in the Companies ("Stockholders
Agreement"), which are exhibits to the Plan. The Optionee is aware of and
familiar with Article VII of the Restated Certificate and Section 4 of the
Stockholders Agreement, each of which contains provisions defining the rights
of International Business Machines Corporation, a New York corporation
("IBM"), as a substantial shareholder of the Company with respect to freedom
of action by IBM to compete with the Company, the duties of members on the
Board of Directors of the Company who are affiliated with IBM, and other
matters.
<PAGE>
4. The Optionee acknowledges that the Company is entering into this
Agreement in reliance upon the Optionee's representations and warranties in this
Agreement.
The Optionee hereby agrees to accept as binding, conclusive and final
all decisions or interpretations of the Committee upon any questions arising
under the Plan.
Dated: ____________, 19___
-----------------------------
CONSENT OF SPOUSE
I, ____________________, spouse of the Optionee who executed the
foregoing Option Agreement, hereby agree that my spouse's interest in the
shares of Common Stock subject to said Option Agreement shall be irrevocably
bound by the Option Agreement's terms. I further agree that my community
property interest in such shares, if any, shall similarly be bound by said
Option Agreement and that such consent is binding upon my executors,
administrators, heirs and assigns. I agree to execute and deliver such
documents as may be necessary to carry out the intent of said Option
Agreement and this consent.
Dated: , 199
------------------------------
<PAGE>
EXHIBIT B
NOTICE OF EXERCISE OF STOCK OPTION
TO: NetObjects, Inc.
2055 Woodside Road, Suite 250
Redwood City, CA 94061
ATTN: President
SUBJECT: Notice of Exercise of Stock Option
(Payment in cash or check)
In respect to the stock option granted to the undersigned on
____________, 19__, to purchase an aggregate of _________ shares of the Common
Stock of NetObjects, Inc. (the "Company"), this is official notice that the
undersigned hereby elects to exercise such option to purchase shares as follows:
Number of Shares: __________________________
Date of Purchase: ___________________, 19___
Mode of Payment: __________________________
(Certified Check, Cash, Other Consideration as
permitted by the terms of the Option Agreement)
The shares should be issued as follows:
Name: ____________________________________
Address: ____________________________________
____________________________________
____________________________________
Signed: _________________________
Date: _________________________
Please send this notice of exercise to:
NetObjects, Inc.
2055 Woodside Road, Suite 250
Redwood City, CA 94061
<PAGE>
Attention: President
<PAGE>
EXHIBIT A
NETOBJECTS, INC.
RESTRICTED STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made and entered into as of ____________, 19__,
between NetObjects, Inc., a Delaware corporation (the "Company") and
_____________________ ("Purchaser").
R E C I T A L S:
A. Pursuant to the exercise of a stock option (the "Option") granted
to Purchaser by the Company pursuant to the terms and conditions of that certain
Stock Option Agreement dated ____________, 199_ (the "Option Agreement"),
Purchaser has elected to purchase ________ shares of the Company's Common Stock
(the "Shares"). Pursuant to the terms of the Option Agreement, _________ Shares
are being purchased pursuant to options which have vested and have become
exercisable (the "Vested Shares") and __________ Shares being purchased pursuant
to options which have not vested and are not exercisable (the "Unvested
Shares").
B. Purchaser is a key employee of the Company. The securities
described in this Agreement are being offered and sold pursuant to a written
compensatory benefit plan of the Company or pursuant to a written contract
relating to the compensation of the Purchaser within the meaning of Rule 701
promulgated by the U.S. Securities and Exchange Commission.
NOW, THEREFORE, in consideration of the mutual covenants exchanged,
the parties agree as follows:
1. PURCHASE AND SALE OF SHARES.
(a) PURCHASE AND SALE OF SHARES. The Company agrees to sell to
Purchaser, and Purchaser agrees to purchase from the Company, ____________
Shares of the Company's Common Stock (the "Shares"), at a purchase price of ___
Cents (___) per share, for a total purchase price of $__________. All of the
Shares shall be subject to this Agreement and the restrictions herein contained.
(b) CLOSING. The purchase and sale of the Shares shall be held
at the principal office of the Company within ten (10) days of the date hereof,
or at such other time and place as shall be mutually agreed between Purchaser
and the Company. At the closing, Purchaser shall deliver to the Company the
total purchase price for the Shares in cash or by bank check, and the Company
will issue, as promptly thereafter as practicable, a certificate representing
the Shares issued in the name of Purchaser.
2. REPURCHASE OPTION.
(a) SHARES SUBJECT TO REPURCHASE. Purchaser hereby grants to
the Company the option (the "Repurchase Option") to repurchase all or part of
the Shares at the price per share paid for them by Purchaser (the "Option
Price"), subject to adjustment pursuant to Section 3, upon the occurrences set
forth in subsection (c), but
A-1
<PAGE>
only to the extent such Shares have not been released from the Repurchase Option
as provided in subsection (b). All of the Unvested Shares shall initially be
subject to the Repurchase Option.
(b) RELEASE DATES. The Shares subject to the Repurchase Option
shall be released from the Repurchase Option in accordance with the vesting
schedule set forth in Section 3(a) of the Option Agreement to the extent and as
of the dates provided therein. Shares subject to the Repurchase Option are
referred to herein as "Unvested Shares," and Shares which have been released
from the Repurchase Option are referred to herein as "Vested Shares."
(c) OCCURRENCES PERMITTING EXERCISE. The Company may exercise
the Repurchase Option if during the term of this Agreement either of the
following events (an "Offering Event") takes place: (i) Purchaser shall cease
to be employed by the Company (including a parent or subsidiary of the Company)
on a full-time basis for any reason, or no reason, with or without cause,
including involuntary termination, death or disability; or (ii) any event occurs
which causes the involuntary transfer to creditors or to any other person or
entity of all or any part of the Shares still subject to the Repurchase Option
at the time of such transfer.
(d) EXERCISE OF REPURCHASE OPTION. Upon the occurrence of an
Offering Event, the Company may exercise the Repurchase Option by delivering
personally, or by registered or certified mail, to Purchaser (or the Purchaser's
permitted transferee or legal representative, as the case may be), within ninety
(90) days after the date of the Offering Event, a notice in writing indicating
the Company's election to exercise its Repurchase Option and the number of
Shares to be purchased by the Company or the Company's designee, who shall be
identified in such notice, and setting forth a date for closing not later than
thirty (30) days from the date of giving such notice.
(e) CLOSING FOR REPURCHASE OF SHARES. The closing for the
repurchase of the Shares pursuant to the exercise of the Repurchase Option shall
take place at the Company's principal offices. At the closing, the holder of
the certificate(s) representing the Shares being transferred shall deliver said
certificate or certificates evidencing the Shares to the Company, duly endorsed
for transfer, and the Company (or its designee) shall tender payment of the
purchase price for the Shares being purchased. The purchase price shall be
payable in full in cash, or by check, provided that the Company may elect to
offset against and deduct from any payment of the purchase price any
indebtedness then owed by Purchaser to the Company.
3. ADJUSTMENTS.
If, from time to time during the term of this Agreement:
(i) there is any stock dividend, distribution or dividend of cash or property,
stock split, or other change in the character or amount of any of the
outstanding securities of the Company; or (ii) there is any consolidation,
merger or sale of all, or substantially all, of the assets of the Company; then
in such event, any and all new, substituted or additional securities, cash, or
other property to which Purchaser is entitled by reason of his ownership of the
Shares shall be immediately subject to the Repurchase Option and be included in
the word "Shares" for all purposes with the same force and effect as the Shares
presently subject to the Repurchase Option, the Right of First Refusal and other
A-2
<PAGE>
terms of this Agreement. While the total Option Price shall remain the same
after any such event, the Option Price per share shall be appropriately
adjusted.
4. RESTRICTIONS ON TRANSFER; RIGHT OF FIRST REFUSAL.
(a) NO TRANSFER OF SHARES SUBJECT TO REPURCHASE OPTION.
Purchaser shall not sell, transfer, pledge, assign or otherwise dispose of any
of the Unvested Shares which are subject to the Repurchase Option.
(b) RIGHT OF FIRST REFUSAL. Should Purchaser wish to transfer
any of the Vested Shares, or any interest in such Vested Shares, Purchaser shall
first deliver a written notice (the "Transfer Notice") to the Company, which
shall have the option to purchase such shares as provided herein (the "Right of
First Refusal"). As used herein, the term "transfer" means any sale,
assignment, gift, hypothecation, alienation or other disposition (including any
involuntary transfer of the Shares (or part of them) to a creditor) to any
individual, entity, government, government agency, political subdivision or
unincorporated association. The Transfer Notice must specify: (i) that
Purchaser has a bona fide intention to sell or transfer such Vested Shares; (ii)
the name and address of the person or firm to whom the Purchaser intends to
transfer the Vested Shares, or interest therein; (iii) the number of Vested
Shares, or interest therein, Purchaser proposes to transfer; (iv) the price or
amount to be paid for the proposed transfer (including the amount of any debt to
be paid, cancelled or forgiven upon foreclosure of a security interest in the
Vested Shares or upon any other transfer to the Purchaser's creditors); and (v)
all other material terms and conditions of the proposed transfer.
(c) ELECTION TO PURCHASE SHARES. Within thirty (30) days after
receipt of the Transfer Notice, the Company or its designee (as the case may be)
may elect to purchase all, but not less than all, of the Vested Shares to which
the Transfer Notice refers at the per share price specified in the Transfer
Notice. If no price is specified in the Transfer Notice, the purchase price
shall be the fair market value of the Shares, as determined in good faith by the
Board of Directors of the Company. Such Right of First Refusal shall be
exercised by delivery to the Purchaser by the Company or its designee, of a
written election to exercise such Right of First Refusal, specifying the number
of Shares to be purchased by the Company or its designee (as the case may be).
Notwithstanding the foregoing, the Company may elect to offset against and
deduct from any payment of the purchase price any indebtedness then owed by
Purchaser to the Company.
(d) CLOSING FOR PURCHASE OF SHARES. In the event the Company
elects to acquire Shares of the Purchaser as specified in the Transfer Notice,
the Secretary of the Company shall so notify the Purchaser and settlement
thereof shall be made in cash within forty-five (45) days after the Secretary of
the Company receives the Transfer Notice, provided that if the terms of payment
set forth in the Transfer Notice were other than cash against delivery, the
Company shall pay for said Shares on the same terms and conditions set forth in
the Transfer Notice.
(e) TRANSFERS FREE OF RIGHT OF FIRST REFUSAL. If the Vested
Shares referred to in the Transfer Notice are not purchased as aforesaid by the
Company, or its designee(s), Purchaser, within a period of ninety (90) days from
the date of delivery of the Transfer Notice to the Company, may sell any of said
Vested
A-3
<PAGE>
Shares to any person named in the Transfer Notice at the price and on the terms
specified in the Transfer Notice, or at a higher price or on terms more
favorable to the Purchaser, provided that such sale or transfer is consummated
within ninety (90) days following the date of delivery of the Transfer Notice to
the Company and, provided further, that such sale is in accordance with all the
terms and conditions hereof. The transferee will hold all Shares transferred
hereunder subject to the provisions of this Agreement. No transfer of the
Vested Shares shall be made after the end of such ninety (90)-day period, nor
shall any change in the terms of the transfer be permitted, without delivery by
the Purchaser to the Company of a new Transfer Notice in compliance with the
requirements of this Section 4.
(f) GIFTS OF SHARES. Notwithstanding any other term of this
Section 4, Purchaser may make a gift of all or any part of the Shares to any of
Purchaser's parents, spouse, or issue, or to a trust for the exclusive benefit
of any of the foregoing parties. The donee or donees shall hold such Shares
subject to all the provisions of this Agreement.
5. ASSIGNMENT OF RIGHTS. The Company may assign its rights under
Sections 2, 3, and 4 hereof to one or more persons or entities, who shall have
the right to so exercise such rights in his or its own name and for his or its
own account. If any such transfer of the Shares requires the consent of any
agency pursuant to the securities laws of any state, the time periods specified
herein shall be extended for such period as the necessary request for consent to
transfer is pending before such agency. All parties agree to cooperate in
making such request for transfer, and no transfer shall be executed without such
consent if required by law.
6. TERMINATION OF RESTRICTIONS.
(a) TERMINATION OF RIGHT OF FIRST REFUSAL. The Right of First
Refusal shall terminate:
(i) on the termination of this Agreement;
(ii) at such time as a public market exists for the
Company's Common Stock. For the purpose of this Agreement, a "public market"
shall be deemed to exist if (i) said Common Stock is listed on a national
securities exchange (as that term is used in the Securities Exchange Act of
1934), or (ii) said Common Stock is listed on the Nasdaq Stock Market or is
traded on the over-the-counter market and prices are published daily on business
days in a recognized financial journal; or
(iii) if more than fifty percent (50%) of the outstanding
shares of the Company's capital stock entitled to vote are sold, redeemed or
exchanged in any (i) merger, consolidation, or reorganization involving the
Company and one or more unaffiliated corporations, (ii) exchange of capital
stock of the Company for stock of any unaffiliated corporation, or (iii) sale of
all or substantially all of the assets of the Company to an unaffiliated
corporation. For purposes of this subsection, an "unaffiliated corporation"
means any corporation that is not controlled by or under common control with,
directly or indirectly, the Company excluding for this purpose control
established merely by common directorships.
A-4
<PAGE>
(b) RELEASE OF SHARES FROM REPURCHASE OPTION. The number of
Shares subject to the Repurchase Option will decline as set forth in Section
2(b), and the Repurchase Option shall terminate following the expiration of the
notice specified in Section 2(d). The Company shall within ten (10) days
following Purchaser's written request to the Secretary of the Company, which may
be made once in any twelve (12) month calendar period, release and deliver to
Purchaser a certificate representing that number of Shares which is no longer
subject to the Repurchase Option, or such lesser number of Shares as Purchaser
may have specified in such request. The Company shall cause new certificates to
be issued as necessary to effectuate the release and delivery of such Shares to
Purchaser.
7. LEGENDS.
(a) ENDORSEMENT ON CERTIFICATES. The certificates representing
the Shares subject to this Agreement shall be endorsed with a legend
substantially in the following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED ONLY IN
ACCORDANCE WITH THE TERMS OF A RESTRICTED STOCK PURCHASE AGREEMENT
BETWEEN THE COMPANY AND THE REGISTERED HOLDER OR HIS PREDECESSOR IN
INTEREST, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE
COMPANY. THE AGREEMENT MAY BE INSPECTED AT THE PRINCIPAL OFFICE OF
THE COMPANY DURING NORMAL BUSINESS HOURS.
(b) TERMINATION OF ALL RESTRICTIONS. In the event the
restrictions imposed by this Agreement shall be terminated as herein provided, a
new certificate or certificates representing the Shares shall be issued, on
request, without the legend referred to in Subsection 7(a).
(c) SECURITIES LAW LEGENDS. Any transfer or sale of the Shares
is further subject to all restrictions on transfer imposed by state or federal
securities laws. Accordingly, it is understood and agreed that the certificates
representing the Shares shall bear any legends required by such state or federal
securities laws.
8. DISSOLUTION OF MARRIAGE.
(a) PURCHASE OF SHARES FROM FORMER SPOUSE. In the event of the
dissolution of Purchaser's marriage, Purchaser shall have the right and option
to purchase from his or her spouse all of the Shares (i) awarded to the spouse
pursuant to a decree of dissolution of marriage or any other order by any court
of competent jurisdiction and/or by any property settlement agreement (whether
or not incorporated by reference in any such decree), or (ii) gifted to the
spouse by Purchaser prior to the dissolution, at the fair market value of said
Shares as determined by the Company's Board of Directors, upon the terms set
forth below. If either Purchaser or Purchaser's spouse disputes the fair market
valuation of the Shares determined by the Board of Directors, such fair market
value shall be determined by arbitration in accordance with the rules of the
American Arbitration Association. Purchaser shall exercise his or her right, if
at all, within thirty (30) days following the entry of any such decree or
property settlement agreement by delivery to Purchaser's former spouse of
written notice of
A-5
<PAGE>
exercise, specifying the number of Shares Purchaser elects to purchase. The
purchase price for the Shares shall be paid by delivery of a promissory note for
the purchase price bearing interest at the rate of ten percent (10%) per annum
payable in four (4) equal annual installments of principal and interest,
commencing on the anniversary date of the exercise of the option, PROVIDED,
HOWEVER, that if, subsequent to the date any or all of the Shares is awarded to
Purchaser's former spouse as provided above, the Company exercises its
Repurchase Option with respect to any or all of the Shares so awarded, the
amount remaining due under such promissory note shall be reduced by the
difference between the fair market value of such Shares determined as set forth
above and the amount received by Purchaser for such Shares upon exercise by the
Company of the Repurchase Option.
(b) TRANSFER OF RIGHTS TO COMPANY. In the event Purchaser does
not exercise his or her right to purchase all of the Shares awarded to
Purchaser's former spouse, Purchaser shall provide written notice to the Company
of the number of Shares available for purchase within thirty (30) days of the
entry of the decree or property settlement agreement. Subject to the provisions
of Section 166 and Chapter 5 of the General Corporation Law of California, the
Company shall then have the right to purchase any of the Shares not acquired by
the Purchaser directly from Purchaser's former spouse in the manner provided in
Sections 4(b)-4(e) above at the same price and on the same terms that were
available to Purchaser.
9. CONSENT OF SPOUSE. If Purchaser is married on the date of this
Agreement, Purchaser's spouse shall execute a Consent of Spouse in the form of
Exhibit A hereto, effective on the date hereof. Such consent shall not be
deemed to confer or convey to the spouse any rights in the Shares that do not
otherwise exist by operation of law or the agreement of the parties. If
Purchaser should marry or remarry subsequent to the date of this Agreement,
Purchaser shall within thirty (30) days thereafter obtain his or her new
spouse's acknowledgment of and consent to the existence and binding effect of
all restrictions contained in this Agreement by signing a Consent of Spouse in
the form of Exhibit A.
10. PURCHASER'S REPRESENTATIONS. In connection with the purchase of
the Shares, Purchaser hereby represents and warrants to the Company as follows:
(a) INVESTMENT INTENT; CAPACITY TO PROTECT INTERESTS. Purchaser
is purchasing the Shares solely for his or her own account for investment and
not with a view to or for sale in connection with any distribution of the Shares
or any portion thereof and not with any present intention of selling, offering
to sell or otherwise disposing of or distributing the Shares or any portion
thereof in any transaction other than a transaction exempt from registration
under the Act. Purchaser also represents that the entire legal and beneficial
interest of the Shares is being purchased, and will be held, for Purchaser's
account only, and neither in whole or in part for any other person. Purchaser
either (i) has a pre-existing business or personal relationship with the Company
or any of its officers, directors or controlling persons, or (ii) by reason of
Purchaser's business or financial experience or the business or financial
experience of Purchaser's professional advisors who are unaffiliated with and
who are not compensated by the Company or any affiliate or selling agent of the
Company, directly or indirectly, could be reasonably assumed to have the
capacity to evaluate the merits and risks of an investment in the Company and to
protect Purchaser's own interests in connection with this transaction.
A-6
<PAGE>
(b) INFORMATION CONCERNING COMPANY. Purchaser has heretofore
discussed the Company and its plans, operations and financial condition with the
Company's officers and has heretofore received all such information as Purchaser
has deemed necessary and appropriate to enable Purchaser to evaluate the
financial risk inherent in making an investment in the Shares, and Purchaser has
received satisfactory and complete information concerning the business and
financial condition of the Company in response to all inquiries in respect
thereof.
(c) ECONOMIC RISK. Purchaser realizes that the purchase of the
Shares will be a highly speculative investment and involves a high degree of
risk, and Purchaser is able, without impairing his or her financial condition,
to hold the Shares for an indefinite period of time and to suffer a complete
loss on Purchaser's investment.
(d) RESTRICTED SECURITIES. Purchaser understands and
acknowledges that:
(i) the sale of the Shares has not been registered under
the Act, and the Shares must be held indefinitely unless subsequently registered
under the Act or an exemption from such registration is available and the
Company is under no obligation to register the Shares;
(ii) the share certificate representing the Shares will be
stamped with the legends specified in Section 7 hereof; and
(iii) the Company will make a notation in its records of
the aforementioned restrictions on transfer and legends.
(e) DISPOSITION UNDER RULE 144. Purchaser understands that the
Shares are restricted securities within the meaning of Rule 144 promulgated
under the Act; that unless the Shares have been issued pursuant to the exemption
provided by Rule 701, the exemption from registration under Rule 144 will not be
available in any event for at least two years from the date of purchase and
payment of the Shares (AND THAT PAYMENT BY A NOTE IS NOT DEEMED PAYMENT UNLESS
IT IS SECURED BY ASSETS OTHER THAN THE SHARES) and even then will not be
available unless: (i) a public trading market then exists for the Common Stock
of the Company; (ii) adequate information concerning the Company is then
available to the public; and (iii) other terms and conditions of Rule 144 are
complied with; and that any sale of the Shares may be made only in limited
amounts in accordance with such terms and conditions.
(f) FURTHER LIMITATIONS ON DISPOSITION. Without in any way
limiting his representations set forth above, Purchaser further agrees that he
shall in no event make any disposition of all or any portion of the Shares
unless and until:
(i) (A) There is then in effect a Registration Statement
under the Act covering such proposed disposition and such disposition is made in
accordance with said Registration Statement; OR, (B)(1) Purchaser shall have
notified the Company of the proposed disposition and shall have furnished the
Company with a detailed statement of the circumstances surrounding the proposed
disposition, (2) Purchaser shall have furnished the Company with an opinion of
the Purchaser's
A-7
<PAGE>
counsel to the effect that such disposition will not require registration of
such shares under the Act, AND (3) such opinion of Purchaser's counsel shall
have been concurred in by counsel for the Company and the Company shall have
advised Purchaser of such concurrence; AND,
(ii) The Shares proposed to be transferred are no longer
subject to the Repurchase Option set forth in Section 2 hereof and Purchaser
shall have complied with the Right of First Refusal set forth in Section 4
hereof.
11. FREEDOM OF ACTION BY IBM. Purchaser acknowledges and agrees that
he or she is familiar with the provisions of the Restated Certificate of
Incorporation of the Company, Exhibit A to the Plan, including Article VII
thereof, which defines the rights of International Business Machines
Corporation, a New York corporation ("IBM"), as a substantial shareholder of the
Company with respect to freedom of action by IBM to compete with the Company and
other matters.
12. ESCROW. As security for his faithful performance of the terms of
this Agreement and to ensure the availability for delivery of Purchaser's Shares
upon exercise of the Repurchase Option herein provided for, Purchaser agrees to
deliver to and deposit with Graham & James LLP, legal counsel to the Company
(the "Escrow Agent"), as Escrow Agent in this transaction, two Stock Assignments
duly endorsed (with date and number of Shares blank) in the form attached hereto
as Exhibit B, together with the certificate or certificates evidencing the
Shares; said documents are to be held by the Escrow Agent pursuant to the Joint
Escrow Instructions of the Company and Purchaser set forth in Exhibit C attached
hereto and incorporated by this reference, which instructions shall also be
delivered to the Escrow Agent at the closing hereunder.
13. COMPLIANCE WITH INCOME TAX LAWS. Purchaser authorizes the
Company to withhold in accordance with applicable law from any compensation
payable to him or her any taxes required to be withheld by Federal, state or
local laws as a result of the purchase of the Shares. Furthermore, in the event
of any determination that the Company has failed to withhold a sum sufficient to
pay all withholding taxes due in connection with the purchase of the Shares,
Purchaser agrees to pay the Company the amount of such deficiency in cash within
five (5) days after receiving a written demand from the Company to do so,
whether or not Purchaser is an employee of the Company at that time.
14. ELECTION PURSUANT TO SECTION 83(b) OF INTERNAL REVENUE CODE OF
1986, AS AMENDED. Purchaser shall be responsible for filing with the Internal
Revenue Service an appropriate written notice of election pursuant to Section
83(b) of the Code, if Purchaser wishes to make such an election. Purchaser
shall notify the Company in writing if Purchaser files such an election within
thirty (30) days of the date of the sale herein contemplated. The Company
intends, in the event it does not receive from Purchaser evidence of such
filing, to claim a tax deduction for any amount which would otherwise be taxable
to Purchaser in the absence of such an election.
15. "MARKET STAND-OFF" AGREEMENT. Purchaser hereby agrees that he or
she shall not, to the extent reasonably requested by the Company and an
underwriter of Common Stock (or other securities) of the Company, sell or
otherwise transfer or dispose (other than to donees who agree to be similarly
bound) of any Shares during the one hundred eighty (180)-day period following
the effective date of a
A-8
<PAGE>
registration statement of the Company filed under the Securities Act; provided,
however, that: (i) all officers and directors of the Company and all other
persons with registration rights enter into similar agreements; and (ii) such
agreement shall be applicable only to the first such registration statement of
the Company which covers shares (or securities) to be sold on its behalf to the
public in an underwritten offering. Such agreement shall be in writing in a
form satisfactory to the Company and such underwriter. In order to enforce the
foregoing covenant, the Company may impose stop-transfer instructions with
respect to the Shares of each Shareholder (and the shares or securities of every
other person subject to the foregoing restriction) until the end of such one
hundred eighty (180)-day period.
16. ENFORCEMENT. Purchaser agrees that a violation on his or her
part of any of the terms of this Agreement (other than those contained in
Sections 12 and 13, above) may cause irreparable damage to the Company, the
exact amount of which is impossible to ascertain, and for that reason agrees
that the Company shall be entitled to exercise its right to effect a repurchase
and transfer of the Shares pursuant to Section 2 hereof or to a decree of
specific performance of the terms hereof or an injunction restraining further
violation, said right to be in addition to any other remedies of said parties.
17. CONTROLLING PROVISIONS. To the extent that there may be any
conflict between the provisions of this Agreement and the provisions contained
in the Company's Bylaws on the transfer or restriction on transfer of Shares,
the terms of this Agreement shall be controlling. This Agreement may not be
modified except by a writing signed by the party to be bound.
18. OWNERSHIP, VOTING RIGHTS, DUTIES. This Agreement shall not
affect in any way the ownership, voting rights or other rights or duties of
Purchaser, except as specifically provided herein.
19. NOTICES. All notices and other communications required or
permitted hereunder shall be in writing and shall be deemed effectively given
upon personal delivery or on the day sent by facsimile transmission if a true
and correct copy is sent the same day by first class mail, postage prepaid, or
by dispatch by an internationally recognized express courier service.
20. BINDING EFFECT. This Agreement shall inure to the benefit of the
Company and its successors and assigns and, subject to the restrictions on
transfer set forth herein, be binding upon Purchaser, his permitted transferees,
heirs, legatees, executors, administrators and legal successors, who shall hold
the Shares subject to the terms hereof.
21. GOVERNING LAW. This Agreement, together with the exhibits
hereto, shall be governed by and construed in accordance with the laws of the
State of California, as such laws are applied to contracts entered into by
residents of such state and performed in such state.
22. ENTIRE AGREEMENT. This Agreement supersedes all previous written
or oral agreements between the parties regarding the subject matter hereof, and
constitutes the entire agreement of the parties regarding such subject matter.
This
A-9
<PAGE>
Agreement may not be modified or terminated except by a writing executed by all
of the parties hereto.
23. NOT EMPLOYMENT CONTRACT. Nothing in this Agreement shall affect
in any manner whatsoever the right or power of the Purchaser or the Company to
terminate Purchaser's employment, for any reason or for no reason, with or
without cause, subject to the provisions of applicable law. This Agreement is
not an employment contract.
24. GENDER. The masculine, feminine or neuter pronouns used herein
shall be interpreted without regard to gender.
25. COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
26. SEVERABILITY. If any provision of this Agreement is held by a
court of competent jurisdiction to be invalid, void or unenforceable, the
remaining provisions shall nevertheless continue in full force and effect
without being impaired or invalidated in any way and shall be construed in
accordance with the purposes and tenor and effect of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first above written.
NETOBJECTS, INC. PURCHASER
By: By:
------------------------- ---------------------------
Title: Address:
---------------------- ----------------------
------------------------------
------------------------------
EXHIBIT A
CONSENT OF SPOUSE
I, ________________, spouse of ________________, acknowledge that I
have read the Restricted Stock Purchase Agreement dated as of _______________,
19__, to which this Consent is attached as Exhibit A (the "Agreement") and that
I know its contents. I am aware that by its provisions (a) my spouse and
NetObjects, Inc. (the "Company") have the option to purchase all the Shares of
the Company of which I may become possessed as a result of a gift from my spouse
or a court decree and/or any property settlement in any domestic litigation, (b)
the Company has the option to purchase certain Shares of the Company which my
spouse owns pursuant to the Agreement including any interest I might have
therein, upon termination of his
A-10
<PAGE>
employment under circumstances set forth in the Agreement, and (c) certain other
restrictions are imposed upon the sale or other disposition of the Shares.
I hereby agree that my interest, if any, in the Shares subject to the
Agreement shall be irrevocably bound by the Agreement and further understand and
agree that any community property interest I may have in the Shares shall be
similarly bound by the Agreement.
I agree to the sale and purchase described in Section 8 of the
Agreement and I hereby consent to the sale of the Shares by my spouse or his
legal representative in accordance with the provisions of the Agreement.
Further, as part of the consideration for the Agreement, I agree that at my
death, if I have not disposed of any interest of mine in the Shares by an
outright bequest of said shares to my spouse, then my spouse and the Company
shall have the same rights against my legal representative to purchase any
interest of mine in the Shares as they would have had pursuant to Section 8 of
the Agreement if I had acquired the Shares pursuant to a court decree in
domestic litigation.
I AM AWARE THAT THE LEGAL, FINANCIAL AND RELATED MATTERS CONTAINED IN
THE AGREEMENT ARE COMPLEX AND THAT I AM FREE TO SEEK INDEPENDENT PROFESSIONAL
GUIDANCE OR COUNSEL WITH RESPECT TO THIS CONSENT. I HAVE EITHER SOUGHT SUCH
GUIDANCE OR COUNSEL OR DETERMINED AFTER REVIEWING THE AGREEMENT CAREFULLY THAT I
WILL WAIVE SUCH RIGHT.
Dated as of the ______ of ____________, 19__.
_________________________________
A-11
<PAGE>
EXHIBIT B
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED, ____________________________ hereby sells, assigns
and transfers unto _____________________________ __________________
(___________) shares of the Common Stock of NetObjects, Inc., a Delaware
corporation, standing in the undersigned's name on the books of said corporation
represented by Certificate No. _______________, and do hereby irrevocably
constitute and appoint ______________________________ as the undersigned's agent
and attorney-in-fact to transfer the said stock on the books of the said
corporation with full power of substitution in the premises.
Dated:_______________ , 19 __ _______________________________
A-12
<PAGE>
EXHIBIT B
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED, ____________________________ hereby sells, assigns
and transfers unto _____________________________ __________________
(___________) shares of the Common Stock of NetObjects, Inc., a Delaware
corporation, standing in the undersigned's name on the books of said corporation
represented by Certificate No. _______________, and do hereby irrevocably
constitute and appoint ______________________________ as the undersigned's agent
and attorney-in-fact to transfer the said stock on the books of the said
corporation with full power of substitution in the premises.
Dated:________________, 19__ _______________________________
A-13
<PAGE>
EXHIBIT C
JOINT ESCROW INSTRUCTIONS
___________, 199_
Graham & James LLP
600 Hansen Way
Palo Alto, California 94304
Attn: Alan B. Kalin, Esq.
Gentlemen:
As Escrow Agent for both NetObjects, Inc., a Delaware corporation (the
"Company"), and the undersigned purchaser of common stock (the "Shares") of the
Company (the "Purchaser"), you are hereby authorized and directed to hold the
documents delivered to you pursuant to the terms of that certain Restricted
Stock Purchase Agreement (the "Agreement"), dated as of the date hereof, to
which a copy of these Joint Escrow Instructions is attached as Exhibit C, in
accordance with the following instructions:
1. In the event the Company and/or any assignee of the Company
(referred to collectively for convenience herein as the "Company") shall elect
to exercise the Repurchase Option set forth in the Agreement, the Company shall
give to Purchaser and you a written notice specifying the number of Shares to be
purchased, the purchase price, and the time for a closing hereunder at the
principal office of the Company. Purchaser and the Company hereby irrevocably
authorize and direct you to close the transaction contemplated by such notice in
accordance with the terms of said notice.
2. At the closing, you are directed (a) to date the stock
assignments necessary for the transfer in question, (b) to fill in the number of
Shares being transferred, and (c) to deliver same, together with the
certificates evidencing the Shares to be transferred, to the Company against the
simultaneous delivery to you of the purchase price (by check or evidence of
cancellation of indebtedness of Purchaser to the Company) for the number of
Shares being purchased pursuant to the exercise of the Repurchase Option.
3. Purchaser irrevocably authorizes the Company to deposit with you
any certificates evidencing the Shares to be held by you hereunder and any
additions and substitutions to said Shares as defined in the Agreement.
Purchaser does hereby irrevocably constitute and appoint you as his
attorney-in-fact and agent for the term of this escrow to execute with respect
to such securities all stock certificates, stock assignments, or other documents
necessary or appropriate to make such securities
A-14
<PAGE>
negotiable and complete any transaction herein contemplated. Subject to the
provisions of this Section 3, Purchaser shall exercise all rights and privileges
of a shareholder of the Company while the Shares are held by you.
4. This escrow shall terminate at such time as there are no longer
any Shares subject to the Repurchase Option.
5. If at the time of termination of this escrow you should have in
your possession any documents, securities, or other property belonging to
Purchaser, you shall deliver all of same to Purchaser and shall be discharged of
all further obligations hereunder.
6. Your duties hereunder may be altered, amended, modified or
revoked only by a writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as
are specifically set forth herein and may rely and shall be protected in relying
or refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties.
You shall not be personally liable for any act you may do or omit to do
hereunder as Escrow Agent or as attorney-in-fact for Purchaser while acting in
good faith and in the exercise of your own good judgment, and any act done or
omitted by you pursuant to the advice of your own attorneys shall be conclusive
evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all
warnings given by any of the parties hereto or by any other person or company,
excepting only orders or process of courts of law, and are hereby expressly
authorized to comply with and obey orders, judgments or decrees of any court.
In case you obey or comply with any such order, judgment or decree of any court,
you shall not be liable to any of the parties hereto or to any other person,
firm or company by reason of such compliance, notwithstanding any such order,
judgment or decree being subsequently reversed, modified, annulled, set aside,
vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of any failure
to confirm the identity, authorities or rights of the parties executing or
delivering or purporting to execute or deliver the Agreement or any documents or
papers deposited or called for hereunder.
10. You shall not be liable for the outlawing of any rights under the
Statute of Limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
11. You shall be entitled to employ such legal counsel and other
experts as you may deem necessary or proper to advise you in connection with
your obligations hereunder, may rely upon the advice of such counsel, and may
pay such counsel reasonable compensation therefor.
12. Your responsibilities as Escrow Agent hereunder shall terminate
if you shall cease to be counsel to the Company or if you shall resign by
written notice to
A-15
<PAGE>
each party. In the event of any such termination, the Company shall appoint a
successor Escrow Agent.
13. If you reasonably require other or further instructions in
connection with these Joint Escrow Instructions or obligations in respect
hereto, the necessary parties hereto shall join in furnishing such instruments.
14. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or rights of possession of the
securities held by you hereunder, you are authorized and directed to retain in
your possession without liability to anyone all or any part of said securities
until such dispute shall have been settled either by mutual written agreement of
the parties concerned or by a final order, decree, or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or defend
any such proceedings.
15. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States Post Office, by registered or certified mail with
postage and fees prepaid, addressed to each of the other parties entitled to
such notice at the following addresses, or at such other addresses as a party
may designate by ten (10) days' advance written notice to each of the other
parties hereto.
COMPANY: NetObjects, Inc.
2055 Woodside Road, Suite 250
Redwood City, CA 94061
PURCHASER:
-----------------------------------
Address:
------------------------
------------------------
ESCROW AGENT: Graham & James LLP
600 Hansen Way
Palo Alto, California 94304-1043
Attn: Alan B. Kalin, Esq.
16. By signing these Joint Escrow Instructions, you become a party
hereto only for the purpose of said Joint Escrow Instructions; you do not become
a party to the Agreement.
A-16
<PAGE>
17. This instrument shall be binding upon and inure to the benefit of
the parties hereto, and their respective successors and permitted assigns.
Very truly yours,
NetObjects, Inc.
a Delaware corporation
By:
---------------------------
Title:
--------------------------
PURCHASER:
-------------------------------
Agreed to and accepted as of
the date set forth above.
ESCROW AGENT:
By:
---------------------------
Alan B. Kalin, as Escrow Agent
A-17
<PAGE>
EXHIBIT B
NETOBJECTS, INC.
RESTRICTED STOCK TRANSFER AGREEMENT
THIS AGREEMENT is made and entered into as of ______________, ____
between NetObjects, Inc., a Delaware corporation (the "Company") and
______________ ("Purchaser"), the holder of stock options under the 1997
Special Stock Option Plan (the "Plan") pursuant to a Stock Option Agreement
dated ______________, ____ (the "Option Agreement").
A. Pursuant to the exercise of stock options granted to the
Purchaser by the Company in the Option Agreement, the Purchaser has elected
to purchase __________ shares of the Company's Common Stock (the "Shares")
for a total purchase price of $____________.
B. As provided in the Option Agreement, Purchaser must execute
this Agreement giving the Company a right of first refusal on all sales of
Shares by Purchaser upon the terms and conditions stated herein and making
certain representations regarding his purchase of the Shares as required by
the Company pursuant to applicable federal and state securities laws.
C. Unless otherwise provided expressly herein, defined terms
under the Plan when used herein shall have the meanings ascribed to them
under the Plan.
In consideration of the mutual covenants exchanged, the
parties agree as follows:
1. RESTRICTIONS ON TRANSFER; RIGHT OF FIRST REFUSAL.
(a) NO TRANSFER OF SHARES SUBJECT TO REPURCHASE OPTION.
Purchaser shall not sell, transfer, pledge, assign or otherwise dispose of
any of the Shares except in accordance with the provisions of this Agreement.
(b) RIGHT OF FIRST REFUSAL. Should Purchaser wish to
transfer any of the Shares, or any interest in such Shares, Purchaser shall
first deliver a written notice (the "Transfer Notice") to the Company, which
shall have the option to purchase such shares as provided herein (the "Right
of First Refusal"). As used herein, the term "transfer" means any sale,
assignment, gift, hypothecation, alienation or other disposition (including
any involuntary transfer of the Shares (or part of them) to a creditor) to
any individual, entity, government, government agency, political subdivision
or unincorporated association. The Transfer Notice must specify: (i) that
Purchaser has a bona fide intention to sell or transfer such Shares; (ii) the
name and address of the person or firm to whom the Purchaser intends to
transfer the Shares, or interest
1
<PAGE>
therein; (iii) the number of Shares, or interest therein, Purchaser proposes
to transfer; (iv) the price or amount to be paid for the proposed transfer
(including the amount of any debt to be paid, cancelled or forgiven upon
foreclosure of a security interest in the Shares or upon any other transfer
to the Purchaser's creditors); and (v) all other material terms and
conditions of the proposed transfer.
(c) ELECTION TO PURCHASE SHARES. Within thirty (30)
days after receipt of the Transfer Notice, the Company or its designee (as
the case may be) may elect to purchase all, but not less than all, of the
Shares to which the Transfer Notice refers at the per share price specified
in the Transfer Notice. If no price is specified in the Transfer Notice, the
purchase price shall be the fair market value of the Shares, as determined in
good faith by the Board of Directors of the Company. Such Right of First
Refusal shall be exercised by delivery to the Purchaser by the Company or its
designee, of a written election to exercise such Right of First Refusal,
specifying the number of Shares to be purchased by the Company or its
designee (as the case may be). Notwithstanding the foregoing, the Company
may elect to offset against and deduct from any payment of the purchase price
any indebtedness then owed by Purchaser to the Company.
(d) CLOSING FOR PURCHASE OF SHARES. In the event the
Company elects to acquire Shares of the Purchaser as specified in the
Transfer Notice, the Secretary of the Company shall so notify the Purchaser
and settlement thereof shall be made in cash within forty-five (45) days
after the Secretary of the Company receives the Transfer Notice, provided
that if the terms of payment set forth in the Transfer Notice were other than
cash against delivery, the Company shall pay for said Shares on the same
terms and conditions set forth in the Transfer Notice.
(e) TRANSFERS FREE OF RIGHT OF FIRST REFUSAL. If the
Shares referred to in the Transfer Notice are not purchased as aforesaid by
the Company, or its designee(s), Purchaser, within a period of ninety (90)
days from the date of delivery of the Transfer Notice to the Company, may
sell any of said Shares to any person named in the Transfer Notice at the
price and on the terms specified in the Transfer Notice, or at a higher price
or on terms more favorable to the Purchaser, provided that such sale or
transfer is consummated within ninety (90) days following the date of
delivery of the Transfer Notice to the Company and, provided further, that
such sale is in accordance with all the terms and conditions hereof. The
transferee will hold all Shares transferred hereunder subject to the
provisions of this Agreement. No transfer of the Shares shall be made after
the end of such ninety (90)-day period, nor shall any change in the terms of
the transfer be permitted, without delivery by the Purchaser to the Company
of a new Transfer Notice in compliance with the requirements of this Section
4.
(f) GIFTS OF SHARES. Notwithstanding any other term of
this Section 4, Purchaser may make a gift of all or any part of the Shares to
any of Purchaser's parents, spouse, or issue, or to a trust for the exclusive
benefit of any of the foregoing parties. The donee or donees shall hold such
Shares subject to all the provisions of this Agreement.
2
<PAGE>
2. PROCEDURE FOR PURCHASE OF THE SHARES.
(a) The closing for the purchase of the Shares hereunder
shall take place at the Company's principal offices within forty-five (45)
days of the Company's receipt of the Notice. At the closing, the holder of
the certificate(s) representing the Shares being transferred shall deliver
said certificate or certificates evidencing the Shares to the Company, duly
endorsed for transfer, and the Company shall deliver the purchase price. The
purchase price shall be payable in full in cash, or by certified check or
cashier's check, provided that the Company may elect to offset against and
deduct from any payment of the purchase price any indebtedness then owed by
Purchaser to the Company.
(b) As security for the faithful performance of the
terms of this Agreement and to ensure the availability for delivery of
Purchaser's Shares upon the exercise of the Company's purchase option by the
Company or its designee, Purchaser agrees to deliver and deposit with the
Secretary of the Company two Stock Assignments duly endorsed (with date and
number of shares blank). Purchaser hereby constitutes and appoints the
Secretary of the Company as his attorney-in-fact and agent to transfer Shares
as to which the Company's purchase option has been exercised hereunder if the
Company or its designee has tendered the purchase price for the Shares to
Purchaser at the address set forth herein or as otherwise noticed in writing
and, in connection therewith: (i) to date the stock assignment(s) necessary
for the transfer in question; (i) to fill in the number of shares being
transferred; and (iii) to deliver a certificate representing the shares being
purchased to the Company or its designee. Purchaser further authorizes the
Company to refuse, or to cause its transfer agent to refuse, to transfer of
record any stock attempted to be transferred in violation of this Agreement.
Purchaser agrees that the foregoing power of attorney is coupled with an
interest, is irrevocable and shall survive Purchaser's death, insanity,
incapacity, bankruptcy or insolvency.
(c) If any transfer of the Shares requires the consent
of any agency pursuant to the securities laws of any state, the time periods
specified herein shall be extended for such periods as the necessary request
for consent to transfer is pending before such agency. All parties agree to
cooperate in making such request for transfer, and no transfer shall be
effected without such consent if required by law.
3. EXEMPT TRANSFERS. Notwithstanding any other term of this
Agreement, Purchaser may make a gift of all or part of the Shares to any of
his parents, spouse or issue, or to a trust for his or their exclusive
benefit. The donee or donees shall hold such Shares subject to all
provisions of this Agreement.
4. TERMINATION OF RESTRICTIONS.
The restrictions on transfer imposed by Section 1 of this
Agreement shall terminate:
3
<PAGE>
(i) on the termination of this Agreement;
(ii) at such time as a public market exists for the
Company's Common Stock. For the purpose of this Agreement, a "public market"
shall be deemed to exist if (i) said Common Stock is listed on a national
securities exchange (as that term is used in the Securities Exchange Act of
1934), or (ii) said Common Stock is listed on the Nasdaq Stock Market or is
traded on the over-the-counter market and prices are published daily on
business days in a recognized financial journal; or
(ii) if the Company dissolves, or if more than fifty
percent (50%) of the outstanding shares of the Company's capital stock
entitled to vote are sold, redeemed or exchanged in any (i) merger,
consolidation, or reorganization involving the Company and one or more
unaffiliated corporations, (ii) exchange of capital stock of the Company for
stock of any unaffiliated corporation, provided that the security holders of
the Company receive in exchange for the Company's capital stock securities
for which a public market exists, or (iii) sale of all or substantially all
of the assets of the Company to an unaffiliated corporation. For purposes of
this subsection, an "unaffiliated corporation" means any corporation that is
not controlled by or under common control with, directly or indirectly, the
Company or any or all of its shareholders.
5. ENDORSEMENT ON CERTIFICATES.
(a) The certificates representing the Shares subject to this
Agreement shall be endorsed with a legend substantially in the following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED ONLY
IN ACCORDANCE WITH THE TERMS OF A RESTRICTED STOCK TRANSFER AGREEMENT BETWEEN
THE COMPANY AND THE REGISTERED HOLDER OR HIS PREDECESSOR IN INTEREST, A COPY
OF WHICH MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE COMPANY.
(b) Any transfer or sale of the Shares is further subject to
any restrictions on transfer imposed by state or Federal securities laws.
Accordingly, it is understood and agreed that the certificates representing
the Shares shall bear any legends required by the securities laws of any
state or by Federal securities laws.
6. PURCHASER'S REPRESENTATIONS. In connection with his purchase
of the Shares, Purchaser hereby represents and warrants to the Company as
follows:
(a) INVESTMENT INTENT; CAPACITY TO PROTECT INTERESTS.
Purchaser is purchasing the Shares solely for his or her own account for
investment and not with a view to or for sale in connection with any
distribution of the Shares or any portion thereof and not with any present
intention of selling, offering to sell or otherwise
4
<PAGE>
disposing of or distributing the Shares or any portion thereof in any
transaction other than a transaction exempt from registration under the
Securities Act of 1933, as amended (the "Act"). Purchaser also represents
that the entire legal and beneficial interest of the Shares is being
purchased, and will be held, for Purchaser's account only, and neither in
whole or in part for any other person. Purchaser either (i) has a
pre-existing business or personal relationship with the Company or any of its
officers, directors or controlling persons or (ii) by reason of Purchaser's
business or financial experience or the business or financial experience of
Purchaser's professional advisors who are unaffiliated with and who are not
compensated by the Company or any affiliate or selling agent of the Company,
directly or indirectly, could be reasonably assumed to have the capacity to
evaluate the merits and risks of an investment in the Company and to protect
Purchaser's own interests in connection with this transaction.
(b) INFORMATION CONCERNING COMPANY. Purchaser has heretofore
discussed the Company and its plans, operations and financial condition with
the Company's officers and has heretofore received all such information as
Purchaser has deemed necessary and appropriate to enable Purchaser to
evaluate the financial risk inherent in making an investment in the Shares,
and Purchaser has received satisfactory and complete information concerning
the business and financial condition of the Company in response to all
inquiries in respect thereof.
(c) ECONOMIC RISK. Purchaser realizes that the purchase of
the Shares will be a highly speculative investment and involves a high degree
of risk, and Purchaser is able, without impairing his financial condition, to
hold the Shares for an indefinite period of time and to suffer a complete
loss on Purchaser's investment.
(d) RESTRICTED SECURITIES. Purchaser understands and
acknowledges that:
(i) the sale of the Shares has not been registered
under the Act, and the Shares must be held indefinitely unless subsequently
registered under the Act or an exemption from such registration is available
and the Company is under no obligation to register the Shares;
(ii) the share certificate representing the Shares will
be stamped with the legends specified in Section 5 hereof; and
(iii) the Company will make a notation in its records of
the aforementioned restrictions on transfer and legends.
(e) DISPOSITION UNDER RULE 144. Purchaser understands that
the Shares are restricted securities within the meaning of Rule 144
promulgated under the Act; that unless the Shares have been issued pursuant
to Rule 701 promulgated under the Act the exemption from registration under
Rule 144 will not be available in any event for at least [one year] from the
date of purchase and payment of the Shares and even then will not be
available unless: (i) a public trading market then exists for the
5
<PAGE>
Common Stock of the Company; (ii) adequate information concerning the Company
is then available to the public; and (iii) other terms and conditions of Rule
144 are complied with; and that any sale of the Shares may be made only in
limited amounts in accordance with such terms and conditions.
(f) FURTHER LIMITATIONS ON DISPOSITION. Without in any way
limiting his representations set forth above, Purchaser further agrees that
he shall in no event make any disposition of all or any portion of the Shares
unless and until:
(i) (A) There is then in effect a registration
statement under the Act covering such proposed disposition and such
disposition is made in accordance with said registration statement; OR (B)(1)
Purchaser shall have notified the Company of the proposed disposition and
shall have furnished the Company with a detailed statement of the
circumstances surrounding the proposed disposition, (2) Purchaser shall have
furnished the Company with an opinion of Purchaser's counsel to the effect
that such disposition will not require registration of such shares under the
Act, and (3) such opinion of the Purchaser's counsel shall have been
concurred in by counsel for the Company and the Company shall have advised
Purchaser of such concurrence; AND
(ii) Purchaser shall have complied with the right of
first refusal set forth in Section 1 hereof.
7. "MARKET STAND-OFF" AGREEMENT. Purchaser hereby agrees that he
or she shall not, to the extent reasonably requested by the Company and an
underwriter of Common Stock (or other securities) of the Company, sell or
otherwise transfer or dispose (other than to donees who agree to be similarly
bound) of any Shares during the one hundred eighty (180)-day period following
the effective date of a registration statement of the Company filed under the
Securities Act; provided, however, that: (a) all officers and directors of
the Company and all other persons with registration rights enter into similar
agreements; and (b) such agreement shall be applicable only to the first such
registration statement of the Company which covers shares (or securities) to
be sold on its behalf to the public in an underwritten offering. Such
agreement shall be in writing in a form satisfactory to the Company and such
underwriter. In order to enforce the foregoing covenant, the Company may
impose stop-transfer instructions with respect to the Shares of each
Shareholder (and the shares or securities of every other person subject to
the foregoing restriction) until the end of such one hundred eighty (180)-day
period.
8. CONSENT OF SPOUSE. If Purchaser is married on the date of
this Agreement, Purchaser's spouse shall execute a Consent of Spouse in the
form of Exhibit A hereto, effective on the date hereof. Such consent shall
not be deemed to confer or convey to the spouse any rights in the Shares that
do not otherwise exist by operation of law or the agreement of the parties.
If Purchaser should marry or remarry subsequent to the date of this
Agreement, Purchaser shall within thirty (30) days thereafter obtain his or
her new spouse's acknowledgment of and consent to the
6
<PAGE>
existence and binding effect of all restrictions contained in this Agreement
by signing a Consent of Spouse in the form of Exhibit A.
9. ENFORCEMENT. Purchaser agrees that a violation on his or her
part of any of the terms of this Agreement may cause irreparable damage to
the Company, the exact amount of which is impossible to ascertain, and for
that reason agrees that the Company shall be entitled to a decree of specific
performance of the terms hereof or an injunction restraining further
violation, said right to be in addition to any other remedies of said parties.
10. CONDITIONS UPON ISSUANCE OF SHARES. The Shares shall be
subject to the provisions of the Bylaws and the Restated Certificate of
Incorporation of the Company as of the date of grant of the Option or the
acquisition of the Shares by the Purchaser. The Shares shall be subject to
all amendments to the By-laws and Certificate of Incorporation made
thereafter which affect the Common Stock generally. Shares shall not be
issued with respect to an Option granted under the Plan unless the exercise
of such Option and the issuance and delivery of such Shares pursuant thereto
shall comply with all relevant provisions of law, including, without
limitation, the Securities Act, the Exchange Act, the rules and regulations
promulgated thereunder, and the requirements of any stock exchange upon which
the Shares may then be listed, and shall be further subject to the approval
of counsel for the Company with respect to such compliance. To the extent
that there may be any conflict between the provisions of this Agreement and
any provisions contained in the Company's Bylaws on the transfer or
restriction on transfer of Shares, the terms of this Agreement shall be
controlling. This Agreement may not be modified except by a writing signed
by the party to be bound.
11. OWNERSHIP, VOTING RIGHTS, DUTIES. This Agreement shall not
affect in any way the ownership, voting rights or other rights or duties of
Purchaser, except as specifically provided herein.
12. NOTICES. All notices and other communications required or
permitted hereunder shall be in writing and shall be deemed effectively given
upon personal delivery or on the day sent by facsimile transmission if a true
and correct copy is sent the same day by first class mail, postage prepaid,
or by dispatch by an internationally recognized express courier service, to
the proper parties at the appropriate business addresses.
13. BINDING EFFECT. This Agreement shall apply to and be binding
upon Purchaser, his permitted transferees, heirs, legatees, executors,
administrators and legal successors, who shall hold the Shares subject to the
terms hereof, and is for the benefit of the Company and its successors and
assigns.
14. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement of the parties with respect to the subject matter of this Agreement.
7
<PAGE>
15. COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original, but all of which together
shall constitute one and the same instrument.
16. APPLICABLE LAW. This Agreement shall be governed by and
construed under the laws of the State of California as such laws are applied
to contracts entered into and performed in such state.
ATTORNEYS' FEES. In the event of litigation brought by either
party to enforce the provisions of this Agreement or for damages based upon
the breach thereof, the prevailing party shall be entitled to recover his
costs and reasonable attorneys' fees, as determined by the court.
IN WITNESS WHEREOF, the parties have executed this Agreement
on the date first above written.
NETOBJECTS, INC. PURCHASER
By:
---------------------------- ---------------------------------------
Title: Address:
------------------------- --------------------------
--------------------------
--------------------------
PURCHASER'S SPOUSE
----------------------------------
8
<PAGE>
EXHIBIT A
CONSENT OF SPOUSE
I, ________________, spouse of ______________________,
acknowledge that I have read the Restricted Stock Transfer Agreement dated as
of _______________, 19__, to which this Consent is attached as Exhibit A (the
"Agreement") and that I know its contents. I am aware that by its provisions
(a) my spouse and NetObjects, Inc. (the "Company") have the option to
purchase all the Shares of the Company of which I may become possessed as a
result of a gift from my spouse or a court decree and/or any property
settlement in any domestic litigation, (b) the Company has the option to
purchase certain Shares of the Company which my spouse owns pursuant to the
Agreement including any interest I might have therein, upon termination of
his employment under circumstances set forth in the Agreement, and (c)
certain other restrictions are imposed upon the sale or other disposition of
the Shares.
I hereby agree that my interest, if any, in the Shares subject
to the Agreement shall be irrevocably bound by the Agreement and further
understand and agree that any community property interest I may have in the
Shares shall be similarly bound by the Agreement.
Dated as of the ______ of ____________, 19__.
---------------------------------------
<PAGE>
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED, ____________________________ hereby
sells, assigns and transfers unto _____________________________
__________________ (___________) shares of the Common Stock of NetObjects,
Inc., a Delaware corporation, standing in the undersigned's name on the books
of said corporation represented by Certificate No. _______________, and do
hereby irrevocably constitute and appoint ______________________________ as
the undersigned's agent and attorney-in-fact to transfer the said stock on
the books of the said corporation with full power of substitution in the
premises.
Dated:____________, 19______
--------------------------------------------
<PAGE>
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED, ____________________________ hereby
sells, assigns and transfers unto _____________________________
__________________ (___________) shares of the Common Stock of NetObjects,
Inc., a Delaware corporation, standing in the undersigned's name on the books
of said corporation represented by Certificate No. _______________, and do
hereby irrevocably constitute and appoint ______________________________ as
the undersigned's agent and attorney-in-fact to transfer the said stock on
the books of the said corporation with full power of substitution in the
premises.
Dated:____________, 19______
--------------------------------------------
<PAGE>
NETOBJECTS, INC.
1997 SPECIAL STOCK OPTION PLAN
1. PURPOSES OF THE PLAN. The purposes of this Stock Option Plan are to
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentives to Employees of the Company and
its Subsidiaries, and to promote the success of the Company's business. Options
granted hereunder may be either Incentive Stock Options or Nonstatutory Stock
Options at the discretion of the Committee.
2. DEFINITIONS. As used herein, and in any Option granted hereunder, the
following definitions shall apply:
(a) "BOARD" shall mean the Board of Directors of the Company.
(b) "CHANGE OF CONTROL TRANSACTION" shall mean (A) any transaction or
series of transactions, in which all stockholders of the Company are entitled to
participate (whether as a matter of law or agreement) and pursuant to which
shares representing more than 50% of the Company's outstanding voting securities
are purchased by a person not controlled by, in control of or under common
control with any holder of the Company's outstanding voting securities, (B) the
merger or consolidation of the Company with another entity (other than a merger
or consolidation in which the holders of voting securities of the Company
immediately before the merger or consolidation own, immediately after the merger
or consolidation, voting securities of the surviving or acquiring corporation or
of a parent party of such surviving or acquiring corporation, possessing more
than 50% of the voting power of the surviving or acquiring corporation or parent
party) resulting in the exchange of outstanding shares of capital stock of the
Company for cash, securities or other property or (C) any merger, sale, lease,
license, exchange or other disposition (whether in one transaction or a series
of related transactions) or more than 50% of the assets of the Company.
(c) "CODE" shall mean the Internal Revenue Code of 1986, as amended.
(d) "COMMON STOCK" shall mean the Common Stock of the Company.
(e) "COMPANY" shall mean NetObjects, Inc., a Delaware corporation.
(f) "COMMITTEE" shall mean the Committee appointed by the Board in
accordance with paragraph (a) of Section 4 of the Plan. If the Board does not
appoint or ceases to maintain a Committee, the term "Committee" shall refer to
the Board.
<PAGE>
(g) "CONTINUOUS EMPLOYMENT" shall mean the absence of any interruption or
termination of service as an Employee by the Company or any Subsidiary.
Continuous Employment shall not be considered interrupted during any period of
sick leave, military leave or any other leave of absence approved by the Board
or in the case of transfers between locations of the Company or between the
Company and any Parent, Subsidiary or successor of the Company.
(h) "COVERED EMPLOYEE" shall mean any individual whose compensation is
subject to the limitations on tax deductibility provided by Section 162(m) of
the Code and any Treasury Regulations promulgated thereunder in effect at the
close of the taxable year of the Company in which an Option has been granted to
such individual.
(i) "DISINTERESTED PERSON" shall mean a person who has not at any time
within one year prior to service as a member of the Committee (or during such
service) been granted or awarded Options or other equity securities pursuant to
the Plan or any other plan of the Company or any Parent or Subsidiary.
Notwithstanding the foregoing, a member of the Committee shall not fail to be a
Disinterested Person merely because he or she participates in a plan meeting the
requirements of Section 240.16b-3(c)(2)(i)(A) or (B) of the General Rules and
Regulations promulgated under the Exchange Act (the "General Rules and
Regulations").
(j) "EMPLOYEE" shall mean any person, including officers (whether or not
they are directors), employed by the Company or any Subsidiary.
(k) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
(l) "INCENTIVE STOCK OPTION" shall mean any option granted under this Plan
and any other option granted to an Employee in accordance with the provisions of
Section 422 of the Code, and the regulations promulgated thereunder.
(m) "NONSTATUTORY STOCK OPTION" shall mean an Option granted under the
Plan that is subject to the provisions of Section 1.83-7 of the Treasury
Regulations promulgated under Section 83 of the Code.
(n) "OPTION" shall mean a stock option granted pursuant to the Plan.
(o) "OPTION AGREEMENT" shall mean a written agreement between the Company
and the Optionee regarding the grant and exercise of Options to purchase Shares
and the terms and conditions thereof as determined by the Committee pursuant to
the Plan.
2
<PAGE>
(p) "OPTIONED SHARES" shall mean the Common Stock subject to an Option.
(q) "OPTIONEE" shall mean an Employee, Non-Employee Director or
Consultant who receives an Option.
(r) "OUTSIDE DIRECTOR" shall mean a director of the Company who qualifies
as an outside director as such term is used in Section 162(m) of the Code and
defined in any applicable Treasury Regulations promulgated thereunder.
(s) "PARENT" shall mean a "parent corporation," whether now or hereafter
existing, as defined by Section 424(e) of the Code.
(t) "PLAN" shall mean this 1997 Stock Option Plan.
(u) "REGISTRATION DATE" shall mean the effective date of the first
registration of any class of the Company's equity securities pursuant to Section
12 of the Exchange Act.
(v) "SECTION 162(m) EFFECTIVE DATE" shall mean the first date as of which
the limitations on the tax deductibility of certain compensation provided by
Section 162(m) of the Code and any Treasury Regulations promulgated thereunder
are applicable to Options granted under the Plan.
(w) "SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
(x) "SHARE" shall mean a share of the Common Stock subject to an Option,
as adjusted in accordance with Section 11 of the Plan.
(y) "SUBSIDIARY" shall mean a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. SHARES SUBJECT TO THE PLAN. Subject to the provisions of Section 11 of the
Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is Six Million Two Hundred Forty-six Thousand Three Hundred
Thirty-eight (6,246,338) Shares. The Shares may be authorized but unissued or
reacquired shares of Common Stock. If an Option expires or becomes
unexercisable for any reason without having been exercised in full, the Shares
which were subject to the Option but as to which the Option was not exercised
shall become available for other Option grants under the Plan, unless the Plan
shall have been terminated.
3
<PAGE>
4. ADMINISTRATION OF THE PLAN.
(a) PROCEDURE. The Plan shall be administered by the Board. The Board
may appoint a Committee consisting of not less than two members of the Board to
administer the Plan, subject to such terms and conditions as the Board may
prescribe. Once appointed, the Committee shall continue to serve until
otherwise directed by the Board. From time to time, the Board may increase the
size of the Committee and appoint additional members thereof, remove members
(with or without cause) and appoint new members in substitution therefor, fill
vacancies, however caused, and remove all members of the Committee and,
thereafter, directly administer the Plan. Members of the Board or Committee who
are either eligible for Options or have been granted Options may vote on any
matters affecting the administration of the Plan or the grant of Options
pursuant to the Plan, except that no such member shall act upon the granting of
an Option to himself, but any such member may be counted in determining the
existence of a quorum at any meeting of the Board or the Committee during which
action is taken with respect to the granting of an Option to him or her. The
Committee shall meet at such times and places and upon such notice as the
chairperson determines. A majority of the Committee shall constitute a quorum.
Any acts by the Committee may be taken at any meeting at which a quorum is
present and shall be by majority vote of those members entitled to vote.
Additionally, any acts reduced to writing or approved in writing by all of the
members of the Committee shall be valid acts of the Committee.
(b) PROCEDURE AFTER REGISTRATION DATE. Notwithstanding subsection (a)
above, after the Registration Date, the Plan shall be administered either by:
(i) the full Board, provided that all members of the Board are Disinterested
Persons; or (ii) a Committee of two or more directors, each of whom is a
Disinterested Person. After such date, the Board shall take all action
necessary to administer the Plan so that all transactions involving Options and
Shares issued pursuant to the Plan shall be exempt from Section 16(b) of the
Exchange Act in accordance with the then effective provisions of Section
240.16b-1 ET SEQ. of the General Rules and Regulations; provided that any
amendment to the Plan required for compliance with such provisions shall be made
consistent with the provisions of Section 13 of the Plan, and said Rules and
Regulations.
(c) PROCEDURE AFTER SECTION 162(m) EFFECTIVE DATE. Notwithstanding
subsections (a) and (b) above, after the Section 162(m) Effective Date the Plan
and all Option grants shall be administered and approved by a Committee
comprised solely of two or more Outside Directors.
(d) POWERS OF THE COMMITTEE. Subject to the provisions of the Plan, the
Committee shall have the authority: (i) to determine, upon review of relevant
information, the fair market value of the Common Stock; (ii) to determine the
exercise price of Options to be granted, the Employees, Directors or
Consultants
4
<PAGE>
to whom and the time or times at which Options shall be granted, and the number
of Shares to be represented by each Option; (iii) to interpret the Plan; (iv) to
prescribe, amend and rescind rules and regulations relating to the Plan; (v) to
determine the terms and provisions of each Option granted under the Plan (which
need not be identical) and, with the consent of the holder thereof, to modify or
amend any Option; (vi) to authorize any person to execute on behalf of the
Company any instrument required to effectuate the grant of an Option previously
granted by the Committee; (vii) to accelerate or (with the consent of the
Optionee) defer an exercise date of any Option, subject to the provisions of
Section 9(a) of the Plan; (viii) to determine whether Options granted under the
Plan will be Incentive Stock Options or Nonstatutory Stock Options; (ix) to make
all other determinations deemed necessary or advisable for the administration of
the Plan.
(e) EFFECT OF COMMITTEE'S DECISION. All decisions, determinations and
interpretations of the Committee shall be final and binding on all potential or
actual Optionees, any other holder of an Option or other equity security of the
Company and all other persons.
5. ELIGIBILITY.
(a) PERSONS ELIGIBLE FOR OPTIONS. Options under the Plan may be granted
only to Employees whom the Committee, in its sole discretion, may designate from
time to time. Incentive Stock Options may be granted only to Employees. An
Employee who has been granted an Option, if he or she is otherwise eligible, may
be granted an additional Option or Options. As of the Section 162(m) Effective
Date, Options under the Plan shall be granted to Covered Employees upon
satisfaction of the conditions to such grants provided pursuant to Section
162(m) and any Treasury Regulations promulgated thereunder. However, the
aggregate fair market value (determined in accordance with the provisions of
Section 8(a) of the Plan) of the Shares subject to one or more Incentive Stock
Options that are exercisable for the first time by an Optionee during any
calendar year (under all stock option plans of the Company and its Parents and
Subsidiaries) shall not exceed $100,000 (determined as of the grant date). To
the extent that an Option, or any portion thereof, does not qualify as an
Incentive Stock Option under the Code because the aggregate fair market value
(determined at the grant date) of the Shares for which such Option or portion
thereof first becomes exercisable hereunder will, when added to the aggregate
fair market value (determined as of the respective date or dates of grant) of
the Shares or other securities for which the Option or one or more other
Incentive Stock Options granted to Optionee prior to the grant date (whether
under the Plan or any other option plan of the Corporation or any Parent or
Subsidiary) first become exercisable during the same calendar year, exceed
$100,000 in the aggregate, such option or portion thereof shall constitute an
Incentive Stock Option under this Plan in such calendar year only to the
5
<PAGE>
extent of such $100,000 limitation. To the extent that the fair market value of
the Shares for which this Option first becomes exercisable in any calendar year
exceeds such $100,000 limitation, the Option may nevertheless be exercised for
those excess Shares in such calendar year as a Nonstatutory Stock Option.
(b) NO RIGHT TO CONTINUING EMPLOYMENT. Neither the establishment nor the
operation of the Plan shall confer upon any Optionee or any other person any
right with respect to continuation of employment or other service with the
Company or any Subsidiary, nor shall the Plan interfere in any way with the
right of the Optionee or the right of the Company (or any Parent or Subsidiary)
to terminate such employment or service at any time.
6. TERM OF PLAN. The Plan shall become effective upon its adoption by the
Board or its approval by vote of the holders of the outstanding shares of the
Company entitled to vote on the adoption of the Plan (in accordance with the
provisions of Section 9 hereof), whichever is earlier. It shall continue in
effect for a term of ten (10) years unless sooner terminated under Section 14 of
the Plan.
7. TERM OF OPTION. Unless the Committee determines otherwise, the term of
each Option granted under the Plan shall be ten years from the date of grant.
The term of the Option shall be set forth in the Option Agreement. No Incentive
Stock Option shall be exercisable after the expiration of ten years from the
date such Option is granted, provided that no Incentive Stock Option granted to
any Employee who, at the date such Option is granted, owns (within the meaning
of Section 424(d) of the Code) more than 10% of the total combined voting power
of all classes of stock of the Company or any Parent or Subsidiary shall be
exercisable after the expiration of five years from the date such Option is
granted.
8. OPTION PRICE AND CONSIDERATION.
(a) OPTION PRICE. Except as provided in subsections (b) and (c) below,
the option price for the Shares to be issued pursuant to any Option shall be
such price as is determined by the Committee, which shall in no event be less
than the fair market value of such Shares on the date the Option is granted.
Fair market value of the Common Stock shall be determined by the Committee,
using such criteria as it deems relevant; provided, however, that if there is a
public market for the Common Stock, the fair market value per Share shall be the
average of the last reported closing prices of the Common Stock on the date of
grant, as reported in THE WALL STREET JOURNAL (or, if not so reported, as
otherwise reported by Nasdaq) or, in the event the Common Stock is listed on a
national securities exchange (within the meaning of Section 6 of the Exchange
Act) or on the Nasdaq National Market (or any successor national market system),
the fair market value per Share shall be the closing price on such exchange on
the date of grant of the Option, as reported in THE WALL STREET JOURNAL.
6
<PAGE>
(b) TEN PERCENT SHAREHOLDERS. No Option shall be granted to any Employee
who, at the date such Option is granted, owns (within the meaning of Section
424(d) of the Code) more than 10% of the total combined voting power of all
classes of stock of the Company or any Parent or Subsidiary, unless the option
price for the Shares to be issued pursuant to such Option is at least equal to
110% of the fair market value of such Shares on the grant date determined by the
Committee in the manner set forth in subsection (a) above.
(c) SECTION 162(m) LIMITATIONS. After the Section 162(m) Effective Date,
the Option Price of any Option granted to a Covered Employee shall be at least
equal to the fair market value of the Shares as of the date of grant as
determined in the manner set forth in subsection (a) above.
(d) CONSIDERATION. The consideration to be paid for the Optioned Shares
shall be payment in cash or by check unless payment in some other manner,
including by recourse promissory note, other shares of the Company's Common
Stock or such other consideration and method of payment for the issuance of
Optioned Shares as may be permitted under the Delaware General Corporation Law,
is authorized by the Committee at the time of the grant of the Option. Any cash
or other property received by the Company from the sale of Shares pursuant to
the Plan shall constitute part of the general assets of the Company.
9. EXERCISE OF OPTION.
(a) VESTING PERIOD. Any Option granted hereunder shall be exercisable at
such times and under such conditions as determined by the Committee and as shall
be permissible under the terms of the Plan, which shall be specified in the
Option Agreement evidencing the Option. Unless the Committee specifically
determines otherwise at the time of the grant of the Option, each Option shall
vest and become exercisable as to one-fourth (1/4) of the Optioned Shares on the
first anniversary of the date of grant of the Option, and as to one thirty-sixth
(1/36) of the remaining Optioned Shares at the end of each calendar month
thereafter, until all of the Optioned Shares have vested; PROVIDED THAT, if
voting securities of the Company are not acquired by International Business
Machines Corporation pursuant to a Change of Control Transaction closing prior
to July 31, 1997, or if the Board so determines in connection with a Change of
Control Transaction subject to Section 12 of the Plan, each Option shall vest
and become exercisable, cumulatively, instead as to 100% of the Optioned Shares
only on the fifth anniversary of the date of the grant of the Option. The
vesting and exercisability of each Option shall be further subject to the
Optionee's Continuous Employment and the provisions of Section 12 of the Plan in
all events.
(b) EXERCISE PROCEDURES. An Option shall be deemed to be exercised when
written notice of such exercise has been given to the Company in
7
<PAGE>
accordance with the terms of the Option by the person entitled to exercise the
Option and full payment for the Shares with respect to which the Option is
exercised has been received by the Company. An Option may not be exercised for
fractional shares or for less than ten (10) Shares. After the Registration
Date, in lieu of delivery of a cash payment for the purchase price of the Shares
with respect to which the Option is exercised, the Optionee may deliver to the
Company a sell order to a broker for the Shares being purchased and an agreement
to pay (or have the broker remit payment for) the purchase price for the Shares
being purchased on or before the settlement date for the sale of such shares to
the broker. As soon as practicable following the exercise of an Option in the
manner set forth above, the Company shall issue or cause its transfer agent to
issue stock certificates representing the Shares purchased. Until the issuance
of such stock certificates (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a stockholder shall exist
with respect to the Optioned Shares notwithstanding the exercise of the Option.
No adjustment will be made for a dividend or other rights for which the record
date is prior to the date of the transfer by the Optionee of the consideration
for the purchase of the Shares, except as provided in Section 11 of the Plan.
(c) EXERCISE OF OPTION WITH STOCK. If an Optionee is permitted to
exercise an Option by delivering shares of the Company's Common Stock, the
Option Agreement covering such Option may include provisions authorizing the
Optionee to exercise the Option, in whole or in part, by (i) delivering whole
shares of the Company's Common Stock previously owned by such Optionee (whether
or not acquired through the prior exercise of a stock option) having a fair
market value equal to the Option price; or (ii) directing the Company to
withhold from the Shares that would otherwise be issued upon exercise of the
Option that number of whole Shares having a fair market value equal to the
Option price. Shares of the Company's Common Stock so delivered or withheld
shall be valued at their fair market value at the close of the last business day
immediately preceding the date of exercise of the Option, as determined by the
Committee. Any balance of the Option price shall be paid in cash. Any Shares
delivered or withheld in accordance with this provision shall again become
available for purposes of the Plan and for Options subsequently granted
thereunder. After the Registration Date, any exercise of an Option under
Section 9(c)(i) or 9(c)(ii) above by any person subject to short-swing trading
liability under Section 16(b) of the Exchange Act shall satisfy the conditions
for exemption therefrom set forth in Section 240.16b-1 ET SEQ. of the General
Rules and Regulations.
(d) TERMINATION OF STATUS AS EMPLOYEE, NON-EMPLOYEE DIRECTOR OR
CONSULTANT. If an Optionee shall cease to be an Employee for any reason other
than disability or death, he or she may, but only within 30 days (or such other
8
<PAGE>
period of time as is determined by the Committee) after the date he or she
ceases to be an Employee, exercise his or her Option to the extent that he or
she was entitled to exercise it at the date of such termination, subject to the
condition that no Option shall be exercisable after the expiration of the Option
period.
(e) DISABILITY OF OPTIONEE. If an Optionee shall cease to be an Employee
due to a disability, and such Optionee is, or was within the 90-day period prior
to such termination, an Employee and who was in Continuous Employment as such
from the date of the grant of the Option until the date of disability or
termination, the Option may be exercised at any time within 180 days following
the date of termination, but only to the extent of the accrued right to exercise
at the time of the termination, subject to the condition that no option shall be
exercised after the expiration of the Option period.
(f) DEATH OF OPTIONEE. In the event of the death during the Option period
of an Optionee who is at the time of his or her death, or was within the 90-day
period immediately prior thereto, an Employee and who was in Continuous
Employment as such from the date of the grant of the Option until the date of
death, the Option may be exercised, at any time within 180 days following the
date of death, by the Optionee's estate or by a person who acquired the right to
exercise the Option by bequest, inheritance or otherwise as a result of the
Optionee's death, but only to the extent of the accrued right to exercise at the
time of the termination or death, whichever comes first, subject to the
condition that no option shall be exercised after the expiration of the Option
period.
(g) TAX WITHHOLDING. After the Registration Date, when an Optionee is
required to pay to the Company an amount with respect to tax withholding
obligations in connection with the exercise of an Option granted under the
Plan, the Optionee may elect prior to the date the amount of such withholding
tax is determined (the "Tax Date") to make such payment, or such increased
payment as the Optionee elects to make up to the maximum federal, state and
local marginal tax rates, including any related FICA obligation, applicable
to the Optionee and the particular transaction, by: (i) delivering cash; (ii)
delivering part or all of the payment in previously owned shares of Common
Stock (whether or not acquired through the prior exercise of an Option);
and/or (iii) irrevocably directing the Company to withhold from the Shares
that would otherwise be issued upon exercise of the Option that number of
whole Shares having a fair market value equal to the amount of tax required
or elected to be withheld (a "Withholding Election"). If an Optionee's Tax
Date is deferred beyond the date of exercise and the Optionee makes a
Withholding Election, the Optionee will initially receive the full amount of
Optioned Shares otherwise issuable upon exercise of the Option, but will be
unconditionally obligated to surrender to the Company on the Tax Date the
number of Shares necessary to satisfy his or her
9
<PAGE>
minimum withholding requirements, or such higher payment as he or she may have
elected to make, with adjustments to be made in cash after the Tax Date.
After the Registration Date, any withholding of Shares with respect to taxes
arising in connection with the exercise of an Option by any person subject to
short-swing trading liability under Section 16(b) of the Exchange Act shall
satisfy the conditions for exemption therefrom set forth in Section 240.16b-1 ET
SEQ. of the General Rules and Regulations.
Any adverse consequences incurred by the Optionee with respect to the use of
shares of Common Stock to pay any part of the Option Price or of any tax in
connection with the exercise of an Option, including without limitation any
adverse tax consequences arising as a result of a disqualifying disposition
within the meaning of Section 422 of the Code, shall be the sole responsibility
of the Optionee.
10. NON-TRANSFERABILITY OF OPTIONS. An Option may not be sold, pledged,
assigned, hypothecated, transferred or disposed of in any manner other than by
will or by the laws of descent and distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
(a) Subject to any required action by the shareholders of the Company, the
number of Optioned Shares covered by each outstanding Option, and the per share
exercise price of each such Option, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, recapitalization, combination,
reclassification, the payment of a stock dividend on the Common Stock or any
other increase or decrease in the number of such shares of Common Stock effected
without receipt of consideration by the Company; provided, however, that
conversion of any convertible securities of the Company shall not be deemed to
have been "effected without receipt of consideration". Such adjustment shall be
made by the Committee, whose determination in that respect shall be final,
binding and conclusive. Except as expressly provided herein, no issue by the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, shall affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock subject
to an Option.
(b) The Committee may, if it so determines in the exercise of its sole
discretion, also make provision for proportionately adjusting the number or
class of securities covered by any Option, as well as the price to be paid
therefor, in the event that the Company effects one or more reorganizations,
recapitalizations, rights offerings, or other increases or reductions of shares
of its
10
<PAGE>
outstanding Common Stock, and in the event of the Company being consolidated
with or merged into any other corporation.
(c) Unless otherwise determined by the Board, upon the dissolution or
liquidation of the Company the Options granted under the Plan shall terminate
and thereupon become null and void.
12. CHANGE OF CONTROL TRANSACTION. Upon the first Change of Control
Transaction occurring after the adoption of the Plan, if the Options granted
under the Plan are not assumed in connection with that Transaction by an entity
which acquires control of the Company, the Board may elect, in its sole
discretion, to terminate the Plan; whereupon all Options granted under the Plan
and outstanding as of the effective date of such Change of Control Transaction
will terminate as of that date.
13. TIME OF GRANTING OPTIONS. Unless otherwise specified by the Committee, the
date of grant of an Option under the Plan shall be the date on which the
Committee makes the determination granting such Option. Notice of the
determination shall be given to each Optionee to whom an Option is so granted
within a reasonable time after the date of such grant.
14. AMENDMENT AND TERMINATION OF THE PLAN. The Board may amend or terminate
the Plan from time to time in such respects as the Board may deem advisable,
except that, without approval of the shareholders of the Company, no such
revision or amendment shall change the number of Shares subject to the Plan,
change the designation of the class of employees eligible to receive Options or
add any material benefit to Optionees under the Plan. Except as provided
otherwise in Section 12 of the Plan, any such amendment or termination of the
Plan shall not affect Options already granted, and such Options shall remain in
full force and effect as if the Plan had not been amended or terminated. After
the Section 162(m) Effective Date, the modification or addition of a material
term of the Plan (as determined under Section 162(m) and any applicable Treasury
Regulations promulgated thereunder) shall be approved by the shareholders in the
manner provided in Section 19 of the Plan.
15. CONDITIONS UPON ISSUANCE OF SHARES. All Options and Optioned Shares shall
be subject to the provisions of the By-laws and the Certificate of Incorporation
of the Company as of the date of grant of the Option or the acquisition of the
Optioned Shares by the Optionee. The Optioned Shares shall be subject to all
amendments to the By-laws and Certificate of Incorporation made thereafter which
affect the Common Stock generally. Shares shall not be issued with respect to
an Option granted under the Plan unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act,
the Exchange Act, the rules and regulations promulgated thereunder, and the
requirements of any stock exchange upon which the Shares
11
<PAGE>
may then be listed, and shall be further subject to the approval of counsel for
the Company with respect to such compliance. As a condition to the exercise of
an Option, the Company may require the person exercising such Option to
represent and warrant at the time of any such exercise that the Shares are being
purchased only for investment and without any present intention to sell or
distribute such Shares if, in the opinion of counsel for the Company, such a
representation is required by any of the aforementioned relevant provisions of
law.
16. RESERVATION OF SHARES. During the term of this Plan the Company will at
all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan. Inability of the Company to
obtain from any regulatory body having jurisdiction and authority deemed by the
Company's counsel to be necessary to the lawful issuance and sale of any Shares
hereunder shall relieve the Company of any liability in respect of the
nonissuance or sale of such Shares as to which such requisite authority shall
not have been obtained.
17. INFORMATION TO OPTIONEE. During the term of any Option granted under the
Plan, the Company shall provide or otherwise make available to each Optionee a
copy of its annual report to Shareholders and financial information which is
provided to its shareholders in accordance with the provisions of the Company's
Bylaws and applicable law.
18. OPTION AGREEMENT. Options granted under the Plan shall be evidenced by
Option Agreements.
19. SHAREHOLDER APPROVAL. The Plan shall be subject to approval by the
shareholders of the Company within 12 months before or after the Plan is
adopted. Except as provided otherwise in Section 3, any amendments to the Plan
requiring shareholder approval must be approved by the affirmative vote of the
holders of a majority of the outstanding shares of voting stock present or
represented and entitled to vote at a duly held meeting at which a quorum is
present, or by the written consent of the shareholders in the manner provided by
Delaware law.
12
<PAGE>
NETOBJECTS, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
NetObjects, Inc., a Delaware corporation (the "Company"), hereby
establishes this 1999 Employee Stock Purchase Plan (the "Plan").
1. PURPOSE OF PLAN. The purpose of the Plan is to enable Eligible
Employees (as defined in Section 3) who wish to become stockholders of the
Company a convenient and favorable method of doing so. The Plan is intended to
constitute an "employee stock purchase plan," as defined in Section 423(b) of
the Internal Revenue Code of 1986, as amended (the "Code"), and shall be
interpreted and administered to further that intent.
2. ADMINISTRATION OF THE PLAN. The Plan will be administered by the
Compensation Committee (the "Committee") of the Board of Directors of the
Company (the "Board"). Subject to the provisions of the Plan, the Committee will
have the complete authority to interpret the Plan, to adopt, amend and rescind
rules and procedures relating to the Plan, and to make all of the determinations
necessary or advisable for the administration of the Plan. All such
interpretations, rules, procedures and determinations will, in the absent of
fraud or patent mistake, be conclusive and binding on all persons with any
interest in the Plan.
3. ELIGIBLE EMPLOYEES. The term "Eligible Employees" means all
common law employees of the Company and its current subsidiary, as defined in
Section 424(f) of the Code, (and each other corporation designated by the
Committee that hereafter becomes a majority-owned subsidiary of the Company),
except the following: (a) employees who have been continuously employed for
less than 90 days; (b) employees whose customary employment is 20 hours or less
per week; and (c) employees whose customary employment is for not more than five
months in any calendar year. The employment of an employee shall be treated as
continuing intact while the employee is on sick leave or other leave of absence
approved by the Company. Except as otherwise expressly provided in the Plan and
permitted by Section 423 of the Code, all Eligible Employees shall have the same
rights and obligations under the Plan.
4. STOCK SUBJECT TO THE PLAN. The stock subject to the Plan shall be
shares of the Company's authorized but unissued Common Stock, $.01 par value per
share, (the "Common Stock"). The aggregate number of shares of Common Stock that
may be purchased by Eligible Employees pursuant to the Plan is 300,000, subject
to adjustment as provided in Section 13.
5. OFFERING PERIODS. The Common Stock shall be offered under the
Plan during twenty consecutive six-month periods (the "Offering Periods"). The
first Offering Period shall begin upon the issue and sale shares of Common Stock
in a bona fide
<PAGE>
public offering on an underwritten firm commitment basis pursuant to a
registration statement filed with and declared effective by the Securities and
Exchange Commission, pursuant to the Securities Act of 1933, as amended, and end
on June 30, 1999. Thereafter, the Offering Periods will begin on the first day
and end on the last day of each subsequent six-month period.
6. PARTICIPANTS; PAYROLL DEDUCTIONS
6.1 A person who is an Eligible Employee at the beginning of an
Offering Period may elect to have the Company make deductions from the person's
Compensation (as defined in Section 6.4), at a specified percentage rate, to be
used to purchase shares of Common Stock pursuant to the Plan. This election must
be made prior to the beginning of the Offering Period in accordance with such
procedures as the Committee may adopt (each Eligible Employee who so elects to
have such deductions made will be referred to as a "Participant").
6.2 The maximum rate of deduction that a Participant may elect
for any Offering Period is 10%. An amount equal to the elected percentage shall
be deducted from the Participant's pay each time during the Offering Period that
any Compensation is paid to the Participant. The Committee may set such minimum
level of payroll deductions as the Committee determines to be appropriate. Any
minimum level of deductions set by the Committee shall apply equally to all
Eligible Employees. A Participant's accumulated payroll deductions shall remain
the property of the Participant until applied toward the purchase of shares of
Common Stock under the Plan, but may be commingled with the general funds of the
Company. No interest will be paid on payroll deductions accumulated under the
Plan.
6.3 A Participant in the Plan on the last day of an Offering
Period shall automatically continue to participate in the Plan during the next
Offering Period unless he or she withdraws in the manner described in Section 11
or is no longer an Eligible Employee.
6.4 The term "Compensation" means all base salary, straight
time wages and commissions paid to or on behalf of a Participant for services
performed or on account of holidays, vacation, sick leave or other similar
events (including any amounts by which such earnings are reduced, at the
election of a Participant, pursuant to a cafeteria plan described in Section 125
of the Code, a dependent care assistance program described in Section 129 of the
Code, a cash or deferred arrangement described in Section 401(k) of the Code, or
any similar plan, program or arrangement), and excluding any overtime, shift
premium, bonuses and other incentive compensation, the value of any noncash
benefits under any employee benefit plans, and any other amounts paid to the
Participant that are specifically excluded by the Committee.
2
<PAGE>
7. PURCHASE OF SHARES
7.1 At the end of an Offering Period, a Participant's
accumulated payroll deductions for the Offering Period will, subject to the
limitations in Section 9 and the withdrawal provisions of Section 11, be applied
toward the purchase of shares of Common Stock at a purchase price (the "Purchase
Price") equal to the lesser of --
(a) 85% of the Market Price (as defined in Section 8.1)
of the Common Stock on the first Business Day (as defined in Section 8.2) of the
Offering Period; or
(b) 85% of the Market Price of the Common Stock on the
last Business Day of the Offering Period;
in either event rounded to the nearest whole cent.
7.2 Shares of Common Stock may be purchased under the Plan only
with a Participant's accumulated payroll deductions. Fractional shares cannot be
purchased. Any portion of a Participant's accumulated payroll deductions for an
Offering Period not used for the purchase of Common Stock shall be applied to
the purchase of Common Stock in the next Offering Period, if the Participant is
participating in the Plan during that Offering Period, or returned to the
Participant.
7.3 Each Participant who purchases shares of Common Stock under
the Plan shall thereby be deemed to have agreed that the Company or the
subsidiary of the Company that employs the Participant shall be entitled to
withhold, from any other amounts that may be payable to the Participant at or
around the time of the purchase, such federal, state, local and foreign income,
employment and other taxes which may be required to be withheld under applicable
laws. In lieu of such withholding, the Company or such subsidiary may require
the Participant to remit such taxes to the Company or such subsidiary as a
condition of the purchase.
8. MARKET PRICE
8.1 For purposes of the Plan, the term "Market Price" on any
day means, if the Common Stock is publicly traded, the last sales price (or, if
no last sales price is reported, the average of the high bid and low asked
prices) for a share of Common Stock on that day as reported by the principal
exchange on which the Common Stock is listed, or, if the Common Stock is
publicly traded but not listed on an exchange, as reported by The Nasdaq Stock
Market, or, if such prices or quotations are not reported by The Nasdaq Stock
Market, as reported by any other available source of prices or quotations
selected by the Committee.
8.2 For purposes of the Plan, the term "Business Day" means a
day on which prices or quotations for the Common Stock are reported by a
national securities exchange, The Nasdaq Stock Market, or any other available
source of prices or
3
<PAGE>
quotations selected by the Committee, whichever is applicable pursuant to the
preceding paragraph.
8.3 If the Market Price of the Common Stock must be determined
for purposes of the Plan at a time when the Common Stock is not publicly traded,
then the term "Market Price" shall mean the fair market value of the Common
Stock as determined by the Committee, after taking into consideration all the
factors it deems appropriate, including, without limitation, recent sale and
offer prices of the Common Stock in private transactions negotiated at arm's
length.
9. LIMITATIONS ON SHARE PURCHASES
9.1 Notwithstanding Section 3, an employee will not be an
Eligible Employee for purposes of the Plan if the employee owns stock possessing
5% or more of the total combined voting power or value of all classes of stock
of the Company. For purposes of this 5% limitation, an employee shall be treated
as owning any stock the ownership of which is attributed to him or her under the
rules of Section 424(d) of the Code, as well as any stock that, in the absence
of this paragraph, the employee could purchase under the Plan with his or her
payroll deductions held pursuant to Section 6 but not yet applied to the
purchase of shares of Common Stock under the Plan.
9.2 During any calendar year, the maximum value of the Common
Stock that may be purchased by a Participant under the Plan and all such plans
of Company, any Subsidiary of the Company, and any parent corporation (as
defined in Section 424(e) of the Code) is $25,000, said value to be determined
on the basis of the Market Price of the Common Stock on the first Business Day
of each Offering Period that ends in the calendar year.
9.3 The limitations in Section 9.1 and Section 9.2 are intended
to and shall be interpreted in such a manner as will comply with
Section 423(b)(3) and Section 423(b)(8) of the Code, respectively.
10. CHANGES IN PAYROLL DEDUCTIONS. The rate of payroll deductions for
an Offering Period may not be increased or decreased by a Participant during the
Offering Period. However, the Participant may change the rate of payroll
deduction for a subsequent Offering Period. In addition, a Participant may
withdraw in full from the Plan in the manner described in Section 11.
11. WITHDRAWAL FROM THE PLAN
11.1 A Participant may elect to withdraw from the Plan,
effective for the Offering Period in progress, by delivering to the Committee
written notice thereof prior to the end of the Offering Period.
11.2 If a Participant ceases for any reason (including death,
disability or voluntary or involuntary termination of employment) to be an
employee of the Company
4
<PAGE>
or one of its subsidiaries, the Participant will be deemed to have elected to
withdraw from the Plan for the Offering Period in progress when the
Participant's employment ceases.
11.3 If a Participant's payroll deductions are interrupted by
any legal process, the Participant will be deemed to have elected to withdraw
from the Plan for the Offering Period in progress when the interruption occurs.
11.4 If a Participant elects or is deemed to have elected to
withdraw for an Offering Period in progress, all of the Participant's payroll
deductions for that Offering Period will be promptly returned to the
Participant.
11.5 A Participant may elect to withdraw from the Plan,
effective for an Offering Period that has not yet commenced, by delivering to
the Committee written notice thereof prior to the first day of the Offering
Period.
11.6 Following withdrawal from the Plan, in order to participate
in the Plan for any subsequent Offering Period, the Participant must again elect
to participate in the manner described in Section 6.1.
12. ISSUANCE OF COMMON STOCK
12.1 Certificates for the shares of Common Stock purchased by
Participants will be delivered by the Company's transfer agent as soon as
practicable after each Offering Period. In lieu of issuing certificates for such
shares directly to Participants, the Company shall be entitled to issue such
shares to a bank, broker-dealer or similar custodian (the "Custodian") that has
agreed to hold such shares for the accounts of the respective Participants. Fees
and expenses of the Custodian shall be paid by the Company or allocated among
the respective Participants in such manner as the Committee determines.
12.2 A Participant may direct, in accordance with such
procedures as the Committee may adopt, that shares purchased by the Participant
shall be issued (or, if such shares are issued to the Custodian, that the
account for such shares be held) in the names of the Participant and one other
person designated by the Participant, as joint tenants with right of
survivorship, tenants in common, or community property, to the extent and in the
manner permitted by applicable law.
12.3 A Participant may at any time, in the manner described in
Section 17, undertake a disposition (as that term is defined in Section 424(c)
of the Code), whether by sale, exchange, gift or other transfer of legal title,
of any or all of the shares held for the Participant by the Custodian. In the
absence of such a disposition of the shares, the shares shall continue to be
held by the Custodian until the holding period set forth in Section 423(a) of
the Code has been satisfied. If a Participant so requests, shares for which such
holding period has been satisfied will be transferred to
5
<PAGE>
another brokerage account specified by the Participant, or a stock certificate
for such shares will be issued and delivered to the Participant or his or her
designee.
13. CHANGES IN CAPITALIZATION
13.1 Upon the happening of any of the following described
events, a Participant's right to purchase shares of Common Stock under the Plan
shall be adjusted as hereinafter provided:
(a) If the shares of Common Stock are subdivided or
combined into a greater or smaller number of shares of Common Stock or if, upon
a recapitalization, split-up or other reorganization of the Company, the shares
of Common Stock are exchanged for other securities of the Company, the rights of
each Participant shall be modified so that the Participant is entitled to
purchase, in lieu of the shares of Common Stock that the Participant would
otherwise have been entitled to purchase for the Offering Period in progress at
the time of such subdivision, combination or exchange (the "Offering Period
Shares"), such number of shares of Common Stock or such number and type of other
securities as the Participant would have received if such Offering Period Shares
had been issued and outstanding at the time of such subdivision, combination or
exchange (unless in the case of an exchange the Committee determines that the
nature of the exchange is such that it is not feasible or advisable that the
rights of Participants be so modified, in which event the exchange shall be
deemed a Terminating Event under Section 14); and
(b) If the Company issues any of its shares as a stock
dividend upon or with respect to the Common Stock, each Participant who
purchases shares of Common Stock under the Plan at the end of the Offering
Period in progress on the record date for the stock dividend shall be entitled
to receive the shares so purchased (the "Purchased Shares") and shall also be
entitled to receive at no additional cost, but only if the Purchase Price for
the Purchased Shares was determined with reference to the Market Price of the
Common Stock on the first Business Day of the Offering Period, the number of
shares of the class of stock issued as a stock dividend, and the amount of cash
in lieu of fractional shares, that the Participant would have received if he or
she had been the holder of the Purchased Shares on the record date for the stock
dividend.
13.2 Upon the happening of an event specified in clause (a) or
(b) above, the class and aggregate number of shares available under the Plan, as
set forth in Section 4, shall be appropriately adjusted to reflect the event.
Notwithstanding the foregoing, such adjustments shall be made only to the extent
that the Committee, based on advice of counsel for the Company, determines that
such adjustments will not constitute a change requiring shareholder approval
under Section 423(b)(2) of the Code.
6
<PAGE>
14. TERMINATING EVENTS
14.1 Upon (a) the dissolution or liquidation of the Company, (b)
a merger or other reorganization of the Company with one or more corporations as
a result of which the Company will not be a surviving corporation, (c) the sale
of all or substantially all of the assets of the Company or a material division
of the Company, (d) a sale or other transfer, pursuant to a tender offer or
otherwise, of more than fifty percent (50%) of the then outstanding shares of
Common Stock of the Company, (e) an acquisition by the Company resulting in an
extraordinary expansion of the Company's business or the addition of a material
new line of business, or (f) any exchange that is subject to this Section 14 in
accordance with the provisions of Section 13 (any of such events is herein
referred to as a "Terminating Event"), the Committee may but shall not be
required to --
(a) make provision for the continuation of the
Participants' rights under the Plan on such terms and conditions as the
Committee determines to be appropriate and equitable, including where
applicable, but not limited to, an arrangement for the substitution on an
equitable basis, for each share of Common Stock that could otherwise be
purchased at the end of the Offering Period in progress at the time of the
Terminating Event, of any consideration payable with respect to each then
outstanding share of Common Stock in connection with the Terminating Event; or
(b) terminate all rights of Participants under the Plan
for such Offering Period and --
(i) return to the Participants all of their
payroll deductions for such Offering Period; and
(ii) for each share of Common Stock, if any, that
otherwise could have been purchased under the Plan by a Participant at the end
of such Offering Period (determined by assuming that payroll deductions at the
rate elected by the Participant were continued to the end of the Payroll Period
and used to purchase shares based on the Market Price of the Common Stock on the
first Business Day of the Offering Period) and with respect to which (A) the
Purchase Price at which such share could be purchased (determined with reference
only to the Market Price of the Common Stock on the first Business Day of the
Offering Period) is exceeded by (B) the Market Price on the date of the
Terminating Event of a share of Common Stock, as determined by the Committee,
pay to the Participant an amount equal to such excess.
14.2 The Committee shall make all determinations necessary or
advisable in connection with Terminating Events, and its determinations shall,
in the absent of fraud or patent mistake, be conclusive and binding on all
persons with any interest in the Plan.
7
<PAGE>
15. NO TRANSFER OR ASSIGNMENT OF EMPLOYEE'S RIGHTS. An Eligible
Employee's rights under the Plan are the Eligible Employee's alone and may not
be voluntarily or involuntarily transferred or assigned to, or availed of by,
any other person other than by will or the laws of descent and distribution. An
Eligible Employee's rights under the Plan are exercisable during his or her
lifetime by the Eligible Employee alone.
16. TERMINATION AND AMENDMENT OF PLAN
16.1 The Plan shall terminate on January 31, 2004. The Plan may
be terminated at any earlier time by the Board, but, except as provided in
Section 14, such termination shall not affect the rights of Participants under
the Plan for the Offering Period in progress at the time of termination. The
Plan will also terminate in any case when all or substantially all of the
unissued shares of Common Stock reserved for the purposes of the Plan have been
purchased. If at any time shares of Common Stock reserved for the purpose of the
Plan remain available for purchase but not in sufficient number to satisfy all
then unfilled purchase requirements, the available shares shall be apportioned
among Participants in proportion to the respective amounts of their accumulated
payroll deductions, and the Plan shall terminate. Upon such termination or any
other termination of the Plan, all payroll deductions not used to purchase
shares of Common Stock will be refunded to the Participants entitled thereto.
16.2 The Committee or the Board may from time to time adopt
amendments to the Plan; PROVIDED, HOWEVER, that, without the approval of the
stockholders of the Company, no amendment may increase the number of shares that
may be issued under the Plan or make any other change for which shareholder
approval is required by Section 423 of the Code or the regulations thereunder.
17. DISPOSITION OF SHARES. Subject to compliance with any applicable
federal and state securities and other laws and any policy of the Company in
effect from time to time with respect to trading in its shares, a Participant
may effect a disposition (as that term is defined in Section 424(c) of the Code)
of Common Stock purchased under the Plan at any time the Participant chooses;
PROVIDED, HOWEVER, each Participant agrees, by purchasing shares of Common Stock
under the Plan, that (a) the Company shall be entitled to withhold, from any
other amounts that may be payable to the Participant by the Company at or around
the time of such disposition, such federal, state, local and foreign income,
employment and other taxes as the Company may be required to withhold under
applicable law; and (b) in lieu of such withholding, the Participant will, upon
request of the Company, promptly remit such taxes to the Company. EACH EMPLOYEE
PURCHASING SHARES OF COMMON STOCK UNDER THE PLAN ASSUMES THE RISK OF ANY MARKET
FLUCTUATIONS IN THE PRICE THEREOF.
18. NO SHAREHOLDER RIGHTS; INFORMATION TO PARTICIPANTS. A Participant
shall not have any rights as a shareholder of the Company (other than the right
potentially to receive stock dividends under Section 13) on account of shares of
8
<PAGE>
Common Stock that may be purchased under the Plan prior to the time such shares
are actually purchased by and issued to the Participant. Notwithstanding the
foregoing, the Company shall deliver to each Participant under the Plan who does
not otherwise receive such materials (a) a copy of the Company's annual
financial statements (which shall be delivered annually as promptly as practical
following each fiscal year of the Company and review or audit of such statements
by the Company's auditors), together with management's discussion and analysis
of financial condition and results of operations for the fiscal year, and (b) a
copy of all reports, proxy statements and other communications distributed to
the Company's security holders generally.
19. USE OF PROCEEDS. The proceeds received by the Company from the
sale of shares of Common Stock under the Plan will be used for general corporate
purposes.
20. GOVERNMENTAL REGULATIONS. The Company's obligation to sell and
deliver shares of the Common Stock under the Plan is subject to the approval of
any governmental authority required in connection with the authorization,
issuance or sale of such shares, including the Securities and Exchange
Commission, the securities administrators of the states in which Participants
reside, and the Internal Revenue Service.
21. MISCELLANEOUS PROVISIONS
21.1 Nothing contained in the Plan shall obligate the Company or
any of its subsidiaries to employ a Participant for any period, nor shall the
Plan interfere in any way with the right of the Company or any of its
subsidiaries to reduce a Participant's compensation.
21.2 The provisions of the Plan shall be binding upon each
Participant and, subject to the provisions of Section 15, the heirs, successors
and assigns of each Participant.
21.3 Where the context so requires, references in the Plan to
the singular shall include the plural, and vice versa, and references to a
particular gender shall include either or both additional genders.
21.4 The Plan shall be construed, administered and enforced in
accordance with the laws of the United States, to the extent applicable thereto,
as well as the laws of the State of California.
22. APPROVAL OF STOCKHOLDERS. The Plan shall be effective
January 1, 1999, subject to approval by the stockholders of the Company in a
manner that complies with Section 423(b)(2) of the Code. If such approval does
not occur prior to December 31, 1999, the Plan shall be void and of no effect.
9
<PAGE>
EXHIBIT 10.4
3/18/97
NETOBJECTS LICENSE AGREEMENT
AGREEMENT NUMBER: L97063
This NetObjects License Agreement ("Agreement") dated as of March 18, 1997
between NetObjects Corporation ("NETOBJECTS") with an address at 2055 Woodside
Road Redwood City, California 94061 and International Business Machines
Corporation ("IBM") with an address at Route 100 Somers, NewYork 10589. Under
this Agreement, IBM licenses computer software from NETOBJECTS.
By signing below, the parties agree to the terms of this Agreement. The
complete Agreement between the parties regarding this transaction consists of
this Agreement and the following Exhibits:
I. Description of Licensed Work, EXHIBIT A.
II. Pricing, EXHIBIT B.
III. Source Escrow Agreement, EXHIBIT C.
IV. Product Improvements, EXHIBIT D.
V. NETOBJECTS Trademarks and Product Names, EXHIBIT E.
VII. Maintenance and Support, EXHIBIT F.
The following are related agreements between the parties:
VII. Agreement for Exchange of Confidential Information between IBM and
NETOBJECTS dated April 29, 1996. ("AECI")
This Agreement replaces all prior oral or written communications between the
parties relating to the subject matter. Once signed, any reproduction of this
Agreement made by reliable means (for example, photocopy or facsimile) is
considered an original, unless prohibited by local law.
ACCEPTED AND AGREED TO: ACCEPTED AND AGREED TO:
INTERNATIONAL BUSINESS NETOBJECTS CORPORATION
MACHINES CORPORATION
By: /s/ R.G. Anderegg By: /s/ Samir Arora
--------------------------- ------------------------------
Authorized Signature Authorized Signature
Name: R.G. Anderegg Name: Samir Arora
--------------------------- ----------------------------
Title: Asst. General Counsel Title: CEO
--------------------------- ---------------------------
Date: 3/18/97 Date: 3/18/97
--------------------------- ---------------------------------
1
<PAGE>
1.0 DEFINITIONS
Capitalized terms in the Agreement and its exhibits and other attachments have
the following meanings.
1.1 BUNDLE is a work that integrates, embeds, bundles or incorporates the
Licensed Work into or with other software or hardware.
1.2 CODE is computer programming code, including both Object Code and Source
Code.
a. OBJECT CODE is Code substantially in binary form, and includes header
files of the type necessary for use or interoperation with other computer
programs. It is directly executable by a computer after processing or linking,
but without compilation or assembly. Object Code is all Code other than Source
Code.
b. SOURCE CODE is Code in a form which when printed out or displayed is
readable and understandable by a programmer of ordinary skills. It includes
related source code level system documentation, comments and procedural code.
Source Code does not include Object Code.
1.3 DELIVERABLE is any item that NETOBJECTS provides under this Agreement.
1.4 DERIVATIVE WORK is a work that is based on an underlying work and that
would be a copyright infringement if prepared without the authorization of the
copyright owner(s) of the underlying work. Derivative Works are subject to the
ownership rights and licenses of a party or of others in the underlying work.
1.5 DISTRIBUTORS are those authorized or licensed by IBM, IBM Subsidiaries or
IBM Distributors to license or distribute Products.
1.6 EFFECTIVE TIME shall have the meaning set forth in the Agreement and Plan
of Merger dated as of March 18, 1997, among IBM, Net Acquisition Corporation,
NETOBJECTS and the Holders (as set forth therein).
1.7 ENHANCEMENTS are changes or additions, including versions and releases,
other than Error Corrections, to the Licensed Work during the term of this
Agreement.
1.8 ERROR CORRECTIONS are revisions that correct errors and deficiencies
(collectively referred to as "Errors") in the Licensed Work created during the
term of this Agreement.
1.9 EXTERNALS are (1) any pictorial, graphic, and audiovisual works (such as
icons, screens, sounds, toolbars, palettes and characters) generated by
execution of Code, and (2) any programming interfaces, languages or protocols
implemented in Code to enable interaction with other computer programs or the
end user, including application program interfaces ("API"). Externals do not
include the Code that implements them.
2
<PAGE>
1.10 LICENSED WORK is (1) any material described in Exhibit A, Description of
Licensed Work, or that is delivered to IBM as the Licensed Work, including (but
not limited to) Code, associated documentation, and Externals, and (2) Error
Corrections and Enhancements.
1.11 MORAL RIGHTS are personal rights associated with authorship of a work
under applicable law. They include the rights to approve modifications and to
require authorship identification.
1.12 PRODUCT is an offering to customers or other users, whether or not branded
by IBM or its Subsidiaries, that includes the Licensed Work or a Derivative Work
of the Licensed Work.
1.13 SUBSIDIARY is an entity during the time that more than 50% of its voting
stock is owned or controlled, directly or indirectly, by another entity. If
there is no voting stock, a Subsidiary is an entity during the time that more
than 50% of its decision-making power is controlled, directly or indirectly, by
another entity.
1.14 TOOLS include devices, compilers, programming, documentation, media and
other items used by NETOBJECTS for the development, maintenance or
implementation of a Licensed Work or other Deliverable that are not commercially
available.
2.0 RESPONSIBILITIES OF NETOBJECTS
2.1 NETOBJECTS will provide the following to IBM on a reasonable schedule:
a. The Licensed Works in Object Code form, in accordance with Exhibit A; and
b. Early access to NETOBJECTS product plans and new product testing
and releases; and
c. Maintenance and support for the Licensed Work, as described in Exhibit F.
2.2 NETOBJECTS will:
a. implement a process designed to help prevent contamination by harmful
code. NETOBJECTS will provide IBM notice if NETOBJECTS suspects
contamination;
b. have written agreements with NETOBJECTS' personnel and third parties to
perform obligations and to grant or assign rights to IBM as required by
this Agreement, including all necessary consents of individuals or
entities required for the use of names, likenesses, voices, and the like
in the Licensed Work and agreements not to assert any Moral Rights from
any person or entity having Moral Rights in the Licensed Work. NETOBJECTS
agrees not to assert any Moral Rights in the Licensed Work. NETOBJECTS
further agrees to maintain records to verify authorship of the Licensed
Work for four (4) years after the termination or expiration of this
Agreement. On request, NETOBJECTS will deliver or otherwise make
available the foregoing records and information to IBM;
3
<PAGE>
c. not assign or transfer this Agreement or NETOBJECTS' rights under it, or
delegate or subcontract NETOBJECTS' obligations, without IBM's prior
written consent. Any attempt to do so is void.
d. work closely with IBM to develop a list of priorities, establish schedules
for implementation, and implement the product improvements described in
Exhibit D.
e. deposit Source Code of the Licensed Works and Tools (including all updates
and upgrades thereto) with an escrow agent selected jointly by IBM and
NETOBJECTS under the Escrow Agreement attached hereto as Exhibit C. IBM
will pay the fees of the escrow agent.
3.0 MUTUAL RESPONSIBILITIES
3.1 Each party agrees to:
a. not provide any information to the media, or issue any press releases or
other publicity, regarding this Agreement or the parties' relationship
under it, without the other party's prior written consent; and
b. not disclose to a third party the terms of this Agreement, without the
other party's prior written consent. Each party may, however, make such
disclosures (i) to its accountants, lawyers or other professional advisors
provided that any such advisor is under a confidentiality obligation and
(ii) as required by law provided the party obtains any confidentiality
treatment for it which is available. Also, NETOBJECTS may disclose the
terms of this Agreement to its shareholders of record as of the Effective
Time, subject to appropriate confidentiality obligations.
3.2 NETOBJECTS and IBM agree to participate in technical and business meetings
and discussions of plans for the Licensed Work, and to implement the product
improvement plan described in Exhibit D. Such meetings shall occur quarterly or
more often if requested by either party and will be held at a location to be
determined alternately by IBM and NETOBJECTS. Both parties shall bear their own
expenses associated with participating in these meetings. At each such meeting,
NETOBJECTS agrees to disclose its current road map or schedule for revisions,
enhancements, or other upgrades to the Licensed Work.
4.0 GRANT OF LICENSES
4.1 NETOBJECTS hereby grants IBM a nonexclusive, worldwide, irrevocable
license during the Term (as defined in Section 8.1) to use, execute, reproduce
and have reproduced, and to prepare and have prepared Bundles, in Object Code
form, and to display, perform, transfer, distribute, transmit and sublicense the
Licensed Works and Bundles, in Object Code form, in any medium or distribution
technology whatsoever, whether now known or hereafter invented. The rights and
licenses granted by NETOBJECTS to IBM under this Section 4.1 include the right
of IBM to authorize or sublicense its Subsidiaries, subcontractors, and
Distributors to exercise any of the rights granted to IBM hereunder.
4
<PAGE>
4.2 NETOBJECTS hereby grants IBM a nonexclusive, worldwide, irrevocable
license during the Term to use, execute, reproduce and have reproduced, and to
prepare and have prepared Derivative Works of the Licensed Works and Tools in
Source Code form for use in connection with the purposes and subject to the
Release Events set forth in Exhibit C, the Escrow Agreement. The rights and
licenses granted by NETOBJECTS to IBM under this Section 4.2 include the right
of IBM to authorize or sublicense its Subsidiaries and subcontractors to
exercise any of the rights granted to IBM hereunder.
4.3 NETOBJECTS hereby grants IBM a nonexclusive, worldwide, perpetual,
irrevocable, paid-up license during the Term to use the names and trademarks
used by NETOBJECTS to identify, or otherwise in connection with, the Licensed
Work, and Derivative Works, thereof, including but not limited to the names and
trademarks set forth in Exhibit E. NETOBJECTS grants IBM the right to
authorize or sublicense its Subsidiaries, Distributors and subcontractors to
exercise any of the rights granted to IBM hereunder. IBM will treat NETOBJECTS'
trademarks in the same manner as IBM treats its own trademarks. However, if
NETOBJECTS provides IBM with reasonable trademark guidelines, IBM will, for a
Product, comply with the version of such trademark guidelines that is current at
the time IBM announces the general availability of such Product.
4.4 Any goodwill attaching to IBM's trademarks, service marks, or trade names
belongs to IBM, and this Agreement does not grant NETOBJECTS any right to use
them. IBM may state that NETOBJECTS has provided the Licensed Work. Any
goodwill attaching to NETOBJECTS' trademarks, service marks, or trade names
belongs to NETOBJECTS and, subject to Section 4.3, this Agreement does not grant
IBM, its Subsidiaries, or Distributors, any right to use them.
5.0 PAYMENT
5.1 IBM will pay NETOBJECTS royalties as set forth in Exhibit B hereto.
5.2 IBM has no royalty obligation for:
a. copies of the Licensed Work or its Derivative Works made by IBM, its
Subsidiaries or subcontractors which are used for:
(1) IBM's and IBM Subsidiaries' (including third parties under contract)
Product development, maintenance or support activities;
(2) Product marketing demonstrations, customer testing or trial periods
(including early support, pre-release, or other similar programs),
Product training or education; or
(3) Product backup and archival purposes;
b. a copy of the Product used by a licensed end user at home or on travel
when such Product is stored on both the user's primary machine as well as
another machine, provided that the end user is not authorized to actively
use the Product on both machines at the same time;
c. the Licensed Work (or a functionally equivalent work) that becomes
available generally from NETOBJECTS to third parties without a payment
obligation;
5
<PAGE>
d. documentation provided with, contained in, or derived from the Licensed
Work;
e. Error Corrections or Enhancements;
f. warranty replacement copies of the Product;
g. Externals; or
h. use of an insignificant portion of the Licensed Work measured on the basis
of functionality.
5.3 IBM, IBM Subsidiaries, and Distributors may, without incurring any royalty
obligation, copy the Product and distribute it on a CD-ROM, or other media or
distribution technology now known or hereafter invented in a manner where the
customer, under a limited license, is allowed a limited preview, trial or
demonstration use of the Product. IBM will have no royalty obligation to
NETOBJECTS unless IBM, IBM Subsidiaries, or Distributors license the Product to
such customer for full unrestricted, productive use.
5.4 IBM may request a lower royalty for the Licensed Work when a licensing
transaction requires a substantial discount. If NETOBJECTS agrees, both parties
will sign a letter specifying the licensing transaction and its lower royalty
payment.
5.5 If NETOBJECTS offers another party lower rates, prices or royalties for
any Licensed Work, portions thereof, or Derivative Work thereof, than are
available to IBM under this Agreement, NETOBJECTS will promptly, in writing,
offer the same to IBM including other associated price related terms, if any.
If IBM accepts NETOBJECTS' offer, IBM will also accept the associated price
related licensing terms which may include volume commitments. NETOBJECTS will
maintain relevant records to evidence that IBM has been offered the most
favored customer pricing terms in accordance with the preceding paragraph.
These records will be made available by NETOBJECTS to an independent auditor
chosen and compensated by IBM. Such independent auditor shall sign a
confidentiality agreement.
5.6 For Hard Bundles and Soft Bundles, royalties are paid against revenue
recorded by IBM in a royalty payment quarter. In the U.S., a royalty payment
quarter ends on the last business day of the calendar quarter. Outside of the
U.S., a royalty payment quarter is defined according to IBM's then current
administrative practices. Upon request, IBM shall advise NETOBJECTS of all
applicable royalty payment quarters, and any changes thereto. Payment will be
made by the last day of the second calendar month following the royalty payment
quarter. Royalties will be paid less adjustments and refunds due to IBM in
accordance with this Agreement. IBM will provide a statement summarizing the
royalty calculation with each payment. All payments will be made in U.S.
dollars. Payments based on foreign revenue will be converted to U.S. dollars on
a monthly basis at the rate of exchange published by Reuters Financial Service
on approximately the same day each month.
5.7 IBM or any of its Subsidiaries will order a N.O. Package by issuing a
purchase order to NETOBJECTS against which NETOBJECTS will invoice IBM. IBM
will pay such invoices net thirty (30) days from the date of IBM's receipt of an
acceptable invoice. NETOBJECTS will deliver the N.O. Package (as defined in
Section 3.4 of Exhibit B) to IBM in accordance with the
6
<PAGE>
terms of the purchase order. The terms of this Agreement will govern in the
case of a conflict between this Agreement and any terms of a purchase order.
5.8 Each party will be solely responsible for any taxes incurred by the party,
directly or indirectly, associated with its performance of this Agreement.
5.9 The payments defined in this Section 5.0 and in Exhibit B hereto fully
compensate NETOBJECTS for its performance under, and for the rights and licenses
granted in, this Agreement.
5.10 IBM will maintain relevant records to support payments made to NETOBJECTS.
The records will be retained and made available for two (2) years from the date
of the related payment. If NETOBJECTS requests, IBM will make these records
available to an independent certified public accountant chosen and compensated
(other than on a contingency basis) by NETOBJECTS. NETOBJECTS' request will be
in writing, will provide IBM ninety (90) days prior notice, and will not occur
more than once each year. The audit will be conducted during normal business
hours at IBM's office and in such a manner as not to interfere with IBM's normal
business activities. The auditor will sign a confidentiality agreement and will
only disclose to NETOBJECTS any amounts overpaid or underpaid for the period
examined. In the event royalties are found by any audit to have been underpaid
by greater than ten percent (10%), IBM shall reimburse NETOBJECTS for the
reasonable charges of the auditor.
6.0 REPRESENTATIONS AND WARRANTIES
6.1 NETOBJECTS makes the following ongoing representations and warranties:
a. NETOBJECTS has full legal rights to grant the rights and licenses granted
herein;
b. NETOBJECTS is not under, and will not assume, any contractual obligation
that prevents NETOBJECTS from performing its obligations or conflicts with
the rights and licenses granted in this Agreement;
c. there are no liens, encumbrances or claims pending or threatened against
NETOBJECTS, or to NETOBJECTS' knowledge, anyone else, that relate to the
rights and licenses granted in this Agreement;
d. neither the Licensed Work nor the Tools contain libelous matters nor do
they directly or indirectly infringe any publicity, privacy or
intellectual property rights of a third party including, to NETOBJECTS'
knowledge, any patents or patent applications;
e. the Licensed Work will conform to NETOBJECTS' user documentation, and any
sales and marketing materials provided by NETOBJECTS;
f. the fully commented Source Code that NETOBJECTS provides corresponds to
the current release or version of the Licensed Work provided by NETOBJECTS
under this Agreement;
NETOBJECTS will immediately provide IBM written notice of any change that may
affect its representations and warranties.
7
<PAGE>
6.2 Except as provided above, anything either party provides to the other
related to this Agreement is "AS IS", without warranty of any kind.
7.0 INDEMNIFICATION AND LIABILITY
7.1 NETOBJECTS shall indemnify, defend and hold harmless IBM, IBM
Subsidiaries, and its and their end-users ("Indemnified Parties") and pay any
costs, expenses, attorneys' fees and damages finally awarded against or
settlements paid by any Indemnified Party, against any claim by a third party
that any Licensed Work infringes a copyright, trademark or patent or
misappropriates any trade secret of a third party or otherwise violates any
third party's intellectual property rights.
7.2 If any current release or unaltered version of any Product or component
part of a Licensed Work becomes the subject of any infringement action,
NETOBJECTS may at its option procure for IBM the right to continue promoting and
selling such Licensed Work, or replace or modify the Licensed Work.
7.3 NETOBJECTS will not be liable for any claim of infringement based on (i)
the use of Licensed Work in combination with any other products if such
infringement would have been avoided by the use of such Licensed Work without
such other products (unless such combination is consistent with the Licensed
Work intended use pursuant to the accompanying documentation or has been
specified by NETOBJECTS); (ii) IBM's use or distribution of such Licensed Work
without an Enhancement or Error Correction provided by NETOBJECTS that, if used,
would have made such Licensed Work non-infringing; or (iii) any use or
distribution of a Licensed Work in a manner not permitted under the licenses
granted under this Agreement or not in accordance with the documentation
provided by NETOBJECTS for such Licensed Work.
7.4 NETOBJECTS shall not be obligated to indemnify IBM under this Section
unless (i) IBM promptly notifies NETOBJECTS in writing of any claim to which the
indemnity obligations might apply; (ii) NETOBJECTS has the sole control of the
defense and/or settlement of such claim at NETOBJECTS' sole cost and expense;
and (iii) IBM reasonably cooperates with NETOBJECTS in defending or settling any
such claim. Subject to the foregoing conditions, IBM shall be entitled to
participate in the defense of any such claim at its expense.
7.5 IBM shall indemnify, defend and hold harmless NETOBJECTS and pay any
costs, expenses, attorneys' fees and damages finally awarded against or
settlements authorized by IBM, against any claim by a third party that the
modifications to the Source Code of the Licensed Work created by IBM in
accordance with Section 4.2 hereof ("IBM Derivative") infringe a copyright,
trademark or patent or misappropriate any trade secret of a third party or
otherwise violate any third party's intellectual property rights.
7.6 IBM will not be liable for any claim of infringement based on (i) the use
of the IBM Derivative in combination with any other products if such
infringement would have been avoided
8
<PAGE>
by the use of such IBM Derivative without such other products (unless such
combination is consistent with the IBM Derivative's intended use pursuant to the
accompanying documentation or has been specified by IBM); (ii) NETOBJECTS', its
distributors or its or their end-users use or distribution of such IBM
Derivative without an enhancement or error correction provided by IBM that, if
used, would have made such IBM Derivative non-infringing; (iii) any use or
distribution of an IBM Derivative in a manner not permitted under the licenses
granted to the IBM Derivative or not in accordance with the documentation
provided by IBM for such IBM Derivative; or (iv) any claim based upon any
intellectual property provided by NETOBJECTS to IBM pursuant to this Agreement.
7.7 IBM shall not be obligated to indemnify NETOBJECTS under this Section
unless (i) NETOBJECTS promptly notifies IBM in writing of any claim to which the
indemnity obligations might apply; (ii) IBM has the sole control of the defense
and/or settlement of such claim at IBM's sole cost and expense; and (iii)
NETOBJECTS reasonably cooperates with IBM in defending or settling any such
claim. Subject to the foregoing conditions, NETOBJECTS shall be entitled to
participate in the defense of any such claim at its expense.
7.8 Each party is responsible for any actual loss or damage only up to the
amount of charges paid or due (if any) for the Licensed Work or IBM Derivative
that is the subject of a claim. Neither party shall be liable to the other for
any economic consequential damages (including lost profits or savings),
indirect, or incidental damages, even if advised of their possibility. This
Section describes the parties' sole remedies and exclusive liabilities for any
breach of this Agreement. Notwithstanding the foregoing, none of the above
limitations apply to claims arising under Sections 7.1, 7.2, 7.3 7.4, 7.5, 7.6
or 7.7.
8.0 TERM AND TERMINATION
8.1 The term of this Agreement ("Term") shall begin on the Effective Time and
will continue, for ten (10) years unless terminated by IBM on thirty (30) days'
notice to NETOBJECTS. Notwithstanding the foregoing, IBM may not terminate the
Agreement after the Effective Time until the end of the Initial Period (as
defined in Section 5.0 of Exhibit B). NETOBJECTS shall have no right to
terminate this Agreement during the Term. Notwithstanding the foregoing,
nothing in this Agreement shall limit NETOBJECTS' rights at law or in equity to
seek an injunction against IBM in the event that IBM materially breaches this
Agreement.
8.2 Any provisions of this Agreement that by their nature extend beyond
termination or expiration will survive in accordance with their terms. These
include License, Representations and Warranties, Indemnification and Liability,
and General. These terms will apply to either party's successors and assigns.
Termination or expiration of this Agreement does not affect any previously
granted end user licenses granted by IBM, its Subsidiaries or Distributors
pursuant to this Agreement.
9.0 COORDINATORS
9
<PAGE>
9.1 Any notice required or permitted to be made by either party to this
Agreement must be in writing. Notices are effective when received by the
appropriate coordinator as demonstrated by reliable written confirmation (for
example, certified mail receipt).
9.2 The Contract Coordinators responsible to receive all notices, act as
liaison and administer this Agreement are:
FOR IBM: FOR NETOBJECTS:
Name: Carolyn Kelly Name: David Kleinberg
Title: Contract Administrator Title: Exec. V.P.
Address: Route 100 Address: 2055 Woodside Rd.
Somers, NY Redwood City, CA
10589 94061
Phone: 914-766-1732 Phone: 415-482-1940
Fax: 914-766-1789 Fax: 415-482-3240
9.3 The Technical Coordinators responsible to accept all Deliverables,
coordinate all exchanges of confidential information, and administer and
coordinate the technical matters associated with this Agreement are:
FOR IBM: FOR NETOBJECTS:
Name: David Rosenbaum Name: Bernard Desarnauts
Title: Senior Product Manager Title: Dir. of Program
Lotus Notes Management
Address: One Charles Park Address: 2055 Woodside Rd
Cambridge, MA Redwood City, CA
02154 94061
Phone: 617-693-5676 Phone:
Fax: 617-693-2426 Fax:
9.4 A party will provide written notice to the other when its coordinators
change.
10.0 GENERAL
10.1 INDEPENDENT CONTRACTOR. Each party is an independent contractor. Neither
party is, nor will claim to be, a legal representative, partner, franchisee,
agent or employee of the other except as specifically stated in the Subsection
entitled "Copyright" below. Neither party will assume or create obligations for
the other. Each party is responsible for the direction and compensation of its
employees.
10.2 FREEDOM OF ACTION. Each party may have similar agreements with others.
Each party may design, develop, manufacture, acquire or market competitive
products and services, and
10
<PAGE>
conduct its business in whatever way it chooses. IBM is not obligated to
announce or market any products or services. IBM does not guarantee the success
of its marketing efforts. IBM will independently establish prices for its
products and services.
10.3 RELIANCE. Neither party relies on any promises, inducements or
representations made by the other or expectations of more business dealings,
except as expressly provided in this Agreement. This Agreement accurately
states the parties' agreement.
10.4 COMPLIANCE WITH APPLICABLE LAWS. Each party will comply with all
applicable laws and regulations at its expense including, to the extent
applicable, Executive Order 11246 on Equal Employment Opportunity, as amended,
the Occupational Safety and Health Act of 1970, as amended, and the Americans
With Disabilities Act of 1990, as amended. This also includes all applicable
government export and import laws and regulations.
10.5 CONFIDENTIAL INFORMATION. The parties agree that information exchanged
under this Agreement that is considered by either party to be confidential
information will be subject to the terms of the AECI referenced on the first
page of this Agreement. The parties hereby agree to extend the terms of the
AECI such that it is coextensive with the Term, and the term of the AECI will
expire ten (10) years from the Effective Date hereof. In addition, NETOBJECTS
will not provide IBM with any information which may be considered confidential
information of any third party unless provided under the AECI. The obligations
set forth in the AECI with regard to confidential information will not limit or
preclude the exercise of the licenses granted in this Agreement or the
assignment or reassignment of either party's personnel.
10.6 COPYRIGHT. Any publication by IBM of the Licensed Work or a Derivative
Work thereof may contain an appropriate copyright notice, as determined by IBM.
IBM will not remove any copyright notice of NETOBJECTS contained within the
Licensed Works.
NETOBJECTS will enforce and maintain its copyright protection in the
Licensed Work. IBM is not responsible for enforcing and maintaining such
copyright protection. However, NETOBJECTS authorizes IBM to act as NETOBJECTS'
agent in the copyright registration of the Licensed Work. At IBM's request,
NETOBJECTS agrees to provide IBM reasonable assistance in registering any
Product.
10.7 ORDER OF PRECEDENCE. If there is a conflict among the terms of this base
License Agreement and its Exhibits, the terms of this base License Agreement
prevail over those of the Exhibits, unless the parties expressly indicate in
the Attachments that particular terms within the Exhibits prevail.
Inconsistent terms in IBM's purchase orders and NETOBJECTS' invoices or
acknowledgments, if any, are void.
10.8 HEADINGS. The headings of this Agreement are for reference only. They
will not affect the meaning or interpretation of this Agreement.
10.9 COUNTERPARTS. This Agreement may be signed in one or more counterparts,
each of which will be considered an original, but all of which together form one
and the same instrument.
11
<PAGE>
10.10 AMENDMENT AND WAIVERS. For a change to this Agreement to be valid, both
parties must sign it. No approval, consent or waiver will be enforceable unless
signed by the granting party. Failure to insist on strict performance or to
exercise a right when entitled does not prevent a party from doing so later for
that breach or a future one.
10.11 ACTIONS. Neither party will bring a legal action relating to the subject
matter of this Agreement, against the other more than two (2) years after the
cause of action arose, except in the case of indemnification for infringement,
in which case this period runs for two (2) years after the award or settlement
was made.
10.12 GOVERNING LAW. The laws of the State of N.Y. (irrespective of its choice
of law principles) shall govern the enforceability and validity of this
Agreement, the construction of its terms, and the interpretation of enforcement
of the rights and duties of the parties hereto.
10.13 DISPUTE RESOLUTION. In the event of any problem, claim, or dispute
arising from, out of, or based upon this Agreement, the aggrieved party shall
promptly notify the other party of the existence of the problem, claim, or
dispute, and such other party shall promptly undertake all reasonable efforts,
including but not limited to, submitting such problem, claim or dispute for
resolution to a Manager (as defined below) of each Technical Coordinator. For
the purposes of this Section "Manager" shall mean someone in the management
chain of the applicable Technical Coordinator who is senior to such Technical
Coordinator in terms of responsibility, and who is familiar with the
administration of this Agreement. The Managers shall make a reasonable effort
to resolve the dispute as quickly as possible. In the event that the Managers
cannot resolve such dispute within sixty (60) business days the matter may at
the option of either party, be submitted for resolution to each party's
executive with overall responsibility for the subject matter in dispute. If the
matter is not resolved at the executive level, the parties may then pursue any
remedies available to them in law or equity. Each party agrees to waive its
rights to a jury trial in any litigation resulting from a dispute between the
parties concerning this Agreement.
12
<PAGE>
EXHIBIT A
Description of Licensed Work
Object Code Licensed Work:
NETOBJECTS Fusion and all future updates and versions, and all replacements.
Delivery of Licensed Works:
Within fifteen (15) days after the Effective Date, NETOBJECTS will deliver to
IBM two (2) golden master disks in CD ROM format containing the Licensed Work in
English and all foreign language translations then commercially available, as
well as all on-line documentation and end-user documentation and other related
documentation and installation procedures in camera-ready copy form ("Licensed
Work Materials"). For all Enhancements, NETOBJECTS will deliver the Licensed
Work Materials to IBM as soon as possible, but no later than five (5) days prior
to the general availability of such Enhancements.
National Language Version:
Within seventy-five (75) days after the Effective Time, NETOBJECTS will present
to IBM a detailed outline of its planned development and delivery of
internationalized Licensed Works and translations of the Licensed Works into
languages other than U.S. English ("NLVs"), identifying, at a minimum, any
differences between the U.S.English version of the Licensed Works and any NLV,
the supported languages and the delivery dates of the NLVs ("NLV Plan").
Within fifteen (15) days after its receipt of the NLV Plan, IBM will either
accept the NLV Plan or offer an alternate NLV Plan.
Products:
IBM shall be entitled to add any or all future NETOBJECTS products to the
Agreement (which shall be licensed to IBM at reasonable mutually agreed upon
royalties, and in accordance with the most favored customer pricing terms
contained in Section 5.5 of the Agreement).
<PAGE>
EXHIBIT B
ROYALTY RATE FOR LICENSED WORKS
1.0 The amounts which shall be payable to NETOBJECTS as royalties shall be
determined by application of the royalty rates for the Licensed Work as set
forth in this Exhibit B ("Royalty Rates").
2.0 All pricing terms and conditions contained in this Exhibit B are subject
to the most favored customer terms and conditions set forth in Section 5.5 of
the Agreement. In addition, in the event that any pre-existing customers of
NETOBJECTS have not converted their current pricing and discount schedules for
the Licensed Works to be the same as those reflected in this Exhibit B as of
June 30, 1998, NETOBJECTS will as of June 30, 1998 offer to IBM such prices to
the extent that they are more favorable to IBM than the prices reflected in this
Exhibit B, and upon acceptance by IBM such prices shall become effective.
3.0 Royalty Rate Tables
3.1 The "List Price" shall be NETOBJECTS' current list price for the Licensed
Work at the time that the sale of the Licensed Work is made.
3.2 The Royalty Rate table in this Section 3.2 is for offerings that contain
the Licensed Work and add significant function or value to the Licensed Work by
integrating, embedding, bundling or incorporating the Licensed Work into or with
other software or hardware, where the reasonable commercial value of such other
software or hardware is at least equivalent to the reasonable commercial value
of the Licensed Work it is Bundled with ("Hard Bundle"):
<TABLE>
<CAPTION>
Licensed Work Cumulative Number Royalty Rate
of Units % Discount
Per Year off List Price
---------------------------------------------------------
<S> <C> <C>
"NetObjects
FUSION" 1 - 2,500 [***]%
2,501 - 5,000 [***]%
5,001 - 10,000 [***]%
10,001 - 25,000 [***]%
25,001 - 50,000 [***]%
50,001 - 100,000 [***]%
100,001 and above [***]%
</TABLE>
*** Portions of this exhibit have been omitted and filed separately with the
Commission pursuant to a request for confidential treatment under Rule
406.
<PAGE>
3.3 The Royalty Rate in this Section 3.3 is for offerings that contain the
Licensed Work and add other function or value to the Licensed Work, where the
added function or value is not sufficient to qualify as a Hard Bundle, but whose
reasonable commercial value is a) at least equivalent to 40% of the reasonable
commercial value of the Licensed Work it is Bundled with, or b) any other Bundle
which is approved by NETOBJECTS (collectively referred to as a "Soft Bundle"):
<TABLE>
<CAPTION>
Licensed Work Cumulative Number Royalty Rate
of Units Discount %
Per Year off List Price
---------------------------------------------------------
<S> <C> <C>
"NetObjects
FUSION" 1 - 2,500 [***]%
2,501 - 5,000 [***]%
5,001 - 10,000 [***]%
10,001 - 25,000 [***]%
25,001 - 50,000 [***]%
50,001 - 100,000 [***]%
100,001 and above [***]%
</TABLE>
The following Bundles which include the Licensed Work are approved by NETOBJECTS
as Soft Bundles: a) Licensed Work Bundled with "Kona" components; and b)
Licensed Work Bundled with Java components.
3.4 The Royalty Rate for Licensed Works that are not Bundled with any hardware
or software, and for which NetObjects provides level 3 support ("N.O. Package")
is a [***]% discount off NETOBJECTS' List Price for the Licensed Work..
NETOBJECTS shall include with each N.O. Package sufficient information to inform
end users of IBM's contact information for Level 1 and Level 2 support, and IBM
shall provide Level 1 and Level 2 support for the N.O. Package.
3.5
A) The Royalty Rates shall apply to the units sold by IBM or any of its
Subsidiaries in any calendar year during the Term, except as set forth in
Section 5.0, below. Volumes shall be aggregated between Hard Bundle, Soft
Bundle and N.O. Package units sold during a calendar year for the purpose of
determining the applicable Royalty Rates (i.e., in a calendar year, the first
2500 units sold by IBM and its Subsidiaries shall result in the following
Royalty Rates: for each such unit which is a Hard Bundle the Royalty Rate shall
be [***]% off of List Price; and each such unit which is a Soft Bundle shall be
[***]% off of List Price; and each such unit which is a N.O. Package shall be
[***]% off of List Price, all subject to Section 2.0, above. The next 2500
units sold by IBM or any of its Subsidiaries during that calendar year shall
result in the following Royalty Rates: Hard Bundle units = [***]% off of List
Price; Soft Bundle units = [***]% off of List Price; and N.O. Package units =
[***]% off of List Price. Subsequent units sold in that calendar
*** Portions of this exhibit have been omitted and filed separately with the
Commission pursuant to a request for confidential treatment under Rule
406.
<PAGE>
year would follow the same process through the Royalty Rate tables set forth in
this Exhibit B.)
B)
i. Notwithstanding Section 3.5 A), above, IBM shall have the option, for any
calendar year(s) during the Term to make a Volume Commitment. The "Volume
Commitment" for any calendar year during the Term shall be made in writing and
provided to NETOBJECTS, and shall consist of the number of Hard Bundle, Soft
Bundle and N.O. Package units that IBM and its Subsidiaries commit to sell
during that calendar year, if any. Where IBM elects to make a Volume Commitment
for a calendar year, each unit sold by IBM or any of its Subsidiaries during
such calendar year, up to the Volume Commitment number, shall be subject to the
Royalty Rate applicable to the Volume Commitment amount. Units sold during such
calendar year which are in excess of the Volume Commitment shall be subject to
the Royalty Rate applicable to the actual unit volumes, as described in Section
3.5 A), above (i.e., in a calendar year where IBM makes a Volume Commitment of
55,000 units of Hard Bundle and 30,000 units of Soft Bundle, each of the first
55,000 units which is a Hard Bundle shall have a Royalty Rate of [***]% off of
List Price; each of the first 30,000 units which are Soft Bundle units shall
have a Royalty Rate of [***]% off of List Price; and each of the units which
are N.O. Package units shall have a Royalty Rate of [***]% off of List Price,
all subject to Section 2.0, above). Notwithstanding the foregoing, all of the
cumulative unit volumes sold by IBM and its Subsidiaries in the calendar year
shall be aggregated for the purpose of determining whether IBM achieved its
Volume Commitment for the calendar year (i.e., using the foregoing example,
IBM's Volume commitment of 55,000 Hard Bundle units and 30,000 Soft Bundle units
would be added (55,000 + 30,000 = 85,000) and the actual number of cumulative
units sold would be added). The difference between the cumulative number of
units sold (adding Hard Bundle units, Soft Bundle units and N.O. Package units
sold) and the cumulative Volume Commitment would be calculated. A "Shortfall"
would exist if the number of total number of cumulative units committed exceeds
the total number of cumulative units sold.
ii. At the conclusion of any calendar year in which IBM has made a Volume
Commitment, IBM shall be obligated to pay the applicable Royalty Rate for units
that make up the Shortfall, if any, between the units in the Volume Commitment
and the actual number of units sold by IBM and its Subsidiaries in such
calendar year. Any units which are paid for but unsold as a result of a
Shortfall may be sold by IBM in subsequent periods but would not be counted
against unit volumes in subsequent years. Notwithstanding the foregoing, IBM
shall not be obligated to pay for any Shortfall pursuant to this Agreement in
the event that: a)Netobjects has as of the Effective Date or does in the future
enter into any agreement pursuant to which a party receives the right to
distribute, resell or sublicense any of the Licensed Works, and b) where such
party receives a royalty rate more advantageous than the Royalty Rate applicable
to the first unit sold by IBM hereunder without the requirement to make a firm
volume commitment (where a firm volume commitment means that the party must
commit to sell a certain volume of the Licensed Works and where such party must
pay the applicable royalty based upon NETOBJECTS standard Royalty Rate schedules
for the Licensed Work for such units which make up the committed volume, whether
or not such party actually sells such committed volume of units), or c) where
such party, having made a volume commitment is not required to actually pay
NETOBJECTS the applicable royalty for units which make up the shortfall between
their volume
<PAGE>
commitment and the actual number of units sold. Netobjects shall promptly
inform IBM if either b) or c), above, occur.
3.6 The determination of whether a package which includes a Licensed Work is a
Hard Bundle or a Soft Bundle shall be made by IBM, exercising reasonable
judgment. If NETOBJECTS does not agree with IBM's determination, the parties
shall follow the dispute resolution process outlined in Section 10.13 of this
Agreement.
The following examples are provided for the purpose of illustrating the
distinction between a Hard Bundle, a Soft Bundle and a N.O. Package:
a. EXAMPLES OF HARD BUNDLE:
- -An offering which contains the Licensed Work packaged with Domino. Lotus
manufactures the product and provides level 1 and 2 support;
- -An offering which contains the Licensed Work preloaded on a Network Station.
IBM manufactures the hardware, and preloads the Licensed Work, and an IBM OEM
reseller provides level 1 and 2 support;
- -An offering which contains the Licensed Work packaged with the IBM Internet
Connection Secure Server. IBM distributes the product through an electronic
sales channel through an IBM web site, and IBM provides level 1 and 2 support.
b. EXAMPLES OF A SOFT BUNDLE:
- -An offering which contains the Licensed Work packaged with Applet Author and a
browser. Lotus manufactures the product and provides level 1 and 2 support;
c. N.O. PACKAGE:
- - A N.O. Package is a copy of a Licensed Work which was manufactured by
NetObjects, and which is not Bundled with other hardware or software.
4.0 The Royalty Rate for new versions or upgrades will be determined by
applying the same discount percentage as set forth above to the published list
price for the new products or upgrades.
5.0 Notwithstanding anything in this Exhibit B to the contrary, the period
commencing with the Effective Time, and ending 12/31/98 (the "Initial Period")
shall be considered to be the first year of the Agreement for the purpose the
Royalty Rate tables set forth in this Exhibit B, and IBM's Volume Commitment for
the Initial Period shall be [***] units of Hard Bundle and [***] units of Soft
Bundle.
DURING THE INITIAL PERIOD, IBM SHALL MAKE THE FOLLOWING NONREFUNDABLE PAYMENTS
WHICH SHALL BE CREDITABLE AGAINST ROYALTIES AND PAYMENTS WHICH BECOME DUE
PURSUANT TO THIS AGREEMENT. In the event that royalties which become due during
the Initial Period are not sufficient to fully exhaust the foregoing credit, the
remainder of the credit shall be applied against royalties and payments which
become due in subsequent years:
*** Portions of this exhibit have been omitted and filed separately with the
Commission pursuant to a request for confidential treatment under Rule
406.
<PAGE>
April 1, 1997 (or the Effective Time, whichever is later) - $1,493,257.00
July 1, 1997 - $1,493,257.00
October 1, 1997 -$1,493,257.00
January 1, 1998-$1,493,257.00
April 1, 1998 -$1,493,257.00
July 1, 1998 -$1,493,257.00
October 1, 1998 -$1,493,258.00
In the event that IBM and its Subsidiaries sell greater than 100,000 cumulative
units of Hard Bundle, Soft Bundle and N.O. Package units during the Initial
Period, IBM shall receive a credit of $250,000. which shall be applied in
calendar year 1999 against royalties due pursuant to this Agreement, to be
applied in 4 (four) equal quarterly amounts of $62,500.
<PAGE>
EXHIBIT C
SOURCE CODE CUSTODY AGREEMENT
BASE AGREEMENT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This Source Code Custody Agreement ("SCCA") between NetObjects Corporation
("NetObjects"), __________________ ("Custodian") and International Business
Machines Corporation ("IBM") describes the rights and obligations of the parties
for the Escrowed Works that NetObjects delivers to Custodian. This SCCA
supplements the NetObjects License Agreement number L97063 ("NLA").
The SCCA consists of this Base Agreement and its DESCRIPTIONS OF ESCROWED WORK
("DEWs"). Each DEW together with this SCCA forms a separate agreement. The
SCCA is our complete agreement and replaces all prior oral or written
communications between us regarding the Custodian's holding of the Escrowed
Works in escrow.
By signing below for our companies, the parties agree to the terms of this Base
Agreement. Once signed, 1) all parties agree any reproduction of the SCCA made
by reliable means (for example, photocopy or facsimile) is an original unless
prohibited by local law and 2) all Escrowed Works are subject to it.
<TABLE>
<S> <C>
Agreed To: Agreed To:
NetObjects Corporation ("NetObjects") International Business Machines
Corporation Corporation ("IBM")
-----------------------------
By: By:
----------------------------------- -------------------------------
AUTHORIZED SIGNATURE AUTHORIZED SIGNATURE
Name: Name:
----------------------------------- -------------------------------
Date: Date:
----------------------------------- -------------------------------
NetObjects Address: IBM Office Address: Carolyn Kelly
Route 100
----------------------------------- Somers, NY 10589
----------------------------------- Mail Drop 1139
-----------------------------------
IBM Source Code Custody Agreement #:
----------
Agreed To:
- ---------------------------------------- License Agreement #: L97063
CUSTODIAN NAME
By: IBM/NetObjects Confidentiality Agrmt. dated 4/29/96
------------------------------------- Areement Agrm A
AUTHORIZED SIGNATURE
Name:
-----------------------------------
Date:
-----------------------------------
Custodian Address:
-----------------------------------
-----------------------------------
-----------------------------------
</TABLE>
<PAGE>
IBM SOURCE CODE CUSTODY AGREEMENT
BASE AGREEMENT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PART 1 DEFINITIONS
Capitalized terms in the SCCA have the following meanings. A DEW may define
additional terms. However, those terms apply only to that DEW.
PART 1.1 CODE is computer programming code including both Object Code and
Source Code.
a) OBJECT CODE is the computer programming code substantially in binary
form, and includes header files of the type necessary for use or interoperation
with other computer programs. It is directly executable by a computer after
processing or linking, but without compilation or assembly. Object Code is all
Code other than Source Code.
b) SOURCE CODE is the computer programming code that may be displayed in a
form readable and understandable by a programmer of ordinary skill. It includes
related source code level system documentation, comments and procedural code.
Source Code does not include Object Code.
PART 1.2 DELIVERABLE is any item that NetObjects provides under the NLA.
PART 1.3 DERIVATIVE WORK is a work that is based on an underlying work and
that would be a copyright infringement if prepared without the authorization of
the copyright owners of the underlying work. Derivative Works are subject to
the ownership rights and licenses of a party or of others in the underlying
work.
PART 1.4 ENHANCEMENTS are changes or additions including versions and
releases, other than Error Corrections, to the Licensed Work during the term of
the NLA.
PART 1.5 ERROR CORRECTIONS are revisions that correct errors and deficiencies
(collectively referred to as "Errors") in the Licensed Work created during the
term of the NLA.
PART 1.6 ESCROWED WORKS are the materials, including all updates to them, that
are described in a Description for Escrowed Work ("DEW"). They include:
a) the Source Code for the Licensed Work in machine-readable form,
including all updates to it, and the Source Code level system documentation in
hard and soft copy form;
b) a list of all Source Code modules of the Licensed Work;
c) a directory listing for each machine-readable medium;
d) commentary required to understand and use the Source Code;
e) a list of all Tools, both those that are commercially available, and
those that are not provided by IBM and are not commercially available; and
f) the Tools that NetObjects is required to escrow under the License
Agreement.
PART 1.7 EXTERNALS are (1) any pictorial, graphic, and audiovisual works (such
as icons, screens, sounds, toolbars, palettes and characters) generated by
execution of Code, and (2) any programming interfaces, languages or protocols
implemented in Code to enable interaction with other computer programs or the
end user, including application program interfaces ("API"). Externals do not
include the Code that implements them.
PART 1.8 LICENSE AGREEMENT is the NetObjects License Agreement between IBM and
NetObjects Corporation number L97063, dated March 18, 1997 ("NLA").
PART 1.9 LICENSED WORK is (1) any material described in EXHIBIT A "Description
of Licensed Work", or that is delivered to IBM as the Licensed Work, including
(but not limited to) Code, associated documentation, and Externals, and (2)
Error Corrections and Enhancements.
PART 1.10 PRODUCT is an offering to customers or other users, whether or not
branded by IBM or its Subsidiaries, that includes the Licensed work or a
Derivative Work of the Licensed Work.
<PAGE>
PART 1.11 RELEASE EVENTS are the following occurrences when IBM may demand that
Custodian deliver the Escrowed Works to IBM:
a) NetObjects has voluntarily filed a petition under any insolvency or
bankruptcy statute in the United States;
b) NetObjects has voluntarily sought reorganization under any insolvency
or bankruptcy statute;
c) NetObjects has acknowledged in writing its insolvency or inability to
pay its debts as they become due;
d) A petition has been filed or a proceeding commenced against NetObjects
by a third party under any bankruptcy or insolvency statute, which has resulted
in an order for relief or which has not been discharged by NetObjects within one
hundred eighty (180) days of such filing or commencement of proceedings,
whichever comes first;
e) NetObjects has materially failed to comply with its obligations to
provide maintenance and support under the NLA; or
f) NetObjects has materially failed to comply with its obligation to
improve and enhance its FUSION product as set forth in EXHIBIT D of the NLA.
PART 1.12 TOOLS include devices, compilers, programming documentation, media or
other items required for the development, maintenance or implementation of a
Licensed Work or other Deliverable that are not commercially available.
PART 2 ESCROWED WORKS DEPOSITS
PART 2.1 NetObjects will:
a) deposit with Custodian two (2) copies of Escrowed Works for each
Licensed Work described in a DEW. NetObjects will identify each item in the
deposit by labeling it;
b) deliver the Escrowed Works in good condition in sealed containers;
c) provide Custodian with a nonconfidential notice of all items contained
in each container; and
d) replace all lost or damaged Escrowed Works within three (3) days of
notice from Custodian.
PART 2.2 Custodian will:
a) accept each Escrowed Works deposit in trust for IBM and send IBM a
notice confirming receipt within three (3) business days;
b) retain both the original Escrowed Works and any updates to them.
Together, these will comprise Escrowed Works;
c) match all items on the nonconfidential notice to the labels on Escrowed
Works;
d) take all reasonable steps to protect and store Escrowed Works in
appropriate containers and atmospheric conditions, segregated from other
materials;
e) promptly provide notice to IBM and NetObjects in the event of lost or
damaged Escrowed Works; and
f) store a copy of this SCCA and the nonconfidential notice of items with
Escrowed Works.
PART 2.3 If IBM provides Custodian notice to return to NetObjects or to
destroy certain portions of Escrowed Works, Custodian will do so and provide
notice to NetObjects and IBM when complete.
PART 3 ESCROWED WORKS VERIFICATION
PART 3.1 Unless IBM and Custodian agree in writing, Custodian is not
responsible for technical verification that Escrowed Works are complete,
accurate and current. IBM may, at its expense, hire a party qualified to do
this verification. NetObjects will reimburse IBM's expenses if the Escrowed
Works do not comply with the requirements of this SCCA.
PART 3.2 Verification includes generating Object Code from Source Code for
each Licensed Work. The verifier will witness the transfer of the verified
Source Code to deposited media. NetObjects will supervise the verification
which will be conducted at NetObjects' facilities unless otherwise agreed by IBM
and NetObjects.
PART 3.3 One technical IBM employee may witness verification. To the extent
possible, verification will be done in a way that does not expose the Source
Code to the IBM employee. If this is not possible, the IBM employee will treat
the Source Code according to Section 4.3d of this SCCA.
PART 4 RELEASE OF ESCROWED WORKS
PART 4.1 In the event that IBM seeks to obtain any release of the Escrowed
Works, IBM will give NetObjects and Custodian a written notice describing the
Release Event which it believes has occurred. The notice will state that IBM
intends to demand release of the Escrowed Works, and will describe the Release
Event in detail. If the Release Event is any one or
<PAGE>
more of the Release Events described in Sections 1.11 (a) - (d) of this SCCA,
Custodian will deliver the Escrowed Works to IBM five (5) business days after
receipt of the above described notice, unless NetObjects has given Custodian and
IBM written notice that the Release Event does not exist or has been cured and
provides substantiating documentation thereof, together with IBM's written
concurrence that the Release Event did not occur or was cured. If this occurs,
Custodian will not release the Escrowed Works to IBM. If the Release Event
described in IBM's notice is described in Section 1.11(e), Custodian will
deliver the Escrowed Works to IBM five (5) business days after receipt of the
notice from IBM, unless NetObjects has provided written notice to Custodian and
IBM that it contests that the Release Event has occurred. In such case, IBM and
NetObjects will not use the dispute resolution process provisions of Section
10.13 of the NLA, but will attempt to resolve the matter within the next five
(5) business days. If they are unable to resolve the disagreement within that
time, Custodian will release the Escrowed Works to IBM and IBM shall solely be
entitled to use such works for the purpose of performing NetObjects' maintenance
and support obligations. Thereafter, NetObjects will be entitled to invoke the
dispute resolution provisions of Section 10.13 of the NLA, and if NetObjects
prevails in such proceeding, IBM will return the Escrowed Works to Custodian
when a court of competent jurisdiction finally determines that a Release Event
under Section 1.11(e) has not occurred. If the Release Event described in IBM's
notice is described in Section 1.11 (f), Custodian will deliver the Escrowed
Materials to IBM five (5) business days after receipt of the notice from IBM
unless NetObjects has provided written notice to Custodian and IBM that it
contests that the Release Event has occurred. In such case, NetObjects will be
entitled to invoke the dispute resolution provisions of Section 10.13 of the
NLA. If the dispute is not resolved within sixty (60) days, Custodian will
deliver the Escrowed Works to IBM for its use solely for the purpose of
performing NetObjects' product improvement and enhancement obligations as
provided in the NLA. If NetObjects prevails in such proceeding, IBM will return
the Escrowed Works to Custodian when a court of competent jurisdiction finally
determines that a Release Event under Section 1.11 (f) has not occurred. In no
event will Custodian be required to independently verify that a Release Event
has occurred.
PART 4.2 If IBM determines that it does not have a complete set of Escrowed
Works, IBM may request them from NetObjects. NetObjects will provide the
materials required within three (3) days of IBM's request.
PART 4.3 IBM will:
a) use Escrowed Works solely as permitted under the NLA;
b) own any Derivative Works of Escrowed Works that it creates, subject to
NetObjects' rights in the underlying work;
c) pay NetObjects the royalties specified in the NLA to maintain its
rights to the Licensed Works; and
d) treat Escrowed Works according to the AECI.
In addition to the confidentiality obligations set forth in the
AECI, IBM agrees that for a period of ten (10) years from the date of receipt of
Licensed Work Source Code:
i) to only make available the Licensed Work Source Code to IBM's
employees, its agents, subsidiaries and subcontractors on a "need to know
basis"; and
ii) to only use Source Code in accordance with the terms of the NLA, and
not to disclose it to others except as set forth herein. IBM shall protect the
Source Code using at least the same degree of care as it uses to protect its own
Source Code of a like nature, and in no event less than reasonable care.
PART 4.4 The occurrence of Release Events does not relieve NetObjects of its
obligations under the SCCA.
PART 4.5 When NetObjects signs the DEW, NetObjects grants IBM, its
subsidiaries, successors and assigns all right and title to the media containing
the Escrowed Works.
PART 4.6 If Escrowed Works are released to IBM, IBM retains its rights to the
Licensed Works as provided in the NLA. This includes IBM's right to use
NetObjects' trademarks and product names.
PART 5 NETOBJECTS' WARRANTY
NetObjects represents and warrants that:
a) it has all rights necessary for IBM to maintain, support and modify the
Licensed Works;
b) it has the authority to deliver the Escrowed Works to the Custodian;
c) Escrowed Works are sufficient to allow a programmer of ordinary skill
to understand, maintain and prepare Derivative Works using the Source Code
version of the Licensed Work; and
d) Escrowed Works are complete, accurate and current.
PART 6 LIABILITY AND INDEMNIFICATION
<PAGE>
PART 6.1 Custodian will take all reasonable precautions to prevent disclosure
of Escrowed Works to unauthorized third parties.
PART 6.2 Custodian is liable only for willful misconduct, gross negligence and
fraud in performing its duties under this SCCA. Custodian is not liable if
NetObjects or IBM fails to comply with any provision of the NLA or this SCCA.
Custodian is not liable for acting on any notice that it in good faith believes
to be genuine and legitimate.
PART 6.3 If a third party makes a claim against Custodian:
a) NetObjects will indemnify Custodian for claims based on NetObjects'
failure to comply with this SCCA; and
b) IBM will indemnify Custodian for claims based on IBM's failure to
comply with this SCCA.
These indemnities do not apply where it is found that Custodian acted with
willful misconduct, gross negligence or fraud.
PART 6.4 The indemnifying party will pay any settlement amount that it
authorizes and all costs, damages and attorney's fees that a court finally
awards if Custodian:
a) promptly provides the indemnifying party notice of the claim; and
b) allows the indemnifying party to control and cooperates with it in the
defense of the claim and settlement negotiations.
Custodian may participate in the proceedings at its option and expense.
PART 7 TERM AND TERMINATION
PART 7.1 This SCCA begins when all parties sign it and continues until
terminated. The terms of the SCCA apply to a Licensed Work when the parties sign
the associated DEW. IBM may, at its option, extend the term of any DEW for
additional years as described in PAYMENT. IBM may, for its convenience,
terminate this SCCA or any DEW on notice to Custodian and NetObjects. However,
this SCCA will continue for any DEWs already in place until they are terminated
or expire.
PART 7.2 Custodian will destroy any remaining Escrowed Works thirty (30) days
after the expiration or termination of the DEW unless IBM provides notice
otherwise.
PART 7.3 Any terms of this SCCA that by their nature extend beyond its
termination (for example, RELEASE OF ESCROWED WORKS, LICENSE TO ESCROWED WORKS
and LIABILITY AND INDEMNIFICATION) will survive. These terms will apply to the
parties' respective successors and assigns.
PART 7.4 If Custodian cannot continue its responsibilities, Custodian may
resign by giving IBM and Netobjects ninety (90) days' notice. IBM will select a
successor custodian to assume Custodian's responsibilities.
PART 8 COORDINATORS
PART 8.1 SCCA Coordinators responsible to administer all matters associated
with this SCCA and its exhibits are:
<TABLE>
<S> <C>
FOR: IBM FOR: NETOBJECTS CORPORATION
----------------------------- ----------------------------
CORPORATIONETOBJECTS
Name: Carolyn Kelly Name: Michelle Smith
----------------------------- ----------------------------
Title/Dept: Procurement Professional Title/Dept: Engineering Products Manager
----------------------------- ----------------------------
Address: Rte. 100 Address: 2055 Woodside Road
----------------------------- ----------------------------
Somers, NY 10589 Redwood City, CA 94061
----------------------------- ----------------------------
MD# 1139
----------------------------- ----------------------------
Phone: 914-766-1732 Phone:
----------------------------- ----------------------------
Facsimile: 914-766-1789 Facsimile:
----------------------------- ----------------------------
FOR:
-------------------------------
Name:
-------------------------------
Title/Dept:
-------------------------------
Address:
-------------------------------
-------------------------------
-------------------------------
<PAGE>
Phone:
-------------------------------
Facsimile:
-------------------------------
</TABLE>
PART 1.1 Each of us will assign an Escrowed Work Coordinator in the DEW.
These coordinators are responsible to administer matters associated with the
DEW. The SCCA Coordinator and the Escrowed Work Coordinator may be the same
person. A party will provide notice to the others when coordinators change.
PART 2 PAYMENT
PART 2.1 IBM will pay Custodian within thirty (30) days after receipt of an
acceptable invoice for services under active DEWs. All payments will be made in
U.S. dollars. The EXHIBIT: FEE SCHEDULE identifies the specified period of
Custodian's services and the firm fees for that period. Custodian may propose a
revised fee schedule to the IBM SCCA Coordinator no later than ninety (90) days
before the end of the specified period. The IBM SCCA Coordinator will notify
Custodian if it accepts or rejects the proposed fee schedule. If rejected, the
IBM and Custodian SCCA Coordinators will negotiate a new fee schedule for the
next period. The IBM and Custodian SCCA Coordinators add the new fee schedule
to the SCCA by initialing and dating it. If IBM and Custodian cannot agree to a
new fee schedule for an active DEW, it will expire at the end of its term and
IBM may select a successor custodian. Custodian will provide all assistance
required to move the Escrowed Works to the successor custodian.
PART 2.2 Custodian will invoice IBM for:
a) all services to be performed under a DEW for one (1) year; and
b) renewal of a DEW sixty (60) days before it expires. IBM may renew the
DEW for an additional year by paying the renewal fees. If Custodian does not
receive the renewal fees within thirty (30) days, it will notify the IBM
Escrowed Work Coordinator. If IBM does not pay the fees by the expiration date
of the DEW, that DEW will expire.
In addition to information required by the DEW, the invoice will identify
this SCCA, the DEW and the services invoiced plus their associated fees.
Custodian will submit all invoices as identified in the DEW.
PART 3 GENERAL
PART 3.1 Each party will comply with all applicable laws and regulations at
its expense. This includes all export and import laws and regulations.
PART 3.2 Except as provided in the SCCA, none of the parties may assign or
transfer the SCCA or its rights under it or delegate or subcontract its
obligations without the prior written approval of the other parties. Any
attempt to do so is void.
PART 3.3 If any provision of the SCCA is unenforceable at law, the rest of the
provisions remain in effect. The headings in the SCCA are for reference only.
They will not affect the meaning or interpretation of the SCCA.
PART 3.4 No party will bring a legal action against another party more than
two (2) years after the cause of action arose. All parties will act in good
faith to resolve disputes. All parties waive their rights to a jury trial in
any resulting litigation. Litigation will only be commenced in the State of New
York.
PART 3.5 All notices must be in writing. Except as provided in the SCCA, for
a change to the SCCA to be valid, IBM and NetObjects must sign it. Other than
changes to the Release Events, Custodian must also sign changes that affect its
rights or obligations under the SCCA. IBM will provide Custodian with copies of
all changes that Custodian is not required to sign.
No approval, consent or waiver will be enforceable unless signed by the
granting party. Failure to insist on strict performance or to exercise a
right when entitled does not prevent a party from doing so later for that
breach or a future one.
PART 3.6 The substantive laws of the State of New York govern the SCCA.
<PAGE>
EXHIBIT 10.4.1
April 30, 1997
Mr. Morris Taradalsky
Executive Vice President
NetObjects, Inc.
2055 Woodside Road
Redwood, CA 94061
Dear Mr. Taradalsky:
This is Amendment Number 1 to NetObjects License Agreement L97063, between
International Business Machines Corporation and NetObjects, Inc. dated March 18,
1997 (the "Agreement").
Capitalized terms used herein shall have the meanings set forth in the
Agreement.
The following section shall be added to Exhibit B to the Agreement, entitled
"Royalty Rate for Licensed Works":
Section 3.7 "Internal Copies" shall mean copies of the Licensed Works which
are provided to Employees of IBM and IBM Subsidiaries, as well as agents and
contractors working for and on behalf of IBM or an IBM Subsidiary, where such
copies are intended for use by such persons to perform productive work on behalf
of IBM or any IBM subsidiary, and not for resale.
In lieu of the Royalty Rates set forth in 3.1 through 3.5 of this Exhibit B, IBM
shall pay NetObjects a one time fee of [***] dollars ($[***].00), within 45 days
after this Amendment is executed by both parties, for all Internal Copies of
NetObjects Fusion 2.0, and all upgrades thereto which are made available by
NetObjects during the first 12 months after the date of this Amendment. After
the initial 12 month period, at IBM's option, and subject to the most favored
customer pricing terms contained in Section 5.5 of the Agreement, IBM may elect:
1) to pay for individual Internal Copy upgrades at the per copy Royalty Rates
set forth in Sections 3.1 though 3.5 of this Agreement, or 2) to pay a single
Upgrade Fee for all copies calculated as follows:
Internal Copies Upgrade Fee = $[***]. multiplied by (retail price of upgrade
divided by $[***].00)
*** Portions of this exhibit has been omitted and filed separately with the
Commission pursuant to a request for confidential treatment under Rule 406.
<PAGE>
Mr. Taradalsky
Page 2
April 30, 1997
Upon receipt of the payment required in this Section 3.7, three thousand (3,000)
units shall be counted towards IBM's fulfillment of its Volume Commitment for
the Initial Period. However, IBM shall be entitled to an unlimited number of
Internal Copies of NetObjects Fusion 2.0.
All other terms and conditions of the Agreement shall remain in full force and
effect.
IN WITNESS WHEREOF, the parties have caused this Amendment Number 1 to be
executed below by their duly authorized representatives.
ACCEPTED AND AGREED TO:
INTERNATIONAL BUSINESS NETOBJECTS, INC.
MACHINES CORPORATION
BY: /s/ R.G. Anderegg BY: /s/ Morris Taradalsky
NAME: R.G. Anderegg NAME: Morris Taradalsky
TITLE: Assistant General Counsel TITLE: EVP Business Development
Date: 4/30/97 Date: 4/30/97
<PAGE>
EXHIBIT 10.4.2
SECOND AMENDMENT TO NETOBJECTS LICENSE AGREEMENT
Agreement Number: L97063
This is the Second Amendment to the NetObjects License Agreement Number
L97063, dated March 18, 1997 (the "Agreement"). This Second Amendment to the
Agreement between NetObjects Corporation with an address at 2055 Woodside Road,
Redwood City, California 94062 ("NetObjects") and International Business
Machines Corporation with an address at Route 100, Somers, New York 10589
("IBM") ("Amendment") is effective as of October 7, 1997. All capitalized terms
and definitions used in this Amendment and not otherwise defined herein shall
have the meanings given them in the Agreement.
In consideration of the covenants and agreements contained herein, the
parties hereto agree to amend the Agreement as follows:
I. THE FOLLOWING IS HEREBY ADDED TO SECTION 5.0 OF EXHIBIT B OF THE AGREEMENT
AS THE THIRD PARAGRAPH OF SECTION 5.0 (FOLLOWING THE PAYMENT SCHEDULE):
In the even NetObjects requests that IBM make a payment in advance of the date
such payment becomes due under the above schedule, IBM shall make this payment
and NetObjects agrees to pay IBM interest on the advance payment at rate of 7.5%
per annum. This interest will start accruing on the date that such advance
payment is made by IBM, and will continue to accrue until the date that such
payment becomes due under the foregoing payment schedule.
The interest expense incurred by NetObjects is payable to IBM quarterly, on the
last day of each calendar quarter. The sum of all payments made under the above
schedule and the advance payments made by IBM to NetObjects hereunder will not
exceed the total amount due NetObjects under the foregoing schedule (i.e.
$10,452,800.00).
For example, if IBM pays NetObjects a $3,000,000.00 advance on August 1, 1997,
7.5% interest will accrue on the full $3,000,000.00 from August 1 until
September 30, 1997. On September 30, the 7.5% interest payment that has accrued
from August 1 until September 30 will be paid to IBM. On October 1, 1997, a
payment of $1,493,257.00 becomes due under the foregoing schedule. From October
1, 1997 until January 1, 1998, 7.5% interest will continue to accrue on the
remaining $1,506,743.00 ($3,000,000.00 - $1,493,257.00). On December 31, the
7.5% interest payment that has accrued from September 30 until December 31 will
be paid to IBM, and on January 1, 1998 a payment of $1,493,257.00 becomes due
under the foregoing schedule, so that interest will continue to accrue only on
the $13,486 that remains outstanding.
<PAGE>
The Agreement remains in full force and effect in accordance with its terms,
except as such terms have been expressly modified by this Amendment. In the
event of any conflict between the terms of this Amendment and the terms of the
Agreement, this Amendment shall control. This Amendment constitutes the entire
understanding of the parties with respect to its subject matter and merges and
supersedes all prior communications, understandings and agreements between the
parties concerning the subject matter hereof. This Agreement shall not be
modified except by a writing subsequently dated, signed on behalf of each party
by a duly authorized representative.
This Amendment is executed by the authorized representatives of the parties as
of this date first set forth above.
NETOBJECTS, INC.
By: /s/ Michael J. Shannahan
Name: Michael J. Shannahan
Title: Chief Financial Officer
Date: Sept. 30, 1997
-------------------------------
INTERNATIONAL BUSINESS MACHINES CORPORATION
By:
Name:
Title:
Date:
-------------------------------
<PAGE>
EXHIBIT 10.4.3
THIRD AMENDMENT TO NETOBJECTS LICENSE AGREEMENT
Agreement Number: L97063
Third Amendment, effective December 16, 1997 (the "Amendment) to the
NetObjects License Agreement, dated March 18, 1997 (the "Agreement"), between
NetObjects Corporation with an address at 602 Galveston Drive, Redwood City,
California 94063 ("NETOBJECTS") and International Business Machines Corporation
with an address at Route 100, Somers, New York 10589 ("IBM"). All capitalized
terms and definitions used in this Amendment and not otherwise defined herein
shall have the meanings given them in the Agreement.
In consideration of the covenants and agreements contained herein, the
parties hereto agree to amend the Agreement as follows:
I. EXHIBIT A OF THE AGREEMENT IS HEREBY AMENDED AS FOLLOWS.
The definition of Object Code Licensed Work is hereby deleted in its
entirety and replaced with the following:
"Object Code Licensed Work: NETOBJECTS Fusion ("Fusion"), Team Fusion ("Team
Fusion") and all future updates, versions, successor products and derivative
works of each of the foregoing products."
II. THE FOLLOWING IS HEREBY ADDED TO THE AGREEMENT AS SECTION 11.
11.0 LOCALIZATION OF LICENSED WORK
11.1 NETOBJECTS grants to IBM, a nonexclusive, worldwide right and
license, without right to sublicense (except to its Subsidiaries and
subcontractors), to use the Licensed Work in source code form and related
documentation and specifications solely for the purpose of enabling it and
translating it into all IBM Group 1 languages (attached as Appendix A), (the
"Translated Versions"). Each Translated Version shall be deemed a Derivative
Work as defined in the Agreement. The rights and licenses granted by NETOBJECTS
to IBM under this Section 11.1 include the right of IBM to authorize or
sublicense its Subsidiaries and subcontractors, to exercise any of the rights
granted to IBM hereunder. The Translated Versions shall be created by Lotus
Development Corporation, a wholly owned subsidiary of IBM ("LOTUS").
11.2 Promptly following execution of this Amendment, NETOBJECTS AND LOTUS
shall jointly develop and agree upon a project plan (the "Project Plan") for
creation of the Translated Versions. NETOBJECTS shall provide engineering and
business assistance to LOTUS, as may be required, to support LOTUS in completing
the work under the Project Plan. The Project Plan shall include a projected
budget for the total cost of developing the Translated Versions (the "Budget"),
projected expenses for each Translated Version, and the projected date of
completion for each Translated Version. In the fourth quarter of each calendar
year, LOTUS shall provide NETOBJECTS with an updated Budget and an estimate of
the expenditures for the coming year. Any changes to the Budget and/or
completion dates, shall be agreed to in advance by both parties.
<PAGE>
11.3 TRANSLATION COST. Lotus shall track the amount spent developing the
Translated Versions and shall submit the amount to NETOBJECTS in quarterly
invoices. The total amount spent by LOTUS, on the Translated Versions, from the
date the development work begins until December 31, 1999 shall be referred to
herein as the ("Translation Cost").
11.4 Lotus shall perform the development work to enable Fusion, version 2,
to be translated. Until December 31, 1999, Lotus shall be responsible for
translating Fusion into the IBM Group 1 languages; thereafter, NETOBJECTS may
elect to have Lotus continue the translation work or may seek an alternative
vendor.
11.5 NETOBJECTS shall own all rights, title and interest in and to the
Translated Versions. LOTUS hereby assigns and transfers to NETOBJECTS all
ownership rights it may have in the Translated Versions. LOTUS shall transfer
source code and the Translated Versions to NETOBJECTS upon completion of agreed
to Project Plan for each language.
11.6 ENABLEMENT OF FUSION 3.0.
(a) Ninety (90) days after first customer ship of Fusion 3.0, NETOBJECTS
shall deliver to Lotus a version of Fusion 3.0 that is fully enabled for
international use and ready for translation. LOTUS and IBM shall assist
NETOBJECTS by consulting on this process and by providing NETOBJECTS with a copy
of Lotus' enablement procedures contained in the "ISV Development Checklist"
which is attached as Exhibit A and incorporated by reference.
(b) In the event that NETOBJECTS is unable to deliver the fully-enabled
version of Fusion 3.0 in the time frame provided above, Lotus may, at its
option, enable Fusion 3.0 and the cost of such development work shall be
included in the Translation Cost.
11.7. DISTRIBUTION.
(a) NETOBJECTS hereby grants IBM a nonexclusive, worldwide, irrevocable
license during the Term (as defined in Section 8.1) to use, execute, reproduce,
display, perform, transfer, distribute, transmit and sublicense the Translated
Versions in Object Code form, in any medium or distribution technology
whatsoever, whether now known or hereafter invented. The rights and licenses
granted by NETOBJECTS to IBM under this Section 11.8 include the right of IBM to
authorize or sublicense its Subsidiaries, subcontractors, and Distributors to
exercise any of the rights granted to IBM hereunder.
(b) NETOBJECTS will establish an Estimated Retail Price ("ERP") for each
of the Translated Versions.
(c) Maintenance and support for the Licensed Works shall be provided, in
accordance with Exhibit F of the Agreement.
<PAGE>
11.8 REPAYMENT.
(a) NETOBJECTS shall reimburse IBM by giving it a [***] percent ([***]%)
discount off of royalties owed, under the Agreement, for sales of the Licensed
Work in markets outside of the U.S. (the "Royalty Discount"). The cumulative
Royalty Discount shall be tracked and reported to NETOBJECTS on a quarterly
basis. The Royalty Discount shall be IBM's sole means of recovering the
Translation Cost.
(b) If on or before December 31, 1999, the cumulative Royalty Discount is
equal to or greater than the Translation Cost multiplied by [***], then the
Translation Cost will have been repaid in full and Royalty Discount shall no
longer remain in effect.
(c) Between December 31, 1999 and December 31, 2000, if the cumulative
Royalty Discount is equal to or greater than the Translation Cost multiplied by
[***], then the Translation Cost will have been repaid in full and the Royalty
Discount shall no longer remain in effect.
(d) If on or before December 31, 2000, the cumulative Royalty Discount is
not equal to or greater than the Translation Cost multiplied by [***], then IBM
shall continue to receive the Royalty Discount until such time as the cumulative
Royalty Discount equals the Translation Cost multiplied by [***].
11.9 PUBLIC ANNOUNCEMENTS.
Prior to execution of this Amendment, neither party shall make any public
announcements about this Amendment or the parties' discussions without the
other party's prior written consent. The parties agree that any announcements
concerning this Amendment shall be a mutually agreed upon joint announcement.
The Agreement remains in full force and effect in accordance with its
terms, except as such terms have been expressly modified by this Amendment. In
the event of any conflict between the terms of this Amendment and the terms of
the Agreement, this Amendment shall control. This Amendment constitutes the
entire understanding of the parties with respect to its subject matter and
merges and supersedes all prior communications, understandings and agreements
between the parties concerning the subject matter hereof. This Agreement shall
not be modified except by a writing subsequently dated, signed on behalf of each
party by a duly authorized representative.
Executed by the authorized representatives of the parties as of the date
first set forth above.
NETOBJECTS, INC. INTERNATIONAL BUSINESS MACHINES
CORPORATION
By: By:
Name: Name:
Title: Title:
Date:_________________________________ Date:_________________________________
*** Portions of this exhibit have been omitted and filed separately with the
Commission pursuant to a request for confidential treatment under Rule 406.
<PAGE>
EXHIBIT 10.4.4
FOURTH AMENDMENT TO NETOBJECTS LICENSE AGREEMENT
Agreement Number: L97063
Fourth amendment, dated April 27, 1998 (the "Amendment) to the NetObjects
License Agreement, dated March 18, 1997, including all amendments thereto (the
"Agreement"), between NetObjects Corporation with an address at 602 Galveston
Drive, Redwood City, California 94063 ("NETOBJECTS") and International Business
Machines Corporation with an address at Route 100, Somers, New York 10589
("IBM"). All references herein to "LOTUS" shall mean Lotus Development
Corporation, an IBM subsidiary, with an address at 55 Cambridge Parkway,
Cambridge, Massachusetts 02142. All capitalized terms and definitions used in
this Amendment and not otherwise defined herein shall have the meanings given
them in the Agreement.
In consideration of the covenants and agreements contained herein, the
parties hereto agree to amend the Agreement as follows:
1. The following definition is hereby added to the Agreement as Section 1.15:
"Average Selling Price" or "ASP" is the average amount of net revenue
that IBM and LOTUS are able to recognize for the standalone license of
the Licensed Work over the course of a calendar quarter."
2. The following definition is hereby added to the Agreement as Section 1.16:
"Maintenance" is the right, at IBM'S or LOTUS'S option, to receive,
install and use commercially-available upgrades to the Licensed Work.
Maintenance is sold on an annual basis."
3. The first paragraph of Exhibit A is hereby deleted in its entirety and
replaced with the following:
"Object Code Licensed Work: NETOBJECTS Fusion ("Fusion"), NETOBJECTS
TeamFusion ("TeamFusion"), NETOBJECTS ScriptBuilder ("ScriptBuilder")
and all future updates, versions, successor products and derivative
works of each of the foregoing products."
4. The Royalty Rate table in Exhibit B, Section 3.2 is hereby deleted in its
entirety and replaced with the following:
"The Hard Bundle Royalty Rate is [***]% of ASP of the Licensed Work."
5. The Royalty Rate table in Exhibit B, Section 3.3 is hereby deleted in its
entirety and replaced with the following:
*** Portions of this exhibit have been omitted and filed separately with the
Commission pursuant to a request for confidential treatment under Rule 406.
<PAGE>
"The Soft Bundle Royalty Rate is [***]% of ASP of the Licensed Work."
6. Section 3.4 of Exhibit B is hereby deleted in its entirety and replaced with
the following:
"A. "The Royalty Rate for Licensed Works that are not Bundled with
any hardware or software, and for which NETOBJECTS provides level 3
support ("N.O. Package") is [***]% of ASP for the Licensed Work.
NETOBJECTS shall include with each N.O. Package sufficient information
to inform end users of IBM'S contact information for Level 1 and Level
2 support, and IBM shall provide Level 1 and Level 2 support for the
N.O. Package.
B. The Royalty Rate for Volume N.O. Packages may be renegotiated, at
LOTUS'S and/or IBM'S option, three months after the date of execution
of this Amendment and thereafter whenever the pricing structure of
either the Licensed Work or LOTUS'S and/or IBM'S volume sales program
is adjusted."
C. The Royalty Rate for Maintenance of the Licensed Work is [***]%
of the applicable Royalty Rate for such Licensed Work."
7. Section 3.5 of Exhibit B is hereby deleted in its entirety and replaced with
the following:
"A. IBM, LOTUS and NETOBJECTS agree to negotiate, in good faith,
separate royalty arrangements for special (e.g., OEM) or promotional
bundles.
B. In the event that IBM or LOTUS desire to materially discount the
price of the Licensed Work, IBM/LOTUS shall involve NETOBJECTS in
IBM/LOTUS'S applicable 'Pricing Exception Process' and the parties
agree to promptly negotiate in good faith an appropriate reduction in
the applicable Royalty Rate."
8. Section 3.7 of Exhibit B is hereby deleted in its entirety and replaced with
the following:
"SECTION 3.7 INTERNAL USE LICENSES.
3.7.1 "Internal Copies" shall have the following meaning:
* for IBM, copies of the Licensed Works which are provided to Employees
of IBM and IBM Subsidiaries, as well as agents and contractors working
for and on behalf of IBM or an IBM Subsidiary, where such copies are
intended for use by such persons to perform productive work on behalf
of IBM or any IBM Subsidiary, and not for resale; and
* for NETOBJECTS, copies of LOTUS SmartSuite, LOTUS Domino and LOTUS
Notes which are provided to Employees of NETOBJECTS, as well as agents
and contractors working for and on behalf of NETOBJECTS, where such
copies are
*** Portions of this exhibit have been omitted and filed separately with the
Commission pursuant to a request for confidential treatment under Rule 406.
<PAGE>
intended for use by such persons to perform productive work on behalf
of NETOBJECTS, and not for resale. NETOBJECTS agrees to use all such
Internal Copies in accordance with the LOTUS Software Agreement
governing the use of such LOTUS products.
3.7.2 In lieu of the Royalty Rates set forth in Sections 3.1 through
3.5 of this Exhibit B, IBM has paid NETOBJECTS a one time fee of [***]
dollars ($[***].00) for all Internal Copies of NETOBJECTS Fusion 2.0 and
all upgrades thereto which are made available by NETOBJECTS through April
30, 1998. After April 30, 1998, at IBM'S option, and subject to the most
favored customer pricing terms contained in Section 5.5 of the Agreement,
IBM may elect 1) to pay for individual Internal Copy upgrades at the per
copy Royalty Rates set forth in Sections 3.1 though 3.5 of this Agreement,
or 2) to pay [***]% of the Internal License Fee, per annum, for upgrades
for all of the Internal Copies.
3.7.3 IBM has agreed, during the Term of this Agreement, to provide
to NETOBJECTS Internal Copies of LOTUS SmartSuite, LOTUS Domino and LOTUS
Notes in exchange for NetObject's agreement, during the Term of this
Agreement, to provide to IBM Internal Copies of TeamFusion and
Scriptbuilder. The Internal Copies for the products set forth in this
Section 3.7.3 include all Enhancements and Error Corrections thereto made
commercially available during the term of this Agreement. Support for the
LOTUS/IBM products set forth in this Section 3.7.3 is NOT included, and may
be separately acquired (for a fee) by NETOBJECTS. Either party may
terminate the license to these Internal Copies as follows: i) within
thirty days following notice of material breach given to licensee, provided
that such breach has not been cured within such thirty day period, or ii)
for convenience upon no less than ninety (90) days' prior written notice;
provided, however, that such termination shall apply solely to the
deployment of: i) new copies of the Internal Copies, and ii) any
Enhancements and/or Error Corrections to the Internal Copies.
9. Modify Section 5.0 of Exhibit B as follows: Delete the first paragraph in
its entirety, and delete and replace the first sentence of the second paragraph
with the following:
"During the period commencing with the Effective Time, and ending 12/31/98
(the "Initial Period"), IBM shall make the following nonrefundable payments
which shall be creditable against royalties and payments which become due
pursuant to this Agreement."
10. All changes to Royalty Rates made in this Amendment shall be deemed
effective as of September 1, 1997 and shall apply to all sales of the Licensed
Works made since that date.
*** Portions of this exhibit have been omitted and filed separately with the
Commission pursuant to a request for confidential treatment Rule 406.
<PAGE>
The Agreement remains in full force and effect in accordance with its
terms, except as such terms have been expressly modified by this Amendment. In
the event of any conflict between the terms of this Amendment and the terms of
the Agreement, this Amendment shall control. This Amendment constitutes the
entire understanding of the parties with respect to its subject matter and
merges and supersedes all prior communications, understandings and agreements
between the parties concerning the subject matter hereof. This Agreement shall
not be modified except by a writing subsequently dated, signed on behalf of each
party by a duly authorized representative.
Executed by the authorized representatives of the parties as of the date
first set forth above.
NETOBJECTS, INC. INTERNATIONAL BUSINESS MACHINES
CORPORATION
By: /s/ Michael J. Shannahan By:
------------------------------ ------------------------------
Name: Michael J. Shannahan Name:
---------------------------- ----------------------------
Title: VP & CFO Title:
--------------------------- ---------------------------
Date: 4/27/98 Date:
---------------------------- ----------------------------
<PAGE>
EXHIBIT 10.4.5
FIFTH AMENDMENT TO NETOBJECTS LICENSE AGREEMENT
Agreement Number: L97063
Fifth amendment, effective January 14, 1999 (the "Amendment") to the NetObjects
License Agreement, dated March 18, 1997, including all amendments thereto (the
"Agreement"), between NetObjects Corporation with an address at 301 Galveston
Drive, Redwood City, California 94063 ("NETOBJECTS") and International Business
Machines Corporation with an address at Route 100, Somers, New York 10589
("IBM"). All capitalized terms and definitions used in this Amendment and not
otherwise defined herein shall have the meanings given them in the Agreement.
In consideration of the covenants and agreements contained herein, the parties
hereto agree to amend the Agreement as follows:
The following sections are added to Exhibit B of the Agreement, entitled
"Royalty Rate for Licensed Works":
3.8 Business Partner Package
3.8.1 "Business Partner Package" shall mean a copy of a Licensed
Work that is not Bundled with any hardware or software, and is
licensed to IBM Business Partners (as defined below) in accordance
with the terms of the applicable NetObjects end user license for the
Licensed Work.
3.8.2 "IBM Business Partner" shall mean a business entity through
which IBM or its Subsidiaries, directly or indirectly, markets
products or services to customers in the regular course of business,
including IBM's Subsidiaries or its or their agents, distributors,
dealers, resellers, remarketers, solution providers, and integrators,
pursuant to (i) a written agreement or (ii) qualification under an
approved business partner program.
3.8.2 Business Partner Packages may be distributed by IBM to IBM
Business Partners from the effective date of this Amendment and
continuing for the term of the Agreement.
3.8.3 In lieu of the Royalty Rates set forth in Sections 3.1
through 3.5 of Exhibit B, the Royalty Rate for Business Partner
Packages is [***]% of the Royalty Rate for N.O. Packages.
*** Portions of this exhibit have been omitted and filed separately with the
Commission pursuant to a request for confidential treatment under Rule 406.
<PAGE>
All other terms of the Agreement remain in full force and effect and shall apply
to Business Partner Packages, except as expressly provided above. Any copy of
this Amendment by reliable means, for example photocopy or facsimile, shall be
deemed an original. This Amendment shall not be altered except in a writing
executed by the parties. This Amendment and the Agreement supersede all
previous agreements relating to the subject matter hereof, whether oral or in
writing, and constitute the entire agreement of the parties with respect to this
subject matter
IN WITNESS WHEREOF, the parties have caused this Amendment Number 5 to be
executed below by their duly authorized representatives.
INTERNATIONAL BUSINESS NETOBJECTS, INC.
MACHINES CORPORATION
BY: /s/ Eugenia C. Rerros BY: /s/ E. Cicogna
------------------------------- -----------------------------
NAME: Eugenia C. Rerros NAME: E. Cicogna
----------------------------- ----------------------------
TITLE: Contract Relations Advisor TITLE: VP Finance
---------------------------- ---------------------------
DATE: 1/15/99 DATE: 1/15/99
----------------------------- ----------------------------
<PAGE>
EXHIBIT 10.4.6
AMENDMENT NO. 6 TO NETOBJECTS LICENSE AGREEMENT
This Amendment Number 6 to the NetObjects License Agreement, dated March 18,
1997 ("Agreement") between NetObjects Corporation ("NetObjects") with an address
at 602 Galveston Drive, Redwood City, California 94063 and International
Business Machines Corporation ("IBM") with an address at Route 100, Somers, New
York 10589 is entered into on September 18, 1998 ("Effective Date"). All
capitalized terms and definitions used in this Amendment and not otherwise
defined herein shall have the meanings given them in the Agreement.
In consideration of the covenants and agreements contained herein, the parties
hereto agree to amend the Agreement as follows:
1. The following section is hereby added as Section 12 of the Agreement:
12.0 WebSphere Deliverables
12.1 Definitions.
12.1.1 "WebSphere Deliverables" shall mean the deliverables described
on Exhibit 1 hereto. WebSphere Deliverables are Enhancements as defined in
Section 1.7 of the Agreement.
12.1.2. "WebSphere Net Revenue" shall mean the gross revenue amount
recorded by IBM in consideration for the licensing of a Bundle within which
a WebSphere Version is integrated, excluding any amount received by IBM for
sales and use taxes, shipping, insurance and duties, and reduced by
discounts and refunds granted to customers and distributors.
12.1.3 "WebSphere Version" shall mean a Licensed Work that includes a
WebSphere Deliverable.
12.2 NetObjects Responsibilities. NetObjects shall perform the activities
described in Exhibit 1 hereto and will deliver the WebSphere Deliverables to IBM
in accordance with Exhibit 1 hereto (including but not limited to the delivery
schedule included in Exhibit 1).
12.3 IBM Responsibilities.
12.3.1 In consideration for the services performed by NetObjects to
develop the WebSphere Deliverables, NetObjects shall bill IBM an amount
equal to NetObjects' reasonable and actual time (e.g., employee hours) and
materials (e.g., software development tools) cost for developing the
WebSphere Deliverables ("Development Cost") plus
<PAGE>
[***] percent of the Development Cost (collectively, "IBM Payment"),
provided that the maximum IBM Payment is [***] U.S. dollars [***].
NetObjects shall maintain detailed records according to generally-accepted
accounting principles to support the amount of the Development Cost.
12.3.2 If the parties discuss or agree to material changes to Exhibit
1 hereto ("Statement of Work"), or if work is performed that is materially
different from the work outlined in the Statement of Work, the IBM Payment
will not exceed the maximum payment listed in Section 12.3.1 above (i.e.,
[***]) unless the parties first sign a written agreement to that effect.
12.3.3 The IBM Payment will be made in twelve (12) equal monthly
installments beginning on the date of the Acceptance of the WebSphere
Deliverables by IBM (as defined below), and the IBM Payment is to be
applied against the prepaid royalties made by IBM in accordance with
Section 5 of Exhibit B to the Agreement (i.e., on a monthly basis,
NetObjects is to deduct the amount of the IBM Payment from the balance of
IBM prepaid royalties which have not yet been credited against royalties
for the Licensed Work). If the balance of royalties that have been prepaid
by IBM in accordance with Section 5 of Exhibit B to the Agreement have been
fully credited against royalties and payments for the Licensed Work in
accordance with the Agreement before all twelve (12) installments of the
IBM Payment have been made in accordance with this Section 12.3.3., IBM
will pay any of the outstanding twelve (12) monthly installments on a
monthly basis net thirty (30) days from the date of IBM's receipt of an
acceptable invoice.
12.3.4 "Acceptance of the WebSphere Deliverables by IBM" or
"Acceptance" shall mean the date on which IBM sends written notice to
NetObjects of its acceptance of the WebSphere Deliverables. IBM will
provide NetObjects with its Acceptance of the WebSphere Deliverables that
conform to the acceptance criteria contained in Exhibit 1 no later than
January 31, 1999 provided that NetObjects fulfills its obligations in
accordance with Exhibit 1 hereto.
12.3.5 For the twelve (12) month period immediately following
Acceptance ("First Year"), the WebSphere Versions will be provided to IBM
hereunder royalty-free. After the First Year, the Royalty Rate for the
WebSphere Version will be [***]% of the WebSphere Net Revenue instead of
the Royalty Rate set forth in Exhibit B. On each anniversary of the
Effective Date (i.e., September 18, 1999, September 18, 2000, September 18,
2001), the percentage used to calculate the Royalty Rate for a WebSphere
Version will be subject to change by either party in
*** Portions of this exhibit have been omitted and filed separately with
the Commission pursuant to a request for confidential treatment under
Rule 406.
2
<PAGE>
accordance with the following process, provided that the maximum Royalty
Rate for a WebSphere Version will be no more than [***] percent ([***]%) of
the Royalty Rate for a Hard Bundle or Soft Bundle (whichever is applicable
to the Bundle within which the WebSphere Version is integrated):
1. no later than ninety (90) days prior to the annual anniversary
date of the Effective Date, either party may provide written notice
("Notice") to the other party requesting a change in the Royalty Rate for
the WebSphere Version due to a change in the reasonable commercial value of
the function of the WebSphere Version as compared to the reasonable
commercial value of the function of the Bundle within which the WebSphere
Version is integrated. At a minimum, such Notice will include a detailed
list of all of the function and value included in the Bundle within which
the WebSphere Version is included, and the corresponding reasonable
commercial value of each item of function or value contained therein,
including the WebSphere Deliverable;
2. the recipient of the Notice ("Recipient") will be provided with
three (3) business days to ask the other party questions regarding the
Notice, and all such questions will be answered within three (3) business
days of their receipt;
3. if the Recipient accepts the revised Royalty Rate included in the
Notice, the Royalty Rate for the WebSphere Version will be adjusted
accordingly once the Recipient indicates its agreement by singing an
acknowledgment line on the Notice;
4. if the Recipient does not agree to the newly proposed Royalty Rate
included in the Notice, within seven (7) business days of its receipt of
such Notice, the Recipient is to provide a detailed written justification
for the existing Royalty Rate for the WebSphere Deliverable to the other
party ("Justification"). At a minimum, such Justification shall include a
detailed list of all of the function and value included within the Bundle
within which the WebSphere Version is included and the reasonable
commercial value of each item of function or value contained therein,
including the WebSphere Deliverable;
5. the recipient of the Justification will be provided with three (3)
business days to ask questions of the other party regarding the
Justification, and all such questions will be answered within three (3)
business days of their receipt;
6. within seven (7) business days after the Justification is received
by the other party, the parties will meet to discuss the Notice and
Justification, and potential resolution; and if no resolution is reached
within five (5) business days after this meeting, upon mutual agreement of
the parties, they may submit the Justification and Notice to a jointly
chosen independent consulting group. The consulting group will be
requested to
*** Portions of this exhibit have been omitted and filed separately with
the Commission pursuant to a request for confidential treatment under
Rule 406.
3
<PAGE>
issue an opinion which the parties may accept or reject. The consultant's
fee will be paid by the parties equally; and
7. if no resolution is reached within five (5) business days
following the consultant review above, the parties will submit the Notice
and Justification (which the parties may revise as a result of the
consultant review) to the dispute resolution process outlined in
Section 10.13 of the Agreement
Example as of October 1999 - THESE PRICES ARE HYPOTHETICAL AND DO NOT
REFLECT IBM'S OR NETOBJECTS' PLANS
<TABLE>
<CAPTION>
Proportion of Value at Execution of Contract
---------------------------------------------
<S> <C>
Reasonable Commercial Value of WebSphere Version
- (current Team Fusion Estimated Selling Price)
[***]
Reasonable Commercial Value of additional function or value
in the bundle
- WebSphere Application Server [***]
- Bean Machine [***]
- Visual Age (Java Version) [***]
------
Proportion of Value = [***]/[***] = [***] [***]
Proportion of Value as of October 1999
--------------------------------------
Reasonable Commercial Value of WebSphere Version
- (future Team Fusion Estimated Selling Price) [***]
Reasonable Commercial Value of additional function
or value in the Bundle
- WebSphere Application Server [***]
- Bean Machine [***]
- Visual Age (Java Version) [***]
- Additional function or value [***]
------
[***]
Proportion of Value = [***]/[***] = [***]
ADJUSTED WEBSPHERE VERSION ROYALTY RATE AS OF OCTOBER 1999
</TABLE>
*** Portions of this exhibit have been omitted and filed separately with
the Commission pursuant to a request for confidential treatment under
Rule 406.
4
<PAGE>
New Proportion of Value
------------------------------ X WebSphere Version
Royalty Rate at Contract Execution = New Rate Old
Proportion of Value
[***]/[***] X [***]% = [***]%
12.3.5 At any time within six (6) months following Acceptance, and on
thirty (30) days written notice to NetObjects, IBM shall be entitled, at
its own expense, to retain an independent certified public accountant to
review the books and records of NetObjects solely for the purpose of
verifying the actual cost of developing the WebSphere Deliverables (i.e.,
verify the Development Cost). If such independent accountant determines
that the actual cost of developing the WebSphere Deliverables is less than
the Development Cost, then IBM shall only be required to pay to NetObjects
such actual cost of development, and such actual cost of development shall
be considered the Development Cost for the purposes of Section 22.3.1(a),
12.3.1(b), and 12.3.2 above.
2. The Agreement remains in full force and effect in accordance with its
terms, except as such terms have been expressly modified by this Amendment.
This Amendment and the Agreement constitute the entire understanding of the
parties with respect to this subject matter and supersede all prior
communications, understandings and agreements between the parties concerning the
subject matter hereof. A copy of this Amendment by reliable means (e.g.,
facsimile or photocopy) will be deemed an original.
ACCEPTED AND AGREED TO: ACCEPTED AND AGREED TO:
INTERNATIONAL BUSINESS NETOBJECTS, INC.
MACHINES CORPORATION
BY: /s/ Eugenia C. Rerros BY: /s/ Ernest J. Cicogna
------------------------------ --------------------------
NAME: Eugenia C. Rerros NAME: Ernest J. Cicogna
---------------------------- -------------------------
TITLE: Contract Relations Advisor TITLE: VP Finance
---------------------------- ------------------------
DATE: 9/18/98 DATE: 9/18/98
------------------------- ------------------------
*** Portions of this exhibit have been omitted and filed separately with
the Commission pursuant to a request for confidential treatment under
Rule 406.
5
<PAGE>
EXHIBIT 10.4.7
SEVENTH AMENDMENT TO NETOBJECT LICENSE AGREEMENT
Agreement Number: L97063
Seventh Amendment, effective January 15, 1999, to the NetObjects License
Agreement Number L97063 dated March 18, 1997 as amended ("Agreement") between
NetObjects, Inc. with an address at 301 Galveston Drive, Redwood City,
California 94063 ("NetObjects") and International Business Machines Corporation
with an address at Route 100, Somers, New York 10589 ("IBM"). All capitalized
terms and definitions used in the Amendment and not otherwise defined herein
shall have the meanings give them in the Agreement.
In consideration of the covenants and agreements contained herein, the parties
hereto agree to amend the Agreement as follows:
1. Subparagraph (b) of the Section 11.8 titled "Repayment" is hereby deleted in
its entirety and replaced with the following:
"(b) Once the cumulative Royalty Discount, received by IBM is equal to
or greater than the Translation Cost multiplied by [***], then the
Translation Cost will have been repaid in full and Royalty Discount
shall no longer remain in effect."
2. Subparagraphs (c) and (d) of the Section 11.8 titled "Repayment" are hereby
deleted in their entirety.
The Agreement remains in full force and effective in accordance with its terms,
except as such terms have been expressly modified by the Amendment. In the event
of any conflict between the terms of the Amendment and the terms of the
Agreement, the Amendment shall control. This Amendment constitutes the entire
understanding of the parties with respect to its subject matter and merges and
supersedes all prior communications, understandings and agreements between the
parties concerning the subject matter hereof. This Agreement shall not be
modified except in writing subsequently dated, signed on behalf of each party by
a duly authorized representative.
Executed by the authorized representatives of the parties as of the date first
set forth above.
NETOBJECTS,INC INTERNATIONAL BUSINESS
MACHINES CORPORATION
By: /s/ E. Cicogna By: /s/ R.G. Anderegg
-------------------------- -------------------------------
Name: E. Cicogna Name: R.G. Anderegg
-------------------------- -------------------------------
Title: V.P. Finance Title: VP & Asst. General Counsel
-------------------------- -----------------------------
Date: 1/18/99 Date: 1/22/99
-------------------------- -----------------------------
*** Portions of this exhibit have been omitted and filed separately with the
Commission pursuant to a request for confidential treatment under Rule 406.
<PAGE>
EXHIBIT 10.4.8
EIGHTH AMENDMENT TO NETOBJECT LICENSE AGREEMENT
Agreement Number: L97063
This is the Eighth Amendment, effective September 18, 1998, to the NetObjects
License Agreement Number L97063 dated March 18, 1997 as amended ("Agreement")
between NetObjects, Inc. with an address at 301 Galveston Drive, Redwood City,
California 94063 ("NetObjects") and International Business Machines Corporation
with an address at Route 100, Somers, New York 10589 ("IBM"). All capitalized
terms and definitions used in the Amendment and not otherwise defined herein
shall have the meanings give them in the Agreement.
In consideration of the covenants and agreements contained herein, the parties
hereto agree to amend the Agreement as follows:
1. Section 12.3.1 of the Agreement (added thereto in Amendment Number 6) is
hereby deleted in its entirety and replaced with the following:
In consideration for the services performed by NetObjects to develop
the Websphere Deliverables, NetObjects shall bill IBM an amount equal
to NetObjects' reasonable and actual time (i.e., employee hours) and
materials (e.g., software development tools, reasonable overhead) cost
expended prior to February 28, 1999 in the development of the
WebSphere Deliverables ("Development Costs") plus five percent of the
Development costs (collectively the "IBM Payment"), provided that the
maximum IBM Payment is [***] dollars ($[***]). NetObjects shall
maintain detailed records according to generally accepted accounting
principles to support the amount of the Development Costs.
2. The dollar amount (i.e., $[***]) in Section 12.3.2 of the Agreement (added
thereto in Amendment Number 6) is hereby deleted and replaced with the
dollar amount $[***].
3. Section 12.3.3 of the Agreement (added thereto in Amendment No. 6) is
hereby deleted in its entirety and replaced with the following:
Between the Acceptance of the WebSphere Deliverables (as defined
below) and March 30, 1999, on a quarterly basis, NetObjects will
provide IBM a detailed summary of the Development Costs incurred. The
IBM Payment is to be applied against prepaid royalties made by IBM in
accordance with Section 5 of Exhibit B to the Agreement (i.e., on a
quarterly basis, NetObjects is to deduct the amount of the IBM Payment
from the balance of the IBM prepaid royalties which have not yet been
credited against royalties for the Licensed Work). If the balance of
royalties that have been prepaid by IBM in accordance with Section 5
of Exhibit B to the Agreement have been fully credited against
royalties and payments for the Licensed Work in accordance with the
Agreement before all of the quarterly bills have been submitted to IBM
in accordance with Section 12.3.1, and all of the quarterly bills have
been submitted to IBM prior to March 30, 1999, then IBM will
*** Portions of this exhibit have been omitted and filed separately with the
Commission pursuant to a request for confidential treatment under Rule 406.
<PAGE>
pay the quarterly bill within thirty (30) days from the date of IBM's
receipt of an acceptable invoice.
4. The first two sentences in Section 12.3.5 of the Agreement (added thereto
in Amendment Number 6) are hereby deleted in their entirety and replaced
with the following:
The Royalty Rate for the WebSphere Version will be [***] percent
([***]%) of the Royalty Rate for the Licensed Work set forth in
Exhibit B of the Agreement instead of the Royalty Rate set forth in
Exhibit B. (e.g., For a Hard Bundle where the WebSphere Version
constitutes the Licensed Work, the Royalty Rate will be [***]% of ASP
of the applicable Licensed Work, Fusion or TeamFusion.)
5. The second Section 12.3.5 of the Agreement (added thereto on page three of
Amendment Number 6) shall not be modified in any way by this Amendment
Number 8, but shall be renumbered as Section 12.3.6.
6. The following shall be added to Exhibit 1 to Amendment Number 6 to the
Agreement, (the Statement of Work), as Section 7:
NetObjects will complete the engineering work for the first phase of
abstracting the NetObjects Authoring Server Suite such that it will
integrate with IBM Universal Database instead of Sybase SQL Anywhere. This
first phase entails only engineering coding to modify or extend portions of
the NetObjects Authoring Server Suite software and does not include testing
and meeting product release criteria. In addition, the first phase does not
include modifying or extending the following elements of NetObjects
Authoring Server Suite: Site Utilities, Publish, Preview, Content
Contributor. The work for the first phase will be completed no later than
January 28, 1999, and made available to IBM no later than February 28, 1999.
7. The following is hereby added as Section 12.3.7 of the Agreement:
IBM may provide NetObjects with written notice that all further development
work associated with Section 12 of the Agreement is to be terminated. Upon
receipt of such notice, NetObjects is to immediately stop all further
activites associated with Section 12 of the Agreement. NetObjects will be
paid in accordance with Section 12.3 of the Agreement for the work
performed by NetObjects in accordance with this Amendment and Exhibit 1
hereto through the date of NetObjects' receipt of IBM's notice.
The Agreement remains in full force and effect in accordance with its terms,
except as such terms have been expressly modified by the Amendment. In the event
of any conflict between the terms of the Amendment and the terms of the
Agreement, the Amendment shall control. This Amendment and the Agreement
constitute the entire understanding of the parties with respect to its subject
matter and merges and supersedes all prior
*** Portions of this exhibit have been omitted and filed separately with the
Commission pursuant to a request for confidential treatment under Rule 406.
<PAGE>
communications, understandings and agreements between the parties concerning the
subject matter hereof. This Agreement shall not be modified except in writing
subsequently dated, signed on behalf of each party by a duly authorized
representative. A copy of this Amendment by reliable means (e.g., photocopy or
facsimile) will be deemed an original.
Executed by the authorized representatives of the parties as of the date first
set forth above.
NETOBJECTS, INC INTERNATIONAL BUSINESS
MACHINES CORPORATION
By: /s/ E. Cicogna By: /s/ R.G. Anderegg
------------------------ ------------------------------
Name: E. Cicogna Name: R.G. Anderegg
------------------------ ------------------------------
Title: VP Finance Title: VP & Asst. General Counsel
------------------------ ------------------------------
Date: 1/28/99 Date: 1/29/99
------------------------ ------------------------------
<PAGE>
EXHIBIT 10.4.9
AMENDMENT NO. 9 TO NETOBJECTS LICENSE AGREEMENT
This Amendment Number 9 to the NetObjects License Agreement, dated March 18,
1997 ("Agreement") between NetObjects Corporation ("NetObjects") with an address
at 602 Galveston Drive, Redwood City, California 94063 and International
Business Machines Corporation ("IBM") with an address at Route 100, Somers, New
York 10589 is entered into on January 21, 1999 ("Effective Date"). All
capitalized terms and definitions used in this Amendment and not otherwise
defined herein shall have the meanings given them in the Agreement.
In consideration of the covenants and agreements contained herein, the parties
hereto agree to amend the Agreement as follows:
1. The following section is hereby added as Section 13 of the Agreement:
13.0 WIRELESS MARKUP LANGUAGE DELIVERABLES
13.1 "Wireless Markup Language ("WML") Deliverables" shall mean the
deliverables described on Exhibit 1 to this Amendment, which is attached hereto
and incorporated by reference. WML Deliverables are Enhancements as defined in
Section 1.7 of the Agreement.
13.2 NetObjects Responsibilities.
13.2.1 NetObjects shall provide all development, integration and testing
required to perform the activities and provide the functionality described in
Exhibit 1 hereto and will deliver the WML Deliverables to IBM in accordance with
Exhibit 1 hereto (including but not limited to the delivery schedule included in
Exhibit 1).
13.2.2 NetObjects' marketing materials for ScriptBuilder, including, but not
limited to the NetObjects web site located at http://www.netobjects.com
("NetObjects Web Site"), shall identify, describe and promote the WML functions
listed in Exhibit 1 ("WML Functions"). NetObjects will also add a page to the
NetObjects Web Site which shall only contain promotional material for the WML
Functions. NetObjects shall make all necessary updates or additions to the
ScriptBuilder marketing materials to describe the WML Functions by January 30,
1999.
13.2.3 NetObjects shall replace ScriptBuilder 3.0 with ScriptBuilder 3.01 as
the version of ScriptBuilder which NetObjects makes generally available to its
customers, following delivery to IBM of the WML Deliverable set forth in Section
9(d) of Exhibit 1 hereto, but in no event later than April 30, 1999.
NetObjects shall also make available to existing ScriptBuilder 3.0 customers a
software upgrade which will add the WML Functions to ScriptBuilder 3.0. This
software upgrade shall be made available, at a minimum, via download from the
NetObjects web site concurrent with the delivery of the WML Deliverable set
forth above. NetObjects shall, at a minimum, notify customers of the
availability of this upgrade software on the NetObjects Web Site.
<PAGE>
13.3 IBM Responsibilities.
13.3.1 In consideration for the services performed by NetObjects to
develop the WML Deliverables, IBM shall pay to NetObjects the total amount of
$[***] upon (i) delivery of all Deliverables as set forth in Exhibit 1 and (ii)
acceptance of those Deliverables as defined in 13.3.2below. Payment shall be
made to NetObjects net thirty (30) days after receipt of an acceptable invoice
from NetObjects. An acceptable invoice shall contain at a minimum the purchase
order number and supporting documentation for the work performed. The purchase
order number will be provided to NetObjects by IBM after the execution of this
Amendment. All billings shall be addressed to:
IBM Corporation
Accounts Payable
P.O. Box 8099
Endicott, NY 13761-8099
13.3.2 "Acceptance of the WML Deliverables by IBM" or "Acceptance" shall
mean the date on which IBM sends written notice to NetObjects of its
acceptance of the WML Deliverables in accordance with Exhibit 1 hereto.
2. Section 6.0 REPRESENTATIONS AND WARRANTIES, is amended to add the following:
"g. throughout the term of the Agreement, the Licensed Works are Year 2000
ready, meaning they are capable of correctly processing, providing, receiving
and displaying date data, as well as exchanging accurate date data with all
products with which they are intended to be used, within and between the
twentieth and twenty-first centuries."
3. The Agreement remains in full force and effect in accordance with its terms,
except as such terms have been expressly modified by this Amendment. This
Amendment and the Agreement constitute the entire understanding of the parties
with respect to this subject matter and supersede all prior communications,
understandings and agreements between the parties concerning the subject matter
hereof. A copy of this Amendment by reliable means (e.g., facsimile or
photocopy) will be deemed an original.
ACCEPTED AND AGREED TO: ACCEPTED AND AGREED TO:
INTERNATIONAL BUSINESS NETOBJECTS, INC.
MACHINES CORPORATION
BY: /s/ R.A. Anderegg BY:
----------------------- ------------------------
NAME: R.A. Anderegg NAME:
--------------------- ----------------------
TITLE: VP & Asst. General TITLE:
Counsel ----------------------
--------------------
DATE: DATE:
--------------------- ----------------------
*** Portions of this exhibit have been omitted and filed separately with the
Commission pursuant to a request for confidential treatment under Rule 406.
<PAGE>
EXHIBIT 10.4.10
AMENDMENT NO. 10 TO NETOBJECTS LICENSE AGREEMENT
THIS AMENDMENT NO. 10 TO NETOBJECTS LICENSE AGREEMENT ("Amendment"),
dated as of February 4, 1999, by and between International Business Machines
Corporation ("IBM"), and NetObjects, Inc. (the "NetObjects") further amends
the NetObjects License Agreement dated as of March 18, 1997, as amended to
date ("Agreement").
WHEREAS, Exhibit C to the Agreement, the IBM Source Code Custody
Agreement ("SCCA") (sometimes referred to as the Source Code Escrow
Agreement), including its attachments, provides for the escrow of source code
and other materials relating to NetObjects products; and
WHEREAS, NetObjects and IBM desire to amend the Agreement and SCCA with
respect to IBM's rights to use escrowed materials of NetObjects products upon
their release from escrow under the terms of the SCCA.
NOW, THEREFORE, in consideration of the mutual covenants and Agreements
contained herein, the parties hereto hereby agree as follows:
1. Capitalized terms not otherwise defined herein shall have the same
as meaning as provided by the Agreement or the SCCA, as the case may be.
2. The following amendments are made effective as of the closing date
of the Initial Public Offering of the common stock of NetObjects as such term
is defined in the Restated Certificate of Incorporation of NetObjects:
a. Section 4.2 of the Agreement is deleted in its entirety and
the following is substituted herefor:
4.2. NETOBJECTS hereby grants IBM a nonexclusive, worldwide,
irrevocable license during the Term to use, execute, reproduce and
have reproduced, and to prepare and have prepared Derivative Works
of the Licensed Works and Tools in Source Code form for use in
connection with the purposes and subject to the Release Events set
forth in Exhibit C, the Escrow Agreement; PROVIDED, HOWEVER, THAT
IF THE SPECIFIED RELEASE EVENT IS FAILURE TO PROVIDE MAINTENANCE
AND SUPPORT AS PROVIDED IN SECTION 1.11(e) ANY SUCH DERIVATIVE
WORK MAY BE PREPARED ONLY FOR THE PURPOSE OF EFFECTING ERROR
CORRECTIONS, MAINTENANCE, REPAIR, SUPPORT AND CREATING APPLICATION
PROTOCOL INTERFACES FOR ANY LICENSED WORKS DELIVERED TO IBM PRIOR
TO THE DATE OF THE SUCH RELEASE EVENT. The rights and
<PAGE>
licenses granted by NETOBJECTS to IBM under this Section 4.2
include the right of IBM to authorize or sublicense its
Subsidiaries and subcontractors to exercise any of the rights
granted to IBM hereunder.
b. Section 1.11(c) of the SCCA, is hereby amended toread as
follows: "NetObjects is unable to pay its debts as they become due."
c. Section 1.11(f) of the SCCA, which provides for a Release
Event if NetObjects fails to comply with its obligation to improve and
enhance FUSION, is deleted in its entirety.
d. The SCCA shall be, and hereby is, amended effective as of
this date to delete the present Section 4.3(b) in its entirety and
substitute therefor the following:
4.3 IBM will:
---
(b) own any Derivative Works of Escrowed Works which IBM
creates IN ACCORDANCE WITH SECTION 4.2 OF THE AGREEMENT, subject to
NetObjects' rights in the underlying work;
3. This Amendment contains the entire Agreement between the parties
hereto with respect to the subject matter of this Amendment. The terms of
this Amendment shall be binding on and shall inure to the benefit of each of
the parties hereto and their respective successors and assigns.
4. This Amendment may be executed in any number of counterparts and
by the exchange of facsimile signatures, each of which shall be deemed to be
an original and all of which together shall be deemed to be a single
instrument.
IN WITNESS WHEREOF, the parties have caused this Amendment to be
executed by their respective duly authorized representatives as of the date
first written above.
<TABLE>
<CAPTION>
INTERNATIONAL BUSINESS NETOBJECTS, INC.
MACHINES CORPORATION
<S> <C>
By: /s/ R.G. Anderegg By: /s/ Samir Arora
-------------------------------- --------------------------------
Its: Vice President & Assistant Its: CEO
General Counsel
------------------------------- -------------------------------
</TABLE>
2
<PAGE>
EXHIBIT 10.4.11
[Lotus Development Corporation Letterhead]
CONFIDENTIAL
February 6, 1998
Mr. Samir Arora
Chief Executive Officer
NetObjects, Inc.
602 Galveston Drive
Redwood City, California 94063
Re: Promotional Bundles
Dear Samir:
Reference is made to the NetObjects License Agreement, dated March 18, 1997, as
amended, between NetObjects, Inc. ("NetObjects") and International Business
Machines Corporation ("IBM"), (the "Agreement"). Capitalized terms used in this
letter, and not otherwise defined, shall have the meaning give to them in the
Agreement.
Pursuant to Section 5.4 of the Agreement, IBM may request a lower royalty for
the Licensed Work when a licensing transaction requires a substantial discount.
The following are the terms of these promotional bundles.
1. Licensed Work: NetObjects Fusion (versions 2 and 3)
2. Bundles: (a) NetObjects Fusion with Lotus Notes Designer for Domino
(b) NetObjects Fusion with Domino Intranet Starter Pack
3. Promotion Period: February 1, 1998 - September 30, 1998
4. Quantity: up to 200,000 units
5. Royalty: $[***] for the total 200,000 units (this equates to
$[***]/unit with every second unit bearing $[***] royalty, in consideration of
Lotus' investment in integrating Lotus Domino and NetObjects Fusion). The
parties agree that the $[***] royalty payment is guaranteed to NetObjects
whether or not all of the units are sold and shall be deemed fully paid on or
before September 30, 1998. The guaranteed royalty payment shall be credited
against the pre-paid royalties made by IBM to NetObjects. In the event of a
material change in the estimated retail price of Fusion, during the Promotion
Period, the parties shall renegotiate the royalty in good faith.
*** Portions of this exhibit have been omitted and filed separately with the
Commission pursuant to a request for confidential treatment under Rule
406.
<PAGE>
6. Maintenance Offer: NetObjects offers Lotus the opportunity to deliver
NetObjects Fusion, during the Promotion Period, to Lotus' [***] Lotus Notes
Designer "maintenance" customers for a total royalty of $[***] (credited
against the pre-paid royalties made by IBM to NetObjects) plus in-kind
advertising assistance with a value of $[***]. This offer shall remain
valid through [January 31, 1998].
7. Marketing: The parties shall develop a joint marketing plan due on the
later of February 1st or first customer ship of the Bundle. The Lotus marketing
contact is John Lautenbach and the NetObjects marketing contact is Param Singh.
On or before June 1, 1998, the parties shall review the sales of the Bundle and
plan additional marketing efforts, if necessary.
8. Agreement: The terms of the Agreement remain in full force and effect and
shall apply to this Bundle, except as expressly provided above. In the event of
any conflict between the terms of this letter and the terms of the Agreement,
the terms of this letter shall control with respect to this promotional Bundle.
Please sign below to indicate that the terms of this letter accurately reflect
our agreement for this promotional bundle.
Sincerely,
Eileen Rudden
Senior Vice President
Lotus Development Corporation
ACCEPTED AND ACKNOWLEDGED
Mike Shannahan
CFO, NetObjects, Inc.
Date February 6, 1998
*** Portions of this exhibit have been omitted and filed separately with the
Commission pursuant to a request for confidential treatment under Rule
406.
<PAGE>
EXHIBIT 10.4.12
[IBM Letterhead]
CONFIDENTIAL
Mr. Morris Taradalsky
NetObjects, Inc.
602 Galveston Drive
Redwood City, California 94063
Re: Promotional Bundles
Dear Morris:
Reference is made to the NetObjects License Agreement, dated March 18, 1997, as
amended, between NetObjects, Inc. ("NetObjects") and International Business
Machines Corporation ("IBM"), (the "Agreement"). Capitalized terms used in this
letter, and not otherwise defined, shall have the meaning give to them in the
Agreement.
Pursuant to Section 3.5(A) of Exhibit B to the Agreement, IBM and NetObjects
agreed to negotiate separate royalty arrangements for these promotional bundles
of the Licensed Work. IBM and NetObjects wish to agree to the terms under which
IBM will distribute ScriptBuilder version 2.0x ("ScriptBuilder") with IBM's
WebSphere Application Server v1.0 ("WAS"). Except as modified by this letter,
this promotional distribution will be subject to the terms and conditions of the
Agreement, including the technical support obligations therein.
1. From June 30, 1998 though September 30, 1998 (the "Promotion Period"), IBM
shall have the right to distribute ScriptBuilder under the terms and
condition of the Agreement to each owner of WAS ("End Users") by making
ScriptBuilder available to End Users on IBM's web site. To download
ScriptBuilder, IBM shall require End Users to provide a password or other
code from a coupon which IBM shall package with WAS. Prior to downloading
ScriptBuilder, each End User must accept the license terms attached hereto
as EXHIBIT A. This license, which shall be provided by NetObjects, is
intended to permit End Users to use one copy of ScriptBuilder for each
license of WAS owned by such End User. Notwithstanding the forgoing, IBM's
right under this letter shall be limited to distributions of ScriptBuilder
to End Users who acquire retail, stand-alone versions of WAS.
2. Except for the marketing arrangements specified below, the rights granted
to IBM herein to distribute ScriptBuilder shall be without charge to IBM or
End Users, notwithstanding anything contrary in the Agreement.
3. NetObjects shall prominently feature the availability of ScriptBuilder with
WAS on its web sites for NetObjects and ScriptBuilder.
4. In consideration for the rights granted to IBM herein, during the Promotion
Period, IBM agrees to:
<PAGE>
a. Demonstrate ScriptBuilder as part of WAS demonstrations (sales, trade
shows, press etc.) selected by IBM in its discretion;
b. Include promotional brochure for ScriptBuilder in WAS packaging
(except WAS packaging included in bundles), which brochure shall
describe the features and benefits of ScriptBuilder and be produced by
IBM from content provided by NetObjects;
c. Refer to the promotional distribution of ScriptBuilder to End Users in
IBM's press releases devoted exclusively to WAS and in press and
analyst briefings devoted to WAS during PC Expo;
d. Permit one NetObjects employee to be present in IBM's booth at PC Expo
devoted to WAS for the purpose of answering questions concerning
ScriptBuilder;
e. Refer to ScriptBuilder and its features and benefits in "breakfasts",
training programs, trade shows and other sales channel events devoted
exclusively to WAS;
f. Refer to the promotional distribution of ScriptBuilder to End Users in
IBM's electronic and print advertising devoted exclusively to WAS (for
example, an animated electronic banner should include the phrase:
"Coupon for FREE copy of NetObjects ScriptBuilder");
g. Refer to the promotional distribution of ScriptBuilder to End Users in
IBM's web sites devoted exclusively to WAS and include a link to the
NetObjects web site on such IBM web sites;
h. Contribute WAS-oriented content to the ScriptBuilder web site; and
i. Provide NetObjects with a list of the names, addresses and electronic
mail addresses of End Users downloading ScriptBuilder under the
promotion distribution outlined herein based on data collected from
the page of IBM's web site devoted to the promotional distribution of
ScriptBuilder.
In the event of any conflict between the terms of this letter and the terms of
the Agreement, the terms of this letter shall control with respect to the
promotional distribution outlined herein.
Please sign below to indicate that the terms of this letter accurately reflect
our agreement for this promotional distribution.
ACKNOWLEDGED AND ACCEPTED
Sincerely,
/s/ Morris Taradalsky
--------------------------------------
/s/ Patricia Staco NetObjects, Inc.
Patricia Staco
Contract Administrator Title: EVP NetObjects
--------------------------------
Date: 7/8/98
--------------------------------
<PAGE>
Lotus Development
LOTUS Corporation
DEVELOPMENT 85 Cambridge Parkway Phone: 017-577-3500
CORPORATION Cambridge, MA 02102 FAX: 017-639-1105
- ------------------------------------------------------------------------------
CONFIDENTIAL
January 14, 1999
Mr. Ernest Cicogna
NetObjects, Inc.
602 Galveston Drive
Redwood City, California 94063
Re: Promotional Lotus Bundles distributed under the terms of the NetObjects
License Agreement, dated March 18, 1997, between NetObjects, Inc.
("NetObjects") and International Business Machines Corporation ("IBM"), as
amended ("Agreement")
Dear Ernie:
This letter is to confirm our agreement that in exchange for the mutual
covenants contained herein, the letter agreement between IBM and NetObjects
regarding the above subject matter, dated February 6, 1998, ("Letter") is
hereby amended as described below:
1. The following statement is added to the end of the second paragraph
contained in the Letter:
"IBM and NetObjects agree that during the time period between February 1,
1998 and June 30, 1999, ("Promotion Period") IBM and its Subsidiaries may
distribute up to two hundred thousand (200,000) copies of the Lotus Bundles
(described in Section 2 below), and instead of IBM paying the per copy
Royalty Rate listed in Section 5 of Exhibit B of the Agreement for its
distribution of the Lotus Bundles, [***] dollars $[***] will be deducted from
the outstanding prepaid royalties listed in section 5 of Exhibit B of the
Agreement. IBM is under no obligation to distribute the full 200,000 copies
of Lotus Bundles, but, if, during the Distribution Period, IBM distributes
fewer than the full 200,000 copies of Lotus Bundles, the foregoing [***]
dollar ($[***]) deduction is still to be made from the outstanding prepaid
royalties listed in the Agreement."
2. The first enumerated statement (i.e., "1. Licensed Work: NetObjects
Fusion") is deleted.
3. The second enumerated statement is amended to read as follows:
"2. Lotus Bundles: (a) NetObjects Fusion and Lotus Notes Designer for Domino
(b) NetObjects Fusion and Domino Intranet Starter Pack
*** Portions of this exhibit have been omitted and filed separately pursuant
to a request for confidential treatment under Rule 406.
<PAGE>
4. The third enumerated statement is amended to read as follows:
"3. Promotion Period: February 1, 1998 - June 30, 1999:
5. The forth enumerated statement is amended to read as follows:
"4. Quantity: up to 225,000 units of the Lotus Bundles"
6. The fifth and six enumerated statements are each deleted in their entirety.
7. A new fifth enumerated statement is added that reads as follows:
"5. IBM and NetObjects agree that during Promotion Period, IBM and its
Subsidiaries may distribute up to twenty five thousand (25,000) copies of any
version or release of NetObjects Fusion, and instead of IBM paying the per
copy Royalty Rate listed in Section 5 of Exhibit B of the Agreement for its
distribution of these 25,000 copies, [***] dollars ($[***]) will be deducted
from the outstanding prepaid royalties listed in section 5 of Exhibit B of
the Agreement ("Prepaid Royalties") no later than June 30, 1999 (the $[***]
deduction is the "Lotus Upfront Royalty"), but if the balance of the Prepaid
Royalties is less than [***] dollars ($[***]). IBM shall pay to NetObjects
the difference between the outstanding balance of Prepaid Royalties and [***]
dollars ($[***]) within thirty (30) days after IBM's receipt of an acceptable
invoice, provided that such invoice is received by IBM no later than July 1,
1999. Notwithstanding the foregoing, the Lotus Upfront Royalty does not
apply to a distribution by IBM or its Subsidiaries of NetObjects Fusion as
part of the product branded as "Domino Application Studio" nor a distribution
by IBM or its Subsidiaries of NetObjects Fusion as part of any IBM Websphere
product line but applies to all other distributions of NetObjects Fusion by
IBM and its Subsidiaries during the Promotion Period (i.e., if IBM
distributes NetObjects Fusion as part of a product branded as "Domino
Designer Release 5", IBM will pay the Royalty Rate listed in Section 5 of
Exhibit B of the Agreement, but for all other distributions of NetObjects
Fusion by IBM during the Promotion Period, the Lotus Upfront Royalty will
apply, and no further royalty is owed by IBM for such distribution). IBM is
under no obligation to distribute the full 25,000 copies of NetObjects
Fusion, but, if IBM distributes fewer than the full 25,000 copies of
NetObjects Fusion during the Promotion Period, the foregoing [***] dollar
($[***]) deduction is still to be made from the outstanding prepaid royalties
listed in section 5 of Exhibit B of the Agreement."
The terms of the Agreement remain in full force and effect except as
expressly provided above. Please sign below to indicate that the terms of
this letter accurately reflect our agreement for this promotional bundle.
Any copy of this Letter by reliable means (e.g., photocopy or facsimile)
shall be deemed an original.
Sincerely,
/s/ Eileen Rudden
Eileen Rudden
Senior Vice-President
Lotus Development Corporation
ACCEPTED AND ACKNOWLEDGED
By: /s/ Ernest Cicogna
-----------------------
Ernest Cicogna
NetObjects, Inc.
Date: 2-1-99
*** Portions of this exhibit have been omitted and filed separately with the
Commission pursuant to a request for confidential treatment under Rule 406.
<PAGE>
LICENSE AGREEMENT
LICENSE AGREEMENT ("Agreement") effective as of April 10, 1997
("Effective Date") between INTERNATIONAL BUSINESS MACHINES CORPORATION, a New
York corporation ("IBM"), and NETOBJECTS CORPORATION, a Delaware corporation
("NETOBJECTS").
NETOBJECTS has the right to license others under certain patents. IBM
desires to acquire a nonexclusive license under those patents. In
consideration of the premises and covenants herein contained, including the
acquisition by IBM of a controlling interest in NETOBJECTS, and other good
and valuable consideration, the receipt of which is hereby acknowledged,
NETOBJECTS and IBM agree as follows:
SECTION 1. DEFINITIONS
1.1 "Information Handling System" shall mean any instrumentality or
aggregate of instrumentalities primarily designed to compute, classify,
process, transmit, receive, retrieve, originate, switch, store, display,
manifest, measure, detect, record, reproduce, handle or utilize any form of
information, intelligence or data for business, scientific, control or other
purposes.
1.2 "IHS Product" shall mean an Information Handling System or any
instrumentality or aggregate of instrumentalities (including, without
limitation, any component, subassembly, computer program or supply) designed
for incorporation in an Information Handling System.
1.3 "Licensees" shall mean IBM and/or its Licensed Subsidiaries.
1.4 "IBM Patent Licensees" shall mean entities having a right to practice
inventions covered by patents or patent applications owned or licensable by
IBM or its Subsidiaries.
1.5 "Licensed Patents" shall mean all patents, including utility models and
design patents and registrations of NETOBJECTS, and further including
reissues, divisions, continuations, (but not including any new matter
contained in continuations-in-part filed after the Divestiture Date) and
foreign counterparts of the foregoing:
(a) issued or issuing on patent applications entitled to an effective filing
date prior to June 30, 1998, or the Divestiture Date, whichever comes
later;
(b) which, but for this Agreement, would be infringed by Licensee's making,
using, importing, offering for sale, or leasing, selling or otherwise
transferring a Licensed Product in the country in which such patent exists;
and
<PAGE>
(c) under which patents or the applications therefor NETOBJECTS or any of its
Subsidiaries has, as of the Effective Date or hereafter obtains prior to
the Divestiture Date, the right to grant licenses to IBM of or within the
scope granted herein, without such grant or the exercise of rights
thereunder resulting in the payment of royalties or other consideration by
NETOBJECTS or its Subsidiaries to third parties (except for payments
between NETOBJECTS and its Subsidiaries, and payments to third parties for
inventions made by said third parties while employed by NETOBJECTS or any
of its Subsidiaries).
1.6 "Acquisition Date" shall mean such time that IBM acquires a controlling
interest in NETOBJECTS.
1.7 "Divestiture Date" shall mean such time that IBM divests itself of a
controlling interest in NETOBJECTS.
1.8 "Licensed Products" shall mean IHS Products.
1.9 "Licensed Subsidiaries" shall mean those entities which are Subsidiaries
of IBM.
1.10 "Subsidiary" shall mean a corporation, company or other entity:
(a) more than fifty percent (50%) of whose outstanding shares or securities
(representing the right to vote for the election of directors or other
managing authority) are, now or hereafter, owned or controlled, directly or
indirectly, by a party hereto, or
(b) which does not have outstanding shares or securities, as may be the case in
a partnership, joint venture or unincorporated association, but more than
fifty percent (50%) of whose ownership interest representing the right to
make the decisions for such corporation, company or other entity is now or
hereafter, owned or controlled, directly or indirectly, by a party hereto,
but such corporation, company or other entity shall be deemed to be a
Subsidiary only so long as such ownership or control exists.
SECTION 2. GRANT OF RIGHTS
2.1 Subject to Section 3, NETOBJECTS grants to Licensees a royalty-free,
paid-up, worldwide, nonexclusive license under the Licensed Patents to make,
have made, use, import, offer for sale, sell, lease and otherwise transfer
Licensed Products or practice any method thereunder. In the event that IBM
acquires additional Subsidiaries after the Effective Date and prior to the
2
<PAGE>
Divestiture Date, NETOBJECTS agrees that such Subsidiaries shall be Licensed
Subsidiaries.
2.1.1 Subject to the rights granted in Section 2.1, NetObjects grants
to IBM the right to sublicense IBM Patent Licensees only under
Licensed Patents having an effective filing date on or after the
Acquisition Date and before the Divestiture Date.
2.2 IBM shall be responsible for the compliance by Licensed Subsidiaries
with the provisions of this Agreement. A license granted to a Subsidiary
shall terminate automatically on the earlier of:
(a) the date such Subsidiary ceases to be a Subsidiary of IBM; or
(b) the date the license granted hereunder expires or is terminated.
2.3 No license, immunity or other right is granted under this Agreement,
either directly or by implication, estoppel, or otherwise:
(a) other than under the Licensed Patents;
(b) with respect to any item other than a Licensed Product notwithstanding that
such other item may incorporate one or more Licensed Products; or
(c) to parties acquiring any item from IBM for the combination of such
acquired item with any other item, including other items provided by
Licensee, or for the use of any such combination even if such acquired
item has no substantial use other than as part of such combination.
SECTION 3. TERM AND TERMINATION
3.1 The term of this Agreement shall be from the Effective Date until the
expiration of the last to expire of the Licensed Patents.
3.2 IBM shall have the right to terminate this Agreement upon written notice
to NETOBJECTS.
SECTION 4. MEANS OF COMMUNICATION
4.1 Notices and other communications shall be sent by facsimile or by
registered or certified mail to the following address and shall be effective
upon mailing:
3
<PAGE>
For IBM: For NETOBJECTS:
Director of Licensing ______________________
500 Columbus Avenue ______________________
Thornwood, New York 10594 ______________________
United States of America ______________________
Facsimile: (914) 742-6737 ______________________
SECTION 5. MISCELLANEOUS
5.1 Neither party shall use or refer to this Agreement or any of its
provisions in any promotional activity.
5.2 NETOBJECTS represents and warrants that it has the full right and power
to grant the license set forth in Section 2, and that there are no
outstanding agreements, assignments or encumbrances inconsistent with the
provisions of said license or with any other provisions of this Agreement.
NETOBJECTS MAKES NO OTHER REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED,
NOR SHALL NETOBJECTS HAVE ANY LIABILITY, IN RESPECT TO ANY INFRINGEMENT OF
PATENTS OR OTHER RIGHTS OF THIRD PARTIES OWING TO LICENSEES' OPERATION UNDER
THE LICENSE HEREIN GRANTED.
5.3 In the event that licenses under additional patents that are licensable
by NETOBJECTS prior to the Divestiture Date that are not licensable hereunder
are required in order for Licensee to make, have made, use, import, offer for
sale, sell and otherwise transfer any Licensed Products, then NETOBJECTS
agrees to grant a royalty-free, paid-up license to IBM under such patents in
a separate agreement; PROVIDED, HOWEVER, if the granting of a license under
such additional patents will result in the payment of royalties or other
consideration by NETOBJECTS to any third party, IBM shall be responsible for
such payment.
5.4 In the event that NetObjects has the right to grant licenses under
patents to others prior to the Divestiture Date, and such grant shall result
in the payment of royalties or other consideration by NetObjects or its
Subsidiaries to third parties, NetObjects agrees that it shall grant a
license under such patents to IBM Patent Licensees, upon written request
therefrom, to the extent and subject to the terms and conditions under which
it then has the right to do so and at the same royalty that NetObjects would
be obligated to pay the third party.
5.5 IBM shall grant to NetObjects, prior to the Divestiture Date, a license
to make, use, import, offer to sell, sell, lease and otherwise transfer any
NetObjects product. Said license shall be on terms and conditions no less
favorable than IBM's then current terms and conditions under which it grants
patent licenses to third parties. Said right shall be with respect to any
patent under which IBM or any of its Subsidiaries has the right to grant
licenses to unaffiliated third parties at any time on or before the
Divestiture Date.
4
<PAGE>
5.6 Nothing contained in this Agreement shall be construed as:
5.6.1 superseding any terms and conditions of the NetObjects License
Agreement, executed on March 18, 1997, by and between IBM and
NetObjects; or
5.6.2 as conferring any rights by implication, estoppel or otherwise,
under any non-patent intellectual property right.
5.7 If any section of this Agreement is found by competent authority to be
invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of such section in every other respect
and the remainder of this Agreement shall continue in effect so long as the
Agreement still expresses the intent of the parties. If the intent of the
parties cannot be preserved, this Agreement shall be either renegotiated or
terminated.
5.8 This Agreement shall not be binding upon the parties until it has been
signed hereinbelow by or on behalf of each party, in which event it shall be
effective as of the later of the Effective Date.
5.9 This Agreement shall be construed, and the legal relations between the
parties hereto shall be determined, in accordance with the law of the State
of New York, United States of America, as such law applies to contracts
signed and fully performed in the State of New York.
5.10 The headings of sections are inserted for convenience of reference only
and are not intended to be a part of or to affect the meaning or
interpretation of this Agreement.
This Agreement embodies the entire understanding of the parties with
respect to the Licensed Patents, and replaces any prior oral or written
communication between them.
AGREED TO: AGREED
INTERNATIONAL BUSINESS MACHINES NETOBJECTS, INC.
CORPORATION
By: By: /s/ Samir Arora
------------------------------------ ----------------------------------
Lee A. Dayton Samir Arora
Vice President President
Corporated Development & Real Estate
5
<PAGE>
LEASE
BETWEEN
METROPOLITAN LIFE INSURANCE COMPANY (LANDLORD)
AND
NETOBJECTS, INC. (TENANT)
SEAPORT CENTRE
Redwood City, California
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE ONE - BASIC LEASE PROVISIONS . . . . . . . . . . . . . . . . . . . . .1
1.01 BASIC LEASE PROVISIONS . . . . . . . . . . . . . . . . . . . . . . .1
1.02 ENUMERATION OF EXHIBITS & RIDER(S) . . . . . . . . . . . . . . . . .2
1.03 DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
ARTICLE TWO - PREMISES, TERM, FAILURE TO GIVE POSSESSION, COMMON AREAS AND
PARKING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
2.01 LEASE OF PREMISES. . . . . . . . . . . . . . . . . . . . . . . . . .6
2.02 TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
2.03 FAILURE TO GIVE POSSESSION . . . . . . . . . . . . . . . . . . . . .6
2.04 AREA OF PREMISES . . . . . . . . . . . . . . . . . . . . . . . . . .6
2.05 CONDITION OF PREMISES. . . . . . . . . . . . . . . . . . . . . . . .6
2.06 COMMON AREAS & PARKING . . . . . . . . . . . . . . . . . . . . . . .6
ARTICLE THREE - RENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
ARTICLE FOUR - OPERATING EXPENSES RENT ADJUSTMENTS AND PAYMENTS. . . . . . . .7
4.01 TENANT'S SHARE OF OPERATING EXPENSES . . . . . . . . . . . . . . . .7
4.02 RENT ADJUSTMENTS . . . . . . . . . . . . . . . . . . . . . . . . . .8
4.03 STATEMENT OF LANDLORD. . . . . . . . . . . . . . . . . . . . . . . .8
4.04 BOOKS AND RECORDS. . . . . . . . . . . . . . . . . . . . . . . . . .9
4.05 TENANT OR LEASE SPECIFIC TAXES . . . . . . . . . . . . . . . . . . .9
ARTICLE FIVE - SECURITY DEPOSIT. . . . . . . . . . . . . . . . . . . . . . . .9
ARTICLE SIX -UTILITIES & SERVICES. . . . . . . . . . . . . . . . . . . . . . .9
6.01 LANDLORD'S GENERAL SERVICES. . . . . . . . . . . . . . . . . . . . .9
6.02 TENANT TO OBTAIN & PAY DIRECTLY. . . . . . . . . . . . . . . . . . .9
6.03 TELEPHONE SERVICES . . . . . . . . . . . . . . . . . . . . . . . . 10
6.04 FAILURE OR INTERRUPTION OF UTILITY OR SERVICE. . . . . . . . . . . 10
6.05 CHOICE OF SERVICE PROVIDER . . . . . . . . . . . . . . . . . . . . 10
6.06 SIGNAGE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE SEVEN - POSSESSION, USE AND CONDITION OF PREMISES. . . . . . . . . . 11
7.01 POSSESSION AND USE OF PREMISES . . . . . . . . . . . . . . . . . . 11
7.02 HAZARDOUS MATERIALS. . . . . . . . . . . . . . . . . . . . . . . . 11
7.03 LANDLORD ACCESS TO PREMISES; APPROVALS . . . . . . . . . . . . . . 12
7.04 QUIET ENJOYMENT. . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE EIGHT - MAINTENANCE. . . . . . . . . . . . . . . . . . . . . . . . . 13
8.01 LANDLORD'S MAINTENANCE . . . . . . . . . . . . . . . . . . . . . . 13
8.02 TENANT'S MAINTENANCE . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE NINE - ALTERATIONS AND IMPROVEMENTS. . . . . . . . . . . . . . . . . 14
9.01 TENANT ALTERATIONS . . . . . . . . . . . . . . . . . . . . . . . . 14
9.02 LIENS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE TEN - ASSIGNMENT AND SUBLETTING. . . . . . . . . . . . . . . . . . . 15
10.01 ASSIGNMENT AND SUBLETTING . . . . . . . . . . . . . . . . . . . . 15
10.02 RECAPTURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
10.03 EXCESS RENT . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
10.04 TENANT LIABILITY. . . . . . . . . . . . . . . . . . . . . . . . . 16
10.05 ASSUMPTION AND ATTORNMENT . . . . . . . . . . . . . . . . . . . . 17
ARTICLE ELEVEN - DEFAULT AND REMEDIES. . . . . . . . . . . . . . . . . . . . 17
11.01 EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . 17
11.02 LANDLORD'S REMEDIES . . . . . . . . . . . . . . . . . . . . . . . 17
11.03 ATTORNEY'S FEES . . . . . . . . . . . . . . . . . . . . . . . . . 19
11.04 BANKRUPTCY. . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
11.05 LANDLORD'S DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE TWELVE - SURRENDER OF PREMISES . . . . . . . . . . . . . . . . . . . 20
12.01 IN GENERAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
12.02 LANDLORD'S RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE THIRTEEN - HOLDING OVER. . . . . . . . . . . . . . . . . . . . . . . 20
i
<PAGE>
ARTICLE FOURTEEN - DAMAGE BY FIRE OR OTHER CASUALTY. . . . . . . . . . . . . 20
14.01 SUBSTANTIAL UNTENANTABILITY . . . . . . . . . . . . . . . . . . . 20
14.02 INSUBSTANTIAL UNTENANTABILITY . . . . . . . . . . . . . . . . . . 21
14.03 RENT ABATEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . 21
14.04 WAIVER OF STATUTORY REMEDIES. . . . . . . . . . . . . . . . . . . 21
ARTICLE FIFTEEN - EMINENT DOMAIN . . . . . . . . . . . . . . . . . . . . . . 22
15.01 TAKING OF WHOLE OR SUBSTANTIAL PART . . . . . . . . . . . . . . . 22
15.02 TAKING OF PART. . . . . . . . . . . . . . . . . . . . . . . . . . 22
15.03 COMPENSATION. . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE SIXTEEN - INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . . 22
16.01 TENANT'S INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . 22
16.02 FORM OF POLICIES. . . . . . . . . . . . . . . . . . . . . . . . . 23
16.03 LANDLORD'S INSURANCE. . . . . . . . . . . . . . . . . . . . . . . 23
16.04 WAIVER OF SUBROGATION . . . . . . . . . . . . . . . . . . . . . . 23
16.05 NOTICE OF CASUALTY. . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE SEVENTEEN - WAIVER OF CLAIMS AND INDEMNITY . . . . . . . . . . . . . 24
17.01 WAIVER OF CLAIMS. . . . . . . . . . . . . . . . . . . . . . . . . 24
17.02 INDEMNITY BY TENANT . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE EIGHTEEN - RULES AND REGULATIONS . . . . . . . . . . . . . . . . . . 24
18.01 RULES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
18.02 ENFORCEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE NINETEEN - LANDLORD'S RESERVED RIGHTS. . . . . . . . . . . . . . . . 25
ARTICLE TWENTY - ESTOPPEL CERTIFICATE. . . . . . . . . . . . . . . . . . . . 25
20.01 IN GENERAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
20.02 ENFORCEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE TWENTY-ONE - RELOCATION OF TENANT. . . . . . . . . . . . . . . . . . 25
ARTICLE TWENTY-TWO - REAL ESTATE BROKERS . . . . . . . . . . . . . . . . . . 26
ARTICLE TWENTY-THREE - MORTGAGEE PROTECTION. . . . . . . . . . . . . . . . . 26
23.01 SUBORDINATION AND ATTORNMENT. . . . . . . . . . . . . . . . . . . 26
23.02 MORTGAGEE PROTECTION. . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE TWENTY-FOUR - NOTICES. . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE TWENTY-FIVE - EXERCISE FACILITY. . . . . . . . . . . . . . . . . . . 27
ARTICLE TWENTY-SIX - MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . 28
26.01 LATE CHARGES. . . . . . . . . . . . . . . . . . . . . . . . . . . 28
26.02 NO JURY TRIAL; VENUE; JURISDICTION. . . . . . . . . . . . . . . . 28
26.03 DEFAULT UNDER OTHER LEASE . . . . . . . . . . . . . . . . . . . . 28
26.04 OPTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
26.05 TENANT AUTHORITY. . . . . . . . . . . . . . . . . . . . . . . . . 28
26.06 ENTIRE AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . . 28
26.07 MODIFICATION OF LEASE FOR BENEFIT OF MORTGAGEE. . . . . . . . . . 29
26.08 EXCULPATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
26.09 ACCORD AND SATISFACTION . . . . . . . . . . . . . . . . . . . . . 29
26.10 LANDLORD'S OBLIGATIONS ON SALE OF BUILDING. . . . . . . . . . . . 29
26.11 BINDING EFFECT. . . . . . . . . . . . . . . . . . . . . . . . . . 29
26.12 CAPTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
26.13 TIME; APPLICABLE LAW; CONSTRUCTION. . . . . . . . . . . . . . . . 29
26.14 ABANDONMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
26.15 LANDLORD'S RIGHT TO PERFORM TENANT'S DUTIES . . . . . . . . . . . 30
26.16 SECURITY SYSTEM . . . . . . . . . . . . . . . . . . . . . . . . . 30
26.17 NO LIGHT, AIR OR VIEW EASEMENTS . . . . . . . . . . . . . . . . . 30
26.18 RECORDATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
26.19 SURVIVAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
26.20 RIDERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
</TABLE>
ii
<PAGE>
LEASE
ARTICLE ONE
BASIC LEASE PROVISIONS
1.01 BASIC LEASE PROVISIONS
In the event of any conflict between these Basic Lease Provisions and any other
Lease provision, such other Lease provision shall control.
(1) BUILDING AND ADDRESS:
301 Galveston Drive
Redwood City, California 94063
Building Number 9, located in Phase II ("Tenant's Phase") of Seaport
Centre
(2) LANDLORD AND ADDRESS:
Metropolitan Life Insurance Company,
a New York corporation
Notices to Landlord shall be addressed:
Metropolitan Life Insurance Company
c/o Seaport Centre Manager
701 Chesapeake Drive
Redwood City, CA 94063
with copies to the following:
Metropolitan Life Insurance Company
101 Lincoln Centre Drive, Suite 600
Foster City, CA 94404
Attention: Assistant Vice President
(3) TENANT AND CURRENT ADDRESS:
(a) Name: NetObjects, Inc.
(b) State of incorporation: Delaware
Notices to Tenant shall be addressed:
Before the Delivery Date:
NetObjects, Inc.
602 Galveston Drive
Redwood City, California 94063
On & After the Delivery Date:
NetObjects, Inc.
301 Galveston Drive
Redwood City, California 94063
(4) DATE OF LEASE: as of July 24, 1998
(5) LEASE TERM: the period that expires 4 years after the Expansion Space A
Commencement Date ("SACD"), provided however, if pursuant to Section 3(d)
of Rider 2 Tenant terminates its obligation to lease Expansion Space A,
the Lease Term shall run for 4 years after the Commencement Date, all as
provided in Rider 2.
(6) COMMENCEMENT DATE: forty-five (45) days after the Delivery Date as
provided in Rider 2.
(7) PROJECTED EXPIRATION DATE: forty-eight (48) months after the SACD,
provided however, if pursuant to Section 3(d) of Rider 2 Tenant
terminates its obligation to lease Expansion Space A, the Expiration Date
shall be forty-eight (48) months after the Commencement Date, as provided
in Rider 2.
1
<PAGE>
(8) MONTHLY BASE RENT (initial monthly installment due upon Tenant's
execution):
<TABLE>
<CAPTION>
Period from/through Monthly Monthly Rate/SF of Rentable Area
<S> <C> <C>
Month 01 - Month 12 $28,932.20 $2.20
Month 13 - Month 24 $29,800.16 $2.27
Month 25 - Month 36 $30,694.16 $2.33
Month 37 - Expiration Date $31,561.08 $2.40
</TABLE>
(9) RENT ADJUSTMENT DEPOSIT (initial monthly rate, until further notice):
$5,786.44 (initial monthly installment due upon Tenant's execution)
(10) RENTABLE AREA OF THE PREMISES: 13,151 square feet
(11) RENTABLE AREA OF THE BUILDING 25,814 square feet
(12) RENTABLE AREA OF THE PHASE: 235,620 square feet
(13) RENTABLE AREA OF THE PROJECT: 537,444 square feet
(14) SECURITY DEPOSIT: Sixty Thousand Dollars ($60,000.00) due upon Tenant's
execution
(15) SUITE NUMBER &/OR ADDRESS OF PREMISES: 301 Galveston
(16) TENANT'S SHARE:
Tenant's Building Share: 50.9452%
Tenant's Phase Share: 05.5814%
Tenant's Project Share: 02.4470%
(17) TENANT'S USE OF PREMISES: office, research and
development & warehousing use.
(18) PARKING SPACES: 43
(19) BROKERS:
Landlord's Broker: Cornish & Carey
Tenant's Broker: Cornish & Carey
1.02 ENUMERATION OF EXHIBITS & RIDER(S)
The Exhibits and Rider(s) set forth below and attached to this Lease are
incorporated in this Lease by this reference:
EXHIBIT A Plan of Premises
EXHIBIT B Workletter Agreement (intentionally omitted)
EXHIBIT C Site Plan of Project
EXHIBIT D Plan of Expansion Space A
EXHIBIT E Form of Subordination, Nondisturbance and Attornment Agreement
RIDER 1 Commencement Date Agreement
RIDER 2 Additional Provisions
RIDER 3 Expansion Space A Commencement Date Agreement
1.03 DEFINITIONS
For purposes hereof, the following terms shall have the following meanings:
ADJUSTMENT YEAR: The applicable calendar year or any portion thereof after the
Commencement Date of this Lease for which a Rent Adjustment computation is being
made.
AFFILIATE: Any Person (as defined below) which is currently owned or controlled
by, owns or controls, or is under common ownership or control with Tenant. For
purposes of this definition, the word "control," as used above means, with
respect to a Person that is a corporation, the right to exercise, directly or
indirectly, more than sixty percent (60%) of the voting rights attributable to
the shares of the controlled corporation and, with respect to a Person that is
not a corporation, the possession, directly or indirectly, of the power at all
times to direct or cause the direction of the management and policies of the
controlled Person. The word Person means an individual, partnership, trust,
corporation, firm or other entity.
BUILDING: The building in which the Premises is located, at the address and
Building number specified in Section 1.01(1).
2
<PAGE>
BUILDING OPERATING EXPENSES: Those Operating Expenses described in Section
4.01.
COMMENCEMENT DATE: The date specified in Section 1.01(6), unless changed by
operation of Rider 2.
COMMON AREAS: All areas of the Project made available by Landlord from time to
time for the general common use or benefit of the tenants of the Building or
Project, and their employees and invitees, or the public, as such areas
currently exist and as they may be changed from time to time.
DECORATION: Tenant Alterations which do not require a building permit and which
do not affect the facade or roof of the Building, or involve any of the
structural elements of the Building, or involve any of the Building's systems,
including its electrical, mechanical, plumbing, security, heating, ventilating,
air-conditioning, communication, and fire and life safety systems.
DEFAULT RATE: Two (2) percentage points above the rate then most recently
announced by Bank of America N.T.& S.A. at its San Francisco main office as its
corporate base lending rate, from time to time announced, but in no event higher
than the maximum rate permitted by Law.
DELIVERY DATE: The date on which Landlord tenders to Tenant possession of the
Premises, as provided in Rider 2.
ENVIRONMENTAL LAWS: All Laws governing the use, storage, disposal or generation
of any Hazardous Material or pertaining to environmental conditions on, under or
about the Premises or any part of the Project, including the Comprehensive
Environmental Response Compensation and Liability Act of 1980, as amended (42
U.S.C. Section 9601 ET SEQ.), and the Resource Conservation and Recovery Act of
1976, as amended (42 U.S.C. Section 6901 ET SEQ.).
EXPIRATION DATE: The date specified in Section 1.01(7) unless changed by
operation of Article Two.
FORCE MAJEURE: Any accident, casualty, act of God, war or civil commotion,
strike or labor troubles, or any cause whatsoever beyond the reasonable control
of Landlord, including water shortages, energy shortages or governmental
preemption in connection with an act of God, a national emergency, or by reason
of Law, or by reason of the conditions of supply and demand which have been or
are affected by act of God, war or other emergency.
HAZARDOUS MATERIAL: Such substances, material and wastes which are or become
regulated under any Environmental Law; or which are classified as hazardous or
toxic or medical waste or biohazardous waste under any Environmental Law; and
explosives, firearms and ammunition, flammable material, radioactive material,
asbestos, polychlorinated biphenyls and petroleum and its byproducts.
INDEMNITEES: Collectively, Landlord, any Mortgagee or ground lessor of the
Property, the property manager and the leasing manager for the Property and
their respective directors, officers, agents and employees.
LAND: The parcel(s) of real estate on which the Building and Project are
located.
LANDLORD WORK: The construction or installation of improvements to be furnished
by Landlord, if any, specifically described in Rider 2 attached hereto.
LAWS OR LAW: All laws, ordinances, rules, regulations, other requirements,
orders, rulings or decisions adopted or made by any governmental body, agency,
department or judicial authority having jurisdiction over the Property, the
Premises or Tenant's activities at the Premises and any covenants, conditions or
restrictions of record which affect the Property.
LEASE: This instrument and all exhibits and riders attached hereto, as may be
amended from time to time.
LEASE YEAR: The twelve month period beginning on the first day of the first
month following the Commencement Date (unless the Commencement Date is the first
day of a calendar month in which case beginning on the Commencement Date), and
each subsequent twelve month, or shorter, period until the Expiration Date.
MONTHLY BASE RENT: The monthly rent specified in Section 1.01(8).
MORTGAGEE: Any holder of a mortgage, deed of trust or other security instrument
encumbering the Property.
NATIONAL HOLIDAYS: New Year's Day, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day and other holidays recognized by the Landlord
and the janitorial and other unions servicing the Building in accordance with
their contracts.
OPERATING EXPENSES: All Taxes, costs, expenses and disbursements of every kind
and nature which Landlord shall pay or become obligated to pay in connection
with the ownership, management, operation,
3
<PAGE>
maintenance, replacement and repair of the Property (including the amortized
portion of any capital expenditure or improvement, together with interest
thereon, expenses of changing utility service providers, and any dues,
assessments and other expenses pursuant to any covenants, conditions and
restrictions, or any reciprocal easements, or any owner's association now or
hereafter affecting the Project). Operating Expenses shall be allocated among
the categories of Project Operating Expenses, Building Operating Expenses or
Phase Operating Expenses as provided in Article Four. If any Operating Expense,
though paid in one year, relates to more than one calendar year, at the option
of Landlord such expense may be proportionately allocated among such related
calendar years. Operating Expenses shall include the following, by way of
illustration only and not limitation: (1) all Taxes; (2) all insurance premiums
and other costs (including deductibles), including the cost of rental insurance;
(3) all license, permit and inspection fees; (4) all costs of utilities, fuels
and related services, including water, sewer, light, telephone, power and steam
connection, service and related charges; (5) all costs to repair, maintain and
operate heating, ventilating and air conditioning systems, including preventive
maintenance; (6) all janitorial, landscaping and security services; (7) all
wages, salaries, payroll taxes, fringe benefits and other labor costs, including
the cost of workers' compensation and disability insurance; (8) all costs of
operation, maintenance and repair of all parking facilities and other common
areas; (9) all supplies, materials, equipment and tools; (10) dues, assessments
and other expenses pursuant to any covenants, conditions and restrictions, or
any reciprocal easements, or any owner's association now or hereafter affecting
the Project; (11) modifications to the Building or the Project occasioned by
Laws now or hereafter in effect; (12) the total charges of any independent
contractors employed in the care, operation, maintenance, repair, leasing and
cleaning of the Project, including landscaping, roof maintenance, and repair,
maintenance and monitoring of life-safety systems, plumbing systems, electrical
wiring and Project signage; (13) the cost of accounting services necessary to
compute the rents and charges payable by tenants at the Project; (14) exterior
window and exterior wall cleaning and painting; (15) managerial and
administrative expenses; (16) all costs in connection with the exercise facility
at the Project; (17) all costs and expenses related to Landlord's retention of
consultants in connection with the routine review, inspection, testing,
monitoring, analysis and control of Hazardous Materials, and retention of
consultants in connection with the clean-up of Hazardous Materials (to the
extent not recoverable from a particular tenant of the Project), and all costs
and expenses related to the implementation of recommendations made by such
consultants concerning the use, generation, storage, manufacture, production,
storage, release, discharge, disposal or clean-up of Hazardous Materials on,
under or about the Premises or the Project (to the extent not recoverable from a
particular tenant of the Project); but Operating Costs shall not include the
costs and expenses, including those of retention of consultants and
implementation of such consultant's recommendations, to the extent incurred
specifically to clean-up or remove Hazardous Materials present on, under or
about the Premises or the Project prior to delivery to Tenant of possession of
the Premises; (18) all capital improvements made for the purpose of reducing or
controlling other Operating Expenses, and all other capital expenditures, but
only as amortized over the useful life of the applicable item(s), together with
interest thereon; (19) all property management costs and fees, including all
costs in connection with the Project property management office; and (20) all
fees or other charges incurred in conjunction with voluntary or involuntary
membership in any energy conservation, air quality, environmental, traffic
management or similar organizations. Operating Expenses shall not include: (a)
costs of alterations of space to be occupied by new or existing tenants of the
Project; (b) depreciation charges; (c) interest and principal payments on loans
(except for loans for capital improvements which Landlord is allowed to include
in Operating Expenses as provided above); (d) ground rental payments; (e) real
estate brokerage and leasing commissions; (f) advertising and marketing
expenses; (g) costs of Landlord reimbursed by insurance or condemnation
proceeds; (h) expenses incurred in negotiating leases of other tenants in the
Project or enforcing lease obligations of other tenants in the Project; and (i)
Landlord's or Landlord's property manager's corporate general overhead or
corporate general administrative expenses.
PHASE: Phase means any individual Phase of the Project, as more particularly
described in the definition of Project.
PHASE OPERATING EXPENSES: Those Operating Expenses described in Section 4.01.
PREMISES: The space located in the Building at the Suite Number listed in
Section 1.01(15) and depicted on EXHIBIT A attached hereto.
PROJECT or PROPERTY: As of the date hereof, the Project is known as Seaport
Centre and consists of those buildings (including the Building) whose general
location is shown on the Site Plan of the Project attached as EXHIBIT C, located
in Redwood City, California, associated vehicular and parking areas, landscaping
and improvements, together with the Land, any associated interests in real
property, and the personal property, fixtures, machinery, equipment, systems and
apparatus located in or used in conjunction with any of the foregoing. The
Project may also be referred to as the Property. As of the date hereof, the
Project is divided into Phase I and Phase II, which are generally designated on
EXHIBIT C, each of which may individually be referred to as a Phase. Landlord
reserves the right from time to time to add or remove buildings, areas and
improvements to or from a Phase or the Project, or to add or remove a Phase to
or from the Project. In the event of any such addition or removal which affects
Rentable Area of the Project or a Phase, Landlord shall make a corresponding
recalculation and adjustment of any affected Rentable Area and Tenant's Share.
PROJECT OPERATING EXPENSES: Those Operating Expenses described in Section 4.01.
REAL PROPERTY: The Property excluding any personal property.
4
<PAGE>
RENT: Collectively, Monthly Base Rent, Rent Adjustments and Rent Adjustment
Deposits, and all other charges, payments, late fees or other amounts required
to be paid by Tenant under this Lease.
RENT ADJUSTMENT: Any amounts owed by Tenant for payment of Operating Expenses.
The Rent Adjustments shall be determined and paid as provided in Article Four.
RENT ADJUSTMENT DEPOSIT: An amount equal to Landlord's estimate of the Rent
Adjustment attributable to each month of the applicable Adjustment Year. On or
before the Commencement Date and the beginning of each subsequent Adjustment
Year or with Landlord's Statement (defined in Article Four), Landlord may
estimate and notify Tenant in writing of its estimate of Operating Expenses,
including Project Operating Expenses, Building Operating Expenses and Phase
Operating Expenses, and Tenant's Share of each, for the applicable Adjustment
Year. The Rent Adjustment Deposit applicable for the calendar year in which the
Commencement Date occurs shall be the amount, if any, specified in Section
1.01(9). Nothing contained herein shall be construed to limit the right of
Landlord from time to time during any calendar year to revise its estimates of
Operating Expenses and to notify Tenant in writing thereof and of revision by
prospective adjustments in Tenant's Rent Adjustment Deposit payable over the
remainder of such year. The last estimate by Landlord shall remain in effect as
the applicable Rent Adjustment Deposit unless and until Landlord notifies Tenant
in writing of a change.
RENTABLE AREA OF THE BUILDING: The amount of square footage set forth in
Section 1.01(11)
RENTABLE AREA OF THE PHASE: The amount of square footage set forth in Section
1.01(12)
RENTABLE AREA OF THE PREMISES: The amount of square footage set forth in
Section 1.01(10).
RENTABLE AREA OF THE PROJECT: The amount of square footage set forth in Section
1.01(13), which represents the sum of the rentable area of all space intended
for occupancy in the Project.
SECURITY DEPOSIT: The funds specified in Section 1.01(14), if any, deposited by
Tenant with Landlord as security for Tenant's performance of its obligations
under this Lease.
SUBSTANTIALLY COMPLETE: The completion of the Landlord Work or Tenant Work, as
the case may be, except for minor insubstantial details of construction,
decoration or mechanical adjustments which remain to be done.
TAXES: All federal, state and local governmental taxes, assessments (including
assessment bonds) and charges of every kind or nature, whether general,
special, ordinary or extraordinary, which Landlord shall pay or become obligated
to pay because of or in connection with the ownership, leasing, management,
control or operation of the Property or any of its components (including any
personal property used in connection therewith), which may also include any
rental or similar taxes levied in lieu of or in addition to general real and/or
personal property taxes. For purposes hereof, Taxes for any year shall be Taxes
which are assessed for any period of such year, whether or not such Taxes are
billed and payable in a subsequent calendar year. There shall be included in
Taxes for any year the amount of all fees, costs and expenses (including
reasonable attorneys' fees) paid by Landlord during such year in seeking or
obtaining any refund or reduction of Taxes. Taxes for any year shall be reduced
by the net amount of any tax refund received by Landlord attributable to such
year. If a special assessment payable in installments is levied against any
part of the Property, Taxes for any year shall include only the installment of
such assessment and any interest payable or paid during such year. Taxes shall
not include any federal or state inheritance, general income, gift or estate
taxes, except that if a change occurs in the method of taxation resulting in
whole or in part in the substitution of any such taxes, or any other assessment,
for any Taxes as above defined, such substituted taxes or assessments shall be
included in the Taxes.
TENANT ADDITIONS: Collectively, Landlord Work, Tenant Work and Tenant
Alterations.
TENANT ALTERATIONS: Any alterations, improvements, additions, installations or
construction in or to the Premises or any Real Property systems serving the
Premises done or caused to be done by Tenant after the date hereof, whether
prior to or after the Commencement Date (including Tenant Work, but excluding
Landlord Work).
TENANT DELAY: Any event or occurrence which delays the completion of the
Landlord Work which is caused by or is described as follows:
(i) special work, changes, alterations or additions requested or made by
Tenant in the design or finish in any part of the Premises after approval
of the plans and specifications (as described in the Rider 2);
(ii) Tenant's delay in submitting plans, supplying information,
approving plans, specifications or estimates, giving authorizations or
otherwise;
(iii) failure to approve and pay for such work as Landlord undertakes to
complete at Tenant's expense;
5
<PAGE>
(iv) the performance or completion by Tenant or any person engaged by
Tenant of any work in or about the Premises; or
(v) failure to perform or comply with any obligation or condition
binding upon Tenant pursuant to Rider 2, including the failure to approve
and pay for such Landlord Work or other items if and to the extent Rider
2 provides they are to be approved or paid by Tenant.
TENANT WORK: All work installed or furnished to the Premises by Tenant in
connection with Tenant's initial occupancy pursuant to Rider 2.
TENANT'S BUILDING SHARE: The share as specified in Section 1.01(16) and Section
4.01.
TENANT'S PHASE: The Phase in which the Premises is located, as indicated in
Section 1.01(1).
TENANT'S PHASE SHARE: The share as specified in Section 1.01(16) and Section
4.01.
TENANT'S PROJECT SHARE: The share as specified in Section 1.01(16) and Section
4.01.
TENANT'S SHARE: Shall mean collectively, Tenant's respective shares of the
respective categories of Operating Expenses, as provided in Section 1.01(16) and
Section 4.01.
TERM: The term of this Lease commencing on the Commencement Date and expiring
on the Expiration Date.
TERMINATION DATE: The Expiration Date or such earlier date as this Lease
terminates or Tenant's right to possession of the Premises terminates.
WORKLETTER: (intentionally omitted)
ARTICLE TWO
PREMISES, TERM, FAILURE TO GIVE POSSESSION, COMMON AREAS AND PARKING
2.01 LEASE OF PREMISES
Landlord hereby leases to Tenant and Tenant hereby leases from Landlord the
Premises for the Term and upon the terms, covenants and conditions provided in
this Lease.
2.02 TERM
The Commencement Date shall be the date determined pursuant to Rider 2, as
specified in Section 1.01(6).
2.03 FAILURE TO GIVE POSSESSION
(intentionally omitted; see Rider 2)
2.04 AREA OF PREMISES
Landlord and Tenant agree that for all purposes of this Lease the Rentable Area
of the Premises, the Rentable Area of the Building, the Rentable Area of the
Phase and the Rentable Area of the Project as set forth in Article One are
controlling, and are not subject to revision after the date of this Lease,
except as otherwise provided herein.
2.05 CONDITION OF PREMISES
(intentionally omitted; see Rider 2)
2.06 COMMON AREAS & PARKING
(a) RIGHT TO USE COMMON AREAS. At no additional Rent, but without
limiting Tenant's obligation to pay Monthly Base Rent and Rent Adjustments for
Tenant's Share of Operating Expenses pursuant to this Lease, Tenant shall have
the non-exclusive right, in common with others, to the use of any common
entrances, ramps, drives and similar access and serviceways and other Common
Areas in the Project. The rights of Tenant hereunder in and to the Common Areas
shall at all times be subject to the rights of Landlord and other tenants and
owners in the Project who use the same in common with Tenant, and it shall be
the duty of Tenant to keep all the Common Areas free and clear of any
obstructions created or permitted by Tenant or resulting from Tenant's
operations. Tenant shall not use the Common Areas or common facilities of the
Building or the Project, including the Building's electrical room, parking lot
or trash enclosures, for storage purposes. Nothing herein shall affect the
right of Landlord at any time to remove any persons not authorized to use the
Common Areas or common facilities from such areas or facilities or to prevent
their use by unauthorized persons.
6
<PAGE>
(b) CHANGES IN COMMON AREAS. Landlord reserves the right, at any time
and from time to time to (i) make alterations in or additions to the Common
Areas or common facilities of the Project, including constructing new buildings
or changing the location, size, shape or number of the driveways, entrances,
parking spaces, parking areas, loading and unloading areas, landscape areas and
walkways, (ii) designate property to be included in or eliminate property from
the Common Areas or common facilities of the Project, (iii) close temporarily
any of the Common Areas or common facilities of the Project for maintenance
purposes, and (4) use the Common Areas and common facilities of the Project
while engaged in making alterations in or additions and repairs to the Project;
provided, however, that reasonable access to the Premises and parking at or near
the Project remains available.
(c) PARKING. At no additional Rent, but without limiting Tenant's
obligation to pay Monthly Base Rent and Rent Adjustments for Tenant's Share of
Operating Expenses pursuant to this Lease, during the Term, Tenant shall have
the right to use the number of Parking Spaces specified in Section 1.01(18) for
parking on an unassigned basis on that portion of the Project designated by
Landlord from time to time for parking. Tenant acknowledges and agrees that the
parking spaces in the Project's parking facility may include a mixture of spaces
for compact vehicles as well as full-size passenger automobiles, and that Tenant
shall not use parking spaces for vehicles larger than the striped size of the
parking spaces. Tenant shall not park any vehicles at the Project overnight.
Tenant shall comply with any and all parking rules and regulations if and as
from time to time established by Landlord. Tenant shall not allow any vehicles
using Tenant's parking privileges to be parked, loaded or unloaded except in
accordance with this Section, including in the areas and in the manner
designated by Landlord for such activities. If any vehicle is using the parking
or loading areas contrary to any provision of this Section, Landlord shall have
the right, in addition to all other rights and remedies of Landlord under this
Lease, to remove or tow away the vehicle without prior notice to Tenant, and the
cost thereof shall be paid to Landlord within ten (10) days after notice from
Landlord to Tenant.
ARTICLE THREE
RENT
Tenant agrees to pay to Landlord at the first office specified in Section
1.01(2), or to such other persons, or at such other places designated by
Landlord, without any prior demand therefor in immediately available funds
and without any deduction or offset whatsoever, Rent, including Monthly Base
Rent and Rent Adjustments in accordance with Article Four, during the Term.
Monthly Base Rent shall be paid monthly in advance on the first day of each
month of the Term, except that the first installment of Monthly Base Rent
shall be paid by Tenant to Landlord concurrently with execution of this
Lease. Monthly Base Rent shall be prorated for partial months within the
Term. Unpaid Rent shall bear interest at the Default Rate from the date due
until paid. Tenant's covenant to pay Rent shall be independent of every
other covenant in this Lease.
ARTICLE FOUR
OPERATING EXPENSES, RENT ADJUSTMENTS AND PAYMENTS
4.01 TENANT'S SHARE OF OPERATING EXPENSES
Tenant shall pay Tenant's Share of Operating Expenses in the respective shares
of the respective categories of Operating Expenses as set forth below.
(a) Tenant's Project Share of Project Operating Expenses, which
is the percentage obtained by dividing the rentable square footage of the
Premises for the building(s) in which the Premises is located by the
rentable square footage of the Project and as of the date hereof equals
the percentage set forth in Section 1.01(16);
(b) Tenant's Building Share of Building Operating Expenses, which
is the percentage obtained by dividing the rentable square footage of the
Premises respectively for each building in which the Premises is located
by the total rentable square footage of such building and as of the date
hereof equals the percentage set forth in Section 1.01(16);
(c) Tenant's Phase Share of Phase Operating Expenses, which is
the percentage obtained by dividing the aggregate rentable square footage
of the Premises located in Tenant's Phase by the total rentable square
footage of Tenant's Phase and as of the date hereof equals the percentage
set forth in Section 1.01(16);
(d) Project Operating Expenses shall mean all Operating Expenses
that are not included as Phase Operating Expenses (defined below) and
that are not either Building Operating Expenses or operating expenses
directly and separately identifiable to the operation, maintenance or
repair of any other building located in the Project, but Project
Operating Expenses includes operating expenses allocable to any areas of
the Building or any other building during such time as such areas are
made available by Landlord for the general common use or benefit of all
tenants of the Project, and their employees and invitees, or the public,
as such areas currently exist and as they may be changed from time to
time;
(e) Building Operating Expenses shall mean Operating Expenses
that are directly and separately identifiable to each building in which
the Premises or part thereof is located;
7
<PAGE>
(f) Phase Operating Expenses shall mean Operating Expenses that
Landlord may allocate to a Phase as directly and separately identifiable
to all buildings located in the Phase (including but not limited to the
Building) and may include Project Operating Expenses that are separately
identifiable to a Phase;
(g) Landlord shall have the right to allocate a particular item
or portion of Operating Expenses as any one of Project Operating
Expenses, Building Operating Expenses or Phase Operating Expenses;
however, in no event shall any portion of Building Operating Expenses,
Project Operating Expenses or Phase Operating Expenses be assessed or
counted against Tenant more than once; and.
(h) Notwithstanding anything to the contrary contained in this
Section 4.01, as to each specific category of Operating Expense which one
or more tenants of the Building either pays directly to third parties or
specifically reimburses to Landlord (for example, separately contracted
janitorial services or property taxes directly reimbursed to Landlord),
then, on a category by category basis, the amount of Operating Expenses
for the affected period shall be adjusted as follows: (1) all such tenant
payments with respect to such category of expense and all of Landlord's
costs reimbursed thereby shall be excluded from Operating Expenses and
Tenant's Building Share, Tenant's Phase Share or Tenant's Project Share,
as the case may be, for such category of Operating Expense shall be
adjusted by excluding the square footage of all such tenants, and (2) if
Tenant pays or directly reimburses Landlord for such category of
Operating Expense, such category of Operating Expense shall be excluded
from the determination of Operating Expenses for the purposes of this
Lease.
4.02 RENT ADJUSTMENTS
Tenant shall pay to Landlord Rent Adjustments with respect to each Adjustment
Year as follows:
(a) The Rent Adjustment Deposit representing Tenant's Share of
Landlord's estimate of Operating Expenses, as described in Section 4.01,
for the applicable Adjustment Year (or portion thereof) monthly during
the Term with the payment of Monthly Base Rent, except the first
installment which shall be paid by Tenant to Landlord concurrently with
execution of this Lease; and
(b) Any Rent Adjustments due in excess of the Rent Adjustment
Deposits in accordance with Section 4.02.
4.03 STATEMENT OF LANDLORD
Within one hundred twenty (120) days after the end of each calendar year or as
soon thereafter as reasonably possible, Landlord will furnish Tenant a statement
("Landlord's Statement") showing the following:
(a) Operating Expenses for the last Adjustment Year showing in
reasonable detail the actual Operating Expenses categorized among Project
Operating Expenses, Building Operating Expenses and Phase Operating
Expenses for such period and Tenant's Share of each as described in
Section 4.01 above;
(b) The amount of Rent Adjustments due Landlord for the last
Adjustment Year, less credit for Rent Adjustment Deposits paid, if any;
and
(c) Any change in the Rent Adjustment Deposit due monthly in the
current Adjustment Year, including the amount or revised amount due for
months preceding any such change pursuant to Landlord's Statement.
Tenant shall pay to Landlord within ten (10) days after receipt of such
statement any amounts for Rent Adjustments then due in accordance with
Landlord's Statement. Any amounts due from Landlord to Tenant pursuant to this
Section shall be credited to the Rent Adjustment Deposit next coming due, or
refunded to Tenant if the Term has already expired provided Tenant is not in
default hereunder. No interest or penalties shall accrue on any amounts which
Landlord is obligated to credit or refund to Tenant by reason of this Section
4.02. Landlord's failure to deliver Landlord's Statement or to compute the
amount of the Rent Adjustments shall not constitute a waiver by Landlord of its
right to deliver such items nor constitute a waiver or release of Tenant's
obligations to pay such amounts. The Rent Adjustment Deposit shall be credited
against Rent Adjustments due for the applicable Adjustment Year. During the
last complete calendar year or during any partial calendar year in which the
Lease terminates, Landlord may include in the Rent Adjustment Deposit its
estimate of Rent Adjustments which may not be finally determined until after the
termination of this Lease. Tenant's obligation to pay Rent Adjustments survives
the expiration or termination of the Lease. Notwithstanding the foregoing, in
no event shall the sum of Monthly Base Rent and the Rent Adjustments be less
than the Monthly Base Rent payable.
8
<PAGE>
4.04 BOOKS AND RECORDS
Landlord shall maintain books and records showing Operating Expenses and Taxes
in accordance with sound accounting and management practices, consistently
applied. The Tenant or its representative (which representative shall be a
certified public accountant licensed to do business in the state in which the
Property is located and whose primary business is certified public accounting)
shall have the right, for a period of sixty (60) days following the date upon
which Landlord's Statement is delivered to Tenant, to examine the Landlord's
books and records with respect to the items in the foregoing statement of
Operating Expenses and Taxes during normal business hours, upon written notice,
delivered at least three (3) business days in advance. If Tenant does not object
in writing to Landlord's Statement within ninety (90) days of Tenant's receipt
thereof, specifying the nature of the item in dispute and the reasons therefor,
then Landlord's Statement shall be considered final and accepted by Tenant. Any
amount due to the Landlord as shown on Landlord's Statement, whether or not
disputed by Tenant as provided herein shall be paid by Tenant when due as
provided above, without prejudice to any such written exception.
4.05 TENANT OR LEASE SPECIFIC TAXES
In addition to Monthly Base Rent, Rent Adjustments, Rent Adjustment Deposits and
other charges to be paid by Tenant, Tenant shall pay to Landlord, upon demand,
any and all taxes payable by Landlord (other than federal or state inheritance,
general income, gift or estate taxes) whether or not now customary or within the
contemplation of the parties hereto: (a) upon, allocable to, or measured by the
Rent payable hereunder, including any gross receipts tax or excise tax levied by
any governmental or taxing body with respect to the receipt of such rent; or (b)
upon or with respect to the possession, leasing, operation, management,
maintenance, alteration, repair, use or occupancy by Tenant of the Premises or
any portion thereof; or (c) upon the measured value of Tenant's personal
property or trade fixtures located in the Premises or in any storeroom or any
other place in the Premises or the Property, or the areas used in connection
with the operation of the Property, it being the intention of Landlord and
Tenant that, to the extent possible, Tenant shall cause such taxes on personal
property or trade fixtures to be billed to and paid directly by Tenant; (d)
resulting from Landlord Work, Tenant Work or Tenant Alterations to the Premises,
whether title thereto is in Landlord or Tenant; or (e) upon this transaction.
Taxes paid by Tenant pursuant to this Section 4.05 shall not be included in any
computation of Taxes as part of Operating Expenses.
ARTICLE FIVE
SECURITY DEPOSIT
Tenant concurrently with the execution of this Lease shall pay to Landlord in
immediately available funds the Security Deposit. The Security Deposit may be
applied by Landlord to cure, in whole or part, any default of Tenant under this
Lease, and upon notice by Landlord of such application, Tenant shall replenish
the Security Deposit in full by paying to Landlord within ten (10) days of
demand the amount so applied. Landlord's application of the Security Deposit
shall not constitute a waiver of Tenant's default to the extent that the
Security Deposit does not fully compensate Landlord for all losses, damages,
costs and expenses incurred by Landlord in connection with such default and
shall not prejudice any other rights or remedies available to Landlord under
this Lease or by Law. Landlord shall not pay any interest on the Security
Deposit. Landlord shall not be required to keep the Security Deposit separate
from its general accounts. The Security Deposit shall not be deemed an advance
payment of Rent, nor a measure of damages for any default by Tenant under this
Lease, nor shall it be a bar or defense of any action which Landlord may at any
time commence against Tenant. In the absence of evidence satisfactory to
Landlord of an assignment of the right to receive the Security Deposit or the
remaining balance thereof, Landlord may return the Security Deposit to the
original Tenant, regardless of one or more assignments of this Lease. Upon the
transfer of Landlord's interest under this Lease, Landlord's obligation to
Tenant with respect to the Security Deposit shall terminate upon transfer to the
transferee of the Security Deposit, or any balance thereof. If Tenant shall
fully and faithfully comply with all the terms, provisions, covenants, and
conditions of this Lease, the Security Deposit, or any balance thereof, shall be
returned to Tenant within thirty (30) days after Landlord recovers possession of
the Premises. Tenant hereby waives any and all rights of Tenant under the
provisions of Section 1950.7 of the California Civil Code or other Law regarding
security deposits.
ARTICLE SIX
UTILITIES & SERVICES
6.01 LANDLORD'S GENERAL SERVICES
Landlord shall provide maintenance and services as provided in Article Eight.
6.02 TENANT TO OBTAIN & PAY DIRECTLY
(a) Tenant shall be responsible for and shall pay promptly all charges
for gas, electricity, sewer, heat, light, power, telephone, refuse pickup (to be
performed on a regularly scheduled basis so that accumulated refuse does not
exceed the capacity of Tenant's refuse bins), janitorial service and all other
utilities, materials and services furnished directly to or used by Tenant in, on
or about the Premises, together with all taxes thereon. Tenant shall contract
directly with the providing companies for such utilities and services.
9
<PAGE>
(b) Notwithstanding any provision of the Lease to the contrary,
without, in each instance, the prior written consent of Landlord, as more
particularly provided in Article Nine, Tenant shall not: (i) make any
alterations or additions to the electric or gas equipment or systems or other
Building systems. Tenant's use of electric current shall at no time exceed the
capacity of the wiring, feeders and risers providing electric current to the
Premises or the Building. The consent of Landlord to the installation of
electric equipment shall not relieve Tenant from the obligation to limit usage
of electricity to no more than such capacity.
6.03 TELEPHONE SERVICES
All telegraph, telephone, and communication connections which Tenant may desire
outside the Premises shall be subject to Landlord's prior written approval, in
Landlord's sole discretion, and the location of all wires and the work in
connection therewith shall be performed by contractors approved by Landlord and
shall be subject to the direction of Landlord, except that such approval is not
required as to Tenant's cabling from the Premises in a route designated by
Landlord to any telephone cabinet or panel provided for Tenant's connection to
the telephone cable serving the Building, so long as Tenant's equipment does not
require connections different than or additional to those to the telephone
cabinet or panel provided. As to any such connections or work outside the
Premises requiring Landlord's approval, Landlord reserves the right to designate
and control the entity or entities providing telephone or other communication
cable installation, removal, repair and maintenance outside the Premises and to
restrict and control access to telephone cabinets or panels. In the event
Landlord designates a particular vendor or vendors to provide such cable
installation, removal, repair and maintenance for the Building, Tenant agrees to
abide by and participate in such program. Tenant shall be responsible for and
shall pay all costs incurred in connection with the installation of telephone
cables and communication wiring in the Premises, including any hook-up, access
and maintenance fees related to the installation of such wires and cables in the
Premises and the commencement of service therein, and the maintenance thereafter
of such wire and cables; and there shall be included in Operating Expenses for
the Building all installation, removal, hook-up or maintenance costs incurred by
Landlord in connection with telephone cables and communication wiring serving
the Building which are not allocable to any individual users of such service but
are allocable to the Building generally. If Tenant fails to maintain all
telephone cables and communication wiring in the Premises and such failure
affects or interferes with the operation or maintenance of any other telephone
cables or communication wiring serving the Building, Landlord or any vendor
hired by Landlord may enter into and upon the Premises forthwith and perform
such repairs, restorations or alterations as Landlord deems necessary in order
to eliminate any such interference (and Landlord may recover from Tenant all of
Landlord's costs in connection therewith). No later than the Termination Date,
Tenant agrees to remove all telephone cables and communication wiring installed
by Tenant for and during Tenant's occupancy, which Landlord shall request Tenant
to remove. Tenant agrees that neither Landlord nor any of its agents or
employees shall be liable to Tenant, or any of Tenant's employees, agents,
customers or invitees or anyone claiming through, by or under Tenant, for any
damages, injuries, losses, expenses, claims or causes of action because of any
interruption, diminution, delay or discontinuance at any time for any reason in
the furnishing of any telephone or other communication service to the Premises
and the Building.
6.04 FAILURE OR INTERRUPTION OF UTILITY OR SERVICE
To the extent that any equipment or machinery furnished or maintained by
Landlord outside the Premises is used in the delivery of utilities directly
obtained by Tenant pursuant to Section 6.02 and breaks down or ceases to
function properly, Landlord shall use reasonable diligence to repair same
promptly. In the event of any failure, stoppage or interruption of, or change
in, any utilities or services supplied by Landlord which are not directly
obtained by Tenant, Landlord shall use reasonable diligence to have service
promptly resumed. In either event covered by the preceding two sentences, if
the cause of any such failure, stoppage or interruption of, or change in,
utilities or services is within the control of a public utility, other public or
quasi-public entity, or utility provider outside Landlord's control,
notification to such utility or entity of such failure, stoppage or interruption
and request to remedy the same shall constitute "reasonable diligence" by
Landlord to have service promptly resumed. Notwithstanding any other provision
of this Section to the contrary, in the event of any failure, stoppage or
interruption of, or change in, any utility or other service furnished to the
Premises or the Project resulting from any cause, including changes in service
provider or Landlord's compliance with any voluntary or similar governmental or
business guidelines now or hereafter published or any requirements now or
hereafter established by any governmental agency, board or bureau having
jurisdiction over the operation of the Property: (a) Landlord shall not be
liable for, and Tenant shall not be entitled to, any abatement or reduction of
Rent; (b) no such failure, stoppage, or interruption of any such utility or
service shall constitute an eviction of Tenant or relieve Tenant of the
obligation to perform any covenant or agreement of this Lease to be performed by
Tenant; (c) Landlord shall not be in breach of this Lease nor be liable to
Tenant for damages or otherwise.
6.05 CHOICE OF SERVICE PROVIDER
Tenant acknowledges that Landlord may, at Landlord's sole option, to the extent
permitted by applicable law, elect to change, from time to time, the company or
companies which provide services (including electrical service, gas service,
water, telephone and technical services) to the Property, the Premises and/or
its occupants. Notwithstanding anything to the contrary set forth in this
Lease, Tenant acknowledges that Landlord has not and does not make any
representations or warranties concerning the identity or identities of the
company or companies which provide services to the Property and the Premises or
its occupants and Tenant acknowledges that the choice of service providers and
matters concerning the engagement and
10
<PAGE>
termination thereof shall be solely that of Landlord. The foregoing provision is
not intended to modify, amend, change or otherwise derogate any provision of
this Lease concerning the nature or type of service to be provided or any
specific information concerning the amount thereof to be provided. Tenant agrees
to cooperate with Landlord and each of its service providers in connection with
any change in service or provider.
6.06 SIGNAGE
Tenant shall not install any signage within the Project, the Building or the
Premises without obtaining the prior written approval of Landlord, and Tenant
shall be responsible for the installation and maintenance of any such signage
installed by Tenant. Any such signage shall comply with Landlord's current
Project signage criteria and all Laws.
ARTICLE SEVEN
POSSESSION, USE AND CONDITION OF PREMISES
7.01 POSSESSION AND USE OF PREMISES
(a) Tenant shall occupy and use the Premises only for the uses
specified in Section 1.01(17) to conduct Tenant's business. Tenant shall not
occupy or use the Premises (or permit the use or occupancy of the Premises) for
any purpose or in any manner which: (1) is unlawful or in violation of any Law
or Environmental Law; (2) may be dangerous to persons or property or which may
increase the cost of, or invalidate, any policy of insurance carried on the
Building or covering its operations; (3) is contrary to or prohibited by the
terms and conditions of this Lease or the rules of the Building set forth in
Article Eighteen; (4) contrary to or prohibited by the articles, bylaws or rules
of any owner's association affecting the Project; (5) is improper, immoral, or
objectionable; (6) would obstruct or interfere with the rights of other tenants
or occupants of the Building or the Project, or injure or annoy them, or would
tend to create or continue a nuisance; or (7) would constitute any waste in or
upon the Premises or Project.
(b) Landlord and Tenant acknowledge that the Americans With
Disabilities Act of 1990 (42 U.S.C. Section 12101 et seq.) and regulations and
guidelines promulgated thereunder, as all of the same may be amended and
supplemented from time to time (collectively referred to herein as the "ADA")
establish requirements for business operations, accessibility and barrier
removal, and that such requirements may or may not apply to the Premises, the
Building and the Project depending on, among other things: (1) whether Tenant's
business is deemed a "public accommodation" or "commercial facility", (2)
whether such requirements are "readily achievable", and (3) whether a given
alteration affects a "primary function area" or triggers "path of travel"
requirements. The parties hereby agree that: (a) Landlord shall be responsible
for ADA Title III compliance in the Common Areas, except as provided below, (b)
Tenant shall be responsible for ADA Title III compliance in the Premises,
including any leasehold improvements or other work to be performed in the
Premises under or in connection with this Lease, (c) Landlord may perform, or
require that Tenant perform, and Tenant shall be responsible for the cost of,
ADA Title III "path of travel" requirements triggered by Tenant Additions in the
Premises, and (d) Landlord may perform, or require Tenant to perform, and Tenant
shall be responsible for the cost of, ADA Title III compliance in the Common
Areas necessitated by the Building being deemed to be a "public accommodation"
instead of a "commercial facility" as a result of Tenant's use of the Premises.
Tenant shall be solely responsible for requirements under Title I of the ADA
relating to Tenant's employees.
(c) Landlord and Tenant agree to cooperate and use commercially
reasonable efforts to participate in traffic management programs generally
applicable to businesses located in or about the area and Tenant shall encourage
and support van and car pooling by, and staggered and flexible working hours
for, its office workers and service employees to the extent reasonably permitted
by the requirements of Tenant's business. Neither this Section or any other
provision of this Lease is intended to or shall create any rights or benefits in
any other person, firm, company, governmental entity or the public.
(d) Tenant agrees to cooperate with Landlord and to comply with any
and all guidelines or controls concerning energy management imposed upon
Landlord by federal or state governmental organizations or by any energy
conservation association to which Landlord is a party or which is applicable to
the Building.
7.02 HAZARDOUS MATERIALS
(a) Tenant shall not use, generate, manufacture, produce, store,
release, discharge, or dispose of, on, under or about the Premises or any part
of the Project, or transport to or from the Premises or any part of the Project,
any Hazardous Material or allow its employees, agents, contractors, licensees,
invitees or any other person or entity to do so. The foregoing covenant shall
not extend to insignificant amounts of substances typically found or used in
general office applications so long as (i) such substances are maintained only
in such quantities as are reasonably necessary for Tenant's operations in the
Premises, (ii) such substances are used strictly in accordance with the
manufacturers' instructions therefor and all applicable laws, (iii) such
substances are not disposed of in or about the Building or the Project in a
manner which would constitute a release or discharge thereof, and (iv) all such
substances are removed from the Building and the Project by Tenant upon the
expiration or earlier termination of this Lease. Tenant shall, within thirty
(30) days after demand therefor, provide to Landlord a written list identifying
any Hazardous
11
<PAGE>
Materials then maintained by Tenant in the Building, the use of each such
Hazardous Material so maintained by Tenant together with written certification
by Tenant stating, in substance, that neither Tenant nor any person for whom
Tenant is responsible has released or discharged any Hazardous Materials in or
about the Building or the Project. Landlord's right of entry pursuant to
Section 7.03 of this Lease shall include the right to enter and inspect the
Premises for violations of Tenant's covenant herein.
(b) Hazardous Materials shall include by way of illustration, and
without limiting the generality of the definition of Hazardous Materials in
Section 1.03, the following: (i) those substances included within the
definitions of "hazardous substances," "hazardous materials," "toxic substances"
or "solid waste" under all present and future federal, state and local laws
(whether under common law, statute, rule, regulation or otherwise) relating to
the protection of human health or the environment, including California Senate
Bill 245 (Statutes of 1987, Chapter 1302), the Safe Drinking Water and Toxic
Enforcement Act of 1986 (commonly known as Proposition 65) and the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, 42
U.S.C. Section 9601 ET SEQ., the Resource Conservation and Recovery Act of 1976,
42 U.S.C. Section 6901 ET SEQ., and the Hazardous Materials Transportation Act,
49 U.S.C. Sections 1801, ET SEQ., all as heretofore and hereafter amended, or in
any regulations promulgated pursuant to said laws; (ii) those substances defined
as "hazardous wastes" in Section 25117 of the California Health & Safety Code or
as "hazardous substances" in Section 25316 of the California Health & Safety
Code, or in any regulations promulgated pursuant to said laws; (iii) those
substances listed in the United States Department of Transportation Table (49
CFR 172.101 and amendments thereto) or designated by the Environmental
Protection Agency (or any successor agency) as hazardous substances (SEE, E.G.,
40 CFR Part 302 and amendments thereto); (iv) such other substances, materials
and wastes which are or become regulated under applicable local, state or
federal law or by the United States government or which are or become classified
as hazardous or toxic under federal, state or local laws or regulations,
including California Health & Safety Code, Division 20, and Title 26 of the
California Code of Regulations; and (v) any material, waste or substance which
contains petroleum, asbestos or polychlorinated biphenyls, is designated as a
"hazardous substance" pursuant to Section 311 of the Clean Water Act of 1977, 33
U.S.C. Sections 1251, ET SEQ. (33 U.S.C. Section 1321) or listed pursuant to
Section 307 of the Clean Water Act of 1977 (33 U.S.C. Section 1317) or contains
any flammable, explosive or radioactive material.
(c) To the extent permitted by Law, Tenant hereby indemnifies, and
agrees to protect, defend and hold the Indemnitees harmless, against any and all
actions, claims, demands, liability, costs and expenses, including attorneys'
fees and expenses for the defense thereof, arising out of any and all of (i) the
introduction into the Project by Tenant, its employees, agents, contractors,
licensees, invitees or any other person or entity for whom Tenant is responsible
(collectively, "Tenant's Agents") of any Hazardous Material, (ii) the usage by
Tenant or Tenant's Agents of Hazardous Materials in or about the Project,
(iii) the discharge or release in or about the Project by Tenant or Tenant's
Agents of any Hazardous Material, (iv) any injury to or death of persons or
damage to or destruction of property resulting from the use by Tenant or
Tenant's Agents of Hazardous Materials in or about the Project, and (v) any
failure of Tenant or Tenant's Agents to observe the foregoing covenants. In
case of any action or proceeding brought against the Indemnitees by reason of
any such claim, upon notice from Landlord, Tenant covenants to defend such
action or proceeding by counsel chosen by Landlord, in Landlord's sole
discretion. Landlord reserves the right to settle, compromise or dispose of any
and all actions, claims and demands related to the foregoing indemnity. The
foregoing indemnity shall not operate to relieve Landlord of any liability
Landlord has under Environmental Laws to the extent Hazardous Materials are
present on, under or about the Premises or the Project prior to delivery to
Tenant of possession of the Premises.
(d) Tenant acknowledges that the sewer piping at the Project is made
of ABS plastic. Accordingly, without Landlord's prior written consent, which
may be given or withheld in Landlord's sole discretion, only ordinary domestic
sewage is permitted to be put into the drains at the Premises. UNDER NO
CIRCUMSTANCES SHALL Tenant EVER DEPOSIT ANY ESTERS OR KETONES (USUALLY FOUND IN
SOLVENTS TO CLEAN UP PETROLEUM PRODUCTS) IN THE DRAINS AT THE PREMISES. If
Tenant desires to put any substances other than ordinary domestic sewage into
the drains, it shall first submit to Landlord a complete description of each
such substance, including its chemical composition, and a sample of such
substance suitable for laboratory testing. Landlord shall promptly determine
whether or not the substance can be deposited into the drains and its
determination shall be absolutely binding on Tenant. Upon demand, Tenant shall
reimburse Landlord for expenses incurred by Landlord in making such
determination. If any substances not so approved hereunder are deposited in the
drains in Tenant's Premises, Tenant shall be liable to Landlord for all damages
resulting therefrom, including but not limited to all costs and expenses
incurred by Landlord in repairing or replacing the piping so damaged.
(e) Upon any violation of any of the foregoing covenants, in addition
to all remedies available to a landlord against the defaulting tenant, including
but not limited to those set forth in Article Eleven of this Lease, Tenant
expressly agrees that upon any such violation Landlord may, at its option
(i) immediately terminate this Lease by giving written notice to Tenant of such
termination, or (ii) continue this Lease in effect until compliance by Tenant
with its clean-up and removal covenant (notwithstanding the expiration of the
Term). No action by Landlord hereunder shall impair the obligations of Tenant
pursuant to this Section 7.02.
7.03 LANDLORD ACCESS TO PREMISES; APPROVALS
(a) Tenant shall permit Landlord to erect, use and maintain pipes,
ducts, wiring and conduits in and through the Premises, so long as Tenant's use,
layout or design of the Premises is not materially
12
<PAGE>
affected or altered. Landlord or Landlord's agents shall have the right to
enter upon the Premises in the event of an emergency, or to inspect the
Premises, to perform janitorial and other services (if any), to conduct safety
and other testing in the Premises and to make such repairs, alterations,
improvements or additions to the Premises or the Building or other parts of the
Property as Landlord may deem necessary or desirable (including all alterations,
improvements and additions in connection with a change in service provider or
providers). Janitorial and cleaning services (if any) shall be performed after
normal business hours. Any entry or work by Landlord may be during normal
business hours and Landlord will use reasonable efforts to ensure that any entry
or work shall not materially interfere with Tenant's occupancy of the Premises.
(b) If Tenant shall not be personally present to permit an entry into
the Premises when for any reason an entry therein shall be necessary or
permissible, Landlord (or Landlord's agents), after attempting to notify Tenant
(unless Landlord believes an emergency situation exists), may enter the Premises
without rendering Landlord or its agents liable therefor, and without relieving
Tenant of any obligations under this Lease.
(c) Landlord may enter the Premises for the purpose of conducting such
inspections, tests and studies as Landlord may deem desirable or necessary to
confirm Tenant's compliance with all Laws and Environmental Laws or for other
purposes necessary in Landlord's reasonable judgment to ensure the sound
condition of the Property and the systems serving the Property. Landlord's
rights under this Section 7.02(c) are for Landlord's own protection only, and
Landlord has not, and shall not be deemed to have assumed, any responsibility to
Tenant or any other party as a result of the exercise or non-exercise of such
rights, for compliance with Laws or Environmental Laws or for the accuracy or
sufficiency of any item or the quality or suitability of any item for its
intended use.
(d) Landlord may do any of the foregoing, or undertake any of the
inspection or work described in the preceding paragraphs without such action
constituting an actual or constructive eviction of Tenant, in whole or in part,
or giving rise to an abatement of Rent by reason of loss or interruption of
business of the Tenant, or otherwise.
(e) The review, approval or consent of Landlord with respect to any
item required or permitted under this Lease is for Landlord's own protection
only, and Landlord has not, and shall not be deemed to have assumed, any
responsibility to Tenant or any other party, as a result of the exercise or
non-exercise of such rights, for compliance with Laws or Environmental Laws or
for the accuracy or sufficiency of any item or the quality or suitability of any
item for its intended use.
7.04 QUIET ENJOYMENT
Landlord covenants, in lieu of any implied covenant of quiet possession or quiet
enjoyment, that so long as Tenant is in compliance with the covenants and
conditions set forth in this Lease, Tenant shall have the right to quiet
enjoyment of the Premises without hindrance or interference from Landlord or
those claiming through Landlord, and subject to the covenants and conditions set
forth in the Lease and to the rights of any Mortgagee or ground lessor.
ARTICLE EIGHT
MAINTENANCE
8.01 LANDLORD'S MAINTENANCE
Subject to Article Fourteen and Section 8.02, Landlord shall maintain the
structural portions of the Building, the roof, exterior walls and exterior
doors, foundation, and underslab standard sewer system of the Building in good,
clean and safe condition, and shall use reasonable efforts, through Landlord's
program of regularly scheduled preventive maintenance, to keep the Building's
standard heating, ventilation and air conditioning ("HVAC") equipment in
reasonably good order and condition. Notwithstanding the foregoing, Landlord
shall have no responsibility to repair the Building's standard heating,
ventilation and air conditioning equipment, and all such repairs shall be
performed by Tenant pursuant to the terms of Section 8.02. Landlord shall also
(a) maintain the landscaping, parking facilities and other Common Areas of the
Project, and (b) wash the outside of exterior windows at intervals determined by
Landlord. Except as provided in Article Fourteen and Article Fifteen, there
shall be no abatement of rent, no allowance to Tenant for diminution of rental
value and no liability of Landlord by reason of inconvenience, annoyance or any
injury to or interference with Tenant's business arising from the making of or
the failure to make any repairs, alterations or improvements in or to any
portion of the Project or in or to any fixtures, appurtenances or equipment
therein. Tenant waives the right to make repairs at Landlord's expense under
any law, statute or ordinance now or hereafter in effect.
8.02 TENANT'S MAINTENANCE
Subject to the provisions of Article Fourteen, Tenant shall, at Tenant's sole
cost and expense, make all repairs to the Premises and fixtures therein which
Landlord is not required to make pursuant to Section 8.01, including repairs to
the interior walls, ceilings and windows of the Premises, the interior doors,
Tenant's signage, and the electrical, life-safety, plumbing and heating,
ventilation and air conditioning systems located within or serving the Premises
and shall maintain the Premises, the fixtures and utilities systems therein, and
the area immediately surrounding the Premises (including all garbage
enclosures), in a good, clean and safe condition. Tenant shall deliver to
Landlord a copy of any maintenance contract entered into by Tenant with
13
<PAGE>
respect to the Premises. Tenant shall also, at Tenant's expense, keep any
non-standard heating, ventilating and air conditioning equipment and other
non-standard equipment in the Building in good condition and repair, using
contractors approved in advance, in writing, by Landlord. Notwithstanding
Section 8.01 above, but subject to the waivers set forth in Section 16.04,
Tenant will pay for any repairs to the Building or the Project which are caused
by any negligence or carelessness, or by any willful and wrongful act, of Tenant
or its assignees, subtenants or employees, or of the respective agents of any of
the foregoing persons, or of any other persons permitted in the Building or
elsewhere in the Project by Tenant or any of them. Tenant will maintain the
Premises, and will leave the Premises upon termination of this Lease, in a safe,
clean, neat and sanitary condition.
ARTICLE NINE
ALTERATIONS AND IMPROVEMENTS
9.01 TENANT ALTERATIONS
(a) The following provisions shall apply to the completion of any
Tenant Alterations:
(1) Tenant shall not, except as provided herein, without the
prior written consent of Landlord, which consent shall not be
unreasonably withheld, make or cause to be made any Tenant Alterations in
or to the Premises or any Property systems serving the Premises. Prior
to making any Tenant Alterations, Tenant shall give Landlord ten (10)
days prior written notice (or such earlier notice as would be necessary
pursuant to applicable Law) to permit Landlord sufficient time to post
appropriate notices of non-responsibility. Subject to all other
requirements of this Article Nine, Tenant may undertake Decoration work
without Landlord's prior written consent. Tenant shall furnish Landlord
with the names and addresses of all contractors and subcontractors and
copies of all contracts. All Tenant Alterations shall be completed at
such time and in such manner as Landlord may from time to time designate,
and only by contractors or mechanics approved by Landlord, which approval
shall not be unreasonably withheld, provided, however, that Landlord may,
in its sole discretion, specify the engineers and contractors to perform
all work relating to the Building's systems (including the mechanical,
heating, plumbing, security, ventilating, air-conditioning, electrical,
communication and the fire and life safety systems in the Building). The
contractors, mechanics and engineers who may be used are further limited
to those whose work will not cause or threaten to cause disharmony or
interference with Landlord or other tenants in the Building and their
respective agents and contractors performing work in or about the
Building. Landlord may further condition its consent upon Tenant
furnishing to Landlord and Landlord approving prior to the commencement
of any work or delivery of materials to the Premises related to the
Tenant Alterations such of the following as specified by Landlord:
architectural plans and specifications, opinions from Landlord's
engineers stating that the Tenant Alterations will not in any way
adversely affect the Building's systems, necessary permits and licenses,
certificates of insurance, and such other documents in such form
reasonably requested by Landlord. Landlord may, in the exercise of
reasonable judgment, request that Tenant provide Landlord with
appropriate evidence of Tenant's ability to complete and pay for the
completion of the Tenant Alterations such as a performance bond or letter
of credit. Upon completion of the Tenant Alterations, Tenant shall
deliver to Landlord an as-built mylar and digitized (if available) set of
plans and specifications for the Tenant Alterations.
(2) Tenant shall pay the cost of all Tenant Alterations and the
cost of decorating the Premises and any work to the Property occasioned
thereby. In connection with completion of any Tenant Alterations, Tenant
shall pay Landlord a construction fee and all elevator and hoisting
charges at Landlord's then standard rate, which shall not exceed two
percent of all "hard costs" of the Tenant Alterations. Upon completion
of Tenant Alterations, Tenant shall furnish Landlord with contractors'
affidavits and full and final waivers of lien and receipted bills
covering all labor and materials expended and used in connection
therewith and such other documentation reasonably requested by Landlord
or Mortgagee.
(3) Tenant agrees to complete all Tenant Alterations (i) in
accordance with all Laws, Environmental Laws, all requirements of
applicable insurance companies and in accordance with Landlord's standard
construction rules and regulations, and (ii) in a good and workmanlike
manner with the use of good grades of materials. Tenant shall notify
Landlord immediately if Tenant receives any notice of violation of any
Law in connection with completion of any Tenant Alterations and shall
immediately take such steps as are necessary to remedy such violation.
In no event shall such supervision or right to supervise by Landlord nor
shall any approvals given by Landlord under this Lease constitute any
warranty by Landlord to Tenant of the adequacy of the design, workmanship
or quality of such work or materials for Tenant's intended use or of
compliance with the requirements of Section 9.01(a)(3)(i) and (ii) above
or impose any liability upon Landlord in connection with the performance
of such work.
(b) All Tenant Additions to the Premises whether installed by Landlord
or Tenant, shall without compensation or credit to Tenant, become part of the
Premises and the property of Landlord at the time of their installation and
shall remain in the Premises, unless pursuant to Article Twelve, Tenant may
remove them or is required to remove them at Landlord's request.
14
<PAGE>
9.02 LIENS
Tenant shall not permit any lien or claim for lien of any mechanic, laborer or
supplier or any other lien to be filed against the Building, the Land, the
Premises, or any other part of the Property arising out of work performed, or
alleged to have been performed by, or at the direction of, or on behalf of
Tenant. If any such lien or claim for lien is filed, Tenant shall within ten
(10) days of receiving notice of such lien or claim (a) have such lien or claim
for lien released of record or (b) deliver to Landlord a bond in form, content,
amount, and issued by surety, satisfactory to Landlord, indemnifying,
protecting, defending and holding harmless the Indemnitees against all costs and
liabilities resulting from such lien or claim for lien and the foreclosure or
attempted foreclosure thereof. If Tenant fails to take any of the above
actions, Landlord, in addition to its rights and remedies under Article Eleven,
without investigating the validity of such lien or claim for lien, may pay or
discharge the same and Tenant shall, as payment of additional Rent hereunder,
reimburse Landlord upon demand for the amount so paid by Landlord, including
Landlord's expenses and attorneys' fees.
ARTICLE TEN
ASSIGNMENT AND SUBLETTING
10.01 ASSIGNMENT AND SUBLETTING
(a) Without the prior written consent of Landlord, which may be
withheld in Landlord's sole discretion, Tenant may not sublease, assign,
mortgage, pledge, hypothecate or otherwise transfer or permit the transfer of
this Lease or the encumbering of Tenant's interest therein in whole or in part,
by operation of Law or otherwise or permit the use or occupancy of the Premises,
or any part thereof, by anyone other than Tenant, provided, however, if Landlord
chooses not to recapture the space proposed to be subleased or assigned as
provided in Section 10.02, Landlord shall not unreasonably withhold its consent
to a subletting or assignment under this Section 10.01. Tenant agrees that the
provisions governing sublease and assignment set forth in this Article Ten shall
be deemed to be reasonable. If Tenant desires to enter into any sublease of the
Premises or assignment of this Lease, Tenant shall deliver written notice
thereof to Landlord ("Tenant's Notice"), together with the identity of the
proposed subtenant or assignee and the proposed principal terms thereof and
financial and other information sufficient for Landlord to make an informed
judgment with respect to such proposed subtenant or assignee at least sixty (60)
days prior to the commencement date of the term of the proposed sublease or
assignment. If Tenant proposes to sublease less than all of the Rentable Area
of the Premises, the space proposed to be sublet and the space retained by
Tenant must each be a marketable unit as reasonably determined by Landlord and
otherwise in compliance with all Laws. Landlord shall notify Tenant in writing
of its approval or disapproval of the proposed sublease or assignment or its
decision to exercise its rights under Section 10.02 within thirty (30) days
after receipt of Tenant's Notice (and all required information). In no event
may Tenant sublease any portion of the Premises or assign the Lease to any other
tenant of the Project. Tenant shall submit for Landlord's approval (which
approval shall not be unreasonably withheld) any advertising which Tenant or its
agents intend to use with respect to the space proposed to be sublet.
(b) With respect to Landlord's consent to an assignment or sublease,
Landlord may take into consideration any factors which Landlord may deem
relevant, and the reasons for which Landlord's denial shall be deemed to be
reasonable shall include, without limitation, the following:
(i) the business reputation or creditworthiness of any proposed
subtenant or assignee is not acceptable to Landlord; or
(ii) in Landlord's reasonable judgment the proposed assignee or
subtenant would diminish the value or reputation of the Building or
Landlord; or
(iii) any proposed assignee's or subtenant's use of the Premises would
violate Section 7.01 of the Lease or would violate the provisions of any
other leases of tenants in the Project;
(iv) the proposed assignee or subtenant is either a governmental
agency, a school or similar operation, or a medical related practice; or
(v) the proposed subtenant or assignee is a bona fide prospective
tenant of Landlord in the Project as demonstrated by a written proposal
dated within ninety (90) days prior to the date of Tenant's request; or
(vi) the proposed subtenant or assignee would materially increase the
estimated pedestrian and vehicular traffic to and from the Premises and
the Building.
In no event shall Landlord be obligated to consider a consent to any proposed
assignment of the Lease which would assign less than the entire Premises. In
the event Landlord wrongfully withholds its consent to any proposed sublease of
the Premises or assignment of the Lease, Tenant's sole and exclusive remedy
therefor shall be to seek specific performance of Landlord's obligations to
consent to such sublease or assignment.
(c) Any sublease or assignment shall be expressly subject to the terms
and conditions of this Lease. Any subtenant or assignee shall execute such
documents as Landlord may reasonably require to
15
<PAGE>
evidence such subtenant or assignee's assumption of the obligations and
liabilities of Tenant under this Lease. Tenant shall deliver to Landlord a copy
of all agreements executed by Tenant and the proposed subtenant and assignee
with respect to the Premises. Landlord's approval of a sublease, assignment,
hypothecation, transfer or third party use or occupancy shall not constitute a
waiver of Tenant's obligation to obtain Landlord's consent to further
assignments or subleases, hypothecations, transfers or third party use or
occupancy.
(d) For purposes of this Article Ten, an assignment shall be deemed to
include a change in the majority control of Tenant, resulting from any transfer,
sale or assignment of shares of stock of Tenant occurring by operation of Law or
otherwise if Tenant is a corporation whose shares of stock are not traded
publicly. If Tenant is a partnership, any change in the partners of Tenant
shall be deemed to be an assignment.
(e) Notwithstanding anything to the contrary contained in this Article
Ten, Tenant shall have the right, without the prior written consent of Landlord,
to sublease the Premises to an Affiliate or to assign this Lease to an
Affiliate, but (i) no later than fifteen (15) days prior to the effective date
of the assignment or sublease, the assignee or subtenant shall execute documents
satisfactory to Landlord to evidence such subtenant or assignee's assumption of
the obligations and liabilities of Tenant under this Lease, unless Landlord
elects in its sole discretion not to require such assumption if an assignment
and assumption occurs by operation of law (and without a written assignment) as
a consequence of merger, consolidation or non-bankruptcy reorganization; (ii)
within ten (10) days after the effective date of such assignment or sublease,
give notice to Landlord which notice shall include the full name and address of
the assignee or subtenant, and a copy of all agreements executed between Tenant
and the assignee or subtenant with respect to the Premises; and (iii) within
fifteen (15) days after Landlord's request, such documents or information which
Landlord reasonably requests for the purpose of substantiating whether or not
the assignment or sublease is to an Affiliate.
10.02 RECAPTURE
Landlord shall have the option to exclude from the Premises covered by this
Lease ("recapture"), the space proposed to be sublet or subject to the
assignment, effective as of the proposed commencement date of such sublease or
assignment. If Landlord elects to recapture, Tenant shall surrender possession
of the space proposed to be subleased or subject to the assignment to Landlord
on the effective date of recapture of such space from the Premises, such date
being the Termination Date for such space. Effective as of the date of
recapture of any portion of the Premises pursuant to this section, the Monthly
Base Rent, Rentable Area of the Premises and Tenant's Share shall be adjusted
accordingly.
10.03 EXCESS RENT
Tenant shall pay Landlord on the first day of each month during the term of the
sublease or assignment, fifty percent (50%) of the amount by which the sum of
all rent and other consideration (direct or indirect) due from the subtenant or
assignee for such month exceeds: (i) that portion of the Monthly Base Rent and
Rent Adjustments due under this Lease for said month which is allocable to the
space sublet or assigned; and (ii) the following costs and expenses for the
subletting or assignment of such space: (1) brokerage commissions and attorneys'
fees and expenses, (2) the actual costs paid in making any improvements or
substitutions in the Premises required by any sublease or assignment; and (3)
"free rent" periods, costs of any inducements or concessions given to subtenant
or assignee, moving costs, and other amounts in respect of such subtenant's or
assignee's other leases or occupancy arrangements. All such costs and expenses
shall be amortized over the term of the sublease or assignment pursuant to sound
accounting principles.
10.04 TENANT LIABILITY
In the event of any sublease or assignment, whether or not with Landlord's
consent, Tenant shall not be released or discharged from any liability, whether
past, present or future, under this Lease, including any liability arising from
the exercise of any renewal or expansion option, to the extent such exercise is
expressly permitted by Landlord. Tenant's liability shall remain primary, and
in the event of default by any subtenant, assignee or successor of Tenant in
performance or observance of any of the covenants or conditions of this Lease,
Landlord may proceed directly against Tenant without the necessity of exhausting
remedies against said subtenant, assignee or successor. After any assignment to
an Affiliate, Landlord may consent to subsequent assignments or subletting of
this Lease, or amendments or modifications of this Lease with assignees of
Tenant, without notifying Tenant, or any successor of Tenant, and without
obtaining its or their consent thereto, and such action shall not relieve Tenant
or any successor of Tenant of liability under this Lease. If Landlord grants
consent to such sublease or assignment, Tenant shall pay all reasonable
attorneys' fees and expenses incurred by Landlord with respect to such
assignment or sublease which shall not exceed One Thousand Dollars ($1000.00)
per sublease or assignment. In addition, if Tenant has any options to extend
the term of this Lease or to add other space to the Premises, such options shall
not be available to any subtenant or assignee, directly or indirectly without
Landlord's express written consent, which may be withheld in Landlord's sole
discretion.
16
<PAGE>
10.05 ASSUMPTION AND ATTORNMENT
If Tenant shall assign this Lease as permitted herein, the assignee shall
expressly assume all of the obligations of Tenant hereunder in a written
instrument satisfactory to Landlord and furnished to Landlord not later than
fifteen (15) days prior to the effective date of the assignment. If Tenant
shall sublease the Premises as permitted herein, Tenant shall, at Landlord's
option, within fifteen (15) days following any request by Landlord, obtain and
furnish to Landlord the written agreement of such subtenant to the effect that
the subtenant will attorn to Landlord and will pay all subrent directly to
Landlord.
ARTICLE ELEVEN
DEFAULT AND REMEDIES
11.01 EVENTS OF DEFAULT
The occurrence or existence of any one or more of the following shall constitute
a "Default" by Tenant under this Lease:
(i) Tenant fails to pay any installment or other payment of Rent
including Rent Adjustment Deposits or Rent Adjustments within three (3)
days after the date when due;
(ii) Tenant fails to observe or perform any of the other
covenants, conditions or provisions of this Lease or the Workletter and
fails to cure such default within fifteen (15) days after written notice
thereof to Tenant, unless the default involves a hazardous condition,
which shall be cured forthwith or unless the failure to perform is a
Default for which this Lease specifies there is no cure or grace period;
(iii) the interest of Tenant in this Lease is levied upon under
execution or other legal process;
(iv) a petition is filed by or against Tenant to declare Tenant
bankrupt or seeking a plan of reorganization or arrangement under any
Chapter of the Bankruptcy Act, or any amendment, replacement or
substitution therefor, or to delay payment of, reduce or modify Tenant's
debts, which in the case of an involuntary action is not discharged
within thirty (30) days;
(v) Tenant is declared insolvent by Law or any assignment of
Tenant's property is made for the benefit of creditors;
(vi) a receiver is appointed for Tenant or Tenant's property,
which appointment is not discharged within thirty (30) days;
(vii) any action taken by or against Tenant to reorganize or
modify Tenant's capital structure in a materially adverse way which in
the case of an involuntary action is not discharged within thirty (30)
days;
(viii) upon the dissolution of Tenant; or
(ix) upon the third occurrence within any Lease Year that Tenant
fails to pay Rent when due or within three (3) days of when due as
provided in Section 11.01(i), or has breached a particular covenant of
this Lease (whether or not such failure or breach is thereafter cured
within any stated cure or grace period or statutory period).
11.02 LANDLORD'S REMEDIES
(a) A Default shall constitute a breach of the Lease for which
Landlord shall have the rights and remedies set forth in this Section 11.02 and
all other rights and remedies set forth in this Lease or now or hereafter
allowed by Law, whether legal or equitable, and all rights and remedies of
Landlord shall be cumulative and none shall exclude any other right or remedy.
(b) With respect to a Default, at any time Landlord may terminate
Tenant's right to possession by written notice to Tenant stating such election.
Any written notice required pursuant to Section 11.01 shall constitute notice of
unlawful detainer pursuant to California Code of Civil Procedure Section 1161
if, at Landlord's sole discretion, it states Landlord's election that Tenant's
right to possession is terminated after expiration of any period required by Law
or any longer period required by Section 11.01. Upon the expiration of the
period stated in Landlord's written notice of termination (and unless such
notice provides an option to cure within such period and Tenant cures the
Default within such period), Tenant's right to possession shall terminate and
this Lease shall terminate, and Tenant shall remain liable as hereinafter
provided. Upon such termination in writing of Tenant's right to possession,
Landlord shall have the right, subject to applicable Law, to re-enter the
Premises and dispossess Tenant and the legal representatives of Tenant and all
other occupants of the Premises by unlawful detainer or other summary
proceedings, or otherwise as permitted by Law, regain possession of the Premises
and remove their property (including their trade fixtures, personal property and
those Tenant Additions which Tenant is required or permitted to remove under
Article Twelve), but Landlord shall not be obligated to effect such removal, and
such property may, at Landlord's option, be
17
<PAGE>
stored elsewhere, sold or otherwise dealt with as permitted by Law, at the risk
of, expense of and for the account of Tenant, and the proceeds of any sale shall
be applied pursuant to Law. Landlord shall in no event be responsible for the
value, preservation or safekeeping of any such property. Tenant hereby waives
all claims for damages that may be caused by Landlord's removing or storing
Tenant's personal property pursuant to this Section or Section 12.01, and Tenant
hereby indemnifies, and agrees to defend, protect and hold harmless, the
Indemnitees from any and all loss, claims, demands, actions, expenses, liability
and cost (including attorneys' fees and expenses) arising out of or in any way
related to such removal or storage. Upon such written termination of Tenant's
right to possession and this Lease, Landlord shall have the right to recover
damages for Tenant's Default as provided herein or by Law, including the
following damages provided by California Civil Code Section 1951.2:
(1) the worth at the time of award of the unpaid Rent which had
been earned at the time of termination;
(2) the worth at the time of award of the amount by which the
unpaid Rent which would have been earned after termination until the time
of award exceeds the amount of such Rent loss that Tenant proves could
reasonably have been avoided;
(3) the worth at the time of award of the amount by which the
unpaid Rent for the balance of the term of this Lease after the time of
award exceeds the amount of such Rent loss that Tenant proves could be
reasonably avoided; and
(4) any other amount necessary to compensate Landlord for all the
detriment proximately caused by Tenant's failure to perform its
obligations under this Lease or which in the ordinary course of things
would be likely to result therefrom. The word "rent" as used in this
Section 11.02 shall have the same meaning as the defined term Rent in
this Lease. The "worth at the time of award" of the amount referred to
in clauses (1) and (2) above is computed by allowing interest at the
Default Rate. The worth at the time of award of the amount referred to
in clause (3) above is computed by discounting such amount at the
discount rate of the Federal Reserve Bank of San Francisco at the time of
award plus one percent (1%). For the purpose of determining unpaid Rent
under clause (3) above, the monthly Rent reserved in this Lease shall be
deemed to be the sum of the Monthly Base Rent, and monthly Storage Space
Rent, if any, and the amounts last payable by Tenant as Rent Adjustments
for the calendar year in which Landlord terminated this Lease as provided
hereinabove.
(c) Even if Tenant is in Default and/or has abandoned the Premises,
this Lease shall continue in effect for so long as Landlord does not terminate
Tenant's right to possession by written notice as provided in Section 11.02(b)
above, and Landlord may enforce all its rights and remedies under this Lease,
including the right to recover Rent as it becomes due under this Lease. In such
event, Landlord shall have all of the rights and remedies of a landlord under
California Civil Code Section 1951.4 (lessor may continue Lease in effect after
Tenant's Default and abandonment and recover Rent as it becomes due, if Tenant
has the right to sublet or assign, subject only to reasonable limitations), or
any successor statute. During such time as Tenant is in Default, if Landlord
has not terminated this Lease by written notice and if Tenant requests
Landlord's consent to an assignment of this Lease or a sublease of the Premises,
subject to Landlord's option to recapture pursuant to Section 10.02, Landlord
shall not unreasonably withhold its consent to such assignment or sublease.
Tenant acknowledges and agrees that the provisions of Article Ten shall be
deemed to constitute reasonable limitations of Tenant's right to assign or
sublet. Tenant acknowledges and agrees that in the absence of written notice
pursuant to Section 11.02(b) above terminating Tenant's right to possession, no
other act of Landlord shall constitute a termination of Tenant's right to
possession or an acceptance of Tenant's surrender of the Premises, including
acts of maintenance or preservation or efforts to relet the Premises or the
appointment of a receiver upon initiative of Landlord to protect Landlord's
interest under this Lease or the withholding of consent to a subletting or
assignment, or terminating a subletting or assignment, if in accordance with
other provisions of this Lease.
(d) In the event that Landlord seeks an injunction with respect to a
breach or threatened breach by Tenant of any of the covenants, conditions or
provisions of this Lease, Tenant agrees to pay the premium for any bond required
in connection with such injunction.
(e) Tenant hereby waives any and all rights to relief from forfeiture,
redemption or reinstatement granted by Law (including California Civil Code of
Procedure Sections 1174 and 1179) in the event of Tenant being evicted or
dispossessed for any cause or in the event of Landlord obtaining possession of
the Premises by reason of Tenant's Default or otherwise;
(f) Notwithstanding any other provision of this Lease, a notice to
Tenant given under this Article and Article Twenty-four of this Lease or given
pursuant to California Code of Civil Procedure Section 1161, and any notice
served by mail shall be deemed served, and the requisite waiting period deemed
to begin under said Code of Civil Procedure Section upon mailing, without any
additional waiting requirement under Code of Civil Procedure Section 1011 et
seq. or by other Law. For purposes of Code of Civil Procedure Section 1162,
Tenant's "place of residence", "usual place of business", "the property" and
"the place where the property is situated" shall mean and be the Premises,
whether or not Tenant has vacated same at the time of service.
18
<PAGE>
(g) The voluntary or other surrender or termination of this Lease, or
a mutual termination or cancellation thereof, shall not work a merger and shall
terminate all or any existing assignments, subleases, subtenancies or
occupancies permitted by Tenant, except if and as otherwise specified in writing
by Landlord.
(h) No delay or omission in the exercise of any right or remedy of
Landlord upon any default by Tenant, and no exercise by Landlord of its rights
pursuant to Section 26.15 to perform any duty which Tenant fails timely to
perform, shall impair any right or remedy or be construed as a waiver. No
provision of this Lease shall be deemed waived by Landlord unless such waiver is
in a writing signed by Landlord. The waiver by Landlord of any breach of any
provision of this Lease shall not be deemed a waiver of any subsequent breach of
the same or any other provision of this Lease.
11.03 ATTORNEY'S FEES
In the event any party brings any suit or other proceeding with respect to the
subject matter or enforcement of this Lease, the prevailing party (as determined
by the court, agency or other authority before which such suit or proceeding is
commenced) shall, in addition to such other relief as may be awarded, be
entitled to recover attorneys' fees, expenses and costs of investigation as
actually incurred, including court costs, expert witness fees, costs and
expenses of investigation, and all attorneys' fees, costs and expenses in any
such suit or proceeding (including in any action or participation in or in
connection with any case or proceeding under the Bankruptcy Code, 11 United
States Code Sections 101 ET SEQ., or any successor statutes, in establishing or
enforcing the right to indemnification, in appellate proceedings, or in
connection with the enforcement or collection of any judgment obtained in any
such suit or proceeding).
11.04 BANKRUPTCY
The following provisions shall apply in the event of the bankruptcy or
insolvency of Tenant:
(a) In connection with any proceeding under Chapter 7 of the
Bankruptcy Code where the trustee of Tenant elects to assume this Lease for the
purposes of assigning it, such election or assignment, may only be made upon
compliance with the provisions of (b) and (c) below, which conditions Landlord
and Tenant acknowledge to be commercially reasonable. In the event the trustee
elects to reject this Lease then Landlord shall immediately be entitled to
possession of the Premises without further obligation to Tenant or the trustee.
(b) Any election to assume this Lease under Chapter 11 or 13 of the
Bankruptcy Code by Tenant as debtor-in-possession or by Tenant's trustee (the
"Electing Party") must provide for:
The Electing Party to cure or provide to Landlord adequate assurance that
it will cure all monetary defaults under this Lease within fifteen (15)
days from the date of assumption and it will cure all nonmonetary
defaults under this Lease within thirty (30) days from the date of
assumption. Landlord and Tenant acknowledge such condition to be
commercially reasonable.
(c) If the Electing Party has assumed this Lease or elects to assign
Tenant's interest under this Lease to any other person, such interest may be
assigned only if the intended assignee has provided adequate assurance of future
performance (as herein defined), of all of the obligations imposed on Tenant
under this Lease.
For the purposes hereof, "adequate assurance of future performance" means
that Landlord has ascertained that each of the following conditions has
been satisfied:
(i) The assignee has submitted a current financial statement,
certified by its chief financial officer, which shows a net worth and
working capital in amounts sufficient to assure the future performance by
the assignee of Tenant's obligations under this Lease; and
(ii) Landlord has obtained consents or waivers from any third
parties which may be required under a lease, mortgage, financing
arrangement, or other agreement by which Landlord is bound, to enable
Landlord to permit such assignment.
(d) Landlord's acceptance of rent or any other payment from any
trustee, receiver, assignee, person, or other entity will not be deemed to have
waived, or waive, the requirement of Landlord's consent, Landlord's right to
terminate this Lease for any transfer of Tenant's interest under this Lease
without such consent, or Landlord's claim for any amount of Rent due from
Tenant.
11.05 LANDLORD'S DEFAULT
Landlord shall be in default hereunder in the event Landlord has not begun and
pursued with reasonable diligence the cure of any failure of Landlord to meet
its obligations hereunder within thirty (30) days after the receipt by Landlord
of written notice from Tenant of the alleged failure to perform. In no event
shall Tenant have the right to terminate or rescind this Lease as a result of
Landlord's default as to any covenant or agreement contained in this Lease.
Tenant hereby waives such remedies of termination and rescission and hereby
agrees that Tenant's remedies for default hereunder and for breach of any
promise or inducement
19
<PAGE>
shall be limited to a suit for damages and/or injunction. In addition, Tenant
hereby covenants that, prior to the exercise of any such remedies, it will give
Mortgagee notice and a reasonable time to cure any default by Landlord.
ARTICLE TWELVE
SURRENDER OF PREMISES
12.01 IN GENERAL
Upon the Termination Date, Tenant shall surrender and vacate the Premises
immediately and deliver possession thereof to Landlord in a clean, good and
tenantable condition, ordinary wear and tear, and damage caused by Landlord
excepted. Tenant shall deliver to Landlord all keys to the Premises. Tenant
shall remove from the Premises all movable personal property of Tenant and
Tenant's trade fixtures, including, subject to Section 6.04, cabling for any of
the foregoing. Tenant shall be entitled to remove such Tenant Additions which
at the time of their installation Landlord and Tenant agreed may be removed by
Tenant. Tenant shall also remove such other Tenant Additions as required by
Landlord, including any Tenant Additions containing Hazardous Materials. Tenant
immediately shall repair all damage resulting from removal of any of Tenant's
property, furnishings or Tenant Additions, shall close all floor, ceiling and
roof openings and shall restore the Premises to a tenantable condition as
reasonably determined by Landlord. If any of the Tenant Additions which were
installed by Tenant involved the lowering of ceilings, raising of floors or the
installation of specialized wall or floor coverings or lights, then Tenant shall
also be obligated to return such surfaces to their condition prior to the
commencement of this Lease. Tenant shall also be required to close any
staircases or other openings between floors. In the event possession of the
Premises is not delivered to Landlord when required hereunder, or if Tenant
shall fail to remove those items described above, Landlord may (but shall not be
obligated to), at Tenant's expense, remove any of such property and store, sell
or otherwise deal with such property as provided in Section 11.02(b), including
the waiver and indemnity obligations provided in that Section, and undertake, at
Tenant's expense, such restoration work as Landlord deems necessary or
advisable.
12.02 LANDLORD'S RIGHTS
All property which may be removed from the Premises by Landlord shall be
conclusively presumed to have been abandoned by Tenant and Landlord may deal
with such property as provided in Section 11.02(b), including the waiver and
indemnity obligations provided in that Section. Tenant shall also reimburse
Landlord for all costs and expenses incurred by Landlord in removing any of
Tenant Additions and in restoring the Premises to the condition required by this
Lease at the Termination Date.
ARTICLE THIRTEEN
HOLDING OVER
Tenant shall pay Landlord the greater of (i) double the monthly Rent payable for
the month immediately preceding the holding over (including increases for Rent
Adjustments which Landlord may reasonably estimate) or, (ii) double the fair
market rental value of the Premises as reasonably determined by Landlord for
each month or portion thereof that Tenant retains possession of the Premises, or
any portion thereof, after the Termination Date (without reduction for any
partial month that Tenant retains possession). Tenant shall also pay all
damages sustained by Landlord by reason of such retention of possession. The
provisions of this Article shall not constitute a waiver by Landlord of any
re-entry rights of Landlord and Tenant's continued occupancy of the Premises
shall be as a tenancy in sufferance. If Tenant retains possession of the
Premises, or any part thereof for thirty (30) days after the Termination Date
then at the sole option of Landlord expressed by written notice to Tenant, but
not otherwise, such holding over shall constitute an extension of the Term of
this Lease for a period of one (1) year on the same terms and conditions
(including those with respect to the payment of Rent) as provided in this Lease,
except that the Monthly Base Rent for such period shall be equal to the greater
of (i) 150% of the Monthly Base Rent payable during the month preceding the
Termination Date, or (ii) 150% of the monthly base rent then being quoted by
Landlord for similar space in the Building.
ARTICLE FOURTEEN
DAMAGE BY FIRE OR OTHER CASUALTY
14.01 SUBSTANTIAL UNTENANTABILITY
(a) If any fire or other casualty (whether insured or uninsured)
renders all or a substantial portion of the Premises or the Building
untenantable, Landlord shall, with reasonable promptness after the occurrence of
such damage, estimate the length of time that will be required to substantially
complete the repair and restoration (excluding any Tenant Additions) and shall
by notice advise Tenant of such estimate ("Landlord's Notice"). If Landlord
estimates that the amount of time required to substantially complete such repair
and restoration (excluding any Tenant Additions) will exceed one hundred eighty
(180) days from the date such damage occurred, then Landlord, or Tenant if all
or a substantial portion of the Premises is rendered untenantable, shall have
the right to terminate this Lease as of the date of such damage upon giving
written notice to the other at any time within twenty (20) days after delivery
of Landlord's Notice, provided that if Landlord so chooses, Landlord's Notice
may also constitute such notice of termination.
20
<PAGE>
(b) In the event that the Building is damaged or destroyed to the
extent of more than twenty-five percent (25%) of its replacement cost or to any
extent if no insurance proceeds or insufficient insurance proceeds are
receivable by Landlord, or if the buildings at the Project shall be damaged to
the extent of fifty percent (50%) or more of the replacement value or to any
extent if no insurance proceeds or insufficient insurance proceeds are
receivable by Landlord, and regardless of whether or not the Premises be
damaged, Landlord may elect by written notice to Tenant given within thirty (30)
days after the occurrence of the casualty to terminate this Lease in lieu of so
restoring the Premises, in which event this Lease shall terminate as of the date
specified in Landlord's notice, which date shall be no later than sixty (60)
days following the date of Landlord's notice.
(c) Unless this Lease is terminated as provided in the preceding
Subsections 14.01 (a) and (b), Landlord shall proceed with reasonable promptness
to repair and restore the Premises (excluding any Tenant Additions) to its
condition as existed prior to such casualty, subject to reasonable delays for
insurance adjustments and Force Majeure delays, and also subject to zoning Laws
and building codes then in effect. Landlord shall have no liability to Tenant,
and Tenant shall not be entitled to terminate this Lease if such repairs and
restoration (excluding any Tenant Additions) are not in fact substantially
completed within the time period estimated by Landlord so long as Landlord shall
proceed with reasonable diligence to complete such repairs and restoration,
provided however, if the actual date of substantial completion by Landlord is
after the later of such estimated time or 180 days, plus additional time for
reasonable delay due to Force Majeure and delay caused by Tenant, Tenant shall
have the option to terminate this Lease at any time thereafter and before such
substantial completion by giving an additional twenty (20) days' prior written
notice to Landlord, which termination shall be void and of no force or effect if
the repair and restoration is substantially completed no later than twenty (20)
days after such notice.
(d) Tenant acknowledges that Landlord shall be entitled to the full
proceeds of any insurance coverage, whether carried by Landlord or Tenant, for
damages to the Premises, except for those proceeds of Tenant's insurance of its
own personal property and equipment which would be removable by Tenant at the
Termination Date. All such insurance proceeds shall be payable to Landlord
whether or not the Premises are to be repaired and restored, provided, however,
if this Lease is not terminated and the parties proceed to repair and restore
Tenant Additions at Tenant's cost, to the extent Landlord received proceeds of
Tenant's insurance covering Tenant Additions, such proceeds shall be applied to
reimburse Tenant for its cost of repairing and restoring Tenant Additions.
(e) Notwithstanding anything in this Article Fourteen to the contrary:
(i) Landlord shall have no duty pursuant to this Section to repair or restore
any portion of any Tenant Additions or to expend for any repair or restoration
of the Premises or Building amounts in excess of insurance proceeds paid to
Landlord and available for repair or restoration; and (ii) Tenant shall not have
the right to terminate this Lease pursuant to this Section if any damage or
destruction was caused by the act or neglect of Tenant, its agent or employees.
Whether or not the Lease is terminated pursuant to this Article Fourteen, in no
event shall Tenant be entitled to any compensation or damages for loss of the
use of the whole or any part of the Premises or for any inconvenience or
annoyance occasioned by any such damage, destruction, rebuilding or restoration
of the Premises or the Building or access thereto.
(f) Any repair or restoration of the Premises performed by Tenant
shall be in accordance with the provisions of Article Nine hereof.
14.02 INSUBSTANTIAL UNTENANTABILITY
Unless this Lease is terminated as provided in the preceding Subsections 14.01
(a) and (b), then Landlord shall proceed to repair and restore the Building or
the Premises other than Tenant Additions, with reasonable promptness, unless
such damage is to the Premises and occurs during the last six (6) months of the
Term, in which event either Tenant or Landlord shall have the right to terminate
this Lease as of the date of such casualty by giving written notice thereof to
the other within twenty (20) days after the date of such casualty, provided
however, neither Tenant or Landlord shall have a termination right under this
Section if the Term has been validly extended pursuant to the Option to Extend
of Rider 2 and such extension is no longer subject to any option of Tenant to
revoke, rescind or terminate its exercise of the Option to Extend.
Notwithstanding the foregoing, Landlord's obligation to repair shall be limited
in accordance with the provisions of Section 14.01 above.
14.03 RENT ABATEMENT
Except for the negligence or willful act of Tenant or its agents, employees,
contractors or invitees, if all or any part of the Premises are rendered
untenantable by fire or other casualty and this Lease is not terminated, Monthly
Base Rent and Rent Adjustments shall abate for that part of the Premises which
is untenantable on a per diem basis from the date of the casualty until Landlord
has Substantially Completed the repair and restoration work in the Premises
which it is required to perform, provided, that as a result of such casualty,
Tenant does not occupy the portion of the Premises which is untenantable during
such period.
14.04 WAIVER OF STATUTORY REMEDIES
The provisions of this Lease, including this Article Fourteen, constitute an
express agreement between Landlord and Tenant with respect to any and all damage
to, or destruction of, the Premises or the Property or
21
<PAGE>
any part of either, and any Law, including Sections 1932(2), 1933(4), 1941 and
1942 of the California Civil Code, with respect to any rights or obligations
concerning damage or destruction shall have no application to this Lease or to
any damage to or destruction of all or any part of the Premises or the Property
or any part of either, and are hereby waived.
ARTICLE FIFTEEN
EMINENT DOMAIN
15.01 TAKING OF WHOLE OR SUBSTANTIAL PART
In the event the whole or any substantial part of the Building or of the
Premises is taken or condemned by any competent authority for any public use or
purpose (including a deed given in lieu of condemnation) and is thereby rendered
untenantable, this Lease shall terminate as of the date title vests in such
authority or any earlier date on which possession is required to be surrendered
to such authority, and Monthly Base Rent and Rent Adjustments shall be
apportioned as of the Termination Date. Further, if at least twenty-five
percent (25%) of the rentable area of the Project is taken or condemned by any
competent authority for any public use or purpose (including a deed given in
lieu of condemnation), and regardless of whether or not the Premises be so taken
or condemned, Landlord may elect by written notice to Tenant to terminate this
Lease as of the date title vests in such authority or any earlier date on which
possession is required to be surrendered to such authority, and Monthly Base
Rent and Rent Adjustments shall be apportioned as of the Termination Date.
Landlord may, without any obligation to Tenant, agree to sell or convey to the
taking authority the Premises, the Building, Tenant's Phase, the Project or any
portion thereof sought by the taking authority, free from this Lease and the
right of Tenant hereunder, without first requiring that any action or proceeding
be instituted or, if instituted, pursued to a judgment. Notwithstanding
anything to the contrary herein set forth, in the event the taking of the
Building or Premises is temporary (for less than the remaining term of the
Lease), Landlord may elect either (i) to terminate this Lease or (ii) permit
Tenant to receive the entire award attributable to the Premises in which case
Tenant shall continue to pay Rent and this Lease shall not terminate.
15.02 TAKING OF PART
In the event a part of the Building or the Premises is taken or condemned by any
competent authority (or a deed is delivered in lieu of condemnation) and this
Lease is not terminated, the Lease shall be amended to reduce or increase, as
the case may be, the Monthly Base Rent and Tenant's Share to reflect the
Rentable Area of the Premises or Building, as the case may be, remaining after
any such taking or condemnation. Landlord, upon receipt and to the extent of
the award in condemnation (or proceeds of sale) shall make necessary repairs and
restorations to the Premises (exclusive of Tenant Additions) and to the Building
to the extent necessary to constitute the portion of the Building not so taken
or condemned as a complete architectural and economically efficient unit.
Notwithstanding the foregoing, if as a result of any taking, or a governmental
order that the grade of any street or alley adjacent to the Building is to be
changed and such taking or change of grade makes it necessary or desirable to
substantially remodel or restore the Building or prevents the economical
operation of the Building, Landlord shall have the right to terminate this Lease
upon ninety (90) days prior written notice to Tenant.
15.03 COMPENSATION
Landlord shall be entitled to receive the entire award (or sale proceeds) from
any such taking, condemnation or sale without any payment to Tenant, and Tenant
hereby assigns to Landlord Tenant's interest, if any, in such award; provided,
however, Tenant shall have the right separately to pursue against the condemning
authority a separate award in respect of the loss, if any, to Tenant Additions
paid for by Tenant without any credit or allowance from Landlord, for fixtures
or personal property of Tenant, or for relocation or business interruption
expenses, so long as there is no diminution of Landlord's award as a result.
ARTICLE SIXTEEN
INSURANCE
16.01 TENANT'S INSURANCE
Tenant, at Tenant's expense, agrees to maintain in force, with a company or
companies acceptable to Landlord, during the Term: (a) Commercial General
Liability Insurance on a primary basis and without any right of contribution
from any insurance carried by Landlord covering the Premises on an occurrence
basis against all claims for personal injury, bodily injury, death and property
damage, including contractual liability covering the indemnification provisions
in this Lease. Such insurance shall be for such limits that are reasonably
required by Landlord from time to time but not less than a combined single limit
of Three Million and No/100 Dollars ($3,000,000.00); (b) Workers' Compensation
and Employers' Liability Insurance to the extent required by and in accordance
with the Laws of the State of California; (c) "All Risks" property insurance in
an amount adequate to cover the full replacement cost of all Tenant Additions to
the Premises, equipment, installations, fixtures and contents of the Premises in
the event of loss; (d) In the event a motor vehicle is to be used by Tenant in
connection with its business operation from the Premises, Comprehensive
Automobile Liability Insurance coverage with limits of not less than Three
Million and No/100 Dollars ($3,000,000.00) combined single limit coverage
against bodily injury liability and property damage liability arising out of the
use by or on behalf of Tenant, its agents and employees in connection with this
Lease, of
22
<PAGE>
any owned, non-owned or hired motor vehicles; and (e) such other insurance or
coverages as Landlord reasonably requires.
16.02 FORM OF POLICIES
Each policy referred to in 16.01 shall satisfy the following requirements. Each
policy shall (i) name Landlord and the Indemnitees as additional insureds
(except Workers' Compensation and Employers' Liability Insurance), (ii) be
issued by one or more responsible insurance companies licensed to do business in
the State of California reasonably satisfactory to Landlord, (iii) where
applicable, provide for deductible amounts satisfactory to Landlord and not
permit co-insurance, (iv) shall provide that such insurance may not be canceled
or amended without thirty (30) days' prior written notice to the Landlord, and
(v) each policy of "All-Risks" property insurance shall provide that the policy
shall not be invalidated should the insured waive in writing prior to a loss,
any or all rights of recovery against any other party for losses covered by such
policies. Tenant shall deliver to Landlord, certificates of insurance and at
Landlord's request, copies of all policies and renewals thereof to be maintained
by Tenant hereunder, not less than ten (10) days prior to the Commencement Date
and not less than ten (10) days prior to the expiration date of each policy.
16.03 LANDLORD'S INSURANCE
Landlord agrees to purchase and keep in full force and effect during the Term
hereof, including any extensions or renewals thereof, insurance under policies
issued by insurers of recognized responsibility, qualified to do business in the
State of California on the Building in amounts not less than the greater of
eighty (80%) percent of the then full replacement cost (without depreciation) of
the Building (above foundations and excluding Tenant Additions to the Premises)
or an amount sufficient to prevent Landlord from becoming a co-insurer under the
terms of the applicable policies, against fire and such other risks as may be
included in standard forms of all risk coverage insurance reasonably available
from time to time. Landlord agrees to maintain in force during the Term,
Commercial General Liability Insurance covering the Building on an occurrence
basis against all claims for personal injury, bodily injury, death and property
damage. Such insurance shall be for a combined single limit of Three Million
and No/100 Dollars ($3,000,000.00). Neither Landlord's obligation to carry such
insurance nor the carrying of such insurance shall be deemed to be an indemnity
by Landlord with respect to any claim, liability, loss, cost or expense due, in
whole or in part, to Tenant's negligent acts or omissions or willful misconduct.
Without obligation to do so, Landlord may, in its sole discretion from time to
time, carry insurance in amounts greater and/or for coverage additional to the
coverage and amounts set forth above.
16.04 WAIVER OF SUBROGATION
(a) Landlord agrees that, if obtainable at no, or minimal, additional
cost, and so long as the same is permitted under the laws of the State of
California, it will include in its "All Risks" policies appropriate clauses
pursuant to which the insurance companies (i) waive all right of subrogation
against Tenant with respect to losses payable under such policies and/or (ii)
agree that such policies shall not be invalidated should the insured waive in
writing prior to a loss any or all right of recovery against any party for
losses covered by such policies.
(b) Tenant agrees to include, if obtainable at no, or minimal,
additional cost, and so long as the same is permitted under the laws of the
State of California, in its "All Risks" insurance policy or policies on Tenant
Additions to the Premises, whether or not removable, and on Tenant's furniture,
furnishings, fixtures and other property removable by Tenant under the
provisions of this Lease appropriate clauses pursuant to which the insurance
company or companies (i) waive the right of subrogation against Landlord and/or
any tenant of space in the Building with respect to losses payable under such
policy or policies and/or (ii) agree that such policy or policies shall not be
invalidated should the insured waive in writing prior to a loss any or all right
of recovery against any party for losses covered by such policy or policies. If
Tenant is unable to obtain in such policy or policies either of the clauses
described in the preceding sentence, Tenant shall, if legally possible and
without necessitating a change in insurance carriers, have Landlord named in
such policy or policies as an additional insured. If Landlord shall be named as
an additional insured in accordance with the foregoing, Landlord agrees to
endorse promptly to the order of Tenant, without recourse, any check, draft, or
order for the payment of money representing the proceeds of any such policy or
representing any other payment growing out of or connected with said policies,
and Landlord does hereby irrevocably waive any and all rights in and to such
proceeds and payments.
(c) Provided that Landlord's right of full recovery under its policy
or policies aforesaid is not adversely affected or prejudiced thereby, Landlord
hereby waives any and all right of recovery which it might otherwise have
against Tenant, its servants, agents and employees, for loss or damage occurring
to the Real Property and the fixtures, appurtenances and equipment therein, to
the extent the same is covered by Landlord's insurance, notwithstanding that
such loss or damage may result from the negligence or fault of Tenant, its
servants, agents or employees. Provided that Tenant's right of full recovery
under its aforesaid policy or policies is not adversely affected or prejudiced
thereby, Tenant hereby waives any and all right of recovery which it might
otherwise have against Landlord, its servants, and employees and against every
other tenant in the Real Property who shall have executed a similar waiver as
set forth in this Section 16.04 (c) for loss or damage to Tenant Additions,
whether or not removable, and to Tenant's furniture, furnishings, fixtures and
other property removable by Tenant under the provisions hereof to the extent the
same is covered or coverable by Tenant's insurance required under this Lease,
notwithstanding that such loss or
23
<PAGE>
damage may result from the negligence or fault of Landlord, its servants, agents
or employees, or such other tenant and the servants, agents or employees
thereof.
(d) Landlord and Tenant hereby agree to advise the other promptly if
the clauses to be included in their respective insurance policies pursuant to
subparagraphs (a) and (b) above cannot be obtained on the terms hereinbefore
provided and thereafter to furnish the other with a certificate of insurance or
copy of such policies showing the naming of the other as an additional insured,
as aforesaid. Landlord and Tenant hereby also agree to notify the other
promptly of any cancellation or change of the terms of any such policy which
would affect such clauses or naming. All such policies which name both Landlord
and Tenant as additional insureds shall, to the extent obtainable, contain
agreements by the insurers to the effect that no act or omission of any
additional insured will invalidate the policy as to the other additional
insureds.
16.05 NOTICE OF CASUALTY
Tenant shall give Landlord notice in case of a fire or accident in the Premises
promptly after Tenant is aware of such event.
ARTICLE SEVENTEEN
WAIVER OF CLAIMS AND INDEMNITY
17.01 WAIVER OF CLAIMS
To the extent permitted by Law, Tenant releases the Indemnitees from, and waives
all claims for, damage to person or property sustained by the Tenant or any
occupant of the Premises or the Property resulting directly or indirectly from
any existing or future condition, defect, matter or thing in and about the
Premises or the Property or any part of either or any equipment or appurtenance
therein, or resulting from any accident in or about the Premises or the
Property, or resulting directly or indirectly from any act or neglect of any
tenant or occupant of the Property or of any other person, including Landlord's
agents and servants, except to the extent caused by the gross negligence or the
willful and wrongful act of any of the Indemnitees, but the foregoing exception
is subject to and shall not diminish any waivers by Tenant or Landlord or their
respective insurers in effect in accordance with Section 16.04. To the extent
permitted by Law, Tenant hereby waives any consequential damages, compensation
or claims for inconvenience or loss of business, rents, or profits as a result
of such injury or damage, whether or not caused by the gross negligence or the
willful and wrongful act of any of the Indemnitees. If any such damage, whether
to the Premises or the Property or any part of either, or whether to Landlord or
to other tenants in the Property, results from any act or neglect of Tenant, its
employees, servants, agents, contractors, invitees or customers, Tenant shall be
liable therefor and Landlord may, at Landlord's option, repair such damage and
Tenant shall, upon demand by Landlord, as payment of additional Rent hereunder,
reimburse Landlord within ten (10) days of demand for the total cost of such
repairs, in excess of amounts, if any, paid to Landlord under insurance covering
such damages. Tenant shall not be liable for any such damage caused by its acts
or neglect if Landlord or a tenant has recovered the full amount of the damage
from proceeds of insurance policies and the insurance company has waived its
right of subrogation against Tenant.
17.02 INDEMNITY BY TENANT
To the extent permitted by Law, Tenant hereby indemnifies, and agrees to
protect, defend and hold the Indemnitees harmless, against any and all actions,
claims, demands, liability, costs and expenses, including attorneys' fees and
expenses for the defense thereof, arising from Tenant's occupancy of the
Premises, from the undertaking of any Tenant Additions or repairs to the
Premises, from the conduct of Tenant's business on the Premises, or from any
breach or default on the part of Tenant in the performance of any covenant or
agreement on the part of Tenant to be performed pursuant to the terms of this
Lease, or from any willful act or negligence of Tenant, its agents, contractors,
servants, employees, customers or invitees, in or about the Premises or the
Property or any part of either. In case of any action or proceeding brought
against the Indemnitees by reason of any such claim, upon notice from Landlord,
Tenant covenants to defend such action or proceeding by counsel chosen by
Landlord, in Landlord's sole discretion. Landlord reserves the right to settle,
compromise or dispose of any and all actions, claims and demands related to the
foregoing indemnity. The foregoing indemnity shall not operate to relieve any
of the Indemnitees of liability to the extent its share of liability is caused
by its gross negligence or by its willful and wrongful act. Further, the
foregoing indemnity and exception is subject to and shall not diminish any
waivers in effect in accordance with Section 16.04 by Landlord or its insurers
to the extent of amounts, if any, paid to Landlord under its "All-Risks"
property insurance.
ARTICLE EIGHTEEN
RULES AND REGULATIONS
18.01 RULES
Tenant agrees for itself and for its subtenants, employees, agents, and invitees
to comply with all rules and regulations for use of the Premises, the Building,
the Phase and the Project imposed by Landlord, as the same may be revised from
time to time, including the following: (a) Tenant shall comply with all of the
requirements of Landlord's emergency response plan, as the same may be amended
from time to time; and (b) Tenant shall not place any furniture, furnishings,
fixtures or equipment in the Premises in a manner so as
24
<PAGE>
to obstruct the windows of the Premises to cause the Building, in Landlord's
good faith determination, to appear unsightly from the exterior. Such rules and
regulations are and shall be imposed for the cleanliness, good appearance,
proper maintenance, good order and reasonable use of the Premises, the Building,
the Phase and the Project and as may be necessary for the enjoyment of the
Building and the Project by all tenants and their clients, customers, and
employees.
18.02 ENFORCEMENT
Nothing in this Lease shall be construed to impose upon the Landlord any duty or
obligation to enforce the rules and regulations as set forth above or as
hereafter adopted, or the terms, covenants or conditions of any other lease as
against any other tenant, and the Landlord shall not be liable to the Tenant for
violation of the same by any other tenant, its servants, employees, agents,
visitors or licensees. Landlord shall use reasonable efforts to enforce the
rules and regulations of the Building in a uniform and non-discriminatory
manner.
ARTICLE NINETEEN
LANDLORD'S RESERVED RIGHTS
Landlord shall have the following rights exercisable without notice to Tenant
and without liability to Tenant for damage or injury to persons, property or
business and without being deemed an eviction or disturbance of Tenant's use or
possession of the Premises or giving rise to any claim for offset or abatement
of Rent: (1) to change the Building's name or street address upon thirty (30)
days' prior written notice to Tenant; (2) to install, affix and maintain all
signs on the exterior and/or interior of the Building; (3) to designate and/or
approve prior to installation, all types of signs, window shades, blinds,
drapes, awnings or other similar items, and all internal lighting that may be
visible from the exterior of the Premises; (4) upon reasonable notice to Tenant,
to display the Premises to prospective purchasers at reasonable hours at any
time during the Term and to prospective tenants at reasonable hours during the
last twelve (12) months of the Term; (5) to grant to any party the exclusive
right to conduct any business or render any service in or to the Building,
provided such exclusive right shall not operate to prohibit Tenant from using
the Premises for the purpose permitted hereunder; (6) to change the arrangement
and/or location of entrances or passageways, doors and doorways, corridors,
elevators, stairs, washrooms or public portions of the Building, and to close
entrances, doors, corridors, elevators or other facilities, provided that such
action shall not materially and adversely interfere with Tenant's access to the
Premises or the Building; (7) to have access for Landlord and other tenants of
the Building to any mail chutes and boxes located in or on the Premises as
required by any applicable rules of the United States Post Office; and (8) to
close the Building after Standard Operating Hours, except that Tenant and its
employees and invitees shall be entitled to admission at all times, under such
regulations as Landlord prescribes for security purposes.
ARTICLE TWENTY
ESTOPPEL CERTIFICATE
20.01 IN GENERAL
Within fifteen (15) days after request therefor by Landlord, Mortgagee or any
prospective mortgagee or owner, Tenant agrees as directed in such request to
execute an Estoppel Certificate in recordable form, binding upon Tenant,
certifying (i) that this Lease is unmodified and in full force and effect (or if
there have been modifications, a description of such modifications and that this
Lease as modified is in full force and effect); (ii) the dates to which Rent has
been paid; (iii) that Tenant is in the possession of the Premises if that is the
case; (iv) that Landlord is not in default under this Lease, or, if Tenant
believes Landlord is in default, the nature thereof in detail; (v) that Tenant
has no offsets or defenses to the performance of its obligations under this
Lease (or if Tenant believes there are any offsets or defenses, a full and
complete explanation thereof); (vi) that the Premises have been completed in
accordance with the terms and provisions hereof, that Tenant has accepted the
Premises and the condition thereof and of all improvements thereto and has no
claims against Landlord or any other party with respect thereto; (vii) that if
an assignment of rents or leases has been served upon the Tenant by a Mortgagee,
Tenant will acknowledge receipt thereof and agree to be bound by the provisions
thereof; (viii) that Tenant will give to the Mortgagee copies of all notices
required or permitted to be given by Tenant to Landlord; and (ix) to any other
information reasonably requested.
20.02 ENFORCEMENT
In the event that Tenant fails to deliver an Estoppel Certificate, then such
failure shall be a Default for which there shall be no cure or grace period. In
addition to any other remedy available to Landlord, Landlord may impose a charge
equal to $500.00 for each day that Tenant fails to deliver an Estoppel
Certificate and Tenant shall be deemed to have irrevocably appointed Landlord as
Tenant's attorney-in-fact to execute and deliver such Estoppel Certificate.
ARTICLE TWENTY-ONE
RELOCATION OF TENANT
(intentionally omitted)
25
<PAGE>
ARTICLE TWENTY-TWO
REAL ESTATE BROKERS
Tenant represents that, except for the broker(s) listed in Section 1.01(19),
Tenant has not dealt with any real estate broker, sales person, or finder in
connection with this Lease, and no such person initiated or participated in the
negotiation of this Lease, or showed the Premises to Tenant. Tenant hereby
agrees to indemnify, protect, defend and hold Landlord and the Indemnitees,
harmless from and against any and all liabilities and claims for commissions and
fees arising out of a breach of the foregoing representation. Landlord agrees
to pay any commission to which Landlord's Broker listed in Section 1.01(19) is
entitled in connection with this Lease pursuant to Landlord's written agreement
with such broker. Landlord and Tenant agree that any commission payable to
Tenant's Broker shall be paid by Tenant except to the extent Tenant's Broker and
Landlord's Broker have entered into a separate agreement between themselves to
share the commission paid to Landlord's Broker by Landlord.
ARTICLE TWENTY-THREE
MORTGAGEE PROTECTION
23.01 SUBORDINATION AND ATTORNMENT
(a) Subject to Section 23.01(b) hereof, this Lease is and shall be
expressly subject and subordinate at all times to (i) any ground or underlying
lease of the Real Property, now or hereafter existing, and all amendments,
extensions, renewals and modifications to any such lease, and (ii) the lien of
any mortgage or trust deed now or hereafter encumbering fee title to the Real
Property and/or the leasehold estate under any such lease, and all amendments,
extensions, renewals, replacements and modifications of such mortgage or trust
deed and/or the obligation secured thereby, unless such ground lease or ground
lessor, or mortgage, trust deed or Mortgagee, expressly provides or elects that
the Lease shall be superior to such lease or mortgage or trust deed. If any
such mortgage or trust deed is foreclosed (including any sale of the Real
Property pursuant to a power of sale), or if any such lease is terminated, upon
request of the Mortgagee or ground lessor, as the case may be, Tenant shall
attorn to the purchaser at the foreclosure sale or to the ground lessor under
such lease, as the case may be, provided, however, that such purchaser or ground
lessor shall not be (i) bound by any payment of Rent for more than one month in
advance except payments in the nature of security for the performance by Tenant
of its obligations under this Lease; (ii) subject to any offset, defense or
damages arising out of a default of any obligations of any preceding Landlord;
or (iii) bound by any amendment or modification of this Lease made without the
written consent of the Mortgagee or ground lessor; or (iv) liable for any
security deposits not actually received in cash by such purchaser or ground
lessor. This subordination shall be self-operative and no further certificate
or instrument of subordination need be required by any such Mortgagee or ground
lessor. In confirmation of such subordination, however, Tenant shall execute
promptly any reasonable certificate or instrument that Landlord, Mortgagee or
ground lessor may request. Tenant hereby constitutes Landlord as Tenant's
attorney-in-fact to execute such certificate or instrument for and on behalf of
Tenant upon Tenant's failure to do so within fifteen (15) days of a request to
do so. Upon request by such successor in interest, Tenant shall execute and
deliver reasonable instruments confirming the attornment provided for herein.
(b) Notwithstanding any provision of the Lease to the contrary,
provided that: (i) Tenant has executed and delivered a subordination,
nondisturbance and attornment agreement substantially in the form of EXHIBIT E
hereto, with such changes thereto as any lessor under a ground or underlying
lease or mortgagee or beneficiary may reasonably require ("Nondisturbance
Agreement") and complies with the provisions thereof, and (ii) Tenant is not in
default under this Lease, no termination of any ground lease or underlying lease
and no foreclosure, sale pursuant to power of sale or conveyance by deed in lieu
of foreclosure shall affect Tenant's rights under this Lease, except to the
extent provided by such NonDisturbance Agreement. If Tenant fails to execute
and deliver any Nondisturbance Agreement within fifteen (15) days of a request
therefor from Landlord, Tenant hereby constitutes Landlord as Tenant's
attorney-in-fact to execute and deliver such instrument. Landlord's inability
to obtain the signature of any such lessor or Mortgagee on any such
Nondisturbance Agreement shall not constitute a default by Landlord under this
Lease, but so long as default by Tenant under this Lease is not the reason for
Landlord's inability to obtain such signature, any such lessor or Mortgagee
shall be deemed to have elected that this Lease be superior to the lease,
mortgage or deed of trust in question, and Tenant shall, at the request of such
lessor, mortgagee or beneficiary (or purchaser at any sale pursuant to the
mortgage or deed of trust), attorn to any such party or enter into a new lease
with such party (as Landlord) for the balance of the Term then remaining
hereunder upon the same terms and conditions as those herein, provided, however,
that such party shall not be (i) bound by any payment of Rent for more than one
month in advance except payments in the nature of security for the performance
by Tenant of its obligations under this Lease; (ii) subject to any offset,
defense or damages arising out of a default of any obligations of any preceding
Landlord; or (iii) bound by any amendment or modification of this Lease made
without the written consent of the Mortgagee or ground lessor; or (iv) liable
for any security deposits not actually received in cash by such purchaser or
ground lessor. Upon request by such successor in interest, Tenant shall execute
and deliver reasonable instruments confirming the attornment provided for
herein.
23.02 MORTGAGEE PROTECTION
Tenant agrees to give any Mortgagee or ground lessor, by registered or certified
mail, a copy of any notice of default served upon the Landlord by Tenant,
provided that prior to such notice Tenant has received notice
26
<PAGE>
(by way of service on Tenant of a copy of an assignment of rents and leases, or
otherwise) of the address of such Mortgagee or ground lessor. Tenant further
agrees that if Landlord shall have failed to cure such default within the time
provided for in this Lease, then the Mortgagee or ground lessor shall have an
additional thirty (30) days after receipt of notice thereof within which to cure
such default or if such default cannot be cured within that time, then such
additional notice time as may be necessary, if, within such thirty (30) days,
any Mortgagee or ground lessor has commenced and is diligently pursuing the
remedies necessary to cure such default (including commencement of foreclosure
proceedings or other proceedings to acquire possession of the Real Property, if
necessary to effect such cure). Such period of time shall be extended by any
period within which such Mortgagee or ground lessor is prevented from commencing
or pursuing such foreclosure proceedings or other proceedings to acquire
possession of the Real Property by reason of Landlord's bankruptcy. Until the
time allowed as aforesaid for Mortgagee or ground lessor to cure such defaults
has expired without cure, Tenant shall have no right to, and shall not,
terminate this Lease on account of default. This Lease may not be modified or
amended so as to reduce the Rent or shorten the Term, or so as to adversely
affect in any other respect to any material extent the rights of the Landlord,
nor shall this Lease be canceled or surrendered, without the prior written
consent, in each instance, of the ground lessor or the Mortgagee.
ARTICLE TWENTY-FOUR
NOTICES
(a) All notices, demands or requests provided for or permitted to be
given pursuant to this Lease must be in writing and shall be personally
delivered, sent by Federal Express or other reputable overnight courier service,
or mailed by first class, registered or certified United States mail, return
receipt requested, postage prepaid.
(b) All notices, demands or requests to be sent pursuant to this Lease
shall be deemed to have been properly given or served by delivering or sending
the same in accordance with this Section, addressed to the parties hereto at
their respective addresses listed in Sections 1.01(2) and (3).
(c) Notices, demands or requests sent by mail or overnight courier
service as described above shall be effective upon deposit in the mail or with
such courier service. However, the time period in which a response to any such
notice, demand or request must be given shall commence to run from (i) in the
case of delivery by mail, the date of receipt on the return receipt of the
notice, demand or request by the addressee thereof, or (ii) in the case of
delivery by Federal Express or other overnight courier service, the date of
acceptance of delivery by an employee, officer, director or partner of Landlord
or Tenant. Rejection or other refusal to accept or the inability to deliver
because of changed address of which no notice was given, as indicated by advice
from Federal Express or other overnight courier service or by mail return
receipt, shall be deemed to be receipt of notice, demand or request sent.
Notices may also be served by personal service upon any officer, director or
partner of Landlord or Tenant, and shall be effective upon such service.
(d) By giving to the other party at least thirty (30) days written
notice thereof, either party shall have the right from time to time during the
term of this Lease to change their respective addresses for notices, statements,
demands and requests, provided such new address shall be within the United
States of America.
ARTICLE TWENTY-FIVE
EXERCISE FACILITY
Tenant agrees to inform all employees of Tenant of the following: (i) the
exercise facility is available for the use of the employees of tenants of the
Project only and for no other person; (ii) use of the facility is at the risk of
Tenant or Tenant's employees, and all users must sign a release; (iii) the
facility is unsupervised; and (iv) users of the facility must report any needed
equipment maintenance or any unsafe conditions to the Landlord immediately.
Landlord may discontinue providing such facility at Landlord's sole option at
any time without incurring any liability. As a condition to the use of the
exercise facility, Tenant and each of Tenant's employees that uses the exercise
facility shall first sign a written release in form and substance acceptable to
Landlord. Landlord may change the rules and/or hours of the exercise facility
at any time, and Landlord reserves the right to deny access to the exercise
facility to anyone due to misuse of the facility or noncompliance with rules and
regulations of the facility. To the extent permitted by Law, Tenant hereby
indemnifies, and agrees to protect, defend and hold the Indemnitees harmless,
against any and all actions, claims, demands, liability, costs and expenses,
including attorneys' fees and expenses for the defense thereof, arising from use
of the exercise facility in the Project by Tenant, Tenant's employees or
invitees. In case of any action or proceeding brought against the Indemnitees
by reason of any such claim, upon notice from Landlord, Tenant covenants to
defend such action or proceeding by counsel chosen by Landlord, in Landlord's
sole discretion. Landlord reserves the right to settle, compromise or dispose
of any and all actions, claims and demands related to the foregoing indemnity.
27
<PAGE>
ARTICLE TWENTY-SIX
MISCELLANEOUS
26.01 LATE CHARGES
(a) All payments required hereunder (other than the Monthly Base Rent,
Rent Adjustments, and Rent Adjustment Deposits, which shall be due as
hereinbefore provided) to Landlord shall be paid within ten (10) days after
Landlord's demand therefor. All such amounts (including Monthly Base Rent, Rent
Adjustments, and Rent Adjustment Deposits) not paid when due shall bear interest
from the date due until the date paid at the Default Rate in effect on the date
such payment was due.
(b) In the event Tenant is more than five (5) days late in paying any
installment of Rent due under this Lease, Tenant shall pay Landlord a late
charge equal to five percent (5%) of the delinquent installment of Rent. The
parties agree that (i) such delinquency will cause Landlord to incur costs and
expenses not contemplated herein, the exact amount of which will be difficult to
calculate, including the cost and expense that will be incurred by Landlord in
processing each delinquent payment of rent by Tenant, and (ii) the amount of
such late charge represents a reasonable estimate of such costs and expenses and
that such late charge shall be paid to Landlord for each delinquent payment in
addition to all Rent otherwise due hereunder. The parties further agree that
the payment of late charges and the payment of interest provided for in
subparagraph (a) above are distinct and separate from one another in that the
payment of interest is to compensate Landlord for its inability to use the money
improperly withheld by Tenant, while the payment of late charges is to
compensate Landlord for its additional administrative expenses in handling and
processing delinquent payments.
(c) Payment of interest at the Default Rate and/or of late charges
shall not excuse or cure any default by Tenant under this Lease, nor shall the
foregoing provisions of this Article or any such payments prevent Landlord from
exercising any right or remedy available to Landlord upon Tenant's failure to
pay Rent when due, including the right to terminate this Lease.
26.02 NO JURY TRIAL; VENUE; JURISDICTION
Each party hereto (which includes any assignee, successor, heir or personal
representative of a party) shall not seek a jury trial, hereby waives trial by
jury, and hereby further waives any objection to venue in the County in which
the Project is located, and agrees and consents to personal jurisdiction of the
courts of the State of California, in any action or proceeding or counterclaim
brought by any party hereto against the other on any matter whatsoever arising
out of or in any way connected with this Lease, the relationship of Landlord and
Tenant, Tenant's use or occupancy of the Premises, or any claim of injury or
damage, or the enforcement of any remedy under any statute, emergency or
otherwise, whether any of the foregoing is based on this Lease or on tort law.
No party will seek to consolidate any such action in which a jury has been
waived with any other action in which a jury trial cannot or has not been
waived. It is the intention of the parties that these provisions shall be
subject to no exceptions. By execution of this Lease the parties agree that
this provision may be filed by any party hereto with the clerk or judge before
whom any action is instituted, which filing shall constitute the written consent
to a waiver of jury trial pursuant to and in accordance with Section 631 of the
California Code of Civil Procedure. No party has in any way agreed with or
represented to any other party that the provisions of this Section will not be
fully enforced in all instances. The provisions of this Section shall survive
the expiration or earlier termination of this Lease.
26.03 DEFAULT UNDER OTHER LEASE
It shall be a Default under this Lease if Tenant or any Affiliate holding any
other lease with Landlord for premises in the Building defaults under such lease
and as a result thereof such lease is terminated or terminable.
26.04 OPTION
This Lease shall not become effective as a lease or otherwise until executed and
delivered by both Landlord and Tenant. The submission of the Lease to Tenant
does not constitute a reservation of or option for the Premises, but when
executed by Tenant and delivered to Landlord, the Lease shall constitute an
irrevocable offer by Tenant in effect for fifteen (15) days to lease the
Premises on the terms and conditions herein contained.
26.05 TENANT AUTHORITY
Tenant represents and warrants to Landlord that it has full authority and power
to enter into and perform its obligations under this Lease, that the person
executing this Lease is fully empowered to do so, and that no consent or
authorization is necessary from any third party. Landlord may request that
Tenant provide Landlord evidence of Tenant's authority.
26.06 ENTIRE AGREEMENT
This Lease, the Exhibits and Rider 2 attached hereto contain the entire
agreement between Landlord and Tenant concerning the Premises and there are no
other agreements, either oral or written, and no other
28
<PAGE>
representations or statements, either oral or written, on which Tenant has
relied. This Lease shall not be modified except by a writing executed by
Landlord and Tenant.
26.07 MODIFICATION OF LEASE FOR BENEFIT OF MORTGAGEE
If Mortgagee of Landlord requires a modification of this Lease which shall not
result in any increased cost or expense to Tenant or in any other substantial
and adverse change in the rights and obligations of Tenant hereunder, then
Tenant agrees that the Lease may be so modified.
26.08 EXCULPATION
Tenant agrees, on its behalf and on behalf of its successors and assigns, that
any liability or obligation under this Lease shall only be enforced against
Landlord's equity interest in the Property up to a maximum of Three Million
Dollars ($3,000,000.00) and in no event against any other assets of the
Landlord, or Landlord's officers or directors or partners, and that any
liability of Landlord with respect to this Lease shall be so limited and Tenant
shall not be entitled to any judgment in excess of such amount.
26.09 ACCORD AND SATISFACTION
No payment by Tenant or receipt by Landlord of a lesser amount than any
installment or payment of Rent due shall be deemed to be other than on account
of the amount due, and no endorsement or statement on any check or any letter
accompanying any check or payment of Rent shall be deemed an accord and
satisfaction, and Landlord may accept such check or payment without prejudice to
Landlord's right to recover the balance of such installment or payment of Rent
or pursue any other remedies available to Landlord. No receipt of money by
Landlord from Tenant after the termination of this Lease or Tenant's right of
possession of the Premises shall reinstate, continue or extend the Term.
Receipt or acceptance of payment from anyone other than Tenant, including an
assignee of Tenant, is not a waiver of any breach of Article Ten, and Landlord
may accept such payment on account of the amount due without prejudice to
Landlord's right to pursue any remedies available to Landlord.
26.10 LANDLORD'S OBLIGATIONS ON SALE OF BUILDING
In the event of any sale or other transfer of the Building, Landlord shall be
entirely freed and relieved of all agreements and obligations of Landlord
hereunder accruing or to be performed after the date of such sale or transfer,
and any remaining liability of Landlord with respect to this Lease shall be
limited to the dollar amount specified in Section 26.08 and Tenant shall not be
entitled to any judgment in excess of such amount.
26.11 BINDING EFFECT
Subject to the provisions of Article Ten, this Lease shall be binding upon and
inure to the benefit of Landlord and Tenant and their respective heirs, legal
representatives, successors and permitted assigns.
26.12 CAPTIONS
The Article and Section captions in this Lease are inserted only as a matter of
convenience and in no way define, limit, construe, or describe the scope or
intent of such Articles and Sections.
26.13 TIME; APPLICABLE LAW; CONSTRUCTION
Time is of the essence of this Lease and each and all of its provisions. This
Lease shall be construed in accordance with the Laws of the State of California.
If more than one person signs this Lease as Tenant, the obligations hereunder
imposed shall be joint and several. If any term, covenant or condition of this
Lease or the application thereof to any person or circumstance shall, to any
extent, be invalid or unenforceable, the remainder of this Lease, or the
application of such term, covenant or condition to persons or circumstances
other than those as to which it is held invalid or unenforceable, shall not be
affected thereby and each item, covenant or condition of this Lease shall be
valid and be enforced to the fullest extent permitted by Law. Wherever the term
"including" or "includes" is used in this Lease, it shall have the same meaning
as if followed by the phrase "but not limited to". The language in all parts of
this Lease shall be construed according to its normal and usual meaning and not
strictly for or against either Landlord or Tenant.
26.14 ABANDONMENT
In the event Tenant vacates or abandons the Premises but is otherwise in
compliance with all the terms, covenants and conditions of this Lease, Landlord
shall (i) have the right to enter into the Premises in order to show the space
to prospective tenants, (ii) have the right to reduce the services provided to
Tenant pursuant to the terms of this Lease to such levels as Landlord reasonably
determines to be adequate services for an unoccupied premises and (iii) during
the last six (6) months of the Term, have the right to prepare the Premises for
occupancy by another tenant upon the end of the Term. Tenant expressly
acknowledges that in the absence of written notice pursuant to Section 11.02(b)
or pursuant to California Civil Code Section 1951.3 terminating Tenant's right
to possession, none of the foregoing acts of Landlord or any other act of
Landlord shall constitute a termination of Tenant's right to possession or an
acceptance of Tenant's surrender of the Premises, and the Lease shall continue
in effect.
29
<PAGE>
26.15 LANDLORD'S RIGHT TO PERFORM TENANT'S DUTIES
If Tenant fails timely to perform any of its duties under this Lease, Landlord
shall have the right (but not the obligation), to perform such duty on behalf
and at the expense of Tenant without prior notice to Tenant, and all sums
expended or expenses incurred by Landlord in performing such duty shall be
deemed to be additional Rent under this Lease and shall be due and payable upon
demand by Landlord.
26.16 SECURITY SYSTEM
Landlord shall not be obligated to provide or maintain any security patrol or
security system. Landlord shall not be responsible for the quality of any such
patrol or system which may be provided hereunder or for damage or injury to
Tenant, its employees, invitees or others due to the failure, action or inaction
of such patrol or system.
26.17 NO LIGHT, AIR OR VIEW EASEMENTS
Any diminution or shutting off of light, air or view by any structure which may
be erected on lands of or adjacent to the Project shall in no way affect this
Lease or impose any liability on Landlord.
26.18 RECORDATION
Neither this Lease, nor any notice nor memorandum regarding the terms hereof,
shall be recorded by Tenant. Any such unauthorized recording shall be a Default
for which there shall be no cure or grace period. Tenant agrees to execute and
acknowledge, at the request of Landlord, a memorandum of this Lease, in
recordable form.
26.19 SURVIVAL
The waivers of the right of jury trial, the other waivers of claims or rights,
the releases and the obligations of Tenant under this Lease to indemnify,
protect, defend and hold harmless Landlord and/or Indemnitees shall survive the
expiration or termination of this Lease, and so shall all other obligations or
agreements which by their terms survive expiration or termination of the Lease.
26.20 RIDERS
All Riders attached hereto and executed both by Landlord and Tenant shall be
deemed to be a part hereof and hereby incorporated herein.
IN WITNESS WHEREOF, this Lease has been executed as of the date set forth in
Section 1.01(4) hereof.
TENANT: LANDLORD:
NetObjects, Inc. Metropolitan Life Insurance Company,
a Delaware corporation a New York corporation
By /s/ Samir Arora By /s/ Edward J. Hayes
-------------------------------- ---------------------------------
Samir Arora Edward J. Hayes
-------------------------------- ---------------------------------
Print name Print name
Its CEO Its Assitant Vice President
-------------------------------- ---------------------------------
(Chairman of Board, President or Vice President)
By /s/ Michael J. Shannahan
---------------------------------
Michael J. Shannahan
---------------------------------
Print name
Its VP & CFO
--------------------------------
(Secretary, Assistant Secretary, CFO or Assistant Treasurer)
30
<PAGE>
EXHIBIT A
PLAN OF PREMISES
Exhibit A - Page 1
<PAGE>
EXHIBIT B
WORKLETTER AGREEMENT
(intentionally omitted)
Exhibit B - Page 1
<PAGE>
EXHIBIT C
SITE PLAN OF PROJECT
Exhibit C - Page 1
<PAGE>
EXHIBIT D
PLAN OF EXPANSION SPACE A
Exhibit D - Page 1
<PAGE>
EXHIBIT E
FORM OF SUBORDINATION, NONDISTURBANCE & ATTORNMENT AGREEMENT
- ------------------------------
RECORDING REQUESTED
BY AND WHEN
RECORDED RETURN TO:
____________________, Esq.
____________________
____________________
____________________
- ------------------------------
SUBORDINATION,
NONDISTURBANCE
AND ATTORNMENT AGREEMENT
NOTICE: THIS SUBORDINATION, NONDISTURBANCE AND ATTORNMENT AGREEMENT
RESULTS IN YOUR LEASEHOLD ESTATE IN THE PROPERTY BECOMING
SUBJECT TO AND OF LOWER PRIORITY THAN THE LIEN OF SOME
OTHER OR LATER SECURITY INSTRUMENT.
DEFINED TERMS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
EXECUTION DATE:
- --------------------------------------------------------------------------------
BENEFICIARY & ADDRESS:
Attn.:
with a copy to:
- --------------------------------------------------------------------------------
TENANT & ADDRESS:
- --------------------------------------------------------------------------------
LANDLORD & ADDRESS:
- --------------------------------------------------------------------------------
LOAN: A first mortgage loan in the original principal amount of $
from Beneficiary to Landlord.
- --------------------------------------------------------------------------------
NOTE: A Promissory Note executed by Landlord in favor of Beneficiary in the
amount of the Loan dated as of _______________________________
- --------------------------------------------------------------------------------
DEED OF TRUST: A Deed of Trust, Security Agreement and Fixture Filing dated
as of _____________ executed by Landlord, to ___________________ as Trustee,
for the benefit of Beneficiary securing repayment of the Note to be recorded in
the records of the County in which the Property is located.
- --------------------------------------------------------------------------------
LEASE AND LEASE DATE: The lease entered into by Landlord and Tenant dated as
of ___________________ covering the Premises.
[Add amendments]
- --------------------------------------------------------------------------------
PROPERTY: [Property Name]
[Street Address 1]
[City, State, Zip]
The Property is more particularly described on EXHIBIT A.
- --------------------------------------------------------------------------------
Exhibit E - Page 1 of 5
<PAGE>
THIS SUBORDINATION, NONDISTURBANCE AND ATTORNMENT AGREEMENT (the
"Agreement") is made by and among Tenant, Landlord, and Beneficiary and affects
the Property described in EXHIBIT A. Certain terms used in this Agreement are
defined in the Defined Terms. This Agreement is entered into as of the Execution
Date with reference to the following facts:
A. Landlord and Tenant have entered into the Lease covering certain
space in the improvements located in and upon the Property (the "Premises").
B. Beneficiary has made or is making the Loan to Landlord evidenced
by the Note. The Note is secured, among other documents, by the Deed of Trust.
C. Landlord, Tenant and Beneficiary all wish to subordinate the
Lease to the lien of the Deed of Trust.
D. Tenant has requested that Beneficiary agree not to disturb
Tenant's rights in the Premises pursuant to the Lease in the event Beneficiary
forecloses the Deed of Trust, or acquires the Property pursuant to the trustee's
power of sale contained in the Deed of Trust or receives a transfer of the
Property by a conveyance in lieu of foreclosure of the Property (collectively, a
"Foreclosure Sale") but only if Tenant is not then in default under the Lease
and Tenant attorns to Beneficiary or a third party purchaser at the Foreclosure
Sale (a "Foreclosure Purchaser").
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the parties agree as follows:
1. SUBORDINATION. The Lease and the leasehold estate created by the
Lease and all of Tenant's rights under the Lease are and shall remain
subordinate to the Deed of Trust and the lien of the Deed of Trust, to all
rights of Beneficiary under the Deed of Trust and to all renewals, amendments,
modifications and extensions of the Deed of Trust.
2. ACKNOWLEDGMENTS BY TENANT. Tenant agrees that: (a) Tenant has
notice that the Lease and the rent and all other sums due under the Lease have
been or are to be assigned to Beneficiary as security for the Loan. In the event
that Beneficiary notifies Tenant of a default under the Deed of Trust and
requests Tenant to pay its rent and all other sums due under the Lease to
Beneficiary, Tenant shall pay such sums directly to Beneficiary or as
Beneficiary may otherwise request. (b) Tenant shall send a copy of any notice or
statement under the Lease to Beneficiary at the same time Tenant sends such
notice or statement to Landlord. (c) This Agreement satisfies any condition or
requirement in the Lease relating to the granting of a nondisturbance agreement.
3. FORECLOSURE AND SALE. In the event of a Foreclosure Sale,
(a) So long as Tenant complies with this Agreement and is not in
default under any of the provisions of the Lease, the Lease shall continue
in full force and effect as a direct lease between Beneficiary and Tenant,
and Beneficiary will not disturb the possession of Tenant, subject to this
Agreement. Tenant agrees to attorn to and accept Beneficiary as landlord
under the Lease and to be bound by and perform all of the obligations
imposed by the Lease. Upon Beneficiary's acquisition of title to the
Property, Beneficiary will perform all of the obligations imposed on the
Landlord by the Lease except as set forth in this Agreement; provided,
however, that Beneficiary shall not be: (i) liable for any act or omission
of a prior landlord (including Landlord); or (ii) subject to any offsets or
defenses that Tenant might have against any prior landlord (including
Landlord); or (iii) bound by any rent or additional rent which Tenant might
have paid in advance to any prior landlord (including Landlord) for a
period in excess of one month or by any security deposit, cleaning deposit
or other sum that Tenant may have paid in advance to any prior landlord
(including Landlord); or (iv) bound by any amendment, modification,
assignment or termination of the Lease made without the written consent of
Beneficiary; (v) obligated or liable with respect to any representations,
warranties or indemnities contained in the Lease; or (vi) liable to Tenant
or any other party for any conflict between the provisions of the Lease and
the provisions of any other lease affecting the Property which is not
entered into by Beneficiary.
(b) Upon the written request of Beneficiary after a Foreclosure
Sale, the parties shall execute a lease of the Premises upon the same
provisions as contained in the Lease between Landlord and Tenant, except as
set forth in this Agreement, for the unexpired term of the Lease.
4. SUBORDINATION AND RELEASE OF PURCHASE OPTIONS. Tenant represents
that it has no right or option of any nature to purchase the Property or any
portion of the Property or any interest in the Borrower. To the extent Tenant
has or acquires any such right or option, these rights or options are
acknowledged to be subject and subordinate to the Mortgage and are waived and
released as to Beneficiary and any Foreclosure Purchaser.
5. ACKNOWLEDGMENT BY LANDLORD. In the event of a default under the
Deed of Trust, at the election of Beneficiary, Tenant shall and is directed to
pay all rent and all other sums due under the Lease to Beneficiary.
Exhibit E - Page 2 of 5
<PAGE>
6. CONSTRUCTION OF IMPROVEMENTS. Beneficiary shall not have any
obligation or incur any liability with respect to the completion of the
improvements in which the Premises are located at the commencement of the term
of the Lease.
7. NOTICE. All notices under this Agreement shall be deemed to have
been properly given if delivered by overnight courier service or mailed by
United States certified mail, with return receipt requested, postage prepaid to
the party receiving the notice at its address set forth in the Defined Terms (or
at such other address as shall be given in writing by such party to the other
parties) and shall be deemed complete upon receipt or refusal of delivery.
8. MISCELLANEOUS. Beneficiary shall not be subject to any provision
of the Lease that is inconsistent with this Agreement. Nothing contained in this
Agreement shall be construed to derogate from or in any way impair or affect the
lien or the provisions of the Deed of Trust. This Agreement shall be governed by
and construed in accordance with the laws of the State of in which the Property
is located.
9. LIABILITY AND SUCCESSORS AND ASSIGNS. In the event that
Beneficiary acquires title to the Premises or the Property, Beneficiary shall
have no obligation nor incur any liability beyond Beneficiary's then equity
interest in the building in which the Premises is located, but in no event in
excess of Three Million Dollars ($3,000,000), and Tenant shall look solely to
such equity interest for the payment and performance of any obligations imposed
upon Beneficiary under this Agreement or under the Lease. This Agreement shall
run with the land and shall inure to the benefit of the parties and, their
respective successors and permitted assigns including a Foreclosure Purchaser.
If a Foreclosure Purchaser acquires the Property or if Beneficiary assigns or
transfers its interest in the Note and Deed of Trust or the Property, all
obligations and liabilities of Beneficiary under this Agreement shall terminate
and be the responsibility of the Foreclosure Purchaser or other party to whom
Beneficiary's interest is assigned or transferred. The interest of Tenant under
this Agreement may not be assigned or transferred except in connection with an
assignment of its interest in the Lease which has been consented to by
Beneficiary.
IN WITNESS WHEREOF, the parties have executed this Subordination,
Nondisturbance and Attornment Agreement as of the Execution Date.
NOTICE: THIS SUBORDINATION, NONDISTURBANCE AND ATTORNMENT AGREEMENT CONTAINS
PROVISIONS WHICH ALLOW THE PERSON OBLIGATED ON THE LEASE TO OBTAIN A
LOAN, A PORTION OF WHICH MAY BE EXPENDED FOR OTHER PURPOSES THAN
IMPROVEMENT OF THE PROPERTY.
IT IS RECOMMENDED THAT THE PARTIES CONSULT WITH THEIR ATTORNEYS PRIOR TO THE
EXECUTION OF THIS SUBORDINATION, NONDISTURBANCE AND ATTORNMENT AGREEMENT.
BENEFICIARY:
----------------------------------,
a
---------------------------------
By
-------------------------------
Its
------------------------------
TENANT:
----------------------------------,
a
---------------------------------
By
--------------------------------
Its
-------------------------------
LANDLORD:
----------------------------------,
a
---------------------------------
By
--------------------------------
Its
-------------------------------
Exhibit E - Page 3 of 5
<PAGE>
EXHIBIT A OF SUBORDINATION, NONDISTURBANCE AND ATTORNMENT AGREEMENT
PROPERTY DESCRIPTION
Exhibit E - Page 4 of 5
<PAGE>
State of _____________
County of ____________
On ______________, 199_ before me, ____________________, personally appeared
___________________, personally known to me (or proved to me on the basis of
satisfactory evidence) to be the person whose name is subscribed to the within
instrument and acknowledged to me that he/she executed the same in his/her
authorized capacity, and that by his/her signature on the instrument the person,
or the entity upon behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
Signature (Seal)
--------------------------------
***************************************************
State of _____________
County of ____________
On ______________, 199_ before me, ____________________, personally appeared
___________________, personally known to me (or proved to me on the basis of
satisfactory evidence) to be the person whose name is subscribed to the within
instrument and acknowledged to me that he/she executed the same in his/her
authorized capacity, and that by his/her signature on the instrument the person,
or the entity upon behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
Signature (Seal)
--------------------------------
***************************************************
State of _____________
County of ____________
On ______________, 199_ before me, ____________________, personally appeared
___________________, personally known to me (or proved to me on the basis of
satisfactory evidence) to be the person whose name is subscribed to the within
instrument and acknowledged to me that he/she executed the same in his/her
authorized capacity, and that by his/her signature on the instrument the person,
or the entity upon behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
Signature (Seal)
--------------------------------
Exhibit E - Page 5 of 5
<PAGE>
RIDER 1
COMMENCEMENT DATE AGREEMENT
Metropolitan Life Insurance Company, a New York corporation ("Landlord"), and
NetObjects, Inc., a Delaware corporation ("Tenant"), have entered into a certain
Lease dated as of July 24, 1998 (the "Lease").
WHEREAS, Landlord and Tenant wish to confirm and memorialize the Commencement
Date and Expiration Date of the Lease as provided for in Rider 2 of the Lease;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
contained herein and in the Lease, Landlord and Tenant agree as follows:
1. Unless otherwise defined herein, all capitalized terms shall have the
same meaning ascribed to them in the Lease.
2. The Commencement Date (as defined in the Lease) of the Lease is
____________.
3. The Expiration Date (as defined in the Lease) of the Lease is
____________ .
4. Tenant hereby confirms the following:
(a) That it has accepted possession of the premises pursuant to the
terms of the Lease;
(b) That the Landlord Work, if any, is Substantially Complete; and
(c) That the Lease is in full force and effect.
5. Except as expressly modified hereby, all terms and provisions of the
Lease are hereby ratified and confirmed and shall remain in full force and
effect and binding on the parties hereto.
6. The Lease and this Commencement Date Agreement contain all of the
terms, covenants, conditions and agreements between the Landlord and the Tenant
relating to the subject matter herein. No prior other agreements or
understandings pertaining to such matters are valid or of any force and effect.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Commencement
Date Agreement and such execution and delivery have been duly authorized.
TENANT: LANDLORD:
NetObjects, Inc., Metropolitan Life Insurance Company,
a Delaware corporation a New York corporation
By By
-------------------------------- --------------------------------
-------------------------------- --------------------------------
Print name Print name
Its Its
-------------------------------- --------------------------------
(Chairman of Board, President or Vice
President)
By
--------------------------------
--------------------------------
Print name
Its
--------------------------------
(Secretary, Assistant Secretary, CFO or Assistant Treasurer)
Rider 1 - Page 1 of 1
<PAGE>
RIDER 2
ADDITIONAL PROVISIONS
This Rider 2 ("Rider") is attached to and a part of a certain Lease dated
as of July 24, 1998 executed concurrently herewith by Metropolitan Life
Insurance Company, a New York corporation, as Landlord ("Landlord"), and
NetObjects, Inc., a Delaware corporation, as Tenant ("Tenant" or "NetObjects"),
for the Premises as described therein (the "Lease").
SECTION 1. DEFINED TERMS; FORCE AND EFFECT
Capitalized terms used in this Rider shall have the same meanings set forth in
the Lease except as otherwise specified herein and except for terms capitalized
in the ordinary course of punctuation. This Rider forms a part of the Lease.
Without limiting the generality of the foregoing, any default by any party
hereunder shall have the same force and effect as a default under the Lease.
Should any inconsistency arise between this Rider and any other provision of the
Lease as to the specific matters which are the subject of this Rider, the terms
and conditions of this Rider shall control.
SECTION 2. PREMISES LEASED "AS-IS"; DELIVERY; COMMENCEMENT DATE; AND
CONSTRUCTION
2.1. AS-IS; DELIVERY; COMMENCEMENT DATE. Notwithstanding any
provision of the Lease to the contrary:
(a) AS-IS. Tenant acknowledges and agrees that (i) Tenant has
been afforded ample opportunity to inspect the Premises, the Building and the
Project, and has investigated their condition to the extent Tenant desires to do
so; (ii) Tenant hereby agrees that this Lease is of the Premises in its "AS IS"
condition; (iii) no representation regarding the condition of the Premises or
the Building or the Project has been made by or on behalf of Landlord; (iv)
Landlord has no obligation to remodel or to make any repairs, alterations or
improvements to the Premises, Building or the Project in connection with
Tenant's initial occupancy or provide Tenant any allowance for any work by
Tenant, except for the Landlord Maximum Contribution as provided below; and (v)
there is no Workletter for this Lease.
(b) DELIVERY & COMMENCEMENT DATE. Tenant acknowledges that (i)
Landlord has disclosed to Tenant that the Premises and Expansion Space A
(defined below) are under lease to Scitex, Inc. ("Scitex'); that the term of the
lease of those spaces expires November 30, 1998; that Landlord will make good
faith efforts, at no cost to Landlord, to seek agreement of Scitex for the
earlier surrender to Landlord of the Premises and Expansion Space A, either
separately or together, but Landlord shall not be obligated to tender possession
of a particular space unless and until Landlord recovers possession of that
respective space. Landlord shall tender to Tenant possession of the Premises on
or within two (2) business days after the date Landlord recovers possession of
such space, and possession will be adequately tendered to Tenant by Landlord
either delivering the keys (or other means of access) to Tenant or Tenant's
Broker, or by Landlord giving written notice that the keys (or other means of
access) to the Premises are available for Tenant or its representative to pick
up at the office of Landlord or of the Seaport Centre Property Manager. The
date on which Landlord tenders to Tenant possession of the Premises is the
Delivery Date. On the Delivery Date Tenant shall have the right of possession
of the Premises and shall be subject to all of the terms, covenants and
conditions of this Lease, including all arrangements and payments for utilities
and services, except that the Term and Tenant's obligations to pay Monthly Base
Rent, Rent Adjustments and Rent Adjustment Deposits shall commence on the
Commencement Date, and the Commencement Date shall be the date forty-five (45)
days after the Delivery Date.
(c) DELAY IN DELIVERY. If Landlord does not obtain possession
of the Premises earlier than November 30, 1998, or if Landlord shall be unable
to give possession of the Premises upon expiration of the term of the Scitex
lease by reason of the following: (i) the holding over or retention of
possession of any tenant, tenants or occupants, or (ii) for any other reason,
then Landlord shall not be subject to any liability for the failure to give
possession on said date. Under such circumstances the Commencement Date shall
be delayed by a number of days equal to the days of delay in Landlord's delivery
of possession to Tenant. No such failure to give possession shall affect the
validity of this Lease or the obligations of the Tenant hereunder. Within
thirty (30) days following the occurrence of the Commencement Date, Landlord and
Tenant shall enter into an agreement (which is attached to this Lease as RIDER
1) confirming the Commencement Date and the Expiration Date. If Tenant fails to
enter into such agreement, then the Commencement Date and the Expiration Date
shall be the dates designated by Landlord in such agreement.
2.2. TENANT WORK GENERALLY. Landlord and Tenant acknowledge and agree
that notwithstanding any provisions of the Lease to the contrary: (a) Tenant
may desire to do certain remodeling, repair, improvement or alteration in
connection with its initial occupancy, which for purposes of this Lease is
referred to as the Tenant Work; (b) all Tenant Work, if any, shall be done as
Tenant Alterations within the meaning of Article Nine of the Lease, subject to
and in compliance with all conditions and provisions of the Lease applicable to
Tenant Alterations, except as otherwise expressly provided in this Rider; (c)
without limiting the generality of any provisions of Article Nine, Tenant's
selection of Tenant's space planner and/or architect and Tenant's selection of
contractor(s) shall be subject to Landlord's prior written approval, which shall
not unreasonably be withheld, and as of the date hereof Landlord has approved
Tenant's selection of MAC
Rider 2 - Page 1 of 6
<PAGE>
Associates with an office at 222 Front Street, Suite 600, San Francisco,
California 94111 as Tenant's architect and James Reilly Contracting with an
address of 156 Aptos School Road, Aptos, California 95003 as Tenant's contractor
for the Premises and Expansion Space A (defined below); (d) if the Tenant Work
does not exceed the amount of Landlord's Maximum Contribution, Tenant shall not
be required to obtain a completion and lien indemnity bond for it; (e) such
work, including all design, plan review, obtaining all approvals and permits,
and construction shall be at Tenant's sole cost and expense, including delivery
to Landlord of plans and specifications of such Tenant Work (including 3 mylar
copies of as-built plans and specifications upon completion) to the extent such
work is more than recarpeting and/or repainting, and (f) Tenant shall pay
Landlord a fee for monitoring such design, construction and work by Tenant which
shall not exceed two percent of all "hard costs" of the Tenant Work.
2.3. DESIGN & CONSTRUCTION RESPONSIBILITY FOR ANY TENANT WORK. Tenant
shall be responsible for the suitability for the Tenant's needs and business of
the design and function of all Tenant Work and for its construction in
compliance with all Law as applicable and as interpreted at the time of
construction of the Tenant Work, including all building codes and the ADA (as
defined in the Lease). Tenant, through its architects and/or space planners
("Tenant's Architect"), shall prepare all architectural plans and
specifications, and engineering plans and specifications, for the real property
improvements to be constructed by Tenant in the Premises in sufficient detail to
be submitted for approval by Landlord to the extent required pursuant to Article
Nine of the Lease and to be submitted by Tenant for governmental approvals and
building permits and to serve as the detailed construction drawings and
specifications for the contractor, and shall include, among other things, all
partitions, doors, heating, ventilating and air conditioning installation and
distribution, ceiling systems, light fixtures, plumbing installations,
electrical installations and outlets, telephone installations and outlets, any
other installations required by Tenant, fire and life-safety systems, wall
finishes and floor coverings, whether to be newly installed or requiring changes
from the as-is condition of the Premises as of the date of execution of the
Lease. Tenant shall be responsible for the oversight, supervision and
construction of all Tenant Work in compliance with this Lease, including
compliance with all Law as applicable and as interpreted at the time of
construction, including all building codes and the ADA.
2.4. LANDLORD'S MAXIMUM CONTRIBUTION: AMOUNT; REIMBURSABLE COSTS &
PAYMENT. Landlord's Maximum Contribution means an amount up to a maximum of
Fifty Thousand Nine Hundred and Forty-seven Dollars ($50,947.00) to reimburse
Tenant for the actual costs of design, plan review, obtaining all approvals and
permits, and construction of Tenant Work either (i) in the Premises and/or (ii)
in Expansion Space A (defined below), which shall be payable as provided below.
In no event shall the Landlord's Maximum Contribution be used to reimburse any
costs of designing, procuring or installing in the Premises or in Expansion
Space A any trade fixtures, movable equipment, furniture, furnishings, telephone
equipment, cabling for any of the foregoing, or other personal property
(collectively "Personal Property" for purposes of this Rider), and the cost of
such Personal Property shall be paid by Tenant. Landlord's Maximum Contribution
shall be paid to Tenant within 30 days after the later of final completion of
the Tenant Work in the respective space in which such work is done, and
Landlord's receipt of (i) a certificate of occupancy (if applicable), (ii) final
as-built plans and specifications, (iii) full, final, unconditional lien
releases, and (iv) reasonable substantiation of costs incurred by Tenant with
respect to the Tenant Work in the respective space in which such work is done.
Tenant must prior to expiration of six months after the SACD (defined below) or
Tenant's termination pursuant to Section 3(d) below of its obligation to lease
Expansion Space A submit written application with the items required above for
disbursement or reimbursement for any reimbursable costs out of the Landlord's
Maximum Contribution, and to the extent of any funds for which application has
not been made prior to that date or if and to the extent that the reimbursable
costs of the Tenant Work are less than the amount of Landlord's Maximum
Contribution, then Landlord shall retain the unapplied or unused balance of the
Landlord's Maximum Contribution and shall have no obligation or liability to
Tenant with respect to such excess.
SECTION 3. LEASE OF EXPANSION SPACE A
(a) DEFINITION OF EXPANSION SPACE A. "Expansion Space A" means the
existing space currently known as 351 Galveston in the Building as shown hatched
on EXHIBIT D to this Lease. Tenant acknowledges that Landlord has advised
Tenant that Expansion Space A is an area of approximately 12,663 square feet of
Rentable Area which is currently leased to Scitex as described in Section 2.1(b)
of this Rider. Landlord and Tenant hereby agree that the area of Expansion
Space A in the aggregate is conclusively presumed to be 12,663 square feet of
Rentable Area.
(b) GENERAL TERMS OF LEASE. Landlord hereby leases to Tenant and
Tenant hereby hires from Landlord Expansion Space A upon and subject to all of
the terms, covenants and conditions of the Lease except as expressly provided in
this Rider.
(c) DELIVERY & COMMENCEMENT DATE. Tenant acknowledges that (i)
Landlord has disclosed to Tenant that the Premises and Expansion Space A
(defined below) are under lease to Scitex, Inc. ("Scitex'); that the term of the
lease of those spaces expires November 30, 1998; that Landlord will make good
faith efforts, at no cost to Landlord, to seek agreement of Scitex for the
earlier surrender to Landlord of the Premises and Expansion Space A, either
separately or together, but Landlord shall not be obligated to tender possession
of a particular space unless and until Landlord recovers possession of that
respective space. Landlord shall tender to Tenant possession of Expansion Space
A on or within two (2) business days after the date Landlord recovers possession
of such space, and possession will be adequately tendered to Tenant
Rider 2 - Page 2 of 6
<PAGE>
by Landlord either delivering the keys (or other means of access) to Tenant or
Tenant's Broker, or by Landlord giving written notice that the keys (or other
means of access) to Expansion Space A are available for Tenant or its
representative to pick up at the office of Landlord or of the Seaport Centre
Property Manager. Upon such tender of delivery, Expansion Space A becomes a
part of the Premises, on and subject to all of the terms, covenants and
conditions of the Lease, including the payment of Rent (including Monthly Base
Rent and all other rent payable under the Lease), except as expressly provided
in this Rider. The term of the lease of Expansion Space A (the "Space A Term")
shall commence (the "Space A Commencement Date" or "SACD") upon such tender of
delivery to Tenant, and continue for a term of 48 months after the SACD, which
is the Expiration Date of the Term of the Lease of the Premises, including both
the initial Premises and Expansion Space A.
(d) DELAY IN DELIVERY. If Landlord does not obtain possession of Expansion
Space A earlier than November 30, 1998, or if Landlord shall be unable to give
possession of Expansion Space A upon expiration of the term of the Scitex lease
by reason of the following: (i) the holding over or retention of possession of
any tenant, tenants or occupants, or (ii) for any other reason, then Landlord
shall not be subject to any liability for the failure to give possession on said
date. Under such circumstances the SACD shall be delayed by a number of days
equal to the days of delay in Landlord's delivery of possession to Tenant. No
such failure to give possession shall affect the validity of this Lease or the
obligations of the Tenant hereunder. Within thirty (30) days following the
occurrence of the SACD, Landlord and Tenant shall enter into an agreement (which
is attached to this Lease as RIDER 3) confirming the SACD and the Expiration
Date. If Tenant fails to enter into such agreement, then the SACD and the
Expiration Date shall be the dates designated by Landlord in such agreement.
Notwithstanding any provision of this Section to the contrary, if Landlord does
not tender possession of Expansion Space A on or before the Sunset Date (defined
below), Tenant shall have the right exercisable by giving written notice to
Landlord within three (3) business days after the Sunset Date to terminate its
obligation to lease Expansion Space A pursuant to this Section 3 without payment
of termination fee or other amount, and thereafter the Lease shall continue in
full force and effect without addition of Expansion Space A. If Tenant does not
timely give notice of its election to terminate as aforesaid and if Landlord
does not tender possession of Expansion Space A on or before the date which is
sixty (60) days following the Sunset Date (as the same may be modified as
described below), then Tenant shall again have the right to terminate this Lease
in the manner described above and such date shall constitute the new Sunset
Date; it being the intention of the parties that Tenant shall have a recurring
termination right after each such period following the initial Sunset Date if
Landlord does not tender possession of Expansion Space A by the end of each such
period. As used in this Lease, "Sunset Date" means April 1, 1999, and the
initial Sunset Date and any succeeding new Sunset Dates shall be extended by the
number of days of delay due to Force Majeure plus the number of days of delay
caused by Tenant, if any. On or before the Sunset Date, if such date includes
any period of Force Majeure or Tenant Delay, Landlord shall give Tenant written
notice of the resulting calendar date of the Sunset Date.
(e) AS IS CONDITION; ALTERATIONS BY TENANT.
(i) AS IS CONDITION. Notwithstanding any provision of the
Lease to the contrary, Tenant acknowledges and agrees that: (aa) Tenant has
been afforded ample opportunity to inspect the Premises, the Building and the
Project, and has investigated their condition to the extent Tenant desires to do
so; (bb) Tenant is leasing the Premises in its "AS IS" condition; (cc) no
representation regarding the condition of the Premises or the Building or the
Project has been made by or on behalf of Landlord; (dd) Landlord has no
obligation to remodel or to make any repairs, alterations, improvements to the
Premises, Building or Project in connection with Tenant's initial occupancy or
provide Tenant any allowance for any work by Tenant, except for the Landlord
Maximum Contribution as provided above in Section 2.4 of this Rider and the
Landlord Maximum Space A Contribution as provided in Section 3(e)(iii) below ;
and (ee) there is no Workletter for Expansion Space A.
(ii) TENANT ALTERATIONS. Notwithstanding any provision of the
Lease to the contrary, Landlord and Tenant acknowledge and agree that: (aa)
Tenant may desire to do certain remodeling, improvement or alteration of the
Premises and/or Expansion Space A in connection with Tenant's initial occupancy
of Expansion Space A; (bb) that any such work may be done by Tenant as Tenant
Work and Tenant Alterations subject to and on the same terms, covenants and
conditions as set forth above in Sections 2.2 through 2.4 of this Rider for
Tenant Work in the Premises and in Section 3(e)(iii) below.
(iii) LANDLORD'S MAXIMUM SPACE A CONTRIBUTION: AMOUNT;
REIMBURSABLE COSTS & PAYMENT. Landlord's Maximum Space A Contribution means an
amount up to a maximum of Forty-nine Thousand and Fifty-three Dollars
($49,053.00) to reimburse Tenant for the actual costs of design, plan review,
obtaining all approvals and permits, and construction of Tenant Work either (i)
in the Premises and/or (ii) in Expansion Space A (defined below), which shall be
payable as provided below. In no event shall the Landlord's Maximum
Contribution be used to reimburse any costs of designing, procuring or
installing in the Premises or in Expansion Space A any trade fixtures, movable
equipment, furniture, furnishings, telephone equipment, cabling for any of the
foregoing, or other personal property (collectively "Personal Property" for
purposes of this Rider), and the cost of such Personal Property shall be paid by
Tenant. Landlord's Maximum Space A Contribution shall be available only if
Expansion Space A becomes part of the Premises as provided above and no earlier
than thirty (30) days after the SACD. Subject to the preceding sentence,
Landlord's Maximum Contribution shall be paid to Tenant within 30 days after the
later of final completion of the Tenant Work in the respective space in which
such work is done, and Landlord's receipt of (i) a certificate of occupancy (if
applicable), (ii) final as-built plans and specifications, (iii) full, final,
unconditional lien
Rider 2 - Page 3 of 6
<PAGE>
releases, and (iv) reasonable substantiation of costs incurred by Tenant with
respect to the Tenant Work in the respective space in which such work is done.
Tenant must prior to expiration of six months after the SACD (defined below)
submit written application with the items required above for disbursement or
reimbursement for any reimbursable costs out of the Landlord's Maximum Space A
Contribution, and to the extent of any funds for which application has not been
made prior to that date or if and to the extent that the reimbursable costs of
the Tenant Work are less than the amount of Landlord's Maximum Space A
Contribution, then Landlord shall retain the unapplied or unused balance of the
Landlord's Maximum Space A Contribution and shall have no obligation or
liability to Tenant with respect to such excess.
(f) MONTHLY BASE RENT FOR EXPANSION SPACE A. Notwithstanding any
other provision of the Lease to the contrary, Landlord and Tenant acknowledge
and agree that Monthly Base Rent for Expansion Space A is payable at the time
and in the manner required under the Lease for Monthly Base Rent for the initial
Premises, but the amounts are distinct from and in addition to rent payable for
the initial Premises, and that the amount of Monthly Base Rent due and payable
by Tenant for Expansion Space A, accruing on and after the SACD and monthly
thereafter for the Term of the Lease shall be as follows:
<TABLE>
<CAPTION>
Period from/through Monthly Monthly Rate/SF of Rentable Area
------------------- ------- --------------------------------
<S> <C> <C>
Month 01 $14,857.92 $2.20 with 1/2 month free
Month 02 - Month 12 $27,858.60 $2.20
Month 13 - Month 24 $28,745.01 $2.27
Month 25 - Month 36 $29,504.79 $2.33
Month 37 - Expiration Date $30,391.20 $2.40
</TABLE>
(g) AMENDMENT OF TENANT'S SHARE OF OPERATING EXPENSES & RENT
ADJUSTMENT DEPOSIT. Notwithstanding any other provision of the Lease to the
contrary, Landlord and Tenant acknowledge and agree that upon addition of
Expansion Space A to the Premises on the SACD:
(i) Tenant's Share of Operating Expenses payable shall
increase, and Tenant's Share in the aggregate based upon the initial Premises
and Expansion Space A together, shall then be, and effective at such time,
Section 1.01(16) of the Lease is amended to read, as follows:
TENANT'S SHARE:
Tenant's Building Share: 100%
Tenant's Phase Share: 10.9558%
Tenant's Project Share: 04.8031%
(ii) Tenant's Rent Adjustment Deposit payable shall increase,
and based upon the initial Premises and Expansion Space A together, shall then
be, and effective at such time, the amount set forth in Section 1.01(9) of the
Lease is amended to be $11,358.16 (based upon Landlord's estimate for 1998)
monthly, until further notice from Landlord.
(h) PARKING. Notwithstanding any other provision of the Lease to the
contrary, with respect to Expansion Space A on and after the SACD, Tenant shall
have the right to use an additional 42 Parking Spaces, and effective on the
SACD, Section 1.01(18) of the Lease is amended to specify a total of 85 Parking
Spaces for the Premises, including the initial Premises and Expansion Space A
together.
SECTION 4. OPTION TO EXTEND.
(a) Landlord hereby grants Tenant a single option to extend the
initial Term of the Lease for an additional period of four (4) years (such
period may be referred to as the "Option Term"), as to the entire Premises as it
may then exist, upon and subject to the terms and conditions of this Section
(the "Option To Extend"), and provided that at the time of exercise of such
right: (i) Tenant must be in occupancy of the entire Premises; and (ii) there
has been no material adverse change in Tenant's financial position from such
position as of the date of execution of the Lease, as certified by Tenant's
independent certified public accountants, and as supported by Tenant's certified
financial statements, copies of which shall be delivered to Landlord with
Tenant's written notice exercising its right hereunder.
(b) Tenant's election (the "Election Notice") to exercise the
Option To Extend must be given to Landlord in writing no earlier than the date
which is fifteen months (15) months before the Expiration Date and no later than
the date which is twelve (12) months before the Expiration Date. If Tenant
either fails or elects not to exercise its Option to Extend by not timely giving
its Election Notice, then the Option to Extend shall be null and void.
(c) The Option Term shall commence immediately after the
expiration of the initial Term of the Lease. Tenant's leasing of the Premises
during the Option Term shall be upon and subject to the same terms and
conditions contained in the Lease except that (i) the Monthly Base Rent, plus
payment of Tenant's Share of Operating Expenses pursuant to the Lease (in
addition to all expenses paid directly by Tenant to the utility or service
provider, which direct payments shall continue to be Tenant's obligation) shall
be amended to equal the "Option Term Rent", defined and determined in the manner
set forth in the immediately following Subsection; (ii) the Security Deposit, if
any, shall be increased within
Rider 2 - Page 4 of 6
<PAGE>
fifteen (15) days after the Prevailing Market Rent has been determined to equal
one hundred percent (100%) of the highest monthly installment of Monthly Base
Rent thereunder, but in no event shall the Security Deposit be decreased; (iii)
Tenant shall accept the Premises in its "AS-IS" condition without any obligation
of Landlord to repaint, remodel, repair, improve or alter the Premises or to
provide Tenant any allowance therefor; and (iv) there shall be no further option
or right to extend the term of the Lease. If Tenant timely and properly
exercises the Option To Extend, references in the Lease to the Term shall be
deemed to mean the initial Term as extended by the Option Term unless the
context clearly requires otherwise.
(d) The Option Term Rent shall mean the greater of (i) the
Monthly Base Rent payable by Tenant under this Lease calculated at the rate
applicable for the last full month of the initial Term, plus payment of Tenant's
Share of Operating Expenses pursuant to the Lease (in addition to all expenses
paid directly by Tenant to the utility or service provider, which direct
payments shall continue to be Tenant's obligation) (collectively, "Preceding
Rent") or (ii) the "Prevailing Market Rent". As used in this Rider Prevailing
Market Rent shall mean the rent and all other monetary payments, escalations and
triple net payables by Tenant, including consumer price increases, that Landlord
could obtain from a third party desiring to lease the Premises for a term equal
to the Option Term and commencing when the Option Term is to commence under
market leasing conditions, and taking into account the following: the size,
location and floor levels of the Premises; the type and quality of tenant
improvements; age and location of the Project; quality of construction of the
Project; services to be provided by Landlord or by tenant; the rent, all other
monetary payments and escalations obtainable for new leases of space comparable
to the Premises in the Project and in comparable buildings in the mid-Peninsula
area, and other factors that would be relevant to such a third party in
determining what such party would be willing to pay therefor, provided, however,
that Prevailing Market Rent shall be determined without reduction or adjustment
for "Tenant Concessions" (as defined below), if any, being offered to
prospective new tenants of comparable space. For purposes of the preceding
sentence, the term "Tenant Concessions" shall include, without limitation,
so-called free rent, tenant improvement allowances and work, moving allowances,
and lease takeovers. The determination of Prevailing Market Rent based upon the
foregoing criteria shall be made by Landlord, in the good faith exercise of
Landlord's business judgment. Within thirty (30) days after Tenant's exercise
of the Option To Extend, Landlord shall notify Tenant of Landlord's
determination of Option Term Rent for the Premises. If Landlord's determination
of Prevailing Market Rent is greater than the Preceding Rent, and if Tenant, in
Tenant's sole discretion, disagrees with the amount of Prevailing Market Rent
determined by Landlord, Tenant may elect to revoke and rescind the exercise of
the option by giving written notice thereof to Landlord within thirty (30) days
after notice of Landlord's determination of Prevailing Market Rent.
(e) This Option to Extend is personal to NetObjects and may not
be used by, and shall not be transferable or assignable (voluntarily or
involuntarily) to any person or entity.
(f) Upon the occurrence of any of the following events, Landlord
shall have the option, exercisable at any time prior to commencement of the
Option Term, to terminate all of the provisions of this Section with respect to
the Option to Extend, with the effect of canceling and voiding any prior or
subsequent exercise so this Option to Extend is of no force or effect:
(i) Tenant's failure to timely exercise the Option to
Extend in accordance with the provisions of this Section.
(ii) The existence at the time Tenant exercises the Option
to Extend or at the commencement of the Option Term of any default on
the part of Tenant under the Lease or of any state of facts which with
the passage of time or the giving of notice, or both, would constitute
such a default.
(iii) Tenant's third default under the Lease prior to the
commencement of the Option Term, notwithstanding that all such
defaults may subsequently be cured.
In the event of Landlord's termination of the Option to Extend pursuant to this
Section, Tenant shall reimburse Landlord for all costs and expenses Landlord
incurs in connection with Tenant's exercise of the Option to Extend including,
without limitation, costs and expenses with respect to any brokerage commissions
and attorneys' fees, and with respect to the design, construction or making of
any tenant improvements, repairs or renovation or with respect to any payment of
all or part of any allowance for any of the foregoing.
Rider 2 - Page 5 of 6
<PAGE>
(g) Without limiting the generality of any provision of the
Lease, time shall be of the essence with respect to all of the provisions of
this Section.
IN WITNESS WHEREOF, the parties hereto have executed this Rider 2 as
of the date first set forth in the Lease.
TENANT: LANDLORD:
NetObjects, Inc., Metropolitan Life Insurance Company,
a Delaware corporation a New York corporation
By By
-------------------------------- --------------------------------
-------------------------------- --------------------------------
Print name Print name
Its Its
-------------------------------- --------------------------------
(Chairman of Board, President or Vice
President)
By
--------------------------------
--------------------------------
Print name
Its
--------------------------------
(Secretary, Assistant Secretary, CFO or Assistant Treasurer)
Rider 2 - Page 6 of 6
<PAGE>
RIDER 3
EXPANSION SPACE A COMMENCEMENT DATE AGREEMENT
Metropolitan Life Insurance Company, a New York corporation ("Landlord"), and
NetObjects, Inc., a Delaware corporation ("Tenant"), have entered into a certain
Lease dated as of July 24, 1998 (the "Lease").
WHEREAS, Landlord and Tenant wish to confirm and memorialize the Space A
Commencement Date ("SACD") and Expiration Date of the Lease as provided for in
Rider 2 of the Lease;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
contained in this Rider and in the Lease, Landlord and Tenant agree as follows:
1. Unless otherwise defined herein, all capitalized terms shall have the
same meaning ascribed to them in the Lease.
2. The Space A Commencement Date (as defined in Rider 2 of the Lease) is
____________.
3. The Expiration Date (as defined in the Lease) of the Lease is
____________.
4. Tenant hereby confirms the following:
(a) That it has accepted possession of Expansion Space A pursuant to
the terms of Rider 2; and
(b) That the Lease is in full force and effect.
5. Except as expressly modified hereby, all terms and provisions of the
Lease are hereby ratified and confirmed and shall remain in full force and
effect and binding on the parties hereto.
6. The Lease and this Commencement Date Agreement contain all of the
terms, covenants, conditions and agreements between the Landlord and the Tenant
relating to the subject matter herein. No prior other agreements or
understandings pertaining to such matters are valid or of any force and effect.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Commencement
Date Agreement and such execution and delivery have been duly authorized.
TENANT: LANDLORD:
NetObjects, Inc., Metropolitan Life Insurance Company,
a Delaware corporation a New York corporation
By By
-------------------------------- --------------------------------
-------------------------------- --------------------------------
Print name Print name
Its Its
-------------------------------- --------------------------------
(Chairman of Board, President or Vice
President)
By
--------------------------------
--------------------------------
Print name
Its
--------------------------------
(Secretary, Assistant Secretary, CFO or Assistant Treasurer)
Rider 3 - Page 1 of 1
<PAGE>
EXHIBIT 10.7
DATED SEPTEMBER 1, 1998
- ---------------------------
(1) HQ EXECUTIVE OFFICES (UK) LTD
(2) NETOBJECTS LIMITED
AGREEMENT
relating to Office Suite No. 25, 26, 27
Royal Albert House
Sheet Street, Windsor
1
<PAGE>
THIS AGREEMENT dated September 1, 1998 is made between
(1) THE OWNER: HQ EXECUTIVE OFFICES (UK) LTD of
28 Grosvenor Street, London W1X 9FE
(2) OCCUPIER: NETOBJECTS LIMITED of
Rotherwick House, 3 Thomas More Street, London EI 9YX
1. DEFINITIONS
In this Agreement the following expressions shall mean
1.1 "The Inclusive Services" - the services specified in The First Schedule
1.2 "The Chargeable Services" - such of the services specified in the
Second Schedule as are from time to time available, and any other
services as are from time to time available
2. LICENCE
The Owner grants licence to the Occupier to use Serviced Office Suite
No. 25, 26 & 27 ("the Premises") on the first floor of Royal Albert
House, Sheet Street, Windsor ("the Building") together with the right
(in common with the Owner and all others from time to time entitled) to
use the common parts of the Building for the purpose only of access to
the Premises and to use such toilet washroom and kitchen facilities as
the Owner shall from time to time designate for the Occupier's use but
subject to the right of the Owner (and all others authorised from time
to time by the Owner) to use any service conducting media within the
Premises
3. LICENCE PERIOD
The period of this licence shall commence on 1 September 1998 and shall
expire on 28 February 1999
4. RENT
a) From 1st September 1998 to 30th September 1998 the rent payable
shall be L4050.00 plus V.A.T. per calendar month inclusive of
business rates and water charges and the Inclusive Services
payable monthly in advance on the first day of each month
b) From 1st October 1998 to 28th February 1999 the rent payable shall
be L5950.00 plus V.A.T. per calendar month inclusive of business
rates and water charges and the Inclusive Services payable monthly
in advance on the first day of each month
5. OCCUPIER'S OBLIGATIONS
The Occupier agrees with the Owner:-
2
<PAGE>
5.1. to pay the rent specified in Clause 4 at all times and in the manner
set out in Clause 4 without any deduction
5.2 to pay the Owner all costs and expenses (including legal costs and
surveyors' fees) which may be incurred by the Owner in connection with
the recovery of arrears of rent or other monies payable pursuant to
this Agreement
5.3 to keep the Premises and all Owner's fixtures, fittings and equipment
in the same state of repair and condition as they are now in as
evidenced by the attached Schedule of Condition (fair wear and tear
excepted)
5.4 not to damage any of the decorations of the Premises or any of the
fixtures, fittings and equipment provided by the Owner for use by the
Occupier
5.5 to permit the Owner and those authorised by the Owner to enter the
premises for any reasonable purpose, including in connection with the
maintenance, repair and alteration of the Building or anything serving
or running through the Building, subject to the Owner making good all
damage thereby occasioned to the Premises
5.6 not to make any alteration or addition to the Premises
5.7 to comply with all statutory requirements relating to the Premises,
including all town and country planning legislation
5.8 not to display any notice or advertisements as to be visible from
outside the Premises
5.9.1 not to use the Premises other than as high-class offices in connection
with the Occupier's business
5.9.2 not do on the Premises anything which may be a nuisance or annoyance
or cause danger, injury or damage to the Owner or its tenants
5.9.3 not to invite the public generally to come to the Premises, and not to
use the Premises for a purpose which attracts casual callers
5.10 not to do or omit anything whereby any policy of insurance on the
Premises or the Building may become void or voidable or otherwise
prejudiced, or whereby the premium may be increased
5.11 to pay VAT (or similar tax which shall replace VAT) on all taxable
supplies received by the Occupier pursuant to this Agreement and, if
required by the Owner, on the rent payable pursuant to this Agreement
5.12 to comply with such regulations as the Owner may from time to time
impose in relation to the use of the Premises, the use of any toilets
washrooms and kitchen facilities in the Building, the management of
the Building, or the provision of the Chargeable Services
5.13 to pay the Owner's Charges from time to time for the provision of the
Chargeable Services monthly in arrears on the first day of each month
5.14 not to use the address of the Premises as the Occupier's registered
office
3
<PAGE>
5.15 to pay the Owner a service retainer of L11,900.00 (L5,800.00 already
held) on exchange of this Agreement
5.16 if and whenever the Occupier fails to pay the rent or any other monies
due under this Agreement on the due date (whether formally demanded or
not), the Occupier shall pay to the Owner interest at 4% above National
Westminster Bank base rate from time to time on such rent or other monies
in arrears calculated from the due date to the date of payment
5.17 to keep the Owner indemnified from and against all expenses, loss and
claims arising from any breach of the Occupier's obligations contained
in this Agreement, or from the use of the Premises by the Occupier, or
arising from any act, neglect or default of the Occupier
5.18 not, without the previous written consent of the Owner, to install any
fixtures, fittings or equipment in the Premises
5.19 not during the subsistence of this Agreement or for a period of 6
months after the expiry or sooner determination of the period of this
Agreement to employ (directly or indirectly) any person who has been
in the employment of the Owner at the Building during the subsistence
of this Agreement and if the Occupier breaches the provisions of this
clause the Occupier shall pay to the Owner on demand by way of
liquidated damages an amount equal to 40% of the gross annual
remuneration of such employee
6. OWNER'S OBLIGATION
The Occupier paying the rent payable pursuant to this Agreement and
performing and observing the obligations on the part of the Occupier
contained in this Agreement, the Owner agrees with the Occupier:-
6.1 to use reasonable endeavours to provide the Inclusive Services
6.2 to indemnify the Occupier against all business rates and water charges
payable in respect of the Premises
6.3 to refund the deposit on the determination of this Agreement less any
sums due to the Owner pursuant to the provisions of this Agreement
7. PROVISOS
7.1 The Owner shall not be liable or responsible for any loss, injuries or
damage sustained by the Occupier or any invitee or licensee of the
Occupier (either personally or to their property), and the Owner shall
not be liable to the occupier for any damage which may be caused by
stoppage or defect of any plant or machinery in or service to the
Premises or the failure of the Owner, for reasons beyond the Owner's
reasonable control, to provide the Services, or for any loss or damage
occasioned by any errors or omissions arising from the provision of
the Inclusive Services and/or the Chargeable Services
7.2 If the Premises or any part shall at any time be destroyed so as to be
unfit for occupation or use, then, save to the extent that the
insurance of the Premises shall have been vitiated or payment of the
policy monies refused by or in consequence of any act, neglect,
omission or default of the Occupier, the rent payable pursuant to this
Agreement, or a fair proportion thereof according to the nature and
extent of the damage sustained shall, from the date of
4
<PAGE>
such damage or destruction, be suspended and cease to be payable until
the Premises shall have been rebuilt or reinstated and made fit for
occupation, and any dispute concerning this provision shall be
determined by an arbitrator in accordance with the Arbitration Acts
1950 to 1979
7.3 On the determination of this Agreement, the Occupier shall vacate the
Premises and return to the Owner all keys, security devices and any
other property belonging to the Owner
7.4 The Owner shall be entitled to discontinue the provision of the
Inclusive Services (including without limitation the Telephone
Answering Services) in respect of any period or periods during which
the Occupier shall be in breach of any of the provisions of this
Agreement
8. PERSONAL
This Agreement and the licence to occupy the Premises granted to the
Occupier are personal to the Occupier, and are not transferable, and
the Occupier shall not permit anyone (other than persons employed by
the Occupier or having business with the Occupier) to use or have
access to the Premises
9. OCCUPIER'S EFFECTS
9.1 The Occupier irrevocably appoints the Owner to be the Occupier's agent
to store or dispose of any effects left by the Occupier on the
Premises for more than seven days after the expiry of this Agreement
subject to any conditions which the Owner thinks fit and without the
Owner being liable to the Occupier save to account for the net
proceeds of sale less the cost of storage (if any) and any other
expenses reasonably incurred by the Owner
9.2 Any goods or other effects left at the Premises on or after the expiry
of this Agreement shall be subject to a lien in favour of the Owner in
respect of any liability of the Occupier to the Owner pursuant to or
arising out of this Agreement and the Owner shall have power to sell
or otherwise dispose of all such goods and effects on whatever terms
the Owner shall think fit and to apply the net proceeds of such sale
or disposal towards satisfaction of such liability
Signed for and on behalf of
HQ EXECUTIVE OFFICES (UK) LTD
Signed for and on behalf of
NETOBJECTS LIMITED
5
<PAGE>
THE FIRST SCHEDULE
Details of the Inclusive Services
- Receptionist Services
- Telephone Answering Services
- Heating
- Lighting
- Electricity
- Cleaning
- Repair and Maintenance of the Building
- Insurance of the Building & Owner's contents
- Air Conditioning
- Subject to availability, courtesy Network access of eight hours
monthly at over 150 HQ Centres worldwide. Within the UK two
hours courtesy Network access will apply. (Hours may not be
carried forward to the following month.)
THE SECOND SCHEDULE
- Secretarial Services
- Photocopying
- Use of Boardrooms
- Post Handling
- Telephone charges at BT standard rate
- Facsimile
- Boardroom Catering
- Catering Services
- Car Parking
6
<PAGE>
<TABLE>
<S> <C>
REVOLVING LOAN AND SECURITY AGREEMENT 1
1. DEFINITIONS 1
1.1 SPECIAL DEFINITIONS 1
1.2 OTHER DEFINED TERMS 3
2. LINE OF CREDIT/INTEREST RATES/CHARGES 3
2.1. LINE OF CREDIT 3
2.1.1 INTEREST 3
2.1.2 CHARGES 4
2.1.3 VOLUNTARY PREPAYMENT 4
2.2 PAYMENTS 4
2.2.1 PRINCIPAL 4
2.2.2 IN EXCESS OF LINE OF CREDIT 4
2.2.3 INTEREST AND OTHER CHARGES 4
2.2.4 ACCURACY OF STATEMENTS 4
3. LINE OF CREDIT - ADDITIONAL PROVISIONS 4
3.1 PROCEDURES FOR ADVANCES 4
3.2 EACH ADVANCE 4
3.3 INELIGIBLE ACCOUNTS 5
3.4 REIMBURSEMENT FOR CHARGES 6
3.5 COLLECTIONS 6
3.6. APPLICATION OF REMITTANCES AND CREDITS 7
3.7 COLLECTION DAYS 7
3.8 POWER OF ATTORNEY 7
3.9 CONTINUING REQUIREMENTS 8
3.10 RIGHTS OF IBM CREDIT 9
3.11 RELEASE 9
3.12 ADDITIONAL REQUIREMENTS 9
3.13 AUDIT 9
4. SECURITY - COLLATERAL 9
4.1 GRANT 9
4.2 INSTRUMENTS 11
5. CONDITIONS PRECEDENT 11
5.1 CONDITIONS PRECEDENT TO THE EFFECTIVENESS OF THIS AGREEMENT 11
6. WARRANTIES, REPRESENTATIONS, AND COVENANTS 12
6.1 AFFIRMATIVE WARRANTIES, REPRESENTATIONS AND COVENANTS 12
6.2 NEGATIVE COVENANTS 15
7. DEFAULT 16
7.1 DEFINITION 16
7.2 RIGHTS OF IBM CREDIT 18
7.3 CUSTOMER 18
7.4 WAIVER 19
8. MISCELLANEOUS 19
8.1 TERMINATION 19
8.2 COLLECTION 19
8.3 DEMAND, ETC 19
8.4 ADDITIONAL OBLIGATIONS 20
<PAGE>
<S> <C>
8.5 INDEMNIFICATION BY CUSTOMER 20
8.6 INDEMNIFICATION BY IBM. 20
8.7 ALTERATIONS/WAIVER 20
8.8 NOTICES 20
8.9 SEVERABILITY 20
8.10 ONE LOAN 21
8.11 ADDITIONAL COLLATERAL 21
8.12 INITIAL PUBLIC OFFERINGS 21
8.13 OFFSETS 21
8.14 LIMITATION OF LIABILITY 21
8.15 TIME 21
8.16 ENTIRE AGREEMENT 21
8.17 PARAGRAPH TITLES 21
8.18 BINDING EFFECT 21
8.19 CONDITIONS TO EFFECTIVENESS 21
8.20 SUBMISSION BY CUSTOMER 21
8.21 JURY TRIAL 22
</TABLE>
<PAGE>
REVOLVING LOAN AND SECURITY AGREEMENT
REVOLVING LOAN AND SECURITY AGREEMENT ("Agreement") by and between IBM CREDIT
CORPORATION, with a place of business at 5000 Executive Parkway Suite 450, San
Ramon, CA 94583, a Delaware corporation ("IBM Credit") and NETOBJECTS, INC.,
with a place of business at 602 Galveston Drive, Redwood, CA 94063, a Delaware
corporation ("Customer").
1. DEFINITIONS
1.1 SPECIAL DEFINITIONS. The following terms shall have the following
respective meanings in this Agreement:
"Advance": any loan or advance made by IBM Credit to or for the account
of Customer pursuant to this Agreement.
"Accounts": as defined in the UCC.
"Advance Date": for a specific Advance, the Business Day on which IBM
Credit makes an Advance under this Agreement.
"Available Credit": at any time, (1) the Line of Credit less (2) the
Outstanding Advances at such time.
"Bloomberg": the on-line service provided by Bloomberg Financial
Services.
"Business Day": any day other than a Saturday, Sunday, other day on
which commercial banks in New York, NY are authorized or required by law to
close or other day on which IBM Credit is closed.
"Common Stock": the Customer's common stock.
"Closing Date": the date upon which all conditions precedent to the
effectiveness of this Agreement are performed to the satisfaction of IBM Credit
or waived in writing by IBM Credit.
"Collateral": as defined in Section 4.1.
"Copyrights": as defined in Section 4.1(C)(iii).
"Default": either (1) an Event of Default, or (2) any event or condition
which, but for the requirement that notice be given or time lapse or both, would
be an Event of Default.
"Delinquency Fee Rate": as defined in Attachment A.
"Effective Date of Termination": as defined in Section 8.1.
"Eligible Accounts": as defined in Section 3.3.
"Event of Default": as defined in Section 7.1.
"Guarantor": the guarantors as set forth in Attachment B.
"IBM": International Business Machines Corporation.
"IBM Indemnification": the agreement between IBM and IBM Credit whereby
IBM has indemnified IBM Credit for all losses incurred by IBM Credit under this
Agreement.
3
<PAGE>
"Initial Public Offering"; the sale of the Customer's common stock in a
bona fide, firm commitment underwriting pursuant to a registration statement
under the Securities Act of 1933.
"Intercreditor Agreement"; an agreement, in form and substance
satisfactory to IBM Credit, whereby another Person having a Lien on any of the
Collateral subordinates its rights in such Collateral to IBM Credit.
"LIBOR": as of the date of determination, the thirty-day average of the
one-month (01M) London Interbank Offered Rate as published in Bloomberg for the
previous calendar month.
"Lien": any lien, claim, charge, pledge, security interest, deed of
trust, mortgage, other encumbrance or other arrangement having the practical
effect of the foregoing, including the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title retention agreement.
"Line of Credit": as defined in Section 2.1.
"Material Adverse Effect": a material adverse effect (1) on the
business, operations, results of operations, assets, or financial condition of
Customer, (2) on the aggregate value of the Collateral or the aggregate amount
which IBM Credit would be likely to receive (after giving consideration to
reasonably likely delays in payment and reasonable cost of enforcement) in the
liquidation of such Collateral to recover the Obligations in full, or (3) on the
rights and remedies of IBM Credit under this Agreement.
"Note": the Convertible Revolving Credit Note executed by Customer
substantially in the form annexed hereto as Attachment D.
"Obligations": all covenants, agreements, warranties, duties,
representations, loans, advances, liabilities and indebtedness of any kind and
nature whatsoever now or hereafter arising, owing, due or payable from Customer
to IBM Credit or whether primary or secondary, joint or several, direct,
contingent, fixed or otherwise, secured, unsecured or arising under this
Agreement, the Other Agreements or any agreements previously, now or hereafter
executed by Customer and delivered to IBM Credit, or by oral agreement or
operation of law and whether or not evidenced by instruments of indebtedness.
Obligations shall include, without limitation, any third party claims against
Customer satisfied or acquired by IBM Credit.
"Other Agreements": all security agreements, mortgages, leases,
instruments, documents, guarantees, schedules of assignment, contracts and other
agreements previously, now or hereafter executed by Customer and delivered to
IBM Credit or delivered by or on behalf of Customer to a third party and
assigned to IBM Credit by operation of law or otherwise.
"Outstanding Advances": at the time of determination, the unpaid
principal amount of all Advances made by IBM Credit.
"Patents": as defined in Section 4.1(C)(i).
"Periodic Rate": the Revolver Financing Charge or Delinquency Fee
Rate, as the case may be, multiplied by the quotient of the number of days
elapsed in the applicable billing period divided by 360.
"Permitted Liens": as defined in Attachment B.
"Permitted Prior Liens": as defined in Attachment B.
"Person": any individual, association, firm, corporation, governmental
body, agency or instrumentality whatsoever.
"Policies": as defined in Section 6.1 (T).
4
<PAGE>
"Revolver Financing Charge": as defined in Attachment A.
"Trademarks": as defined in Section 4.1(C)(ii).
"UCC": the Uniform Commercial Code in effect from time to time in the
State of New York.
"Venture": Venture Banking Group, a division of Cupertino National
Bank.
"Warrant of Distress for Rent or Taxes": a remedy, whether at common
law or by statute, for the collection of rent or taxes in arrears which permits
the landlord or applicable taxing authority, as the case may be, to go upon
Customer's premises and seize anything there as security for the rent or taxes
in arrears, and hold it without sale until the rental or taxes are paid.
1.2 OTHER DEFINED TERMS. Terms not otherwise defined in this Agreement which
are defined in the UCC shall have the meanings assigned to them therein.
2. LINE OF CREDIT/INTEREST RATES/CHARGES
2.1. LINE OF CREDIT. Subject to the terms and conditions set forth in this
Agreement, on and after the Closing Date to but not including the date that is
the earlier of (i) the date on which this Agreement is terminated pursuant to
Section 8.1 and (ii) the date on which IBM Credit terminates the Credit Line
pursuant to Section 7.2, IBM Credit agrees to extend to the Customer a line of
credit (the "Line of Credit") in the amount set forth in Attachment A pursuant
to which IBM Credit will make to the Customer, from time to time, Advances in an
aggregate amount at any one time outstanding not to exceed the Line of Credit.
Notwithstanding any other term or provision of this Agreement, IBM Credit may,
at any time and from time to time, in its sole discretion (x) temporarily
increase the amount of the Line of Credit above the amount set forth in
Attachment A and decrease the amount of the Line of Credit back to the amount of
the Line of Credit set forth in Attachment A, in each case upon written notice
to the Customer and (y) make Advances pursuant to this Agreement upon the
request of Customer in an aggregate amount at any one time outstanding in excess
of the Line of Credit.
2.1.1 INTEREST. (A) Subject to paragraph (B) below, each Advance shall accrue
interest at a rate per annum equal to the lesser of (i) the Revolver Financing
Charge and (ii) the highest rate from time to time permitted by applicable law.
Amounts received from Customer in excess of such highest rate from time to time
permitted by applicable law shall be considered reductions to principal to the
extent of such excess.
(B) If any amount owed under this Agreement is not paid when due (whether at
maturity, by acceleration or otherwise), the unpaid amount will bear interest
from and including its due date to and including the date IBM Credit receives
payment. Such interest will accrue at a rate per annum equal to the lesser of
(i) the Delinquency Fee Rate and (ii) the highest rate from time to time
permitted by applicable law.
Amounts received from Customer in excess of such highest rate from time to time
permitted by applicable law shall be considered reductions to principal to the
extent of such excess.
(C) The Revolver Financing Charge and the Delinquency Fee Rate are computed
on the basis of a 360-day year for the actual number of days elapsed. The
Revolver Financing Charge for each billing period shall be calculated by
multiplying the Periodic Rate for the billing period by the Average Daily
Balance (as hereinafter defined) of the Advances outstanding during said period
which were not past-due. The Delinquency Fee Rate for each billing period shall
be calculated by multiplying the applicable Periodic Rate for the billing period
by the applicable Average Daily Balance of the Advances outstanding during said
period which were past-due. The "Average Daily Balance" of the outstanding
Advances shall be equal to the sum of the principal balances of the Advances as
of each day during the billing period, divided by the number of days in the
billing period.
5
<PAGE>
2.1.2 CHARGES. Customer hereby agrees to pay to IBM Credit the charges set
forth in the "Other Charges" section of Attachment A to this Agreement. Customer
hereby acknowledges that any such charges are not interest but that such
charges, if unpaid, will constitute part of the principal from time to time
outstanding.
2.1.3 VOLUNTARY PREPAYMENT. Customer may at any time prepay in whole or in
part all amounts owed under this Agreement. IBM Credit may, in its sole
discretion, apply payments first to pay interest and other amounts owing under
this Agreement and then to pay the principal amount owed by the Customer. IBM
Credit may, but shall not be obligated to, apply principal payments to the
oldest (earliest) Advances first.
2.2 PAYMENTS.
2.2.1 PRINCIPAL. Customer shall pay in full all unpaid principal of each
Advance upon the earilier of the Effective Date of Termination and the
expiration of the Agreement.
2.2.2 IN EXCESS OF LINE OF CREDIT. Customer shall, on any Business Day on
which the aggregate outstanding principal amount of all Advances (including
amounts committed to, but not yet funded, by IBM Credit) exceeds the then
applicable Line of Credit, make a mandatory prepayment of the outstanding
principal amount of Advances in an amount at least equal to such excess.
2.2.3 INTEREST AND OTHER CHARGES. Interest and Other Charges owed under this
Agreement, and any charges hereafter agreed to by the parties are payable
monthly on receipt of IBM Credit's bill or statement or IBM Credit may, in its
sole discretion, add interest and Other Charges to Customer's outstanding loan
balance.
2.2.4 ACCURACY OF STATEMENTS. Each statement of account rendered by IBM Credit
to Customer and relating to the Obligations shall be presumed to be correct and
accurate and shall constitute an account stated that is fully binding upon
Customer unless, within ten (10) Business Days after the statement is received
by Customer, Customer shall give to IBM Credit written objection specifying the
error or errors, if any, contained in that statement. Customer shall be deemed
to have received such statement three (3) Business Days from the date IBM Credit
mails such statement by United States first- class mail, postage prepaid, and
properly addressed to Customer.
3. LINE OF CREDIT - ADDITIONAL PROVISIONS
3.1 PROCEDURES FOR ADVANCES. Customer shall deliver to IBM Credit a written
request ("Request for Advance") for each Advance. Customer may deliver a Request
for Advance via facsimile transmission. The Request for Advance shall specify
(i) the requested Advance Date and (ii) the amount of the requested Advance and
shall be substantially in the form annexed hereto as Attachment J or in some
other form agreed to by IBM Credit. Customer, after giving effect to the
repayment of any Outstanding Advances to be made on an Advance Date, shall not
request an Advance in excess of the Available Credit on such date.
3.2 EACH ADVANCE. The submission by Customer of a Request for Advance and the
receipt by the Customer of the proceeds of any Advance on an Advance Date shall
be deemed to be a representation and warranty by the Customer that, as of and on
such Advance Date, the following statements set forth in (A) through (C) are
true:
(A) The representations and warranties contained in this Agreement and in
each Other Agreement are true and correct as though made on and as of such
Advance Date;
(B) No event has occurred and is continuing, or would result from such
Advance or the application of the proceeds thereof, which could reasonably be
expected to have a Material Adverse Effect;
6
<PAGE>
(C) Both before and after giving effect to the making of such Advance, the
Outstanding Advances do not exceed the Line of Credit; and
(D) No Default or Event of Default exists at the time the Request for
Advance is made.
3.3 INELIGIBLE ACCOUNTS. IBM Credit and Customer agree that IBM Credit shall
have the sole right to determine eligibility of Accounts from an Account debtor
(the "Eligible Accounts") for purposes of determining the value of the
Collateral; however, without limiting such right, the following Accounts will be
deemed to be not Eligible Accounts for purposes of determining such value:
(A) Accounts created from the sale of goods and services on non-standard
terms and/or that allow for payment to be made later than thirty (30) days from
the date of sale;
(B) Accounts unpaid more than ninety (90) days from date of invoice;
(C) Accounts payable by an Account debtor if fifty percent (50%) or more of
the outstanding balance of all Accounts payable by such Account debtor remains
unpaid for more than ninety (90) days from the date of invoice;
(D) Accounts payable by an Account debtor that is an officer, employee,
agent, parent, guarantor, subsidiary, stockholder or affiliate of Customer or
is related to or has common shareholders, officers or directors with Customer,
other than IBM;
(E) Accounts arising from consignment sales;
(F) Accounts with respect to which the payment by the Account debtor is or
may be conditional;
(G) Accounts payable by any Account debtor that (i) is not a commercial or
institutional entity, or (ii) is not a resident of the United States;
(H) Accounts payable by any Account debtor to which Customer is or may
become liable for goods sold or services rendered by such Account debtor to
Customer;
(I) Accounts arising from the sale or lease of goods purchased for a
personal, family or household purpose;
(J) Accounts arising from the sale or lease of goods that have been used
for demonstration purposes or loaned by the Customer to another party;
(K) Accounts which are progress payment accounts;
(L) Accounts payable by any Account debtor that is, or Customer knows will
become, subject to proceedings under United States Bankruptcy Law or other law
for the relief of debtors;
(M) Accounts which are not payable in US dollars;
(N) Accounts payable by any Account debtor that is a remarketer of computer
hardware and software products and whose purchases of such products from
Customer have been financed by another person, other than IBM Credit, who pays
the proceeds of such financing directly to Customer on behalf of such debtor
("Third Party Financer") unless (i) such Third Party Financer does not have a
separate financing relationship with Customer or (ii) such Third Party
Financer has a separate financing relationship with Customer and has waived its
right to set off its obligations to Customer;
(O) Accounts arising from the sale or lease of goods which are billed in
advance of shipment by Customer;
7
<PAGE>
(P) Accounts as to which IBM Credit does not have a valid, perfected, first
priority security interest;
(Q) Accounts with respect to which Customer has permitted or agreed to any
extension, compromise or settlement, or made any change or modification of any
kind or nature, including, but not limited to, any change or modification to the
terms relating thereto;
(R) Accounts which do not arise from undisputed bona fide transactions
completed in accordance with the terms and conditions contained in the invoices
and purchase orders relating thereto;
(S) Accounts which are discounted for the full payment term specified in
Customer's terms and conditions with its Account debtors, or for any longer
period of time;
(T) Accounts on cash on delivery (COD) terms;
(U) Accounts arising from maintenance or service contracts which are billed
in advance of full performance of service;
(V) Accounts arising from bartered transactions;
(W) Accounts arising from incentive payments, rebates, discounts, credits,
and refunds from a supplier; and
(X) Any and all other Accounts which IBM Credit deems, in its reasonable
discretion, to be ineligible.
3.4 REIMBURSEMENT FOR CHARGES. Customer agrees to reimburse IBM Credit for
all charges paid by IBM Credit with respect to collection of checks and other
items of payment, all fees relating to the use and maintenance of a lockbox
account and with respect to remittances of proceeds of the loans hereunder.
3.5 COLLECTIONS. By no later than January 31, 1998, Customer shall establish
and maintain a lockbox (the "Lockbox"), at the address set forth in Attachment A
with the financial institution listed in Attachment A (the "Bank") pursuant to
an agreement between Customer and Bank in form and substance satisfactory to IBM
Credit. Customer shall also establish and maintain a deposit account which shall
contain only proceeds of Customer's Accounts (the "Special Account") with the
Bank. By no later than January 31, 1998, Customer shall enter into and maintain
a contingent blocked account agreement with the Bank for the benefit of IBM
Credit in form and substance satisfactory to IBM Credit pursuant to which, among
other things, such Bank shall agree that, upon notice from IBM Credit,
disbursements from the Special Account shall be made only as IBM Credit shall
direct. Customer shall not change the financial institution with which the
Special Account is established until a similar contingent blocked account for a
new Special Account has been executed by IBM Credit, Customer and such new
financial institution.
(B) Customer shall instruct all Account debtors to remit payments directly
to the Lockbox. In addition, Customer shall have such instruction printed in
conspicuous type on all invoices. Customer further agrees that it shall not
deposit or permit any deposits of funds other than remittances paid in respect
of the Account into the Special Account or permit any commingling of funds with
such remittances in the Lockbox or Special Account.
(C) IBM Credit may at its option notify any Account debtor or debtors of the
assignment of Accounts, and directly collect the same. All payments received by
Customer from its Account debtors, whether in the form of money, checks, notes,
drafts, or other things of value or items of payment shall be received by
Customer solely as agent for IBM Credit. Customer shall properly endorse and
deposit into the Special Account, on the day of receipt thereof, all original
checks, drafts, acceptances, notes and other evidences of, or properties
constituting payment of, or on account of, Accounts, including all cash.
Customer shall make entries on its books and records in a form satisfactory to
IBM Credit and shall keep a separate account on its record book of all
collections received thereon. Until deposited in the Special Account, Customer
shall keep all remittances received in respect of Accounts separate and apart
from Customer's
8
<PAGE>
funds so that they are capable of identification as the proceeds of Accounts in
which IBM Credit has a security interest. .
3.6. APPLICATION OF REMITTANCES AND CREDITS. Customer shall apply all
remittances against the aggregate of Customer's outstanding Accounts no later
than the end of the Business Day on which such remittances are deposited into
the Special Account. Customer also agrees to apply each remittance against its
respective Account no later than three (3) Business Days from the date such
remittance is deposited into the Special Account. In Addition, Customer shall
promptly apply any credits owing in respect to any Account when due.
3.7 COLLECTION DAYS. All amounts received by IBM Credit in respect of any
Account may be credited by IBM Credit to the repayment of the Obligations under
this Agreement or, in IBM Credit's sole and absolute direction, may be disbursed
to Customer. The crediting of amounts received by IBM Credit in respect of such
Obligations shall in all cases be subject to the final collection thereof.
3.8 POWER OF ATTORNEY. Customer hereby irrevocably appoints IBM Credit (and
any person designated by it) as Customer's true and lawful attorney-in-fact with
full power to at any time, in good faith and in compliance with commercially
reasonable standards, in the sole and absolute discretion of IBM Credit:
(A) sign the name of Customer on any document or instrument that IBM Credit
shall deem necessary or appropriate to perfect and maintain perfected the
security interest in the Collateral contemplated under this Agreement and the
Other Agreements;
(B) endorse the name of Customer upon any of the items of payments or
proceeds and deposit the same in the account of IBM Credit for application to
the Obligation; and
upon the occurrence and during the continuance of an Event of Default as defined
in Section 7.1 hereof:
(C) demand payment, enforce payment and otherwise exercise all Customer's
rights and remedies with respect to the collection of any Accounts;
(D) settle, adjust, compromise, extend or renew any Accounts;
(E) settle, adjust or compromise any legal proceedings brought to collect
any Accounts;
(F) sell or assign any Accounts upon such terms, for such amounts and at
such time or times as IBM Credit may deem advisable;
(G) discharge and release any Accounts;
(H) prepare, file and sign Customer's name on any proof of claim or similar
document against any Account debtor;
(I) prepare, file and sign Customer's name on any notice of lien, claim of
mechanic's lien, assignment or satisfaction of lien or mechanic's lien, or
similar document in connection with any Accounts;
(J) endorse the name of Customer upon any chattel paper, document,
instrument, invoice, freight bill, bill of lading or similar document or
agreement relating to any Account or goods pertaining thereto;
(K) endorse the name of Customer upon any of the items of payment or
proceeds and deposit the same in the account of IBM Credit for application to
the Obligations;
(L) sign the name of Customer to requests for verification of Accounts and
notices thereof to Account debtors;
9
<PAGE>
(M) sign the name of Customer on any document or instrument that IBM Credit
shall deem necessary or appropriate to perfect and maintain perfected the
security interest in the Collateral contemplated under this Agreement and the
Other Agreements;
(N) make, settle and adjust claims under the Policies and endorse Customer's
name on any check, draft, instrument or other item of payment of the proceeds of
the Policies; and
(O) take control in any manner of any item of payment or proceeds and for
such purpose to notify the postal authorities to change the address for delivery
of mail addressed to Customer to such address as IBM Credit may designate.
The power of attorney granted by this Section 3.8 is for value and coupled with
an interest and is irrevocable until the later of the payment in full of the
Obligations and the termination of this Agreement.
3.9 CONTINUING REQUIREMENTS. Customer shall:
(A) from time to time, if required by IBM Credit, immediately upon their
creation, deliver to IBM Credit copies of all invoices, delivery evidences and
other documents relating to each Account;
(B) within three (3) Business Days after Customer's learning thereof, inform
IBM Credit in writing of any rejection of goods or services by any Account
debtor, delays in delivery of goods or performance of services, non-performance
of contracts and of any assertion of any claim, offset or counterclaim by any
Account debtor;
(C) other than in the ordinary course of business as generally conducted by
Cutsomer over a period of time, not permit or agree to any extension, compromise
or settlement or make any change or modification of any kind or nature with
respect to any account, including any of the terms relating thereto;
(D) within three (3) Business Days after Customer's learning thereof,
furnish to and inform IBM Credit in writing of all adverse information relating
to the financial condition of any Account debtor if such information could
reasonably be expected to have a Material Adverse Effect;
(E) keep all goods rejected or returned by any Account debtor and all goods
repossessed or stopped in transit by Customer from any Account debtor segregated
from other property of Customer, holding the same in trust and as trustee for
IBM Credit until Customer applies a credit against such Account debtor's
outstanding obligations to Customer or sells such goods in the ordinary course
of business, whichever occurs first;
(F) stamp or otherwise mark chattel paper and instruments now owned or
hereafter acquired by it to show that the same are subject to IBM Credit's
security interest and immediately thereafter deliver or cause such chattel
paper and instruments to be delivered to IBM Credit or any agent designated by
IBM Credit with appropriate endorsements and assignments to vest title and
possession in IBM Credit;
(G) provide to IBM Credit a detailed aging report of its Accounts, which
shall include its accounts receivable ledger and its on-line aging of Accounts
and any other report listing other Collateral that IBM Credit may reasonably
request, in a format acceptable to IBM Credit, no later than the fifteenth
(15th) day of each month and containing information as of the close of business
on the last day of the preceding month.
3.10 RIGHTS OF IBM CREDIT. IBM Credit may, without notice to Customer and at
any time or times hereafter:
(A) verify with Account debtors or others the validity, amount or any other
matter relating to any Account by mail, telephone or other means in the name of
Customer or IBM Credit; and
10
<PAGE>
(B) take control in any manner of any cash or non-cash items of payment or
proceeds of Accounts and of any rejected, returned, repossessed or stopped in
transit goods relating to Accounts.
3.11 RELEASE. Customer releases IBM Credit from any and all claims and causes
of action which Customer may now or hereafter have for any loss or damage to it
claimed to be caused by or arising from:
(A) any failure of IBM Credit to protect, enforce or collect, in whole or in
part, any Account;
(B) IBM Credit's notification to any Account debtors thereon of IBM Credit's
security interest in any of the Accounts;
(C) IBM Credit's directing any Account debtor to pay any sum owing to
Customer directly to IBM Credit; and
(D) any other act or omission to act on the part of IBM Credit, its
officers, agents or employees, except for its gross negligence or willful
misconduct.
IBM Credit shall have no obligation to preserve rights to Accounts against prior
parties.
3.12 ADDITIONAL REQUIREMENTS. Customer agrees to comply with the requirements
set forth in Attachment A to this Agreement.
3.13 AUDIT. Customer shall at all times permit IBM Credit (or any person
designated by it) upon reasonable notice demand, during Customer's usual
business hours, to have access to audit, examine and check the Collateral,
Customer's other assets and any and all of Customer's books, records, files and
business procedures and practices, and permit the copying of the same and the
making of abstracts therefrom.
4. SECURITY - COLLATERAL
4.1 GRANT. To secure Customer's payment and performance of the Obligations and
to secure Customer's prompt, full and faithful performance and observance of all
of the provisions under this Agreement and the Other Agreements, Customer hereby
grants IBM Credit a security interest in all of Customer's right, title and
interest in and to the following, whether now owned or hereafter acquired or
existing and wherever located:
(A) all inventory and equipment, and all parts thereof, attachments,
accessories and accessions thereto, products thereof and documents therefor;
(B) all accounts, contract rights, chattel paper, instruments, deposit
accounts, general intangibles and other obligations of any kind, and all rights
now or hereafter existing in and to all mortgages, security agreements, leases
or other contracts securing or otherwise relating to any of the same;
(C) all intellectual property and trade secrets, including, without
limitation,
(i) all patents, patent applications and patentable inventions and (1)
the inventions and improvements described and claimed therein (2) any
continuation, division, renewal, extension, substitute or reissue thereof or any
legal equivalent in a foreign country for the full term thereof or the terms
for which the same may be granted; (3) all rights to income, royalties, profits,
awards, damages and other rights relating to said patents, applications and
inventions, including the right to sue for past, present and future
infringement; and (4) any other rights and benefits relating to said patents,
applications and inventions including any rights as a licensor or licensee of
said patents, applications and inventions (the "Patents");
11
<PAGE>
(ii) all trademarks, trademark registrations, trademark applications,
service marks, service mark registrations and service mark applications, trade
names, tradestyles, and the goodwill underlying those trademarks and service
marks and (1) any similar marks or amendments, modifications and renewals
thereof and the goodwill represented by those and any legal equivalent in a
foreign country for the full term or terms for which the same may be granted;
(2) all rights to income, royalties, profits, damages and other rights relating
to said trademarks and service marks including the right to sue for past,
present or future infringement; and (3) any other rights and benefits relating
to said trademarks and service marks including any rights as a licensor or
licensee of said trademark and service mark (the "Trademarks");
(iii) all copyrights, copyright registrations and copyright
applications, including without limitation those copyrights for computer
programs, computer databases, flow diagrams, source codes and object codes,
computer software, technical knowledge and processes, formal or informal
licensing arrangements, and all property embodying or incorporating such
copyrights and (1) any similar rights or amendments, modifications and renewals
thereof and any legal equivalent in a foreign country for the full term or terms
for which the same may be granted; (2) all rights to income, royalties, profits,
damages and other rights relating to said copyrights including the right to sue
for past, present and future infringement; and (3) any other rights and benefits
relating to said copyrights (the "Copyrights");
(D) all substitutions and replacements for all of the foregoing;
(E) all books and records pertaining to any of the foregoing: and
(F) all proceeds of all of the foregoing and, to the extent not otherwise
included, all payments under insurance or any indemnity, warranty or guaranty,
payable by reason of loss or damage to or otherwise with respect to any of the
foregoing.
All of the above assets are hereinafter collectively referred to as
"Collateral."
Customer covenants and agrees with IBM Credit that: (a) the security interest
granted under this Agreement is in addition to any other security interest from
time to time held by IBM Credit; (b) IBM Credit may realize upon all or part of
any Collateral in any order it desires and any realization by any means upon any
Collateral will not bar realization upon any other Collateral; and (c) the
security interest hereby created is a continuing security interest and will
cover and secure the payment of all Obligations both present and future of
Customer to IBM Credit pursuant to this Agreement and the Other Agreements.
4.2 INSTRUMENTS. Customer shall execute and deliver, or cause to be executed
and delivered, to IBM Credit at such time or times as IBM Credit may request,
all financing statements, continuation statements, security agreements,
assignments, certificates, certificates of title, applications for vehicle
titles, affidavits, reports, notices, schedules of accounts, and other
documents, instruments, agreements and other papers, and take any other action,
that IBM Credit may deem desirable to create, confirm, perfect or maintain
perfected IBM Credit's security interest in the Collateral. Customer shall make
appropriate entries on its books and records disclosing IBM Credit's security
interest in the Collateral.
5. CONDITIONS PRECEDENT
5.1 CONDITIONS PRECEDENT TO THE EFFECTIVENESS OF THIS AGREEMENT. The
effectiveness of this Agreement is subject to the satisfaction of, or waiver by
IBM Credit of, IBM Credit's receipt of the following and each of the following
being in full force and effect:
(A) this Agreement executed and delivered by Customer and IBM Credit;
12
<PAGE>
(B) the Note executed and delivered by Customer;
(C) (i) copies of the resolutions of the Board of Directors of Customer
certified by the secretary or assistant secretary of Customer authorizing the
execution, delivery and performance of this Agreement and each Other Agreement
executed and delivered in connection herewith, (ii) a certificate of the
secretary or an assistant secretary of Customer in form and substance
satisfactory to IBM Credit, certifying the names and true signatures of the
officers of Customer authorized to sign this Agreement and the Other Agreements
and (iii) copies of the articles of incorporation and by-laws of Customer
certified by the secretary or assistant secretary of Customer;
(D) certificates dated as of a recent date from the Secretary of State or
other appropriate authority evidencing the good standing of Customer in the
jurisdiction of its organization and in each other jurisdiction where the
ownership or lease of its property or the conduct of its business requires it to
qualify to do business;
(E) copies of all approvals and consents from any Person in each case in
form and substance satisfactory to IBM Credit, which are required to enable
Customer to authorize, or required in connection with, (i) the execution,
delivery or performance of this Agreement and each of the Other Agreements and
(ii) the legality, validity, binding effect or enforceability of this Agreement
and each of the Other Agreements;
(F) a lockbox agreement executed by Customer and its Bank, in form and
substance satisfactory to IBM Credit;
(G) a favorable opinion of counsel for Customer, in form and substance
satisfactory to IBM Credit;
(H) the Trademark Security Agreement executed and delivered by Customer
substantially in the form annexed hereto as Attachment E;
(I) the Copyright Security Agreement executed and delivered by Customer
substantially in the form annexed hereto as Attachment F;
(J) the Patent Security Agreement executed and delivered by Customer;
substantially in the form annexed hereto as Attachment G;
(K) UCC-1 Financing Statements for each jurisdiction requested by IBM Credit
executed by Customer;
(L) an Acknowledgment of Payment and Termination Agreement executed by
Venture Banking Group, a division of Cupertino National Bank ("Venture"), in
form and substance satisfactory to IBM Credit;
(M) UCC-3 Termination Statements from Venture terminating any and all
security interest which it may have in any of the Collateral and any other
documentation required to terminate Venture's security interest in any and all
of the Patents, Trademarks and Copyrights;
(N) the Warrant Agreement executed and delivered by Customer substantially
in the form annexed hereto as Attachment H;
(O) the First Amendment to the Registration Rights Agreement executed and
delivered by Customer, substantially in the form annexed hereto as Attachment I;
(P) a list of :
(i) all creditors possessing a security interest or Lien on accounts
receivable which creditors shall be required to terminate their UCC filings:
and
13
<PAGE>
(ii) all creditors possessing a security interest or Lien on any of
the Collateral which is superior to IBM Credit's security interest in such
Collateral; such creditors will be required to execute an Intercreditor
Agreement ;
(Q) all such other statements, certificates, documents, instruments,
financing statements, agreements and other information with respect to the
matters contemplated by this Agreement as IBM Credit shall have reasonably
requested, including, but not limited to those specified in Attachment A.
6. WARRANTIES, REPRESENTATIONS, AND COVENANTS
6.1 AFFIRMATIVE WARRANTIES, REPRESENTATIONS AND COVENANTS. Except as otherwise
specifically provided in any of the Other Agreements or in Schedule A to this
Agreement and attached hereto, Customer warrants and represents to and covenants
with IBM Credit that:
(A) Each Account is based on an actual and bona fide sale and delivery of
goods or rendition of services, made or performed by Customer, in the ordinary
course of its business; the Account debtors have accepted such goods or
services, owe and are obligated to pay the full amounts stated in the invoices
according to their terms, without any dispute, offset, defense or counterclaim
known to Customer and have the ostensible authority to contract; and there are
no proceedings or actions known to Customer which are pending or threatened
against any Account debtor that might result in any material adverse change in
such Account debtor's financial condition;
(B) Customer has and shall at all times have good and valid title to all
Collateral free and clear of all liens, security interests, encumbrances and
claims of any Person, except for Permitted Liens;
(C) Upon the filing of the UCC financing statements, the Copyright Security
Agreement, the Trademark Security Agreement and the Patent Security Agreement
with appropriate agencies, IBM Credit's security interest in the Collateral is
and shall, upon payoff of the borrowings from Venture, at all times constitute a
perfected security interest in the Collateral which security interest is not and
shall at no time become subordinate or junior to the security interest, lien,
encumbrance or claim of any other Person except for Permitted Prior Liens;
(D) Customer is and shall at all times during the term of this Agreement be
a corporation duly organized, validly existing and in good standing under the
laws of the state of its incorporation set forth in the preamble to this
Agreement and in Attachment B and qualified and licensed to do business in each
state, county, or parish in which the nature of its business or property
requires it to be qualified or licensed;
(E) Customer has the right and is duly authorized to enter into this
Agreement and the Other Agreements and the execution, delivery and performance
of this Agreement and the Other Agreements by the Customer do not and will not
violate Customer's certificate of incorporation or by-laws, any law, rule,
regulation, order, writ, judgment, injunction, decree, determination or award
presently in effect having applicability to Customer or any provisions of any
indenture, agreement, document, instrument or undertaking to which Customer is
now or hereafter becomes a party or by which it is, may be or hereafter becomes
bound;
(F) all financial statements and information relating to Customer which have
been or may hereafter be delivered by Customer to IBM Credit are true and
correct and have been, and upon delivery will be, prepared in accordance with
generally accepted accounting principles and there has been no material adverse
change in the financial or business condition of Customer since the submission
of any such financial information to IBM Credit;
(H) Customer has registered the Copyright for "NetObjects Fusion" with the
U.S, Copyright office and Customer will use its best efforts to register all
future works of authorship that may be the subject matter of a copyright;
14
<PAGE>
(I) there are, and shall be, no actions or proceedings pending or threatened
against Customer and no change or development involving a prospective change,
which in any such case, has had or could reasonably be expected to have a
material adverse effect on (i) Customer's business (financial or otherwise),
(ii) the value of the Collateral or the amount which IBM Credit would be likely
to receive in the liquidation of such Collateral, (iii) the Customer's ability
to perform its Obligations, or (iv) the rights and remedies of IBM Credit under
this Agreement or the Other Agreements;
(J) Customer shall maintain all of its properties (business and otherwise)
in good condition and repair and pay and discharge all costs of repair and
maintenance thereof and all rental and mortgage payments and related charges
pertaining thereto;
(K) Customer will use commercially reasonable efforts to collect all
Accounts owed;
(L) Customer has duly filed and shall hereafter duly file all federal,
state, local and other governmental tax returns which it is required by law to
file;
(M) all taxes, levies, assessments and governmental charges of any nature
which are or may become due by Customer have been and will be fully paid when
due and Customer shall promptly pay when due all such tax liabilities which may
hereafter accrue;
(N) Customer shall maintain a system of accounting in accordance with
generally accepted accounting principles and ledger and account records which
contain such information as may be reasonably requested by IBM Credit;
(O) Customer shall deliver to IBM Credit:
(i) within ninety (90) days after the end of each of Customer's fiscal
years (except that for fiscal year 1998 Customer shall deliver to IBM Credit
within one hundred twenty (120) days after the end of such fiscal year), a
reasonably detailed balance sheet and a reasonably detailed profit and loss
statement covering Customer's operations for such fiscal year, prepared in
accordance with generally accepted accounting principles, audited by an
independent certified public accountant satisfactory to IBM Credit and
containing an opinion of such public accountant in form and substance
satisfactory to IBM Credit,
(ii) within forty-five (45) days after the end of each of Customer's
first three fiscal quarters, Customer shall deliver to IBM Credit a reasonably
detailed balance sheet as of the last day of such quarter and profit and loss
statement covering Customer's operations for such quarter (subject to normal
year-end audit adjustments) prepared in accordance with generally accepted
accounting principles,
(iii) within fifteen (15) days after the end of each calendar month, a
collateral management report substantially in the form of Attachment C and as of
the last day of such calendar month,
(iv) within sixty (60) days after the end of Customer's fiscal year,
and as reasonably requested by IBM Credit from time to time, pro forma income
statement, balance sheet and cash flow statement for the next twelve (12) months
or through the then current fiscal year and the following fiscal year,
(v) within sixty (60) days after the end of Customer's fiscal year, and
as reasonably requested by IBM Credit from time to time, a business narrative
that at a minimum should include an explanation of how Customer plans to
accomplish significant changes in revenue, gross profit margin, expenses,
operating profit margin and net profit. The Customer's business strategy,
anticipated business climate, and the headcount that will produce the projected
financial results shall also be included, and
15
<PAGE>
(vi) promptly upon the request therefor by IBM Credit, any other report
requested by IBM Credit relating to the Collateral or the financial condition
of Customer. Each report, statement, or document delivered or caused to be
delivered to IBM Credit under this Subsection 6.1 (O) shall be accompanied by
the certificate of an authorized officer of Customer to the effect that to the
best of such officer's knowledge, after due diligence, the same is complete and
correct and thoroughly and accurately presents the financial condition of
Customer and that there exists on the date of delivery of said certificate no
condition or event which constitutes a Default or Event of Default under this
Agreement or any of the Other Agreements;
(P) Customer shall deliver to IBM Credit by January 31, 1997 a guaranty
executed by Perseus U.S. Investors, L.L.C. ("Perseus") whereby Perseus
guarantees 7.5% of the Obligations.
(Q) Customer shall promptly supply IBM Credit with such other information
concerning its affairs as IBM Credit from time to time hereafter may reasonably
request.
(R) The address of the principal place of business and chief executive
office of Customer is as set forth in Attachment B to this Agreement. The books
and records of Customer, and all of its chattel paper and records of Accounts,
are maintained at such location. There is no location in which Customer has any
assets, equipment or inventory (except for vehicles and inventory in transit for
processing) other than those locations identified in Attachment B. There is no
location in which Customer has a place of business other than those locations
identified in Attachment B pursuant to the preceding sentence and those other
locations identified in Attachment B. Attachment B also contains a complete
list of the legal names and addresses of each warehouse at which Customer's
inventory is stored. All receipts received by Customer from any warehouseman
shall state that the goods covered shall be delivered only to Customer. Customer
agrees to notify IBM Credit in writing prior to the effective date of any change
in the information listed in Attachment B and will use its best efforts to give
at least 30 days prior notice of such change but in no case shall such notice be
less than five (5) days prior notice of such change.
(S) Customer agrees that it shall give IBM Credit thirty (30) days advance
notice prior to any change in Customer's identity, name or form of ownership and
will use its best efforts to give IBM Credit prompt notice of a change in
management but in no event less than five (5) days prior notice.
(T) Customer, at its sole expense, shall keep and maintain insurance (with
companies mutually acceptable to IBM Credit and Customer) with respect to its
properties and business against such casualties, contingencies and liabilities
(including, without limitation, business interruption insurance) and of such
types and in such amounts as are customary in the industries in which Customer
is engaged, and will furnish to IBM Credit an annual certification from the
respective insurers (or their respective agents) of the extent of all insurance
maintained by the Customer in accordance with this Section 6.1(S). Each of the
insurance policies ("Policies") shall contain an endorsement, in a form
satisfactory to IBM Credit, showing loss payable to IBM Credit; upon receipt of
proceeds by IBM Credit the same shall be applied on account of Obligations.
Customer agrees to instruct each insurer to give IBM Credit, by endorsement upon
the Policy issued by it or by independent instruments furnished to IBM Credit,
at least ten (10) days' written notice before any Policy shall be altered or
canceled and that no act or default of Customer or any other person shall affect
the right of IBM Credit to recover under the Policies. Customer hereby directs
all insurers under the Policies to pay all proceeds directly to IBM Credit.
Without limiting the generality of the foregoing, Customer shall keep and
maintain, at its sole expense, the Collateral insured for an amount not less
than the amount set forth in writing by IBM Credit from time to time against all
loss or damage under an "all risk" Policy with companies mutually acceptable to
IBM Credit and Customer, with a lender's loss payable endorsement or mortgagee
clause in form and substance reasonably satisfactory to IBM Credit designating
that any loss payable thereunder with respect to such Collateral shall be
payable to IBM Credit. If Customer fails to pay any cost, charges or premiums,
or if Customer fails to insure the Collateral, IBM Credit may pay such costs,
charges or premiums. Any amounts paid by IBM Credit hereunder shall be
considered an additional debt owed by Customer to IBM Credit and are due and
payable immediately upon receipt of an invoice by IBM Credit.
16
<PAGE>
(U) Customer shall advise IBM Credit of the commencement or institution of
legal proceedings filed against the Customer subsequent to the execution of this
Agreement before any court, administrative board or tribunal which, in the event
of an adverse decision to Customer, could have a material adverse effect on the
Customer's condition (financial or otherwise), operations, properties or
prospects or the Customer's ability to perform its Obligations or the rights and
remedies of IBM Credit under this Agreement and the Other Agreements.
(V) Customer acknowledges and agrees that Customer shall comply with the
financial covenants and other covenants set forth in the attachments, exhibits
and other addenda incorporated herein and made a part of this Agreement.
(W) Customer agrees that IBM Credit reserves the right to, on a quarterly
basis, adjust the financial covenant pertaining to Net Profit after Tax or add a
financial covenant.
(X) At any time and from time to time, upon the request of IBM Credit, and
at the sole expense of Customer, Customer will promptly and duly execute and
deliver such further instruments and documents and take such further action as
IBM Credit may reasonably request for the purpose of obtaining or preserving the
full benefits of this Agreement and of the rights and powers herein granted,
including, without limitation, the filing of any financing or continuation
statements under the Uniform Commercial Code in effect in any jurisdiction with
respect to the security interests granted herein and the payment of any and all
recording taxes and filing fees in connection therewith and the execution or
filing of any instrument statement, document or agreement required under any
statute with respect to the security interest granted to IBM Credit in any of
Customer's intellectual property.
6.2 NEGATIVE COVENANTS. Customer agrees with IBM Credit that Customer will
not at any time (without IBM Credit's express prior written consent):
(A) other than in the ordinary course of its business, sell, lease or
otherwise dispose of or transfer any of its assets;
(B) merge or consolidate with another corporation;
(C) acquire any other corporation;
(D) enter into any transaction not in the usual course of its business which
might in any material way adversely affect the ability of Customer to repay the
Obligations;
(E) guarantee or indemnify or otherwise become in any way liable with
respect to the obligations of any person, except by endorsement of instruments
or items of payment for deposit to the general account of Customer or which are
transmitted or turned over to IBM Credit on account of the Obligations;
(F) redeem, retire, purchase or otherwise acquire, directly or indirectly,
any material portion of Customer's capital stock, except for repurchases of
stock from employees and conversion of convertible securities pursuant to
agreements or Customer's certificate of incorporation provided such exception
for repurchases or stock and/or conversion of convertible securities does not
cause Customer to violate any financial covenants contained in this Agreement or
could reasonably be expected to have a Material Adverse Effect;
(G) make any change in Customer's capital structure or in any of its
business objectives, purposes or operations which might in any way materially
adversely affect the ability of Customer to repay the Obligations;
(H) other than in the ordinary course of its business, make any distribution
of Customer's property or assets provided that Customer shall not make any such
distribution in the ordinary course of its business if such distribution shall
cause Customer to violate any financial covenants contained in this Agreement or
could reasonably be expected to have a Material Adverse Effect;
17
<PAGE>
(I) incur any debts outside of the ordinary course of Customer's business
except renewals or extensions of existing debts and interest thereon;
(J) make any loans, advances, contributions or payments of money or goods to
any subsidiary, affiliated or parent corporation or to any officer, director or
stockholder of Customer or of any such corporation including, without
limitation, paying any dividend on or making any payment on account of any
capital stock of Customer or indebtedness of Customer to any of the foregoing
(except for compensation for personal services actually rendered in an amount
not to exceed that available on an arms length basis) and advances for expenses
incurred in the ordinary course of Customer's business in accordance with
Customer's standard policies; and
(K) directly or indirectly mortgage, assign, pledge, transfer, create,
incur, assume, permit to exist or otherwise permit any lien or judgment to exist
on any of its property, assets, revenues or goods, whether real, personal or
mixed, whether now owned or hereafter acquired, except for Permitted Liens.
7. DEFAULT
7.1 DEFINITION. Any one or more of the following events shall constitute an
event of default ("Event of Default") by Customer under this Agreement and the
Other Agreements:
(A) Customer or any Guarantor breaches any term, provision, condition or
covenant contained in this Agreement, in any of the Other Agreements or any
guaranty;
(B) Any warranty, representation, statement, report, or certificate made or
delivered by Customer or any of its officers, employees, or agents or by any
Guarantor to IBM Credit is not true and correct;
(C) Customer fails to immediately pay any of the Obligations when due and
payable or declared to be due and payable;
(D) IBM Credit shall determine that it is insecure with respect to any of
the Collateral or the repayment of any part of the Obligations;
(E) Customer attempts to or shall sell, transfer, convey, exchange, assign,
mortgage, pledge, charge, grant a security interest in or otherwise dispose of
or in any way part with the possession of the Collateral, other than in the
ordinary course of business or as otherwise permitted under this Agreement;
(F) Customer removes, other than by sale to the extent allowed under this
Agreement, any part of the Collateral from any of Customer's locations specified
in Attachment B to this Agreement;
(G) Customer abandons the Collateral or any part thereof;
(H) Any judgment is entered against Customer and such judgment is not
satisfied, dismissed, stayed or superseded by bond within thirty (30) days after
the date of entry thereof (and in the event of a stay or supersedeas bond such
judgment is not discharged within 30 days after termination of such stay or
bond);
(I) There issues a Warrant of Distress for Rent or Taxes with respect to any
premises occupied by Customer in or upon which the Collateral, or any part
thereof, may at any time be situated;
(J) Customer suffers or permits the Collateral to be seized or taken in
execution without the consent of IBM Credit;
(K) Customer fails to insure or keep insured the Collateral within the
provisions of this Agreement;
(L) Customer suspends business;
18
<PAGE>
(M) (i) Customer shall become insolvent or generally fail to pay, or shall
admit its inability or refusal to pay its debts as they become due;
(ii) Customer shall apply for, consent to, or acquiesce in the
appointment of a trustee, receiver or other custodian for Customer or for its
properties, assets, business or undertakings;
(iii) any bankruptcy, reorganization, debt arrangement or other case or
proceeding under any bankruptcy or insolvency law, or any dissolution or
liquidation proceeding, shall be commenced in respect to Customer; or
(iv) Customer shall take any action to authorize, or in the furtherance
of, any of the foregoing;
(N) Any guaranty of any or all of the Customer's Obligations executed by any
Guarantor in favor of IBM Credit shall at any time for any reason cease to be in
full force and effect or shall be declared to be null and void by a court of
competent jurisdiction, or the validity or enforceability thereof shall be
contested or denied by any Guarantor, or any Guarantor shall deny that it, he or
she has any further liability or obligation thereunder or any Guarantor shall
fail to comply with or observe any of the terms, provisions or conditions
contained in said Guaranty;
(O) Any event shall occur or condition shall exist under any agreement or
instrument relating to any debt of the Customer and shall continue after the
applicable grace period, if any, specified in such agreement or instrument if
the effect of such nonpayment, other condition or conditions is to accelerate,
or permit the acceleration of the maturity of such debt, for any reason
whatsoever;
(P) Customer is in default under the terms of any of the Other Agreements;
or
(Q) IBM revokes, cancels or terminates the IBM Indemnification or notifies
IBM Credit of such revocation, cancellation or termination.
7.2 RIGHTS OF IBM CREDIT. Upon the occurrence and during the continuance of
any Event of Default, IBM Credit may:
(A) declare all or any of the Obligations immediately due and payable
together with all court costs and all costs and expenses of repossession and
collection activity, including, but not limited to, reasonable attorney's fees
without presentment, demand, protest, or any other action or obligation of IBM
Credit provided that upon the occurrence of any Event of Default set forth in
Section 7.1(M) all of the Obligations shall automatically become immediately due
and payable together with all such costs and expenses without the necessity of
any notice or other demand;
(B) terminate the Line of Credit;
(C) exercise any or all of the rights accruing to a secured party upon
default by a debtor under the Uniform Commercial Code and any other applicable
laws;
(D) sell, lease or otherwise dispose of the Collateral at public or private
sale;
(E) at its sole election and without demand enter, with or without process
of law, any premises where Collateral might be and, without charge or liability
to IBM Credit therefor, do one or more of the following:
(i) take possession of the Collateral and use or store it in said
premises or remove it to such other place or places as IBM Credit may deem
convenient;
(ii) take possession of all or part of such premises and the Collateral
and place a custodian in the exclusive control thereof until completion of
enforcement, under the UCC or other applicable law, of IBM Credit's security
interest in the Collateral or until IBM Credit's removal of the Collateral to
such other place or places as IBM Credit may deem convenient;
19
<PAGE>
(iii) remain on such premises and use the same, together with Customer's
materials, supplies, books and records, for the purpose of liquidating or
collecting such Collateral and conducting and preparing for disposition of such
Collateral;
(iv) remove the same to such place or places as IBM Credit may deem
convenient for the purpose of IBM Credit's using the same in connection with IBM
Credit's liquidation and collection of such Collateral and to conduct and
prepare for the disposition of such Collateral (and Customer grants IBM Credit a
security interest in all Customer's contract-related material, supplies, books,
and records for such purpose as those described above); and
(F) convert all or part of the then current Outstanding Advances to shares
of Customer's Series E Preferred Stock as provided in the Note.
7.3 CUSTOMER'S OBLIGATIONS. Upon the occurrence and during the continuance of
an Event of Default, Customer shall, if IBM Credit requests, assemble the
Collateral and make it available to IBM Credit at a place or places to be
designated by IBM Credit. Customer recognizes that if Customer fails to
perform, observe or discharge any of its Obligations under this Agreement or the
Other Agreements no remedy at law will provide adequate relief to IBM Credit;
therefore, Customer agrees that IBM Credit shall be entitled to temporary and
permanent injunctive relief in any such case without the necessity of proving
actual damages. All of IBM Credit's rights and remedies granted under this
Agreement and Other Agreements are cumulative and non- exclusive.
7.4 WAIVER. Upon the occurrence and during the continuance of an Event of
Default, Customer waives and releases: any and all claims and causes of action
which it may now or ever have against IBM Credit as a result of any possession,
repossession, collection or sale by IBM Credit of any of the Collateral,
notwithstanding the effect of such possession, repossession, collection or sale
upon Customer's business; all rights of redemption from any such sale; and the
benefit of all valuation, appraisal and exemption laws. IBM Credit's only
obligation in respect to its repossession, collection or sale of any Collateral
is to act in a commercially reasonable manner. If IBM Credit seeks to take
possession of any of the Collateral by replevin or other court process Customer
hereby irrevocably waives any bonds, surety and security relating thereto
required by any statute, court rule or otherwise as an incident to such
possession and any demand for possession of the Collateral prior to the
commencement of any suit or action to recover possession thereof.
8. MISCELLANEOUS
8.1 TERMINATION. This Agreement shall expire on the second anniversary of the
date of the execution and delivery by Customer of this Agreement. Unless
earlier terminated, this Agreement may be terminated by Customer at any time by
the giving of written notice of such termination by registered mail or certified
mail addressed to IBM Credit at the address provided for in this Agreement.
Termination shall be effective on the date specified in the written notification
(the "Effective Date of Termination") which date shall be no less than thirty
(30) days from the date the written notification is received by IBM Credit.
Customer shall not be relieved from any Obligations to IBM Credit until such
time as all of the Obligations of Customer shall have been indefeasibly paid in
full. Upon the termination of this Agreement by IBM Credit or Customer, all of
Customer's Obligations incurred under this Agreement shall be immediately due
and payable in their entirety, even if they are not yet due under their terms,
on the Effective Date of Termination. IBM Credit's rights under this Agreement
and IBM Credit's security interest in the Collateral shall continue after
termination of this Agreement until all of Customer's Obligations to IBM Credit
are indefeasibly paid in full. The covenants, warranties and representations of
this Agreement shall survive termination of the Agreement.
8.2 COLLECTION. Customer agrees that checks and other instruments delivered to
IBM Credit on account of Customer's Obligations shall constitute conditional
payment until such items are actually paid to IBM Credit. Customer waives the
right to direct the application of any and all payments hereafter received by
20
<PAGE>
IBM Credit on account of Customer's Obligations. Customer agrees that IBM Credit
shall have the continuing exclusive right to apply and reapply any such payments
in such manner as IBM Credit may deem advisable notwithstanding any entry by IBM
Credit upon any of its books and records.
8.3 DEMAND, ETC. Customer waives to the extent permitted by law:
(A) demand, protest and all notices of protest, default or dishonor;
(B) all notices of payment and non-payment;
(C) all notices required by law; and
(D) except as otherwise specifically provided for in this Agreement, all
notices of default, non-payment at maturity, release, compromise, settlement,
extension or renewal of any or all commercial paper, accounts, contract rights,
documents, instruments, chattel paper and guarantees at any time held by IBM
Credit on which Customer may, in any way, be liable and Customer hereby
ratifies and confirms whatever IBM Credit may do in that regard.
8.4 ADDITIONAL OBLIGATIONS. (A) IBM Credit, without waiving or releasing any
Obligation or Default of Customer, may perform any Obligations of Customer that
Customer shall fail to perform. IBM Credit may, at any time or times hereafter,
but shall be under no obligation so to do, pay, acquire or accept any assignment
of any security interest, lien, encumbrance or claim against the Collateral
asserted by any person. All sums paid by IBM Credit in performing in
satisfaction or on account of the foregoing and any expenses, including
reasonable attorney's fees, court costs, and other charges relating thereto,
shall be a part of the Obligations, payable on demand and secured by the
Collateral.
(B) Following the execution of this Agreement, Customer will use its best
efforts to file a Certificate of Amendment to its Certificate of Incorporation
to increase the number of authorized shares (if such increase is required) of
(i) Series E Preferred Stock to a number sufficient to effect the conversion of
the then current Outstanding Advances to Series E Preferred Stock as provided in
Section 7.2(F) of this Agreement and (ii) Series F Preferred Stock purchasable
upon IBM Credit's exercise of the Warrant.
8.5 INDEMNIFICATION BY CUSTOMER. Customer hereby agrees to indemnify and hold
harmless IBM Credit against all loss or liability relating, directly or
indirectly, to any of the activities of the Customer or its predecessors in
interest, to the execution, delivery or performance of this Agreement or the
Other Agreements or the consummation of the transactions contemplated hereby or
thereby or to any of the Collateral. Notwithstanding the foregoing, Customer
shall not be obligated to indemnify IBM Credit for any loss or liability which
is the direct result of IBM Credit's negligence or willful misconduct. The
indemnity provided herein shall survive this Agreement.
8.6 INDEMNIFICATION BY IBM. Customer acknowledges that IBM Credit relies on the
IBM Indemnification in providing the financial accommodations to Customer
hereunder.
8.7 ALTERATIONS/WAIVER. In the event that IBM Credit at any time or from time
to time dispenses with any one or more of the Obligations specified in this
Agreement or any of the Other Agreements, such dispensation may be revoked by
IBM Credit at any time and shall not be deemed to constitute a waiver of any
such Obligation subsequent thereto. IBM Credit's failure at any time or times
to require strict performance by Customer of any Obligations shall not waive,
affect or diminish any right of IBM Credit thereafter to demand strict
compliance and performance. Any waiver by IBM Credit of any Default by Customer
under this Agreement or any of the Other Agreements shall not waive or affect
any other Default by Customer under this Agreement or any of the Other
Agreements, whether such Default is prior or subsequent to such other Default
and whether of the same or a different type. None of the Obligations of
Customer contained in this Agreement or the Other Agreements and no Default by
Customer shall be deemed waived by IBM Credit unless such waiver is in writing
signed by an authorized representative of IBM Credit and delivered to Customer.
21
<PAGE>
8.8 NOTICES. Except as otherwise expressly provided herein, any notice
required or desired to be served, given or delivered hereunder shall be in
writing, and shall be deemed to have been validly served, given or delivered (i)
three (3) Business Days after deposit in the United States mails, registered or
certified return receipt with proper postage prepaid, (ii) when sent after
receipt of confirmation or answerback if sent by telecopy, or other similar
facsimile transmission, (iii) one Business Day after being deposited with a
reputable overnight courier with all charges prepaid, or (iv) when delivered, if
hand-delivered by messenger, all of which shall be properly addressed to the
party to be notified and sent to the address or number indicated in Attachment B
or to such other address or number as each party designates to the other in the
manner herein prescribed.
8.9 SEVERABILITY. Whenever possible, each provision of this Agreement shall be
interpreted in such a manner as to be effective and valid under applicable law,
but if any provision of this Agreement shall be prohibited by or invalid under
applicable law, such provision shall be ineffective only to the extent of such
prohibition or invalidity, without invalidating the remainder of such provisions
or the remaining provisions of this Agreement.
8.10 ONE LOAN. All loans and advances heretofore, now or hereafter made by IBM
Credit to Customer under this Agreement or the Other Agreements shall constitute
one loan secured by IBM Credit's security interests in the Collateral and by all
other security interests, liens and encumbrances previously, presently or in the
future granted by Customer to IBM Credit or any assignor of IBM Credit.
8.11 ADDITIONAL COLLATERAL. All monies, reserves and proceeds received or
collected by IBM Credit with respect to Accounts and other property of Customer
in possession of IBM Credit at any time or times hereafter are hereby pledged by
Customer to IBM Credit as security for the payment of Customer's Obligations and
may be held by IBM Credit (without interest to Customer) until Customer's
Obligations are paid in full or applied by IBM Credit on account of Customer's
Obligations. IBM Credit may release to Customer such portions of such monies,
reserves and proceeds as IBM Credit may from time to time determine, in its sole
discretion.
8.12 INITIAL PUBLIC OFFERINGS. In the event that Customer offers shares of the
Customer's stock for sale to the public, upon the effective date of the Initial
Public Offering (i) all Outstanding Advances shall become due and payable and
(ii) no further advances shall be extended to Customer.
8.13 OFFSETS. Customer hereby waives any right of set-off it may have against
IBM Credit.
8.14 LIMITATION OF LIABILITY. IBM Credit shall not have any liability with
respect to any special, indirect or consequential damages suffered by Customer
in connection with this Agreement, any other Agreement or any claims in any
manner related thereto.
8.15 TIME. Time shall be of the essence hereof.
8.16 ENTIRE AGREEMENT. This Agreement, together with the Other Agreements and
any other documents to be delivered pursuant hereto and thereto, constitutes the
entire Agreement between the Customer and IBM Credit pertaining to the subject
matter hereof and supersedes all prior agreements, understandings, negotiations
and discussions, whether oral or written, with respect to the subject matter
hereof.
8.17 PARAGRAPH TITLES. The Section titles used in this Agreement and the Other
Agreements are for convenience only and do not define or limit the contents of
any Section.
8.18 BINDING EFFECT. This Agreement and the Other Agreements shall be binding
upon and inure to the benefit of IBM Credit and Customer and their respective
successors and assigns but Customer shall have no right to assign this Agreement
or any of the Other Agreements without the prior written consent of IBM Credit.
22
<PAGE>
8.19 CONDITIONS TO EFFECTIVENESS. In addition to those conditions set forth in
Section 5.1, the effectiveness of this Agreement shall be conditioned upon the
receipt by IBM Credit of the instruments and other documents specified in
Attachment A to this Agreement .
8.20 SUBMISSION BY CUSTOMER. This Agreement and the Other Agreements are
submitted by Customer to IBM Credit (for IBM Credit's acceptance or rejection
thereof) at IBM Credit's place of business specified in Attachment B of this
Agreement, as an offer by Customer to borrow monies from IBM Credit and shall
not be binding upon IBM Credit or become effective until and unless accepted in
writing by IBM Credit at its said place of business. If so accepted, this
Agreement and the Other Agreements shall be deemed to have been made at IBM
Credit's said place of business. This Agreement and the Other Agreements and
all transactions pursuant thereto shall be governed and controlled as to
interpretation, enforcement, validity, construction, effect and in all other
respects (including, but not limited to, the legality of the interest charged to
Customer pursuant thereto) by the laws, statutes and decisions of the state of
IBM Credit's said place of business. Customer, in order to induce IBM Credit to
accept this Agreement and the Other Agreements, agrees that all actions or
proceedings arising directly or indirectly in connection with this Agreement or
the Other Agreements may be litigated, at IBM Credit's sole discretion and
election, in courts having situs within the state where IBM Credit's aforesaid
place of business is located. Customer hereby consents and submits to the
jurisdiction of any local, state or federal court located within such state.
Customer hereby waives any right it may have to transfer or change the venue of
any litigation brought against it by IBM Credit in accordance with this
paragraph.
8.21 JURY TRIAL. CUSTOMER AND IBM CREDIT HEREBY IRREVOCABLY WAIVE THEIR RIGHT
TO TRIAL BY JURY WITH RESPECT TO ANY ACTION OR PROCEEDING IN WHICH IBM CREDIT
AND CUSTOMER ARE PARTIES.
IN WITNESS WHEREOF, the duly authorized representatives of Customer have
executed and delivered this Agreement as of the date set forth below.
Date: _______________________________
NetObjects, Inc.
By: _________________________________
Print Name:__________________________
Title:_______________________________
ATTEST: _______________________________ (Secretary)
ACCEPTED this_________day of___________________, 19__, at IBM Credit's place of
business specified at the beginning of this Agreement.
IBM Credit Corporation
By: _______________________
Print Name: __________________
Title: _______________________
23
<PAGE>
SECRETARY'S CERTIFICATE
(Revolving Loan and Security Agreement)
On I, _______________, do hereby certify that I am the duly elected and
acting Secretary of _____________________, a __________ corporation, and as such
I am the keeper of the corporate records and seal of said corporation; that the
following is a true and correct copy of resolutions duly adopted and ratified by
action of the board of directors of said corporation on ______________________,
19__ as ratified and approved by the stockholders of said corporation by action
of said stockholders on ___________________, 19__, all in accordance with its
by-laws and articles of incorporation and the laws of its jurisdiction of
incorporation; and that the same have not been modified, repealed, rescinded or
withdrawn, are in full force and effect and do not contravene any provisions of
said corporation's articles of incorporation or by-laws:
RESOLVED, that the President, each Vice-President, the Secretary, the
Treasurer and each other officer and each agent of this Corporation, or any
one or more of them, be and they are hereby authorized and empowered on
behalf of this corporation: to obtain from IBM Credit Corporation ("IBM
Credit") loans in such amounts and on such terms and conditions as such
officers deem proper; to execute notes and other evidences of this
corporation's indebtedness with respect thereto; to enter into financing and
other agreements with IBM Credit relating to the terms and conditions upon
which any such loans may be obtained and the security to be furnished by
this corporation therefore; from time to time to modify, supplement or amend
any such agreements, any such terms or conditions and any such security;
from time to time to pledge, assign, guaranty, mortgage, consign, grant
security interest in and otherwise transfer to IBM Credit as collateral
security for any and all debts and obligations of this corporation to IBM
Credit, whenever and however arising, any and all accounts and other forms
of obligations, receivables, choses in action, inventory, warehouse receipts,
machinery, equipment, land, buildings and other real, personal or fixed
property, tangible or intangible, now or hereafter belonging to or acquired
by this corporation; for said purposes to execute and deliver any and all
assignments, schedules, transfers, endorsements, contracts, debentures,
guarantees, agreements, designations, consignments, deeds of trust,
mortgages, instruments of pledge or other instruments in respect thereof and
to make remittances and payments in respect thereof by checks, drafts or
otherwise; and to do and perform all other acts and things deemed by such
officer or agent necessary, convenient or proper to carry out any of the
foregoing; hereby ratifying, approving and confirming all that any said
officers and agents have done or may do in the premises.
(Revolving Loan and Security Agreement)
I do further certify that the following are the names and specimen signatures of
the officers and agents of said corporation so empowered and authorized, namely:
PRESIDENT:
___________________________________ (Print Name)
___________________________________ (Signature)
VICE-PRESIDENT:
___________________________________ (Print Name)
___________________________________ (Signature)
SECRETARY: ________________________
24
<PAGE>
___________________________________ (Print Name)
___________________________________ (Signature)
TREASURER:
___________________________________ (Print Name)
___________________________________ (Signature)
AGENT:
___________________________________ (Print Name)
___________________________________ (Signature)
Witness my hand and seal of said corporation this _____ day of
____________________, 19___. (Attach corporate seal here)
___________________________________ (Secretary of said corporation)
25
<PAGE>
[RFC Letterhead]
NetObjects, Inc.
602 Galveston Drive
Redwood City, CA 94063
Attention: Mr. Ernest J. Cicogna
Ref: Revolving Loan and Security Agreement by and between
NetObjects, Inc. ("Customer") and IBM Credit Corporation ("IBM
Credit") and dated December 23, 1997 (the "Agreement")
Dear Mr. Cicogna:
IBM Credit hereby waives the requirement, specified in Section 6.1(P)
of the Agreement, that the Customer shall cause a guaranty to be executed by
Perseus U.S. Investors, L.L.C. ("Perseus") whereby Perseus guarantees 7.5% of
the Obligations.
Please sign below indicating your acceptance and agreement with this
waiver.
IBM CREDIT CORPORATION
By: _______________________
Title: ______________________
Agreed and Accepted:
NETOBJECTS, INC.
By: ________________________
Title: _______________________
Date: _______________________
<PAGE>
ATTACHMENT D
TO
REVOLVING LOAN AND SECURITY AGREEMENT
BY AND BETWEEN
IBM CREDIT CORPORATION AND NETOBJECTS, INC.
DATED: DECEMBER __, 1997
CONVERTIBLE REVOLVING CREDIT NOTE
$15,000,000.00 White Plains, New York
December __, 1997
FOR VALUE RECEIVED, NETOBJECTS, INC., a Delaware corporation (the Company),
HEREBY PROMISES to pay to the order of IBM Credit Corporation (IBM Credit),
at its office at 5000 Executive Parkway Suite 450, San Ramon, CA 94583 on the
maturity dates set forth in the Loan Agreement (as defined below), the
aggregate unpaid principal amount of all outstanding borrowings by the
Company from IBM Credit pursuant to Section 2 of the Revolving Loan and
Security Agreement (the "Loan Agreement") dated as of December __, 1997,
between the Company and IBM Credit, all in lawful money of the United States
of America in immediately available funds, together with interest thereon, in
like money, at such office, calculated in accordance with Section 2.1.1 of
the Agreement.
Principal and interest on the aggregate unpaid principal amount of all
outstanding borrowings by the Company from IBM Credit pursuant to Section 2
of the Loan Agreement may be prepaid without penalty by the Company at any
time.
The Company hereby waives diligence, presentment, demand, protest and notice
of any kind whatsoever. The nonexercise by IBM Credit of any of its rights
hereunder in any particular instance shall not constitute a waiver thereof in
that or any subsequent instance.
All borrowings evidenced by this Note and all payments of the principal
hereof and interest hereon on the respective dates thereof shall be endorsed
by IBM Credit on the schedule attached hereto and made a part hereof, or on a
continuation thereof which shall be attached hereto and made a part hereof;
PROVIDED, HOWEVER, that any failure to endorse such information on such
schedule or continuation thereof shall not in any manner affect the
obligation of the Company to make payments of principal and interest in
accordance with the terms of this Note.
This Note is the Revolving Credit Note referred to in the Loan Agreement
which, among other things, contains provisions relating to non-payment of
principal or interest, notice, events of default, acceleration of the
maturity hereof upon the happening of certain events all upon the terms and
conditions therein specified. The provisions of the Agreement relating to
this Note are incorporated herein by reference. Any capitalized terms used
but not defined herein shall have
1
<PAGE>
the meaning ascribed to it in the Loan Agreement. This Note shall be
governed by and construed in all respects in accordance with the internal
laws of the State of New York without regard to the conflict of law
principles of such State.
CONVERSION UPON DEFAULT. IBM Credit shall have the right, at the option of
IBM Credit, at any time, in whole or in part, upon an Event of Default, to
convert, subject to the terms and provisions hereof, the unpaid balance of
this Note or any portion thereof into fully paid and nonassessable shares of
the Company's Series E Preferred Stock ("Preferred Stock"), at the amount
thereof per share of Preferred Stock equal to the then current Conversion
Price (as defined below). IBM Credit may exercise its Conversion Rights (as
defined below) by delivering to the Company at least ten (10) days in advance
of the proposed conversion a written notice (a Conversion Notice) of its
election to convert this Note on the date and subject to the conditions set
forth in such Conversion Notice.
On the date specified, or determined as provided, in a Conversion Notice, the
Company shall deliver or cause to be delivered to, or upon the written order
of, IBM Credit (i) certificates representing the number of fully paid and
unassessable shares of Preferred Stock into which this Note, or such portion
thereof, is to be converted, registered in the name or names specified in the
Conversion Notice in accordance with the provisions hereof, (ii) in the case
of a partial conversion of this Note, a replacement Convertible Promissory
Note with the same terms as this Note but in an amount equal to the
unconverted portion of this Note, and (iii) if applicable, the securities,
evidences of indebtedness, assets, options or rights (or, in the case of a
partial conversion, a proportionate amount thereof) required to be delivered
to IBM Credit on conversion of this Note by Section (c) hereof.
IBM Credit shall have conversion rights as follows (the Conversion Rights):
(a) RIGHT TO CONVERT. This Note shall be convertible, at the option of IBM
Credit, at any time, in whole or in part, into such number of fully paid and
nonassessable shares of Preferred Stock (upon an Event of Default) as is
determined by dividing the portion of the unpaid balance of this Note to be
so applied by the per share amount equal to the lesser of (i) $1.1131258 and
(ii) the price determined by an independent party mutually satisfactory to
IBM Credit and the Company to be the fair market value price for a share of
Preferred Stock at the time of such conversion determined without regard to
the consequences of the default, in particular the effects of foreclosure on
the Collateral (the "Conversion Price"); provided, however, that the
Conversion Price shall not be less than $1.1131258 per share unless the Event
of Default is caused by the Company's non-payment of any amounts due under
the Note or, any action of the Company that materially impedes payment of the
Note to IBM Credit and such Event of Default is not cured within the earlier
of (i) twenty (20) days after written notice of the Event of Default is given
to the Company and (2) twenty-five (25) days from the date the Event of
Default occurred.
(b) CONVERSION PRICE ADJUSTMENTS. The Conversion Price shall be subject to
adjustment from time to time as follows:
2
<PAGE>
(i) In the event the Company should at any time or from time to time after
the issuance of this Note fix a record date for the effectuation of a split
or subdivision of the outstanding shares of Preferred Stock or the
determination of holders of Preferred Stock entitled to receive a dividend or
other distribution payable in additional shares of Preferred Stock or other
securities or rights convertible into, or entitling the holder thereof to
receive directly or indirectly, additional shares of Preferred Stock
(hereinafter referred to as Stock Equivalents) without payment of any
consideration by such holder for the additional shares of Preferred Stock or
the Stock Equivalents (including the additional shares of Preferred Stock
issuable upon conversion or exercise thereof), then, as of such record date
(or the date of such dividend, distribution, split or subdivision if no
record date is fixed), the Conversion Price shall be appropriately decreased
so that the number of shares of Preferred Stock issuable upon conversion of
this Note shall be increased in proportion to such increase of outstanding
shares.
(ii) If the number of shares of Preferred Stock outstanding at any time after
the issuance of this Note is decreased by a combination of the outstanding
shares of Preferred Stock then, following the record date of such
combination, the Conversion Price shall be appropriately increased so that
the number of shares of Preferred Stock issuable upon conversion of this Note
shall be decreased in proportion to such decrease in outstanding shares.
(c) RECAPITALIZATIONS; CERTAIN OTHER TRANSACTIONS. If at any time or from
time to time there shall be a recapitalization of the Preferred Stock (other
than a subdivision or combination provided for above), provision shall be
made so that IBM Credit shall thereafter be entitled to receive upon
conversion of this Note the number of shares of stock or other securities or
property of the Company or otherwise to which a holder of Preferred Stock
deliverable upon conversion would have been entitled on such
recapitalization. In any such case, appropriate adjustment shall be made in
the application of the provisions of this Note with respect to the rights of
IBM Credit after the recapitalization to the end that the provisions hereof
(including adjustment of the Conversion Price then in effect and the number
of shares purchasable upon conversion of this Note) shall be applicable after
that event as nearly equivalent as may be practicable.
(d) NO IMPAIRMENT. The Company will not, by amendment of its Certificate of
Incorporation or through any reorganization, recapitalization, transfer of
assets, consolidation, merger, dissolution, issuance or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms to be observed or performed hereunder by the
Company, but will at all times in good faith assist in the carrying out of
all the provisions of this Note and in the taking of all such action as may
be necessary or appropriate in order to protect the Conversion Rights of IBM
Credit against impairment.
(e) NO FRACTIONAL SHARES; CERTIFICATE AS TO ADJUSTMENTS. No fractional
shares shall be issued upon conversion of this Note, and the number of shares
of Preferred Stock to be issued shall be rounded to the nearest whole share.
Upon the occurrence of each adjustment or readjustment of the Conversion
Price pursuant to the terms hereof, the Company shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and prepare
and furnish to IBM Credit a certificate setting forth such adjustment or
readjustment and showing in detail the facts
3
<PAGE>
upon which such adjustment or readjustment is based. The Company shall, upon
the written request at any time of IBM Credit, furnish or cause to be
furnished to IBM Credit a like certificate setting forth (A) such adjustments
and readjustments, (B) the Conversion Price at the time in effect, and (C)
the number of shares of Preferred Stock and the amount, if any, of other
property which at the time would be received upon the conversion of this
Note.
(f) NOTICES OF RECORD DATE. In the event of any taking by the Company of a
record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend
(other than a cash dividend) or other distribution, any right to subscribe
for, purchase or otherwise acquire any shares of stock of any class or any
other securities or property, or to receive any other right, the Company
shall mail to IBM Credit, at least 10 days prior to the date specified
therein, a notice specifying the date on which any such record is to be taken
for the purpose of such dividend, distribution or right; and the amount and
character of such dividend, distribution or right.
(g) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The Company shall at all
times reserve and keep available out of its authorized but unissued shares of
Preferred Stock , solely for the purpose of effecting the conversion of this
Note, such number of its shares of Preferred Stock as shall from time to time
be sufficient to effect the conversion of this Note and such number of shares
of Stock into which the Preferred Stock is convertible; and if at any time
the number of authorized but unissued shares of Preferred Stock shall not be
sufficient to effect the conversion of this Note, in addition to such other
remedies as shall be available to IBM Credit, the Company will take such
corporate action as may, in the opinion of its counsel, be necessary to
increase its authorized but unissued shares of Preferred Stock and Common
Stock to such number of shares as shall be sufficient for such purposes.
(h) TAXES. The Company will pay all taxes and other governmental charges
that may be imposed in respect of the issue or delivery of shares of
Preferred Stock upon conversion of this Note.
4
<PAGE>
IN WITNESS WHEREOF, this Convertible Revolving Credit Note has been duly
executed on behalf of the Company on and as of the day and year first above
mentioned.
NETOBJECTS, INC.
by:___________________________
Name:
Title:
NETOBJECTS, INC.
by: ___________________________
Name:
Title:
[Corporate Seal]
Attest:
by: ______________________
Name:
Title:
5
<PAGE>
ATTACHMENT E
to the Revolving Loan and Security Agreement dated December __, 1997 by and
between IBM Credit Corporation and NetObjects, Inc.
TRADEMARK SECURITY AGREEMENT
(TRADEMARKS, TRADEMARK REGISTRATIONS, TRADEMARK
APPLICATIONS AND TRADEMARK LICENSES)
WHEREAS, NetObjects, Inc. (NetObjects) owns the Trademark Collateral (as
defined below) listed on Schedule A annexed hereto;
WHEREAS, NetObjects and IBM Credit Corporation (IBM Credit) are parties
to a Revolving Loan and Security Agreement dated as of December __, 1997 (as the
same may be amended and in effect from time to time, the "Loan Agreement"),
providing, subject to its terms and conditions, for extensions of credit to be
made by IBM Credit (through the making of loans and advances) to NetObjects.
WHEREAS, pursuant to the terms of the Loan Agreement, NetObjects has
granted to IBM Credit a security interest in substantially all the assets of
NetObjects including all right, title and interest of NetObjects in, to and
under all NetObjects Trademark Collateral, whether presently existing or
hereafter arising or acquired, and all products and proceeds thereof, including,
without limitation, any and all causes of action which may exist by reason of
infringement thereof for the full term of the Trademark Collateral, to secure
the payment of all amounts owing by NetObjects under the Loan Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. GRANT OF SECURITY INTEREST. NetObjects does hereby grant to IBM Credit a
continuing security interest in all of NetObjects right, title and interest in,
to and under the following (all of the following items or types of property
being herein collectively referred to as the Trademark Collateral), whether
presently existing or hereafter arising or acquired and wherever located:
each trademark, trademark registration, trademark
application, service mark, service mark registration and service mark
application, trade name and tradestyles referred to in Schedule A
annexed hereto, and the goodwill underlying those trademarks and service
marks and (i) any similar marks or amendments, modifications and
renewals thereof and the goodwill represented by those and any legal
equivalent in a foreign country for the full term or terms for which the
same may be granted; (ii) all rights to income, royalties, profits,
damages and other rights relating to said trademarks and service marks
including the right to sue for past, present or future infringement;
(iii)
1
<PAGE>
any other rights and benefits relating to said trademarks and service
marks including any rights as a licensor or licensee of said trademark
and service mark; (iv) all books and records pertaining to any of the
foregoing; and (v) all proceeds, substitutions and replacements for all
of the foregoing.
2. PRESERVATION OF COLLATERAL. (a) The Company agrees, at its own expense, to
use reasonable efforts to preserve all Trademark Collateral.
(b) The Company shall not sell or assign (by operation
of law or otherwise) or create or suffer to exist any lien, security
interest, or other charge or incumbrance on or with respect to any
Trademark Collateral to secure the indebtedness of any person, except as
permitted pursuant to the Loan Agreement.
3. REPRESENTATIONS AND WARRANTIES. The Company hereby represents and warrants
as follows:
(a) The Company is not aware of any proceeding (other
than application proceedings) in the United States Patent and Trademark
office or any state or federal court regarding the Companys claim of
ownership in any Trademark Collateral; and
(b) To the best of the Company's knowledge, the
Company is the sole owner of all right, title and interest in and to all
Trademark Collateral, free and clear of any liens, assignments,
mortgages, security interest, charges or encumbrances excluding any
applicable trademark license agreements and except for Permitted Liens
as defined in the Loan Agreement.
4. FURTHER ASSURANCES. (a) The Company authorizes IBM Credit to record this
Trademark Security Agreement, or an excerpt thereof, in the United States Patent
and Trademark Office and to take all other steps as are reasonably necessary to
perfect the security interest granted herein.
(b) The Company will execute such further documents as
may be reasonably necessary for IBM Credit to perfect the security
interest granted herein.
(c) The Company will furnish to IBM Credit, from time
to time, upon the reasonable request of IBM Credit, summaries in the
form of EXHIBIT A hereto, identifying all Trademark Collateral owned by
the Company.
5. LOAN AGREEMENT. This security interest is granted in conjunction with the
security interests granted to IBM Credit pursuant to the Loan Agreement.
NetObjects and IBM Credit acknowledge and agree that the rights and obligations
of NetObjects and IBM Credit with respect to the Trademark Collateral are as set
forth in the Loan Agreement, the terms and provisions of which are incorporated
by reference herein as if fully set forth herein. To the extent of any
inconsistency between the terms and provisions of the Loan Agreement and the
terms and
2
<PAGE>
provisions of this Trademark Security Agreement, the terms and provisions of
the Loan Agreement shall control.
IN WITNESS WHEREOF, NetObjects has caused this Trademark Security
Agreement to be duly executed by its officer thereunto duly authorized as of the
____ day of December, 1997.
NETOBJECTS, INC.
By: ______________________________
Name:
Title:
Acknowledged:
IBM CREDIT CORPORATION
By: ________________________
Name:
Title:
3
<PAGE>
STATE OF __________________ )
): ss:
COUNTY OF _________________ )
On the ___ day of December, 1997 before me personally came
_____________________, personally known to me or proved to me on the basis of
satisfactory evidence to be the person described in and who executed the
Trademark Security Agreement dated December __, 1997 as
____________________________ of NetObjects, Inc. who being by me duly sworn,
acknowledged to me that he is ______________ _________________________________
of NetObjects, Inc., and that he executed the foregoing instrument in his
authorized capacity and that by his signature on the instrument the entity upon
behalf of which he acted executed the instrument.
______________________________
Notary Public
Notary Public, State of California
[SEAL]
4
<PAGE>
SCHEDULE A
TO
TRADEMARK SECURITY AGREEMENT
TRADEMARK STATUS REPORT
(NOVEMBER 18, 1997)
U.S. APPLICATIONS
Mark: NETOBJECTS
Filing Date: December 1 1, 1 99 5
Appl. No.: 75/030,214
Class: 42
Our File: 35392.9
Status: Abandoned
Mark: NETOBJECTS
Filing Date: December 1 1, 1 995
Appl. No.: 75/030,215
Class: 9
Our File: 35392.8
Status: Statement of Use filed and accepted.
Mark: SITEPRODUCER
Filing Date: April 3, 1996
Appl. No.: 75/083,235
Class: 9
Our File: 35392.4
Status: Notice of Allowance issued; SOU/2nd
EXT. due March 11, 1998.
Mark: SITEPUBLISHER
Filing Date: April 3, 1 996
Appl. No.: 75/083,268
Class: 9
Our File: 35392.5
Status: Notice of Allowance issued; SOU/2nd
EXT. due February 25, 1998.
Mark: NETOBJECTS FUSION
Filing Date: June 1 7, 1 996
Appl. No.: 75/120,255
Class: 9
Our File: 35392.14
Status: Allaire Corp's request for extension
to oppose granted until December 10,
1997; settlement agreement forwarded
to NetObjects for signature.
Mark: SITESTUDIO
5
<PAGE>
Filing Date: July 1 5, 1 996
Appl. No.: 75/134,405
Class: 9
Our File: 35392.17
Status: Notice of Allowance issued; SOU/2nd
EXT. due February 25, 1998.
Mark: SITESTYLES
Filing Date: July 15, 1996
Appl. No: 75/134,406
Class: 9
Our File: 35392.21
Status: Notice of Allowance issued; Statement
of Use filed.
Mark: STYLEOBJECT
Filing Date: July 15, 1996
Appl. No.: 75/134,407
Class: 9
Our File: 35392.20
Status: Notice of Allowance issued; SOU/EXT.
due December 10. 1997.
Mark: WEBDRAW
Filing Date: July 15, 1996
Appl. No.: 75/134,408
Class: 9
Our File: 35392.19
Status: Notice of Allowance issued; SOU/EXT.
due December 3, 1997.
Mark: PUBLISHSET
Filing Date: July 15, 1996
Appl. No.: 75/134,409
Class: 9
Our File: 35392.18
Status: Notice of Allowance issued; SOU/EXT.
due December 10, 1997.
Mark: FUSION
Filing Date: July 15,1996
Appl. No.: 75/134,410
Class: 9
Our File: 35392.15
Status: Abandoned
Mark: SITEPARTS
Filing Date: July 15,1996
Appl. N o.: 75/134,411
Class: 9
Our File: 35392.16
Status: Notice of Allowance issued; SOU/2nd
EXT. due February 25' 1998.
Mark: PAGEDRAW
6
<PAGE>
Regis. Date: November 18, 1997
Regis. N o.: 2,114,827
Class: 9
Our File: 35392.22
Status: Statement of Use filed and accepted.
Mark: SITEARCHITECT
Filing Date: July 23,1996
Appl. No.: 75/138,375
Class: 9
Our File: 35392.24
Status: Abandoned.
Mark: AUTOSITES
Filing Date: July 23,1996
Appl No.: 75/138,376
Class: 9
Our File: 35392.23
Status: Published.
Mark: WEBREACH
Filing Date: October 25,1996
Appl. No.: 75/187,632
Class: 41
Our File: 35392.47
Status: Response to Office Action filed on
October 14, 1997.
Mark: THE WEB NEEDS YOU
Filing Date: July 25,1997
Appl. No.: 75/330,441
Class: 9
Our File: 35392.62
Status: Priority foreign filing due
January 25. 1998
FOREIGN APPLICATIONS
CANADA
Mark: NETOBJECTS
Appl. No: 81,394
Filing Date: June 5, 1 996
Class: 9
Our File: 35392.10
Status: Response to Office Action filed
Mark: SlTEPRODUCER
Appl. No. 824700
Filing Date: September 30, 1 996
Class: 9
Our File: 35392.41
Status: Provide certified copy of U.S.
registration by March 29, 1998.
Mark: SITEPUBLISHER
7
<PAGE>
Appl. No.: 824701
Filing Date: September 30, 1996
Class: 9
Our File: 35392.42
Status: Provide certified copy of U.S.
registration by March 29, 1998.
Mark: NETOBJECTS FUSION
Appl. No.: 831623
Filing Date: December 13, 1996
Class: 9
Our File: 35392.52
Status: Response to Office Action filed.
EUROPEAN COMMUNITY
Mark: NETOBJECTS
Appl. No.: 297465
Filing Date: June 5, 1 996
Class: 9 and 42
Our File: 35392. 11
Status: Pending
Mark: SITEPRODUCER
Appl. No.: 390856
Filing Date: October 1, 1996
Class: 9
Our File: 35392.43
Status: Pending.
Mark: SITEPUBLISHER
1 Appl. No.: 390815
Filing Date: October 1, 1996
Class: 9
Our File: 35392.44
Status: Pending.
Mark: NETOBJECTS FUSION
Appl. No.: 432922
Filing Date: December 13, 1996
Class: 9
Our File: 35392.51
Status: Pending
JAPAN
Mark: NETOBJECTS
Appl. No.: 8-58668
Filing Date: May 31, 1 996
Class: 1
Our File: 35392,12
Status: Approved for registration;
registration fee paid.
Mark: NETOBJECTS
8
<PAGE>
Appl. No: 8-58669
Filing Date: May 31, 1996
Class: 42
Our File: 35392.13
Status: Pending
Mark: SITEPRODUCER
Appl. No.: 8-110598
Filing Date: October 2, 1996
Class: 9
Our File: 35392.45
Status: Pending
Mark: SITEPUBLISHER
Appl. No.: 8-110599
Filing Date: October 2, 1996
Class: 9
Our File: 35392.46
Status: Pending
Mark: NETOBJECTS FUSION
Appl. No.: 8-124666
Filing Date: November 7, 1996
Class: 9
Our File: 35392.50
Status: Pending.
TAIWAN
Mark: NETOBJECTS
Appl. No.: 85-056072
Filing Date: November 5, 1 996
Class: 9
Our File: 35392.48
Status: Published.
Mark: NETOBJECTS FUSION
Appl. No.: 85-056073
Filing Date: November 5, 1996
Class: 9
Our File. 35392.49
Status: Response to Office Action filed.
9
<PAGE>
ATTACHMENT F
to the Revolving Loan and Security Agreement dated December __, 1997 by and
between IBM Credit Corporation and NetObjects, Inc.
COPYRIGHT SECURITY AGREEMENT
(COPYRIGHTS, COPYRIGHT APPLICATIONS
AND COPYRIGHT LICENSES)
WHEREAS, NetObjects, Inc. (NetObjects) owns the Copyright Collateral (as
defined below) listed on Schedule A annexed hereto:
WHEREAS, NetObjects and IBM Credit Corporation (IBM Credit) are parties
to a Revolving Loan and Security Agreement dated as of December __, 1997 (as
the same may be amended and in effect from time to time, "the Loan
Agreement"), providing, subject to its terms and conditions, for extensions
of credit to be made by IBM Credit (through the making of loans and advances)
to NetObjects;
WHEREAS, pursuant to the terms of the Loan Agreement, NetObjects has
granted to IBM Credit, a security interest in substantially all the assets of
NetObjects including all right, title and interest of NetObjects in, to and
under all NetObjects Copyright Collateral whether presently existing or
hereafter arising or acquired, and all products and proceeds thereof,
including, without limitation, any and all causes of action which may exist
by reason of infringement thereof for the full term of the Copyright
Collateral, to secure the payment of all amounts owing by NetObjects under
the Loan Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. GRANT OF SECURITY INTEREST. NetObjects does hereby grant to IBM Credit a
continuing security interest in all of NetObjects right, title and interest
in, to and under the following (all of the following items or types of
property being herein collectively referred to as the Copyright Collateral),
whether presently existing or hereafter arising or acquired and wherever
located:
each copyright, copyright registration and copyright
applications referred to in Schedule A annexed hereto, including without
limitation, those copyrights for computer programs, computer databases,
flow diagrams, source codes and object codes, computer software,
technical knowledge and processes, formal or informal licensing
arrangements, and all property embodying or incorporating such
copyrights and (i) any similar rights or amendments, modifications and
renewals thereof and any legal equivalent in a foreign country for the
full term or terms for which the same may be granted; (ii) all rights to
income, royalties, profits, damages and other rights relating to said
copyrights including the right to sue for past, present and future
infringement; (iii) any other rights and benefits relating to said
copyrights; (iv) all books and records
<PAGE>
pertaining to any of the foregoing; and (v) all proceeds, substitutions
and replacements for all of the foregoing.
2. PRESERVATION OF COLLATERAL. (a) The Company agrees, at its own expense,
to use reasonable efforts to preserve all Copyright Collateral.
(b) The Company shall not sell or assign (by operation
of law or otherwise) or create or suffer to exist any lien, security
interest, or other charge or encumbrance on or with respect to any
Copyright Collateral to secure the indebtedness of any person, except as
permitted pursuant to the Loan Agreement.
3. REPRESENTATIONS AND WARRANTIES. The Company hereby represents and
warrants as follows:
(a) The Company is not aware of any proceeding (other
than application proceedings) in the United States Copyright Office or
any state or federal court regarding the Companys claim of ownership in
any Copyright Collateral; and
(b) To the best of the Company's knowledge, the
Company is the sole owner of all right, title and interest in and to all
Copyright Collateral, free and clear of any liens, assignments,
mortgages, security interest, charges or encumbrances excluding any
applicable copyright license agreements and except for Permitted Liens
as defined in the Loan Agreement.
4. FURTHER ASSURANCES. (a) The Company authorizes IBM Credit to record
this Copyright Security Agreement, or an excerpt thereof, in the United
States Copyright Office and to take all other steps as are reasonably
necessary to perfect the security interest granted herein.
(b) The Company will execute such further documents as
may be reasonably necessary for IBM Credit to perfect the security
interest granted herein.
(c) The Company will furnish to IBM Credit, from time
to time, upon the reasonable request of IBM Credit, summaries in the
form of EXHIBIT A hereto, identifying all Copyright Collateral owned by
the Company.
5. LOAN AGREEMENT. This security interest is granted in conjunction with
the security interests granted to IBM Credit pursuant to the Loan Agreement.
NetObjects and IBM Credit acknowledge and agree that the rights and
obligations of NetObjects and IBM Credit with respect to the Copyright
Collateral are as set forth in the Loan Agreement, the terms and provisions
of which are incorporated by reference herein as if fully set forth herein.
To the extent of any inconsistency between the terms and provisions of the
Loan Agreement and the terms and provisions of this Copyright Security
Agreement, the terms and provisions of the Loan Agreement shall control.
Copyright - Net Objects 2 12/18/97
<PAGE>
IN WITNESS WHEREOF, NetObjects has caused this Copyright Security
Agreement to be duly executed by its officer thereunto duly authorized as of
the ____ day of December, 1997.
NETOBJECTS, INC.
By: ______________________________
Name:
Title:
Acknowledged:
IBM CREDIT CORPORATION
By: ________________________
Name:
Title:
Copyright - Net Objects 3 12/18/97
<PAGE>
STATE OF __________________ )
): ss:
COUNTY OF _________________ )
On the ___ day of December, 1997 before me personally came
_____________________, personally known to me or proved to me on the basis of
satisfactory evidence to be the person described in and who executed the
Copyright Security Agreement dated December __, 1997 as
____________________________ of NetObjects, Inc. who being by me duly sworn,
acknowledged to me that he is ______________
_________________________________ of NetObjects, Inc., and that he executed
the foregoing instrument in his authorized capacity and that by his signature
on the instrument the entity upon behalf of which he acted executed the
instrument.
______________________________
Notary Public
Notary Public, State of California
[SEAL]
Copyright - Net Objects 4 12/18/97
<PAGE>
SCHEDULE A
to Copyright Security Agreement
COPYRIGHTS
<TABLE>
<CAPTION>
Copyright Effective Date of Registration
Description Registration Number
- -----------------------------------------------------------------------
<S> <C> <C>
NetObjects Fusion 12/20/96 084980397
</TABLE>
COPYRIGHT APPLICATIONS
<TABLE>
<CAPTION>
Copyright Application Application
Description Date Number
- -----------------------------------------------------------------------
<S> <C> <C>
N/A
</TABLE>
Copyright - Net Objects 5 12/18/97
<PAGE>
ATTACHMENT G
to the Revolving Loan and Secutity Agreement dated December __, 1997 by and
between IBM Credit Corporation and NetObjects, Inc.
PATENT SECURITY AGREEMENT
(PATENTS, PATENT APPLICATIONS AND PATENT LICENSES)
WHEREAS, NetObjects, Inc. (NetObjects) owns the Patent Collateral (as
defined below) listed on Schedule A annexed hereto;
WHEREAS, NetObjects and IBM Credit Corporation (IBM Credit) are parties
to a Revolving Loan and Security Agreement dated as of December __, 1997 (as
the same may be amended and in effect from time to time, the "Loan
Agreement"), providing, subject to its terms and conditions, for extensions
of credit to be made by IBM Credit (through the making of loans and advances)
to NetObjects;
WHEREAS, pursuant to the terms of the Loan Agreement, NetObjects has
granted to IBM Credit, a security interest in substantially all the assets of
NetObjects including all right, title and interest of NetObjects in, to and
under all NetObjects Patent Collateral whether presently existing or
hereafter arising or acquired, and all products and proceeds thereof,
including, without limitation, any and all causes of action which may exist
by reason of infringement thereof for the full term of the Patent Collateral,
to secure the payment of all amounts owing by NetObjects under the Loan
Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. GRANT OF SECURITY INTEREST. NetObjects does hereby grant to IBM Credit a
continuing security interest in all of NetObjects right, title and interest
in, to and under the following (all of the following items or types of
property being herein collectively referred to as the Patent Collateral),
whether presently existing or hereafter arising or acquired and wherever
located:
all patents, patent applications and patentable inventions and
(i) the inventions and improvements described and claimed therein;
(ii) any continuation, division, renewal, extension, substitute or reissue
thereof or any legal equivalent in a foreign country for the full term
thereof or the terms for which the same may be granted; (iii) all rights
to income, royalties, profits, awards, damages and other rights relating
to said patents, applications and inventions, including the right to sue
for past, present and future infringement; (iv) any other rights and
benefits relating to said patents, applications and inventions including
any rights as a licensor or licensee of said patents, applications and
inventions; (v) all books and records pertaining to any of the foregoing;
and (vi) all proceeds, substitutions and replacements for all of the
foregoing.
2. PRESERVATION OF COLLATERAL. (a) The Company agrees, at its own expense,
to use reasonable efforts to preserve all Patent Collateral.
(b) The Company shall not sell or assign (by operation
of law or otherwise) or create or suffer to exist any lien, security
interest, or other charge or encumbrance on or with respect to any
Patent Collateral to secure the indebtedness of any person, except as
permitted pursuant to the Loan Agreement.
3. REPRESENTATIONS AND WARRANTIES. The Company hereby represents and
warrants as follows:
(a) The Company is not aware of any proceeding (other
than application proceedings) in the United States Patent and Trademark
Office or any state or federal court regarding the Companys claim of
ownership in any Patent Collateral; and
<PAGE>
(b) To the best of the Company's knowledge, the
Company is the sole owner of all right, title and interest in and to all
Patent Collateral, free and clear of any liens, assignments, mortgages,
security interest, charges or encumbrances excluding any applicable
patent license agreements and except for Permitted Liens as defined in
the Loan Agreement.
4. FURTHER ASSURANCES. (a) The Company authorizes IBM Credit to record
this Patent Security Agreement, or an excerpt thereof, in the United States
Patent and Trademark Office and to take all other steps as are reasonably
necessary to perfect the security interest granted herein.
(b) The Company will execute such further documents as
may be reasonably necessary for IBM Credit to perfect the security
interest granted herein.
(c) The Company will furnish to IBM Credit, from time
to time, upon the reasonable request of IBM Credit, summaries in the
form of EXHIBIT A hereto, identifying all Patent Collateral owned by the
Company.
5. LOAN AGREEMENT. This security interest is granted in conjunction with
the security interests granted to IBM Credit pursuant to the Loan Agreement.
NetObjects and IBM Credit acknowledge and agree that the rights and
obligations of NetObjects and IBM Credit with respect to the Patent
Collateral are as set forth in the Loan Agreement, the terms and provisions
of which are incorporated by reference herein as if fully set forth herein.
To the extent of any inconsistency between the terms and provisions of the
Loan Agreement and the terms and provisions of this Patent Security
Agreement, the terms and provisions of the Loan Agreement shall control.
IN WITNESS WHEREOF, NetObjects has caused this Patent Security Agreement
to be duly executed by its officer thereunto duly authorized as of the ____
day of December, 1997.
NETOBJECTS, INC.
By: ______________________________
Name:
Title:
Acknowledged:
IBM CREDIT CORPORATION
By: ________________________
Name:
Title:
Patent - Net Obj 2 12/22/97
<PAGE>
STATE OF __________________ )
): ss:
COUNTY OF _________________ )
On the ___ day of December, 1997 before me personally came
_____________________, personally known to me or proved to me on the basis of
satisfactory evidence to be the person described in and who executed the
Patent Security Agreement dated December __, 1997 as
____________________________ of NetObjects, Inc. who being by me duly sworn,
acknowledged to me that he is ______________
_________________________________ of NetObjects, Inc., and that he executed
the foregoing instrument in his authorized capacity and that by his signature
on the instrument the entity upon behalf of which he acted executed the
instrument.
______________________________
Notary Public
Notary Public, State of California
[SEAL]
Patent - Net Obj 3 12/22/97
<PAGE>
EXHIBIT A TO PATENT SECURITY AGREEMENT
NETOBJECTS, INC.
PATENT APPLICATIONS
as of December 19, 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
GRAHAM & JAMES DESCRIPTION FILING DATE
DOCKET NO. SERIAL NUMBER
- --------------------------------------------------------------------------------
<S> <C> <C>
Allowed Computer Icon for a World Wide Web Site Editor 07/29/96
or the Like 29/057,658
- --------------------------------------------------------------------------------
Allowed Computer Icon for a World Wide Web Site Editor 07/29/96
or the Like 29/057,657
- --------------------------------------------------------------------------------
Pending Computer Icon for a Style Function of a World 07/29/96
Wide Web Site Editor or the Like 29/057,656
- --------------------------------------------------------------------------------
Pending Computer Icon for a Function of a World Wide 07/29/96
Web Page Editor or the Like 29/057,655
- --------------------------------------------------------------------------------
Pending Computer Icon for a Function of a World Wide 07/29/96
Web Page Editor or the Like 29/057,583
- --------------------------------------------------------------------------------
Pending Computer Icon for a Function of a World Wide 07/29/96
Web Page Editor or the Like 29/057,654
- --------------------------------------------------------------------------------
Allowed Computer Icon for Representing a Page in a Web 07/29/96
Site for a World Wide Web Page Editor or the 29/057,653
Like
- --------------------------------------------------------------------------------
Pending Computer Icon for a Goback Function in a World 07/29/96
Wide Web Page Editor or the Like 29/057,571
- --------------------------------------------------------------------------------
Pending Computer Icon for a New Page Function in a 07/29/96
World Wide Web Page Editor or the Like 29/057,660
- --------------------------------------------------------------------------------
Pending Computer Icon for a Preview Function in a 07/29/96
World Wide Web Page Editor or the Like 29/057,569
- --------------------------------------------------------------------------------
Allowed Computer Icon for a Publish Function of a 07/29/96
World Wide Web Page Editor or the Like 29/057,661
- --------------------------------------------------------------------------------
Allowed Computer Icon for an Assets Function of a 07/29/96
World Wide Web Page Editor or the Like 29/057,572
- --------------------------------------------------------------------------------
Pending Primary and Secondary Navigator Bars Having a 07/29/96
Connector and Generated by a Computer Program 29/057,567
- --------------------------------------------------------------------------------
</TABLE>
4
<PAGE>
ATTACHMENT I
TO
REVOLVING LOAN AND SECURITY AGREEMENT
BY AND BETWEEN
IBM CREDIT CORPORATION AND NETOBJECTS, INC.
DATED: DECEMBER __, 1997
FIRST AMENDMENT TO
REGISTRATION RIGHTS AGREEMENT
THIS AMENDMENT TO REGISTRATION RIGHTS AGREEMENT is entered into as of
December_, 1997, by and among NetObjects, Inc., a Delaware corporation (the
"Company"), Intemational Business Machines Corporation, a New York corporation
("IBM"), and IBM Credit Corporation, a Delaware corporation ("IBM Credit").
RECITALS:
A. The Company and IBM are parties to a Registration Rights
Agreement dated as of April 11, 1997 (the "Registration Rights Agreement"),
pursuant to which the Company has agreed to take certain actions to register
under the Securities Act of 1933, as amended, certain of the Company's
securities owned by IBM.
B. The Company and IBM Credit have entered into a Revolving Loan and
Security Agreement of even date (the "Loan Agreement"), pursuant to which IBM
Credit will provide financing to the Company. In connection with the Loan
Agreement, the Company has issued to IBM Credit a warrant to purchase 500,000
shares (the "Warrant") of the Company's Series F Preferred Stock (the "Series F
Preferred Stock").
C. The parties hereto desire to amend the Registration Rights
Agreement to provide that IBM Credit shall be entitled to the registration
rights set forth therein.
NOW. THEREFORE, in consideration of the agreement to provide financing
under the Loan Agreement, the issuance of the Warrant and the mutual covenants
and agreements set forth herein, the parties hereto agree as follows:
1. AMENDMENT TO REGISTRATION RIGHTS AGREEMENT. The Registration
Rights Agreement is amended as follows:
(a) The definition of "Preferred Stock" in Section 1.01 is
amended to read in its entirety as follows:
" 'Preferred Stock' shall mean the Series A Preferred Stock, the
Series B Preferred Stock, the Series C Preferred Stock, the Series D Preferred
Stock, the Series E Preferred Stock and the Series F Preferred Stock."
(b) The definition of "Registration Shares in Section 2.01
(b) is amended to read in its entirety as follows:
"(b) As used in this Agreement, 'REGISTRATION SHARES' shall mean
any shares of Series E Preferred Stock of the Company issued to IBM pursuant to
the Merger Agreement, any shares of Series E Preferred Stock issued to IBM upon
the exercise of the IBM Warrant described in the Merger Agreement, any shares of
Series C Preferred Stock acquired by IBM pursuant to the terms of the Series C
Warrants, any shares of Series F Preferred Stock of the Company issued to IBM
Credit upon the exercise of a warrant dated December __, 1997, any Common Shares
issued to IBM and IBM Credit upon the conversion of shares of Preferred Stock,
and any Common Shares or shares of Preferred Stock acquired by IBM and IBM
Credit as a result of stock splits, stock dividends, stock combinations,
recapitalizations, mergers, reorganizations and any antidilution provision in
any security, document or agreement."
(c) Except as specifically provided in the Registration
Rights Agreement, as amended, or unless the context otherwise requires, the term
"IBM" as used in the Registration Rights Agreement shall also refer to IBM
Credit
1
<PAGE>
2. EFFECTIVENESS OF AMENDMENT. This First Amendment to Registration
Rights Agreement shall have no force or effect until the date of effectiveness
of the Loan Agreement. In the event the Loan Agreement shall fail to become
effective for any reason, then the Registration Rights Agreement shall continue
in full force and effect without modification or amendment thereto.
3. REMAINDER OF AGREEMENT. Except as specfically provided herein,
the Registration Rights Agreement shall remain in full force and effect.
4. COUNTERPARTS. This First Amendment to Registration Rights
Agreement may be signed in any number of counterparts, each of which shall be an
original, but all of which together shall constitute one instrument.
IN WITNESS WHEREOF, the panics hereto have executed or caused this First
Amendment to Registration Rights Agreement to be duly executed by their duly
authored representatives as of the date first above written.
NETOBJECTS, INC. INTERNATIONAL BUSINESS
MACHINES CORPORATION
By:___________________________ By:______________________
Name: Name
Title: Title:
IBM CREDIT CORPORATION
By:______________________
Name:
Title:
2
<PAGE>
ATTACHMENT A DATED ____________,1997
TO
REVOLVING LOAN AGREEMENT DATED _____________, 1997
Customer's Name: NetObjects, Inc.
1. A/R Revolver Credit Line Fees, Rates and Repayment Terms:
(a) Line of Credit in the amount of Fifteen Million Dollars
($15,000,000.00);
(b) Revolver Financing Charge: Libor Rate plus 1.50%;
(c) Other Charges: 0.20% ($30,000.00) to be paid at the time of execution
of the Agreement.
0.20% ($30,000.00) annual renewal fee which shall be
due on each anniversary of the Agreement.
(d) Delinquency Fee Rate: Libor Rate plus 6.50%.
2. Documentation Requirements:
Takeout Advance Option
Executed Letter of Direction; and
Executed Letter of Notification.
3. Financial Covenants:
Definitions: The following terms shall have the following respective meanings in
this the Revolving Loan Agreement. All amounts shall be determined in
accordance with generally accepted accounting principles (GAAP).
Current shall mean within the on-going twelve month period.
Current Assets shall mean assets that are cash or expected to become cash
within the on-going twelve months.
Current Liabilities shall mean payment obligations resulting from past or
current transactions that require settlement within the on-going twelve month
period. All indebtedness to IBM Credit shall be considered a Current Liability
for purposes of determining compliance with the Financial Covenants.
Current Ratio shall mean Current Assets divided by Current Liabilities.
Long Term shall mean beyond the on-going twelve month period.
Long Term Assets shall mean assets that take longer than a year to be
converted to cash. They are divided into four categories: tangible assets,
investments, intangibles and other.
Long Term Debt shall mean payment obligations of indebtedness which mature
more than twelve months from the date of determination, or mature within twelve
months from such date but are renewable or extendible at the option of the
debtor to a date more than twelve months from the date of determination.
1
<PAGE>
Net Profit after Tax shall mean Revenue plus all other income, minus all
costs, including applicable taxes.
Revenue shall mean the monetary expression of the aggregate of products or
services transferred by an enterprise to its customers for which said customers
have paid or are obligated to pay, plus other income as allowed.
Subordinated Debt shall mean Customer's indebtedness to third parties as
evidenced by an executed Notes Payable Subordination Agreement in favor of IBM
Credit.
Tangible Net Worth shall mean:
Total Net Worth minus;
(a) goodwill, organizational expenses, pre-paid expenses, deferred
charges, research and development expenses, software development costs,
leasehold expenses, trademarks, trade names, copyrights, patents, patent
applications, privileges, franchises, licenses and rights in any thereof, and
other similar intangibles (but not including contract rights) and other current
and non-current assets as identified in Customer's financial statements;
(b) all accounts receivable from employees, officers, directors,
stockholders and affiliates; and
(c) all callable/redeemable preferred stock.
Total Assets shall mean the total of Current Assets and Long Term Assets.
Total Liabilities shall mean the Current Liabilities and Long Term Debt
less Subordinated Debt, resulting from past or current transactions, that
require settlement in the future.
Total Net Worth (the amount of owner's or stockholder's ownership in an
enterprise) is equal to Total Assets minus Total Liabilities.
Working Capital shall mean Current Assets minus Current Liabilities.
Customer will be required to maintain the following financial percentage and
ratios as of the last day of the fiscal period under review by IBM Credit:
a) * Net Profit after Tax, measured on a trailing twelve month basis, not
to be worse than negative twenty million dollars ($-20,000,000.00).
* IBM Credit may modify or add one or more financial covenants by sending a
written notification to Customer accompanied by a revised Attachment A. Any
change in or addition of a financial covenant shall be in effect as of the date
of such revised Attachment A, or as otherwise stated in such Attachment A.
4. Lockbox Information: 5. Special Account Information
Bank Name:_______________________ Bank Name:________________________
2
<PAGE>
Address: _________________________ Address: __________________________
_________________________ __________________________
_________________________ __________________________
3
<PAGE>
ATTACHMENT B DATED ____________,1997
TO
REVOLVING LOAN AGREEMENT DATED _____________, 1997
1. The address of IBM Credit's place of business where Notices should be
delivered:
Street Address: 5000 Executive Parkway Suite 450
--------------------------------
City, State, Zip code: San Ramon, CA 94583
-------------------------
Attention: Remarketer Financingter Manager
-------------------------------------
Telecopy Number: (510) 277-5685
-------------------------------
2. The exact corporate name of Customer as it appears in its certificate of
incorporation is as follows:
NetObjects, Inc.
----------------
3. The address of Customer's principal place of business and chief executive
office:
Street Address: 602 Galveston Drive
------------------------------
County: San Mateo
--------------------------------------
City, State, Zip code: Redwood City, CA 94063
-----------------------
Attention:
-------------------------------------
Telecopy Number:
-------------------------------
4. The address of Customer's place of business where Notices should be
delivered:
Street Address: (Same as in Section 3 above)
-----------------------------
County:
---------------------------------------
City, State, Zip code:
------------------------
Attention:
------------------------------------
Telecopy Number:
------------------------------
5. The following is a list of entities affiliated or related to Customer in any
way and a description of such affiliation and/or relationship OR attach
corporate organization chart to Attachment B:
Not Applicable
-------------------------------------------------------------------
-------------------------------------------------------------------
-------------------------------------------------------------------
-------------------------------------------------------------------
-------------------------------------------------------------------
-------------------------------------------------------------------
6. The following are all the locations where Customer maintains any inventory,
equipment or other assets:
a) Street Address: 1089 Mills Way
-------------------------------------------
County: San Mateo
---------------------------------------------------
City, State, Zip code: Redwood City, CA 94063
------------------------------------
Legal Name of Warehouse (if applicable): Binaco Corporation
------------------
b) Street Address: (No Additional Locations)
-------------------------------------------
County:
-----------------------------------------------------
City, State, Zip code:
--------------------------------------
Legal Name of Warehouse (if applicable):
--------------------
7. The following are all the places of business of Customer not identified
above:
1
<PAGE>
a) Street Address: None
---------------------------------------------
County:
-----------------------------------------------------
City, State, Zip code:
--------------------------------------
Collateral Located Here (Yes) (No)
------------- --------------
If Yes, identify Collateral
---------------------------------
b) Street Address:
---------------------------------------------
County:
-----------------------------------------------------
City, State, Zip code:
--------------------------------------
Collateral Located Here (Yes) (No)
------------- --------------
If Yes, identify Collateral
---------------------------------
8. For purposes of this Agreement Permitted Liens shall mean:
(a) mechanics', carriers', workmen's, repairmen's or other like liens
arising from or incurred in the ordinary course of business and securing
obligations which are not due or that are being contested in good faith by the
Customer (provided that the Customer has set up adequate reserves therefor),
Liens for taxes that are not due and payable or which may thereafter be paid
without penalty or that are being contested in good faith by the Customer
(provided that the Customer has set up adequate reserves for the payment of such
taxes) and other imperfections of title or encumbrances, if any, which
imperfections of title or other encumbrances do not materially impair the use of
the assets to which they relate in the business of the Customer as presently
conducted;
(b) easements, covenants, rights-of-way and other encumbrances or
restrictions of record;
(c) zoning, building and other similar restrictions; provided that the
same are not violated in any material respect by any improvements of the
Customer or by the use thereof for the conduct of the Customer's business;
and
(d) unrecorded easements, covenants, rights-of-way or other encumbrances or
restrictions, and other Liens which that are not material in character or
amount, none of which unrecorded items or other Liens materially impairs
the use of the property to which they relate in the business of the
Customer as presently conducted.
9. For purposes of this Agreement Permitted Prior Liens shall mean:
(a) Liens to Comdisco pusuant to the following financing statements filed
with California Secretary of State:
<TABLE>
Filing Number Filing Date
-----------------------------------------
<S> <C>
9626160946 09/17/96
9635560238 12/19/96
9707160548 03/11/97
9730960685 11/04/97
</TABLE>
(b) Liens relating to capital leases and pursuant to the following financing
statements filed with California Secretary of State:
<TABLE>
Secured Party Filing Number Filing Date
----------------------------------------------------------------
<S> <C> <C>
2
<PAGE>
AT&T Capital Leasing Services 9607561125 03/13/96
Sanwa Leasing Corporation 9614560235 05/23/96
</TABLE>
10. As of the date of this Attachment B, the following Persons have executed and
delivered to IBM Credit the following respective Guaranties:
Name: International Business Machines Type: Indemnification Agreement
Corporation -------------------------
-------------------------------
Name: Type:
------------------------------- -------------------------
Name: Type:
------------------------------- -------------------------
3
<PAGE>
ATTACHMENT C DATED ____________,1997
TO
REVOLVING LOAN AGREEMENT DATED _____________, 1997
NETOBJECTS, INC.
COLLATERAL MANAGEMENT REPORT
FOR THE MONTH ENDING ______________
GROSS COLLATERAL VALUE
<TABLE>
<S> <C>
1. ELIGIBLE A/R
- Gross Receivables $0.00
- Less Ineligibles:
A/R over 90 days 0.00
50% over 90 days 0.00
Other 0.00
-----
ELIGIBLE A/R $0.00
(Attach A/R Aging Report)
</TABLE>
Signature _________________________________________ Date ___________
Title _________________________________________
1??
<PAGE>
ATTACHMENT J
TO
REVOLVING LOAN AGREEMENT DATED DECEMBER __,1997
Borrowing Certificate Date:________________
<TABLE>
<S> <C>
A. IBM Credit Approved Credit Facility: $15,000,000.00
B. Current Outstanding Loan Balance including amounts
committed to, but not yet funded, by IBM Credit: ______________
(Principal PLUS Interest)
C. New Cash Advance Request: ______________
D. Total New Outstanding Loan Balance: (B+C)* ______________
</TABLE>
Requested by:________________________ Title**:________________________
Net Objects, Inc.
* Line D must be less than line A at all times.
** Borrowing Certificate must be signed be an authorized officer of the
Corporation
<PAGE>
SCHEDULE A
TO
REVOLVING LOAN AND SECURITY AGREEMENT
SCHEDULE OF EXCEPTIONS TO REVOLVING LOAN AND
SECURITY AGREEMENT NETOBJECTS, INC.
December_, 1997
This Schedule is prepared pursuant to Section 6 of the Revolving Loan and
Security Agreement, dated as of December__, 1997 (the "Agreement"), by and
between IBM Credit Corporation, a Delaware corporation ("IBM Credit"), and
NetObjects, Inc., a Delaware corporation (the "Company"), and sets forth
exceptions to the representations and warranties of the Company contained in
Section 6.1 of the Agreement. Capitalized terms used but not defined herein
shall have the meaning ascribed to them in the Agreement.
(B) TITLE TO COLLATERAL
(1) The Company's software products include certain software licensed
from third parties for which the Company has paid license fees or pays
ongoing royalties. The Company's software source code includes certain
software programs and code made available to the public free of charge over
the "Internet." All such software may be copyrighted works of third
parties.
(2) Under the License Agreement with IBM dated March 18, 1997, IBM
was granted certain rights with respect to source code of the Company
placed in escrow.
(3) Under the Software License Agreement with AT&T dated September
26, 1996, AT&T has certain rights to use the Company's source code to
prepare Derivative Works in the event of a change of control of the
Company, in the event of the Company's bankruptcy and the like and if the
Company fails to meet certain support obligations.
(4) Rae Technology, Inc. holds 4 pending utility patents and has
granted to the Company a non-exclusive license pursuant to a Patent License
Agreement dated April 10, 1997 to fully utilize such inventions and, when
issued, such patents.
(E) AUTHORIZATION
As soon as possible following the execution of the Agreement, the Company
will file a Certificate of Amendment to its Certificate of Incorporation to
increase the number of authorized shares of Series F Preferred Stock to cover
the 500,000 shares subject to the Warrant.
(F) Financial Statements
(1) A portion of the Company's staffing needs have been and continue
to be met through the utilization of independent contractors. There can be
no assurance that the IRS will not challenge the Company's classification
of these individuals as independent contractors and assess the Company (as
well as its responsible persons as defined for this purpose under the
Internal Revenue code) substantial penalties and additional tax
liabilities, the amount of which cannot be currently estimated by the
Company. No estimate of this potential liability, if any has been made.
(2) The Company is obligated to pay royalties on a quarterly basis
to certain companies whose technology is included in the Company's
products. All royalties due under these agreements may not be recorded on
the Company's interim financial statements.
1
<PAGE>
(3) The Company believes it has made adequate allowances for (i)
potential product returns; (ii) stock rotation; (iii) price protection;
(iv) technical support; (v) version 2.0 product upgrades; and (vi)
uncollectible accounts; but such allowances are subject to audit
adjustments.
(4) The Company's unaudited financial statements do not include
footnotes required by GAAP and are subject to year-end audit adjustments.
(5) The Company's unaudited monthly financial statements may not be
fully in compliance with Statement of Position No. 97-2 which is effective
for the year beginning after December 15, 1997 or with Statement of
Financial Accounting Standard No. 123 and are subject to year end audit
adjustments.
(L) TAX RETURNS
The Company has not filed any sales or income tax returns in any
jurisdiction other than California, although the Company may have incurred
liability for such taxes under applicable law.
(M) TAXES
See Section G and Section L for a discussion of potential tax liabilities.
(T) INSURANCE
(1) At present the Company has not obtained any employment practices
liability insurance coverage.
(2) The Company self-insures a portion of the claims made under Its
health insurance program subject to certain stop loss clauses included in
the policy.
2
<PAGE>
AMENDMENT
TO
REVOLVING LOAN AND SECURITY AGREEMENT
This Amendment ("Amendment") to the Revolving Loan and Security
Agreement is made as of July __, 1998 by and between NetObjects, Inc., a
Delaware corporation ("Customer") and IBM Credit Corporation, a Delaware
corporation ("IBM Credit").
RECITALS:
A. Customer and IBM Credit have entered into that certain
Revolving Loan and Security Agreement dated as of December 23, 1997 (as
amended, supplemented or otherwise modified from time to time, the
"Agreement").
B. The parties have agreed to modify the Agreement as more
specifically set forth below, upon and subject to the terms and conditions
set forth herein.
C. IBM Credit is willing to accommodate Customer's request
subject to the conditions set forth below.
AGREEMENT
NOW THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Customer and IBM Credit hereby agree as follows:
SECTION 1. Definitions. All capitalized terms not otherwise defined
herein shall have the respective meanings set forth in the Agreement.
SECTION 2. Amendment. The Agreement is hereby amended as follows:
(A) Attachment A to the Agreement is hereby amended by deleting
such Attachment A in its entirety and substituting, in lieu thereof, the
Attachment A attached hereto. Such new Attachment A shall be effective as of
the date specified in the new Attachment A. The changes contained in the new
Attachment A include, without limitation, the following:
The Line of Credit has been increased from Fifteen Million Dollars
($15,000,000) to Nineteen Million Dollars ($19,000,000).
SECTION 3. Representations and Warranties. Customer makes to IBM
Credit the following representations and warranties all of which are material
and are made to induce IBM Credit to enter into this Amendment.
SECTION 3.1 Accuracy and Completeness of Warranties and Representations.
All representations made by Customer in the Agreement were true and accurate
and complete in every respect as of the date made, and, as amended by this
Amendment, all representations made by Customer in the Agreement are true,
accurate and complete in every material respect as of the date hereof, and do
not fail to disclose any material fact necessary to make representations not
misleading.
Page 1 of
<PAGE>
SECTION 3.2 Violation of Other Agreements. The execution and delivery
of this Amendment and the performance and observance of the covenants to be
performed and observed hereunder do not violate or cause Customer not to be
in compliance with the terms of any agreement to which Customer is a party.
SECTION 3.3 Litigation. Except as has been disclosed by Customer to IBM
Credit in writing, there is no litigation, proceeding, investigation or labor
dispute pending or threatened against Customer, which if adversely
determined, would materially adversely affect Customer's ability to perform
Customer's obligations under the Agreement and the other documents,
instruments and agreements executed in connection therewith or pursuant
hereto.
SECTION 3.4 Enforceability of Amendment. This Amendment has been duly
authorized, executed and delivered by Customer and is enforceable against
Customer in accordance with its terms.
SECTION 4. Ratification of Agreement. Except as specifically amended
hereby, all of the provisions of the Agreement shall remain unamended and in
full force and effect. Customer hereby, ratifies, confirms and agrees that
the Agreement, as amended hereby, represents a valid and enforceable
obligation of Customer, and is not subject to any claims, offsets or defenses.
SECTION 5. Governing Law. This Amendment shall be governed by and
interpreted in accordance with the laws which govern the Agreement.
SECTION 6. Counterparts. This Amendment may be executed in any number
of counterparts, each of which shall be an original and all of which shall
constitute one agreement.
IN WITNESS WHEREOF, this Amendment has been executed by duly
authorized officers of the undersigned as of the day and year first above
written.
<TABLE>
<CAPTION>
NETOBJECTS, INC. IBM CREDIT CORPORATION
<S> <C>
By: ______________________________________ By: ______________________________________
Print Name: ______________________________ Print Name: ______________________________
Title: ___________________________________ Title: ___________________________________
Date: ____________________________________ Date: ____________________________________
</TABLE>
Page 2 of
<PAGE>
NOTE AND WARRANT PURCHASE AGREEMENT
This Note and Warrant Purchase Agreement, dated as of October 8, 1998 (this
"Agreement"), is entered into by and among (i) NetObjects, Inc., a Delaware
corporation (the "Company"), and (ii) International Business Machines
Corporation ("IBM"), and Perseus Capital, L.L.C. ("Perseus Capital") (each a
"Purchaser," and collectively, the "Purchasers").
RECITALS
A. To provide the Company with additional resources to conduct its
business, the Purchasers are willing, severally and not jointly, to purchase
from the Company, and the Company is willing to issue and sell to each
Purchaser, on the terms and subject to the conditions set forth herein, at a
closing to be held on the date hereof (the "Initial Closing"), an aggregate of
5,950 units (the "Units"), each consisting of (i) a Senior Subordinated Secured
Convertible Promissory Note of the Company with a principal amount of $1,000 (a
"Note"), and (ii) a warrant (a "Warrant") to acquire 90.036 shares of Series E-2
Preferred Stock, par value $0.00000001 per share, of the Company (the "Series
E-2 Preferred Stock"). The number of Units to be purchased by each Purchaser at
the Initial Closing is set forth in Schedule A hereto.
B. In addition, the Purchasers are willing to grant to the Company
an option to cause the Purchasers to purchase, on the terms and subject to the
conditions set forth herein, up to an aggregate of 4,960 additional Units at a
closing to be held on January 10, 1999 (or on such other date as the parties may
agree) (the "Option Closing"). The Units to be purchased at the Option Closing
shall be allocated among the Purchasers in the same proportion as the Units
purchased by them at the Initial Closing.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing, and the representations,
warranties, covenants and conditions set forth below, the parties hereto,
intending to be legally bound, hereby agree as follows:
1. PURCHASE AND SALE OF NOTES AND WARRANTS
(a) INITIAL CLOSING. In reliance upon the representations,
warranties and covenants of the parties set forth herein, and subject to
satisfaction of the conditions set forth in Section 1(f) hereof, the Company
agrees to issue, sell and deliver to the Purchasers, and the Purchasers,
severally and not jointly, agree to purchase from the Company, at the Initial
Closing, the number of Units specified in Schedule A hereto at a purchase price
(the "Purchase Price") equal to $1,008.40 per Unit, of which $1,000 shall be for
the Note and $8.40 shall be for the Warrant included in each such Unit. The
parties hereto hereby agree that the allocation of the Unit Purchase Price
between the Note and Warrant is fair and reasonable and accurately reflects the
respective value of such securities.
<PAGE>
(b) GRANT OF OPTION. The Purchasers hereby grant to the Company the
option to require the Purchasers to purchase up to an additional 4,960 Units at
the Option Closing at the Purchase Price per Unit specified above. Such option
shall be exercisable by the Company by no later than December 1, 1998 by the
delivery to each Purchaser of a written notice specifying the aggregate number
of Units (not to exceed 4,960 Units) to be sold at the Option Closing. Such
number of Units shall be allocated among the Purchasers in the same proportion
as the Units purchased by them at the Initial Closing.
(c) DELIVERY OF NOTES AND WARRANTS; PAYMENT OF PURCHASE PRICE. At the
Initial Closing and any Option Closing, the Company shall deliver to each
Purchaser the Notes and Warrants purchased by such Purchaser at such Closing,
and each Purchaser shall pay the Purchase Price therefor by wire transfer of
immediately available funds to an account designated by the Company in writing
at least three Business Days prior to such Closing.
(d) TERMS OF THE NOTES AND WARRANTS. The terms and conditions of the
Notes are set forth in the form of Note attached as EXHIBIT A hereto. The terms
and conditions of the Warrants are set forth in the form of Warrant attached as
EXHIBIT B hereto.
(e) REPAYMENT OF THE NOTES. In the event of any repayment by the
Company of the Notes issued hereunder, such repayment must be applied
proportionately to the Notes held by all the Purchasers based on the aggregate
principal amount of Notes purchased by each such Purchaser, provided that any
Purchaser may waive this right to proportional repayment, in which case such
repayment shall be applied proportionately only among those Purchasers who do
not waive this right to proportional repayment.
(f) CONDITIONS. The obligations of the Purchasers under this Section
1 to be performed at each Closing shall be subject to satisfaction of the
following conditions:
(i) The representations and warranties of the Company
contained in this Agreement shall be true and correct, in all material respects,
at and as of such Closing, and the Company shall have performed and complied
with all the covenants and agreements and satisfied all the conditions required
by this Agreement to be performed or compiled with or satisfied by the Company
at or prior to such Closing. Each Purchaser shall have received a certificate
dated as of the date of such Closing and signed by the president of the Company
stating that, to the best of his knowledge after due inquiry, the conditions
specified in this Section 1(f)(i) have been satisfied.
(ii) Each Purchaser shall have received an opinion of counsel
to the Company, in form and substance reasonably satisfactory to the Purchasers,
addressing the matters set forth in Exhibit C hereto.
(iii) Each other Purchaser shall have performed all of its
obligations required to be performed at such Closing and, in the case of the
Option Closing, at the Initial Closing.
2
<PAGE>
(iv) The Company shall have received all consents and
approvals of third parties necessary for the Company to consummate the
transactions contemplated hereby and by the Notes and the Warrants.
(v) Each Purchaser shall have received from the Company such
other documents confirming the accuracy and completeness of the representations
and warranties of the Company as the Purchasers may reasonably request.
(g) REGISTRATION RIGHTS. The Purchasers shall have the registration
rights specified in the Amended and Restated Registration Rights Agreement dated
as of October 8, 1998 set forth in Exhibit D hereto.
(h) SENIOR INDEBTEDNESS. Without the prior written consent of
Perseus Capital, and except for the Senior Debt (as defined in the Notes), after
the date hereof, the Company shall not incur any indebtedness for borrowed
money, guarantee any such indebtedness or incur any obligation that for
financial reporting purposes is required to be carried as an indebtedness of the
Company unless (i) such indebtedness, guaranty or obligation is expressly
subordinated to the repayment in full of all principal, interest and other
amounts due under the Notes or (ii) the proceeds of such Senior Debt are used to
retire in full all amounts then due under the Notes.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to the Purchasers that, except as set forth in the
Company's Disclosure Schedule attached to this Agreement as Exhibit E (the
"Disclosure Schedule"), the statements contained in the following paragraphs of
this Section 2 are all true and correct:
(a) ORGANIZATION AND GOOD STANDING: CERTIFICATE OF INCORPORATION AND
BYLAWS. Each of the Company and each of its subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has all requisite corporate power and
authority to carry on its business as now conducted and proposed to be
conducted. Each of the Company and each of its subsidiaries is duly qualified
to conduct business as a foreign corporation and is in good standing as a
foreign corporation in all jurisdictions where the properties owned, leased or
operated by it are located or where its business is conducted, except where the
failure to so qualify or be in good standing is not reasonably likely to have a
material adverse effect on the Company's consolidated business, financial
condition, results of operations, assets, liabilities or prospects (a "Material
Adverse Effect"). The Company has previously delivered to each of the
Purchasers a true and complete copy of the Certificate of Incorporation and
Bylaws of the Company as in effect on the date hereof.
(b) CORPORATE POWER. The Company has all requisite legal and
corporate power to enter into, execute, deliver and perform its obligations
under this Agreement, the Notes and the Warrants. This Agreement is, and upon
their issuance, the Notes and Warrants will be, valid and binding obligations of
the Company, enforceable in accordance with their terms, except as enforcement
may be limited by bankruptcy laws or other laws affecting creditors' remedies
generally or by equitable principles.
3
<PAGE>
(c) AUTHORIZATION, ETC.
(i) CORPORATE ACTION. All corporate and legal action on the
part of the Company, its officers, directors and stockholders necessary for the
execution and delivery of this Agreement, the Notes and Warrants, the sale and
issuance of the Notes and Warrants, and the performance of the Company's
obligations hereunder and thereunder, has been taken.
(ii) VALID ISSUANCE. The Notes, the Warrants, any shares of
Series E-2 Preferred Stock issued upon conversion of the Notes or exercise or
conversion of the Warrants and any shares of Common Stock issued upon conversion
of such Series E-2 Preferred Stock, when issued in compliance with the
provisions of this Agreement, the Notes, the Warrants or the terms of the Series
E-2 Preferred Stock, as the case may be, will be validly issued and, in the case
of any such shares of Series E-2 Preferred Stock or Common Stock, will be
fully-paid and nonassessable.
(iii) NO PREEMPTIVE RIGHTS. No person has any right of first
refusal or any preemptive or similar rights in connection with the issuance of
the Notes or Warrants, the issuance of shares of Series E-2 Preferred Stock upon
conversion of the Notes or exercise or conversion of the Warrants, the issuance
of any shares of Common Stock issued upon conversion of such Series E-2
Preferred Stock or the issuance of any other securities by the Company.
(iv) SECURITY INTEREST. Section 5 of each Note will create,
upon execution and delivery of such Note by the Company, a valid security
interest in the Collateral (as defined in the Notes) securing repayment by the
Company of the Obligations (as defined in the Notes) thereunder.
(d) NONCONTRAVENTION. The execution, delivery and performance of and
compliance with this Agreement, the Notes, the Warrants, the issuance and sale
of the Series E-2 Preferred Stock upon conversion of the Notes or exercise or
conversion of the Warrants and the issuance of Common Stock upon conversion of
such Series E-2 Preferred Stock will not result in nor constitute any breach,
default or violation of (i) any agreement, contract, lease, license, instrument
or commitment (oral or written) to which the Company or any of its subsidiaries
is a party or is bound or (ii) any law, rule, regulation, statute or order
applicable to the Company, any of its subsidiaries or their respective
properties, nor result in the creation of any mortgage, pledge, lien,
encumbrance or charge upon any of the properties or assets of the Company or any
of its subsidiaries, any of which breach, default or violation under clause (i)
or (ii), preceding, would have a Material Adverse Effect.
(e) CONSENTS, ETC. No consent, approval, order or authorization of,
or designation, registration, declaration or filing with, any federal, state,
local or provincial or other governmental authority or other person on the part
of the Company is required in connection with the valid execution and delivery
of this Agreement, the Notes and the Warrants, or the offer, sale or issuance of
the Notes, the Warrants, the Series E-2 Preferred Stock to be issued upon
conversion of the Notes or exercise or conversion of the Warrants or any Common
Stock issued upon conversion of such Series E-2 Preferred
4
<PAGE>
Stock, other than, if required, filings or qualifications under applicable state
securities laws, which filings or qualifications, if required, will be timely
filed or obtained by the Company.
(f) OFFERING. In reliance, in part, on the representations and
warranties of the Purchasers in Section 3 hereof, neither the offer, sale nor
issuance of the Notes and the Warrants in conformity with the terms of this
Agreement or the shares of Series E-2 Preferred Stock issued upon conversion of
the Notes or exercise or conversion of the Warrants or any Common Stock issued
upon conversion of such Series E-2 Preferred Stock will result in a violation of
the requirements of Section 5 of the Securities Act of 1933, as amended, (the
"Securities Act") or the qualification or registration requirements of any
applicable state securities laws.
(g) CAPITALIZATION. The capitalization of the Company consists of
the following, and all of the issued and outstanding shares as hereinafter set
forth have been duly authorized and validly issued, are fully paid and
nonassessable and have been offered, issued, sold and delivered by the Company
in compliance with all applicable federal and state securities laws:
(i) PREFERRED STOCK. A total of 136,898,000 authorized
shares of Preferred Stock, with $0.00000001 par value per share (the "Company
Preferred Stock"), consisting of 4,500,000 shares designated as Series A
Preferred Stock, of which 3,911,670 shares are issued and outstanding; 198,000
shares designated as Series B Preferred Stock, of which none are issued and
outstanding; 17,000,000 shares designated as Series C Preferred Stock, of which
none are issued and outstanding; 90,200,000 shares designated as Series E
Preferred Stock, of which 65,549,953 are issued and outstanding; and 5,500,000
shares designated as Series F Preferred Stock, of which none are issued and
outstanding. No other series of Company Preferred Stock has been designated.
(ii) COMMON STOCK. A total of 170,000,000 authorized shares
of Common Stock, of which 11,933,884 shares are issued and outstanding.
(iii) OPTIONS, WARRANTS, RESERVED SHARES. Except for (A) the
conversion privileges of the Series A Preferred Stock, the Series C Preferred
Stock, the Series E Preferred Stock and the Series F Preferred Stock, (B) a
total of 19,200,000 shares of Common Stock reserved for issuance under the
Company's 1997 Stock Option Plan and 1997 Special Stock Option Plan to officers,
directors and employees of, and consultants rendering bona fide services to the
Company, and (C) 13,503,001 shares of Series C Preferred Stock, 20,897,029
shares of Series E Preferred Stock, 5,500,000 shares of Series F Preferred Stock
and the foregoing shares of Common Stock reserved for issuance upon the exercise
or conversion of warrants issued by the Company, there are no outstanding
options, warrants, rights (including conversion or preemptive rights) or
agreements for the purchase or acquisition from the Company of any shares of the
Company's capital stock or any securities convertible into or ultimately
exchangeable or exercisable for any shares of the Company's capital stock, nor
is the Company obligated in any manner to issue any shares of its capital stock
or any other securities.
5
<PAGE>
(h) FINANCIAL STATEMENTS AND RELATED MATTERS. The Company's balance
sheets as of September 30, 1997 and June 30, 1998 and the Company's statements
of operations, cash flows and changes in stockholders' equity for the each of
the years ended September 30, 1996 and 1997 and for the six months ended June
30, 1998 (collectively, the "Financial Statements"), all of which have been made
available to the Purchasers prior to the date hereof, have been prepared in
accordance with generally accepted accounting standards consistently applied
(except as may be noted therein). Furthermore, the Financial Statements are
complete and correct in all material respects and accurately set out and
describe in all material respects the financial condition, results of
operations, cash flows or changes in stockholders' equity of the Company as of
the date or for the period indicated. There has been no material change in the
Company's accounting policies except as described in the notes to the Financial
Statements. Except as set forth in the Financial Statements, neither the
Company nor any of its subsidiaries has any indebtedness, obligation or
liability (contingent or otherwise) that, either alone or when combined with all
similar obligations or liabilities, would be material to the Company on a
consolidated basis, and there does not exist a set of circumstances that, to the
knowledge of the Company, could reasonably be expected to result in any such
material indebtedness, obligation or liability. Since September 30, 1997, there
has been no material adverse change in the business, financial condition,
results of operations, assets, liabilities or prospects of the Company, which is
not disclosed on the Financial Statements or financial information as of a later
date set forth in the Disclosure Schedule.
(i) COMPLIANCE WITH LAWS. Neither the Company nor any of its
subsidiaries is (i) subject to the terms or provisions of any material judgment,
decree, order, writ or injunction or (ii) in violation of any terms or
provisions of any laws, rules, or regulations, except where such violations do
not and are not likely to have a Material Adverse Effect.
(j) TITLE TO PROPERTY AND ASSETS. Each of the Company and each of
its subsidiaries owns and possesses its properties and assets (other than
Proprietary Assets, which are covered in subsection (k) below) free and clear of
all mortgages, deeds of trust, liens, encumbrances, security interests and
claims except as reflected in the Financial Statements and except for statutory
liens for the payment of current taxes that are not yet delinquent and liens,
encumbrances and security interests which arise in the ordinary course of
business and which do not affect material properties and assets of the Company
and its subsidiaries. With respect to the property and assets it leases, each
of the Company and each of its subsidiaries is in compliance with such leases in
all material respects.
(k) PROPRIETARY ASSETS.
(i) Each of the Company and each of its subsidiaries (A) owns
or has sufficient rights to all Proprietary Assets used in or necessary for its
business as currently conducted and as proposed to be conducted, free and clear
of all material liens and other encumbrances; (B) has taken reasonable and
customary measures and precautions necessary to protect and maintain the
confidentiality and secrecy of all its Proprietary Assets (except the
Proprietary Assets whose value would be unimpaired by
6
<PAGE>
public disclosure) and otherwise to maintain and protect the value of all its
Proprietary Assets; and (C) has not disclosed or delivered to any person, or
permitted the disclosure or delivery to any person of the source code, or any
portion or aspect of the source code, of any of the Company's products.
(ii) Except where such infringement, misappropriation or
unlawful use has not or could not reasonably be expected to have a Material
Adverse Effect, neither the Company nor any of its subsidiaries is infringing,
misappropriating or making any unlawful use of or has at any time infringed,
misappropriated or made any unlawful use of, any Proprietary Asset owned or used
by any other person; and no claims or notices (in writing or otherwise) with
respect to Proprietary Assets have been communicated to the Company or any of
its subsidiaries: (A) to the effect that the manufacture, sale, license or use
of any Proprietary Assets as now used or currently offered or proposed for use
or sale by the Company or any of its subsidiaries infringes or potentially
infringes, or constitutes a misappropriation or unlawful use of any copyright,
patent, trade secret or other intellectual property right of a third party, or
(B) challenging the ownership or validity of any of the rights of the Company or
any of its subsidiaries to or interest in such Proprietary Assets. The Company
has received no notice to the effect that any patents or registered trademarks,
service marks or registered copyrights held by the Company or any of its
subsidiaries are invalid or not subsisting except for failures to be valid and
subsisting that would not reasonably be expected to have a Material Adverse
Effect. To the Company's knowledge, no other person is infringing,
misappropriating or making any unlawful use of, and no Proprietary Asset owned
or used by any other person infringes or conflicts with, any Proprietary Asset
used in or pertaining to the business of the Company or any of its subsidiaries.
(iii) The Proprietary Assets used in or pertaining to the
business of the Company and its subsidiaries are sufficient in the Company's
reasonable judgment, to enable the Company and its subsidiaries to conduct its
business in the manner in which such business has been and is being conducted
free from liabilities or valid claims of infringement or misappropriation by
third parties. Neither the Company nor any of its subsidiaries has licensed any
of its Proprietary Assets to any person on an exclusive basis and the Company
has not entered into any covenant not to compete or contract limiting its
ability to sell the Company's products in any market or geographical area or
with any person other than restrictions in a license agreement that are typical
of those granted in the ordinary course of business in the software industry.
(iv) As used herein, "Proprietary Assets" means: (A) any
patent, patent application, trademark (whether registered or unregistered),
trademark application, trade name, fictitious business name, service mark
(whether registered or unregistered), service mark application, copyright
(whether registered or unregistered), copyright application, maskwork, maskwork
application, trade secret, know-how, customer list, franchise, system, computer
software, computer program, source code, invention, design, blueprint,
engineering drawing, proprietary product, technology, proprietary right or other
intellectual property right or intangible asset; and (B) any right to use or
exploit any of the foregoing.
7
<PAGE>
3. REPRESENTATIONS AND WARRANTIES BY THE PURCHASERS. Each of the
Purchasers, severally and not jointly, represents, and warrants to, and
covenants with, the Company as follows:
(a) INVESTMENT INTENT: AUTHORITY. Such Purchaser is acquiring the
Notes, and the Warrants, and the shares of Series E-2 Preferred Stock issuable
upon conversion or exercise of the Notes or the Warrants for investment for such
Purchaser's own account, and not as nominee or agent for investment and not with
a view to or for resale in connection with any distribution or public offering
thereof within the meaning of the Securities Act. Such Purchaser has the full
right, power, authority and capacity to enter into and perform this Agreement
and this Agreement will constitute a valid and binding obligation upon such
Purchaser.
(b) SHARES NOT REGISTERED. Such Purchaser understands and
acknowledges that neither the Notes, the Warrants nor shares of Series E-2
Preferred Stock issuable upon conversion or exercise of the Notes or the
Warrants will be registered under the Securities Act or qualified under any
state securities laws in reliance upon one or more exemptions from registration
or qualification under the Securities Act and such state securities laws, and
that the Company's reliance upon such exemption is predicated upon such
Purchaser's representations set forth in this Agreement. Such Purchaser
understands and acknowledges that resale of the Notes, the Warrants and the
shares of Series E-2 Preferred Stock issuable upon conversion or exercise of the
Notes or the Warrants may be restricted indefinitely unless they are
subsequently registered under the Securities Act and qualified under state law
or an exemption from such registration and such qualification is available.
(c) NO TRANSFER. Such Purchaser will not dispose of any of the Notes,
the Warrants or the shares of Series E-2 Preferred Stock issuable upon
conversion or exercise of the Notes or the Warrants, other than in conjunction
with an effective registration statement or exemption from registration under
the Securities Act and other than in compliance with the applicable state
securities laws.
(d) ACCREDITED INVESTOR. Such Purchaser is an "accredited investor"
within the meaning of Securities and Exchange Commission ("SEC") Rule 501 or
Regulation D, as presently in effect.
4. MISCELLANEOUS.
(a) WAIVERS AND AMENDMENTS. Any provision of this Agreement may be
amended, waived or modified upon the written consent of the Company and the
Purchaser to be bound by such amendment, waiver or modification.
(b) GOVERNING LAW. This Agreement and all actions arising out of or
in connection with this Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without regard to the
conflict of laws provisions of the State of New York or of any other state. In
the event of any dispute among or between any of the parties to this Agreement
arising out of the terms of this Agreement, the parties hereby consent to the
exclusive jurisdiction of the federal and state courts located in the
8
<PAGE>
State of New York for resolution of such dispute, and agree not to contest such
exclusive jurisdiction or seek to transfer any action relating to such dispute
to any other jurisdiction.
(c) ENTIRE AGREEMENT. This Agreement together with the Notes and
Warrants constitute the full and entire understanding and agreement between the
parties with regard to the subjects hereof and thereof.
(d) EXPENSES. The Company shall pay all of the costs and expenses,
including reasonable attorneys' fees, incurred by the Purchasers in connection
with the negotiation and consummation of the transactions contemplated
hereunder.
(e) NOTICES. All notices, requests and other communications
hereunder shall be in writing and shall be deemed to have been duly given at the
time of receipt if delivered by hand or by facsimile transmission or three days
after being mailed, registered or certified mail, return receipt requested, with
postage prepaid to the applicable parties hereto at the address stated below or
if any party shall have designated a different address or facsimile number by
notice to the other party given as provided above, then to the last address or
facsimile number so designated.
If to the Company:
NetObjects, Inc.
602 Galveston Drive
Redwood City, CA 94063
Attention: Samir Arora
Facsimile: (650) 482-3600
with a copy to:
Graham & James LLP
600 Hansen Way
Palo Alto, CA 94304-1043
Attention: Alan B. Kalin, Esq.
Facsimile: (650) 856-3619
If to IBM:
International Business Machines Corporation
New Orchard Road
Armonk, NY 10504
Attention: Lee A. Dayton
Facsimile: (914) 499-7803
with a copy to:
International Business Machines Corporation
New Orchard Road
Armonk, NY 10504
Attention: Donald D. Westfall, Esq.
Facsimile: (914) 499-6006
9
<PAGE>
If to Perseus Capital:
Perseus Capital, L.L.C.
Suite 610
The Army and Navy Club Building
1627 I Street, N.W.
Washington, D.C. 20006
Attention: Kenneth M. Socha
Facsimile: (202) 463-6215
with a copy to:
Arnold & Porter
555 Twelfth Street, N.W.
Washington, D.C. 20004-1206
Attention: Robert B. Ott, Esq.
Facsimile: (202) 942-5999
(f) VALIDITY. If any provision of this Agreement, the Notes or the
Warrants shall be judicially determined to be invalid, illegal or unenforceable,
the validity, legality and enforceability of the remaining provisions thereof
shall not in any way be affected or impaired thereby.
(g) COUNTERPARTS. This Agreement may be executed in any number of
counterparts, and a party's delivery of a signed counterpart by facsimile
transmission shall constitute that party's due execution of this Agreement.
(h) BUSINESS DAY. As used herein, "Business Day" means any day other
than a Saturday, Sunday or other day on which the national or state banks
located in the State of California or the State of New York are authorized to be
closed.
[Signatures begin on the following page]
10
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date and year first written above.
COMPANY:
NETOBJECTS, INC.
By: /s/ Michael J. Shannahan
---------------------------------
Name: Michael J. Shannahan
-------------------------------
Title: VP & CFO
------------------------------
PURCHASERS:
INTERNATIONAL BUSINESS MACHINES CORPORATION
By: /s/ Lee A. Dayton
---------------------------------
Name: Lee A. Dayton
-------------------------------
Title: Vice President, Corporate
Development and Real Estate
------------------------------
PERSEUS CAPITAL, L.L.C.
By: Kenneth M. Socha
---------------------------------
Name: Kenneth M. Socha
-------------------------------
Title: Executive Vice President
------------------------------
11
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Purchaser No. of Units
--------- -------------
<S> <C>
IBM 5,500
Perseus Capital 450
</TABLE>
12
<PAGE>
TECHNOLOGY TRANSFER AGREEMENT
This TECHNOLOGY TRANSFER AGREEMENT (the "Amended Agreement") is dated as
of February 2, 1996, by and between Rae Technology, Inc., a California
corporation ("Transferor"), and NetObjects, Inc., a Delaware corporation
("Transferee").
R E C I T A L S
WHEREAS, Transferor and Transferee have entered into that certain
Technology License Agreement, dated as of December 21, 1995 (the "Former
Agreement"), pursuant to which Transferor granted to Transferee an exclusive
license of certain proprietary computer software commonly referred to by
Transferor as the "Solo Technology" for a limited field of use, in exchange for
the issuance of 10,000,000 shares of Series A Preferred Stock of Transferee to
Transferor;
WHEREAS, to achieve the business objectives of the parties and to permit
full implementation of the "Solo Technology" by Transferee, the parties now
desire to amend and restate the Former Agreement, among other things, to provide
for an assignment and transfer of all of Transferor's rights, title and
interests in and to the "Solo Technology" to Transferee, with Transferee
granting back to Transferor a worldwide, perpetual, royalty-free, assignable,
exclusive license, with right of sublicense, in the Field of Use (as hereinafter
defined) with respect to all of the transferred technology and a limited,
nonexclusive, nontransferable license in the Field of Use with respect to
Transferee's modifications of the "Solo Technology" for the sole purpose of
developing and marketing software applications for the stand-alone Personal
Information Management (PIM) market (as hereinafter defined); and
WHEREAS, the parties now desire to amend and restate the Former Agreement
to provide in its entirety as set forth below.
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereby agree as follows:
A G R E E M E N T
1. AMENDMENT, SUPERSEDING EFFECT.
The Former Agreement is hereby amended as set forth in this Amended
Agreement. All provisions of the Former Agreement other than Section 3 and
<PAGE>
Exhibit A thereof shall be superseded by the terms and provisions of this
Amended Agreement to the extent provided herein.
2. DEFINITIONS.
Terms used in this Amended Agreement shall have the meaning set forth
below, unless defined elsewhere or as the context may require:
(a) "Technology" shall mean all of the computer software programs,
technology and intellectual property rights of Transferor in and to that certain
computer software technology commonly referred to by Transferor as the "Solo
Technology," as set forth in more detail in Exhibit A of the Former Agreement,
including without limitation, all presently existing object code, source code,
and all flowcharts, algorithms and documentation related to such software
programs.
(b) "Confidential Information" shall mean all information relating to the
Technology (including Technical Information and Business Records) disclosed or
made available to Transferee, its employees or its representatives by Transferor
that is marked, designated or described as confidential by Transferor.
(c) "Intellectual Property Rights" shall mean all Confidential Information
and, whether or not the following constitute Confidential Information, all of
Transferor's United States and foreign copyrights, know-how, patents, licenses,
patent applications, inventions, trade secrets, formulas, algorithms, processes,
methodologies, designs, schematics, diagrams and the like pertaining to the
Technology, or the Resulting Technology, as the case may be, and all of
Transferee's trademark, service mark and trade name rights to "NetObjects";
provided, however, that the Intellectual Property Rights shall not include any
trademark rights relating to the trademark "Solo" or any other trademarks of
Transferor.
(d) "Field of Use" shall mean all commercial applications of the
Technology and the related Technical Information and Intellectual Property
Rights to derive or create personal information manager programs, which are
single user software programs primarily intended to be used by individuals to
manage personal data such as personal contacts, events, schedules, tasks,
projects, notes, pictures and lists of documents, files and other personal
information.
(e) "Resulting Solo-N Technology" shall mean all the results of the
research, development and engineering work performed by Transferee after the
effective date of this Amended Agreement with respect to the Technology as it
existed on the effective date of the Former Agreement, including, without
limitation, all derivative works, modifications, improvements, advanced software
programs, patentable inventions or copyrightable material or any combination
2
<PAGE>
thereof that will allow commercial exploitation of the Technology in the Field
of Use.
(f) "Resulting Solo-R Technology" shall mean all the results of the
research, development and engineering work performed by Transferor after the
effective date of this Amended Agreement with respect to the Technology as it
existed on the effective date of the Former Agreement, including, without
limitation, all derivative works, modifications, improvements, advanced software
programs, patentable inventions or copyrightable material or any combination
thereof that will allow commercial exploitation of the Technology in the Field
of Use.
(g) "Business Records" shall mean all non-disclosure agreements, employee
and consultant agreements regarding the protection of Confidential Information,
business plans, marketing information, financial information, notes, diaries,
logs, calendars, accounting records, non-technical research results, product
ideas, and all other written materials other than Technical Information.
(h) "Technical Information" shall mean all data in written, tangible or
machine-readable form relating to the Technology and the Intellectual Property
Rights related thereto, which are revealed to Transferee by Transferor pursuant
to the terms of this Amended Agreement.
3. TRANSFER OF TECHNOLOGY, CROSS LICENSE.
(a) Subject to the terms and conditions herein, Transferor hereby assigns,
conveys, and otherwise transfers to Transferee all of Transferor's rights, title
and interests in and to the Technology and all of the Intellectual Property
Rights, Confidential Information and Technical Information pertaining to the
Technology. Transferor hereby assigns, conveys, and otherwise transfers to
Transferor all of Transferor's rights and interests in and to the Business
Records of Transferor that relate to the Technology and the use thereof outside
of the Field of Use or to the proposed business of Transferee as described in
that certain Business Plan dated December 4, 1995.
(b) Transferor further affirms the right of Transferee to prevent any
unauthorized use and disclosure of the Technology and the Intellectual Property
Rights, Confidential Information and Technical Information pertaining thereto,
and affirms the right of Transferee to disclose all such information as
Transferee may deem appropriate in the conduct of its business.
(c) Transferor hereby assigns, conveys and otherwise transfers to
Transferee all rights, title and interests of Transferor in and to the
trademark, service mark and trade name "NetObjects" and all logos currently
associated therewith, and in and to
3
<PAGE>
Transferor's "Solo" or "S.O.L.O." trademarks and the goodwill associated
therewith. Transferor does not transfer, and Transferee shall have no right
in and to any other trademarks or service marks of Transferor.
(d) Transferee hereby grants to Transferor exclusively in the Field of Use
a transferable, worldwide, royalty-free, perpetual, exclusive, assignable, right
and license, with right of sublicense to Transferor's customers, to use and
reproduce the Technology and the Intellectual Property Rights, Confidential
Information, Technical Information and Business Records related thereto, and to
prepare derivative works from (including, but not limited to, the Resulting
Solo-R Technology) make, use, disclose, perform, display, sell, offer to sell,
identify and distribute computer products incorporating the same to be used
solely by end users.
(e) Transferee hereby grants to Transferor exclusively in the Field of Use
a nontransferable, worldwide, royalty-free, perpetual, nonexclusive,
nonassignable, right and license, without right of sublicense to Transferor's
customers, to use and reproduce the Resulting Solo-N Technology and the
Intellectual Property Rights, Confidential Information and Technical Information
related thereto, and to prepare derivative works from, make, use, disclose,
perform, display, sell, offer to sell, identify and distribute computer products
incorporating the same only for use in object code form by end-users.
4. ISSUANCE OF SHARES.
Transferor and Transferee hereby confirm the issuance of 10,000,000 shares
of Series A Preferred Stock to Transferee on December 21, 1995, as full
consideration for the transfer, assignment and conveyance contemplated herein,
and Transferor and Transferee agree that no additional shares or any other
consideration shall be issued or paid to Transferor pursuant to this Amended
Agreement. Transferor hereby agrees that Transferee's ability to obtain equity
financing through the sale of shares of Transferee's Series B Preferred Stock to
certain investors, including Norwest Equity Partners V and Venrock Associates
(the "Series B Preferred Financing"), based on this Amended Agreement
constitutes adequate consideration for the covenants and performance of
Transferor hereunder.
5. TITLE AND PROPRIETARY RIGHTS.
(a) Title and ownership to (i) the Technology, the Resulting Solo-N
Technology, and all of the Intellectual Property Rights, Confidential
Information and Technical Information related to each and (ii) the trademark,
service mark
4
<PAGE>
and trade name "NetObjects" and the logos currently associated therewith shall
reside in Transferee.
(b) Title and ownership to the Resulting Solo-R Technology in the Field of
Use and the Intellectual Property Rights related thereto shall reside in
Transferor.
6. TECHNICAL INFORMATION.
On or before the closing date for the Series B Preferred Financing,
Transferor will transfer and deliver to Transferee a complete copy of all of the
Technology and all of the Confidential Information and Technical Information
related thereto to the extent that Transferor has not furnished them to
Transferee already pursuant to the terms of the Former Agreement.
7. SUBSEQUENT INVENTIONS, FURTHER ASSURANCES.
(a) All derivative works, modifications and improvements to the Technology
and all inventions of whatsoever kind or nature incorporating or otherwise
utilizing any of the Intellectual Property Rights related to the Technology
developed by Transferee subsequent to the date of this Amended Agreement,
including, but not limited to, the Resulting Solo-N Technology, shall be owned
by Transferee; provided that all such derivative works, modifications and
improvements to the Technology developed by Transferee subsequent to the date of
this Amended Agreement shall be licensed to Transferor pursuant to the
provisions of Section 3(e) hereof.
(b) Transferee shall have full right to cause United States and foreign
copyright applications and patent applications to be prepared and prosecuted
with respect to the Technology at its own expense, and all such applications and
resulting copyrights and patents shall be owned by Transferee. Transferor shall
do all such acts and execute, acknowledge and deliver materials, including
Technical Information, and all instruments or writings reasonably requested and
necessary for Transferee to perfect its title to the Technology, to secure
copyrights and letters patent whenever possible, as well as all reissues,
renewals and extensions thereof. Nothing contained in this Amended Agreement,
however, shall be construed as a representation or warranty by Transferor that
any portion of the Technology shall be copyrightable or patentable.
(c) Transferor shall have full right to cause United States and foreign
copyright applications and patent applications to be prepared and prosecuted
with respect to the Resulting Solo-R Technology in the Field of Use at its own
expense, and all such applications and resulting copyrights and patents shall be
owned by Transferor. Transferee shall do all such acts and execute, acknowledge
and deliver all instruments or writings reasonably requested and
5
<PAGE>
necessary for Transferor to perfect its title to the Resulting Solo-R Technology
in the Field of Use, to secure copyrights and letters patent whenever possible,
as well as all reissues, renewals and extensions thereof. Nothing contained in
this Amended Agreement, however, shall be construed as a representation or
warranty by Transferee that any portion of the Resulting Solo-R Technology in
the Field of Use shall be copyrightable or patentable.
(d) Transferee shall have full right to cause United States and foreign
trademark applications to be prepared and prosecuted with respect to the name
"NetObjects," at its own expense, and all such applications and resulting
trademarks, service marks and trade names shall be owned by Transferee.
Transferor shall do all such acts and execute, acknowledge and deliver all
instruments or writings reasonably requested and necessary for Transferee to
perfect its title to the name "NetObjects," to secure trade name and trademark
registrations whenever possible, as well as all renewals and extensions thereof.
Nothing contained in this Amended Agreement, however, shall be construed as a
representation or warranty by Transferee that Transferee shall be able to obtain
the trade name or trademark rights to the name "NetObjects."
8. CONFIDENTIAL INFORMATION.
(a) Transferor understands that all Confidential Information received by
Transferee from Transferor is and will remain proprietary and confidential to
Transferor, and Transferee and Transferor shall be obligated to protect and
maintain the confidentiality of the same. Transferor shall take all necessary
and proper action to preserve the secrecy and prevent disclosure of such
Confidential Information. Transferor shall not disclose Confidential
Information except in connection with its exercise of the licenses received
pursuant to Section 3(d) and 3(e) hereof. Confidential Information shall be
disclosed or made available to Transferor's employees or representatives only on
a need-to-know basis to the extent necessary for Transferor to enjoy the
benefits of the license granted by Transferee to Transferor in Section 3(d) and
3(e) of this Amended Agreement. Transferor shall establish a reasonable
security procedure to prevent unauthorized access to the Confidential
Information.
(b) The obligation imposed by this Section 8 to protect and not to
disclose Confidential Information shall continue during the term of this Amended
Agreement and thereafter, except with respect to such Confidential Information
that sooner becomes lawfully within the public domain.
9. WARRANTIES AND DISCLAIMERS OF TRANSFEROR.
(a) Transferor represents and warrants that it is the owner of or
otherwise has the right to transfer and assign the Technology, the Intellectual
Property Rights, the Confidential Information and the Technical Information
6
<PAGE>
provided in Section 3 and otherwise to perform its obligations under this
Amended Agreement.
(b) Transferor warrants that, to the best of its knowledge, the technology
and the intellectual property rights related thereto do not infringe any patent,
copyright or trade secret right of any third party.
(c) TRANSFEROR DOES NOT WARRANT THAT THE TECHNOLOGY OR THE INTELLECTUAL
PROPERTY RIGHTS RELATED THERETO WILL MEET ANY SPECIFIED OR UNSPECIFIED
REQUIREMENTS OR OPERATE IN ANY SPECIFIED OR UNSPECIFIED COMBINATIONS THAT
TRANSFEREE MAY SELECT FOR USE; THAT THE TECHNOLOGY OR THE INTELLECTUAL PROPERTY
RIGHTS RELATED THERETO ARE ERROR FREE; THAT ALL DEFECTS IN THE TECHNOLOGY WILL
BE CORRECTED; OR THAT THE TECHNOLOGY IS FREE FROM ANY VIRUS, SOFTWARE ROUTINE OR
OTHER PROGRAM DESIGNED TO PERMIT UNAUTHORIZED ACCESS, TO DISABLE, TO ERASE, OR
OTHERWISE TO HARM SOFTWARE, HARDWARE OR DATA, OR TO PERFORM ANY OTHER SUCH
ACTIONS. NO ORAL OR WRITTEN STATEMENT BY TRANSFEROR OR BY A REPRESENTATIVE OF
TRANSFEROR SHALL CREATE A WARRANTY OR INCREASE THE SCOPE OF ANY WARRANTY GIVEN.
(d) TRANSFEROR DOES NOT MAKE ANY WARRANTY, EXPRESS OR IMPLIED, STATUTORY
OR OTHERWISE WITH RESPECT TO THE TECHNOLOGY OR THE INTELLECTUAL PROPERTY RIGHTS
RELATED THERETO, INCLUDING ANY WARRANTY OF MANUFACTURABILITY, MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE. TRANSFEROR DOES NOT ASSUME OR AUTHORIZE ANY
OTHER PERSON TO ASSUME FOR IT ANY LIABILITY IN CONNECTION WITH THE USE OF THE
INTELLECTUAL PROPERTY RIGHTS RELATED TO THE TECHNOLOGY, OR THE SALE, USE OR
OPERATION OF ANY PRODUCT UTILIZING THE TECHNOLOGY.
(e) TRANSFEROR SHALL NOT BE LIABLE FOR ANY INJURY OR DAMAGE TO TRANSFEREE,
OR TO ANY OTHER PERSON CAUSED DIRECTLY OR INDIRECTLY BY THE USE OF THE
TECHNOLOGY OR THE SALE, USE OR OPERATION OF THE TECHNOLOGY OR ANY DERIVATIVE
WORKS USING THE SAME. IN NO EVENT SHALL TRANSFEROR BE LIABLE TO ANY THIRD PARTY
FOR ANY LOSS OR INJURY TO EARNINGS, PROFITS, OR GOODWILL, OR FOR ANY DIRECT,
SPECIAL, INDIRECT, OR CONSEQUENTIAL DAMAGES ARISING OUT OF TRANSFEREE'S USE OF
THE TECHNOLOGY, THE INTELLECTUAL PROPERTY RIGHTS, THE CONFIDENTIAL INFORMATION
OR THE TECHNICAL INFORMATION.
7
<PAGE>
10. LIMITATION OF LIABILITY AND INDEMNIFICATION.
(a) Except with respect to the breach of any representation or warranty
contained in Section 9 hereof, Transferee agrees that Transferor will not be
liable for defense or indemnity with respect to any claim against Transferee by
any third party arising from Transferee's possession, use or distribution of the
Technology, the Resulting Solo-N Technology and/or the Intellectual Property
Rights, Confidential Information and Technical Information relating to each, or
of products incorporating the same.
(b) Except as otherwise provided in subsection (a), Transferee agrees to
indemnify and hold harmless Transferor from and against any and all liability,
loss, suit, damages, claims and proceedings, including reasonable attorneys'
fees, expenses and costs, arising out of or connected with the sale, sublicense,
commercialization or use of any of the Technology, the Resulting Solo-N
Technology, the Intellectual Property Rights, or products incorporating such
Technology, Resulting Solo-N Technology, or Intellectual Property Rights by
Transferee, its customers or other third parties.
11. SEVERABILITY.
The provisions of this Amended Agreement are severable, and if any one or
more such provisions are judicially determined to be illegal or otherwise
unenforceable, in whole or in part, the remaining provisions or portions of this
Amended Agreement shall nevertheless be binding on and enforceable by and
between the parties hereto.
12. ASSIGNMENT, SUCCESSORS AND ASSIGNS.
This Amended Agreement and all of the terms hereof shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and assigns, except that the rights of Transferor pursuant to Section 3(e)
hereof shall not be assignable without Transferee's prior written consent, which
Transferee may withhold in its sole and absolute discretion.
13. EXPORT CONTROL LAWS.
(a) Transferee agrees to comply with all laws, rules and regulations
applicable to the export of the Technology, the Intellectual Property Rights or
products incorporating the Technology or the Intellectual Property Rights, or
the Technical Information. Specifically, Transferee shall not export,
re-export, transfer, or license the Technology, the Intellectual Property
Rights, or the Technical Information, or any documentation thereof, in violation
of any United States laws and regulations as may from time to time be
applicable.
8
<PAGE>
(b) Transferor agrees to comply with all laws, rules and regulations
applicable to the export of the Technology, the Resulting Solo-R Technology, the
Resulting Solo-N Technology and the Intellectual Property Rights relating to
each, or products incorporating any of the foregoing. Specifically, Transferor
shall not export, re-export, transfer or license the Technology, the Resulting
Solo-R Technology, the Resulting Solo-N Technology or the Intellectual Property
Rights related to each, or any documentation thereof, in violation of any United
States laws and regulations as may from time to time be applicable.
14. EFFECTIVE DATE.
This Amended Agreement has been entered into by Transferor and Transferee
as of the date of the closing of the Series B Preferred Financing. Upon
execution this Amended Agreement shall be effective as of December 21, 1995 for
all purposes.
15. GENERAL.
(a) All notices and other communications required or permitted hereunder
shall be in writing and shall be deemed effectively given upon personal delivery
or on the day sent by facsimile transmission if a true and correct copy is sent
the same day by first class mail, postage prepaid, or by dispatch by an
internationally recognized express courier service, and in each case addressed
to the address of the parties as set forth below, unless such party first
notifies the other parties hereto in writing of any change in its address:
If addressed to Transferor: Rae Technology, Inc.
2055 Woodside Road, Suite 250
Redwood City, CA 94061
Attention: President
If addressed to Transferee: NetObjects, Inc.
2055 Woodside Road, Suite 250
Redwood City, CA 94061
Attention: President
(b) Neither party has the authority to assume or create any obligation for
or on behalf of the other party, express or implied.
(c) The Former Agreement, as amended by this Amended Agreement, together
with Exhibit A attached hereto, constitutes the entire agreement between the
parties relating to the subject matter hereunder and supersedes all prior or
contemporaneous oral or written agreements and understandings between the
parties. No modification of this Amended Agreement shall be binding on any
party unless it is in writing and signed by the party to be charged.
9
<PAGE>
No waiver of any provision of this Amended Agreement shall be effective unless
made in writing. No waiver of any breach of any provision of this Amended
Agreement shall constitute a waiver of any subsequent breach of the same or of
any other provision of this Amended Agreement.
(d) In the event it is necessary to enforce this Amended Agreement or in
the event of any dispute between the parties with respect to its interpretation,
validity, or performance, the prevailing party in any such action shall be
entitled to costs of suit and reasonable attorneys' fees.
(e) The validity, performance and interpretation of this Amended Agreement
shall be governed by the laws of the State of California.
IN WITNESS WHEREOF, this Amended Agreement is executed as of the date and
year first above written.
RAE TECHNOLOGY, INC. NETOBJECTS, INC.
By: /s/ Samir Arora By: /s/ Samir Arora
--------------------------- ---------------------------
Its: CEO Its: CEO
--------------------------- ---------------------------
10
<PAGE>
TECHNOLOGY LICENSE AGREEMENT
This Technology License Agreement (the "Agreement") is dated effective as
of December 21, 1995, by and between Clement Mok Designs, a California
corporation ("Licensor"), and NetObjects, Inc., a Delaware corporation
("Licensee").
R E C I T A L S
WHEREAS, Licensor has developed certain proprietary methodology, know-how
and intellectual property, commonly referred to by Licensor as the iD System,
which, among other uses, can be used creatively to design, guide and implement
computer display sites and screens commonly known as Websites and Webpages;
WHEREAS, Licensee is in a position to create and add value to such know how
and intellectual property, and to exploit its commercial potential;
WHEREAS, Licensee desires to obtain, and Licensor desires to grant to
Licensee, a royalty-free, perpetual, worldwide, nonexclusive license in the
above-referenced know how and intellectual property, in consideration of the
issuance of 1,000,000 shares of Series A Preferred Stock of Licensee to Licensor
upon the initial capitalization of Licensee.
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereby agree as follows:
A G R E E M E N T
1. DEFINITIONS.
Terms used in this Agreement shall have the meaning set forth below, unless
defined elsewhere or as the context may require:
(a) "Base Technology" shall mean all of the proprietary methodology,
know-how and intellectual property, and related documentation, commonly referred
to by Licensor as the iD System, as set forth in more detail in Exhibit A,
including without limitation all presently existing United States and foreign
copyrights, know-how, patents, licenses, patent applications, software,
inventions, trade secrets, formulas, algorithms, processes, methodologies,
designs, schematics, diagrams and the like pertaining to the Base Technology.
(b) "Confidential Information" shall mean (i) with respect to information
received by Licensee, all information relating to the Base Technology disclosed
or made available to Licensee, its employees or its representatives by Licensor
<PAGE>
that is marked, designated or described as confidential by Licensor, and (ii)
with respect to information received by Licensor, all information relating to
the Resulting Technology, and all market information, data, customer lists, and
all other business information relating to Licensee that is marked, designated
or described as confidential by Licensee.
(c) "Intellectual Property Rights" shall mean all Confidential Information
and, whether or not the following constitute Confidential Information, all of
Licensor's United States and foreign copyrights, know-how, patents, licenses,
patent applications, inventions, trade secrets, formulas, algorithms, processes,
methodologies, designs, schematics, diagrams and the like pertaining to the Base
Technology, or the Resulting Technology, as the case may be.
(d) "Resulting Technology" shall mean all the results of the research,
development and engineering work performed with respect to the Base Technology
by Licensee, including without limitation, all derivative works, modifications,
improvements, advanced software programs, patentable inventions or copyrightable
material or any combination thereof that will allow commercial exploitation of
the Base Technology.
2. GRANT OF RIGHT.
(a) Subject to the terms and conditions herein, Licensor grants to
Licensee a royalty free, perpetual, nonexclusive, transferable worldwide right
and license, with right of sublicense, to use the Base Technology and the
Intellectual Property Rights related thereto to develop the Resulting Technology
and to commercialize, make, have made, copy, reproduce, duplicate, use, modify,
incorporate into other works, compile, perform, exhibit, market, sell and
license the Resulting Technology.
(b) Licensor further grants the right and license to Licensee to prevent
any unauthorized use and disclosure of the Base Technology and the Confidential
Information, and the right to disclose the Base Technology and the Confidential
Information to sublicensees and assignees of the same from Licensee, subject to
Section 7 of this Agreement.
3. ISSUANCE OF SHARES.
In consideration of the license granted in this Agreement, Licensee shall
issue to Licensor 1,000,000 shares of fully paid, nonassessable Series A
Preferred Stock of Licensee (the "Shares"), in connection with the transfer of
certain property to Licensee by Licensor and certain other transferors pursuant
to a transaction the parties thereto intend to be subject to the provision of
Section 351 of the Internal Revenue Code of 1986, as amended. For purposes of
California Revenue and Taxation Code Section 6011(c)(1), if and only if the
proposed transaction is subject to California sales and use tax, the parties
hereto
<PAGE>
agree that $20.00 of the total value of the license granted hereunder and of
the total value of the Series A Preferred Stock issued in exchange therefor
is allocable to the media and other tangible personal property on which the
Base Technology is set forth, and all of the remaining value of the Series A
Preferred Stock issued in exchange for this license is allocable to the
intangible personal property comprising the Base Technology. If and only if
the proposed transaction is subject to California sales and use tax, the
parties hereto agree that each party shall be responsible for 50% of any
sales and use tax imposed, except that Licensee shall be responsible for the
first $100 in sales and use tax.
4. TITLE AND PROPRIETARY RIGHTS.
(a) Title and ownership to the Base Technology and the Intellectual
Property Rights related thereto shall reside in Licensor.
(b) Title and ownership to the Resulting Technology and the Intellectual
Property Rights related thereto shall reside in Licensee.
5. DELIVERY.
Within thirty (30) days after execution of this Agreement, Licensor will
transfer and deliver to Licensee a complete copy of all physical embodiment of
the Base Technology, including all Intellectual Property Rights related thereto,
and thereafter, Licensee shall promptly deliver the share certificate or
certificates evidencing the Shares to Licensor.
6. SUBSEQUENT INVENTIONS.
(a) All derivative works, modifications and improvements to the Base
Technology and all inventions of whatsoever kind or nature incorporating or
otherwise utilizing any of the Intellectual Property Rights related to the Base
Technology developed by Licensee subsequent to the date of this Agreement shall
be owned by Licensee.
(b) Licensee shall have full right to cause United States and foreign
copyright applications and patent applications to be prepared and prosecuted
with respect to the Resulting Technology, at its own expense, and all such
applications and resulting copyrights and patents shall be owned by Licensee.
Licensor shall do all such acts and execute, acknowledge and deliver all
instruments or writings reasonably requested and necessary for Licensee to
perfect its title to the Resulting Technology, to secure copyrights and letters
patent whenever possible, as well as all reissues, renewals and extensions
thereof. Nothing contained in this Agreement, however, shall be construed as a
representation or warranty by Licensee that any portion of the Resulting
Technology shall be copyrightable or patentable.
<PAGE>
7. CONFIDENTIAL INFORMATION.
(a) Licensee understands that all Confidential Information received by
Licensee from Licensor is proprietary and confidential to Licensor, and Licensee
is obligated to protect and maintain the confidentiality of the same. Licensee
shall refrain from disclosing any Confidential Information to any third party
except pursuant to the terms of this Agreement permitting transfers of the Base
Technology to third parties and shall take all necessary and proper action to
preserve the secrecy and prevent disclosure of such Confidential Information.
In furtherance of the foregoing, Licensee shall require all third parties that
wish to utilize the Base Technology to first sign an agreement to be bound by
the provisions of this Section 7. Confidential Information shall be disclosed
or made available to Licensee's employees or representatives only on a
need-to-know basis to the extent necessary for Licensee to enjoy the benefits of
the license granted in Section 2 of this Agreement. Licensee shall establish a
reasonable security procedure to prevent unauthorized access to the Confidential
Information.
(b) Licensor understands that all Confidential Information received by
Licensor from Licensee is proprietary and confidential to Licensor, and Licensor
is obligated to protect and maintain the confidentiality of the same. Licensor
shall take all necessary and proper action to preserve the secrecy and prevent
disclosure of such Confidential Information. Confidential Information shall be
disclosed or made available to Licensor's employees or representatives only on a
need-to-know basis. Licensor shall establish a reasonable security procedure to
prevent unauthorized access to the Confidential Information.
(c) Each party receiving Confidential Information from the other party
shall appropriately identify and mark all reproductions, copies, extracts or the
like of any documents containing Confidential Information as "Confidential,"
before distributing the same to its partners, representatives, employees, or
where permitted hereunder, to others.
(d) The obligation imposed by this Section 7 to protect and not to
disclose Confidential Information shall continue during the term of this
Agreement and thereafter, except with respect to such Confidential Information
that sooner becomes lawfully within the public domain.
8. WARRANTIES AND DISCLAIMERS OF LICENSOR.
(a) Licensor represents and warrants that it is the owner of or otherwise
has the right to grant the licenses provided in Section 2 and otherwise to
perform its obligations under this Agreement. Licensor makes no other
warranties with respect to the subject matter of this Agreement and except for
the warranties set forth in the preceding sentence, Licensor shall have no
liability of any with respect hereto.
<PAGE>
(b) LICENSOR DOES NOT WARRANT THAT THE BASE TECHNOLOGY OR THE INTELLECTUAL
PROPERTY RIGHTS RELATED THERETO WILL MEET ANY SPECIFIED OR UNSPECIFIED
REQUIREMENTS OR OPERATE IN ANY SPECIFIED OR UNSPECIFIED COMBINATIONS THAT
LICENSEE MAY SELECT FOR USE; THAT THE BASE TECHNOLOGY OR THE INTELLECTUAL
PROPERTY RIGHTS RELATED THERETO IS ERROR FREE; OR THAT ALL DEFECTS IN THE BASE
TECHNOLOGY WILL BE CORRECTED. NO ORAL OR WRITTEN STATEMENT BY LICENSOR OR BY A
REPRESENTATIVE OF LICENSOR SHALL CREATE A WARRANTY OR INCREASE THE SCOPE OF THIS
WARRANTY.
(c) LICENSOR DOES NOT WARRANT THE BASE TECHNOLOGY AGAINST INFRINGEMENT OR
THE LIKE WITH RESPECT TO ANY PATENT, COPYRIGHT, TRADE SECRET OR OTHER
PROPRIETARY RIGHT OF ANY THIRD PARTY.
(d) LICENSOR DOES NOT MAKE ANY WARRANTY, EXPRESS OR IMPLIED, STATUTORY OR
OTHERWISE WITH RESPECT TO THE BASE TECHNOLOGY OR THE INTELLECTUAL PROPERTY
RIGHTS RELATED, INCLUDING ANY WARRANTY OF MANUFACTURABILITY, MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE. LICENSOR DOES NOT ASSUME OR AUTHORIZE ANY
OTHER PERSON TO ASSUME FOR IT ANY LIABILITY IN CONNECTION WITH THE USE OF THE
INTELLECTUAL PROPERTY RIGHTS RELATED TO THE BASE TECHNOLOGY, OR THE SALE, USE OR
OPERATION OF ANY PRODUCT UTILIZING THE BASE TECHNOLOGY.
(e) LICENSOR SHALL NOT BE LIABLE FOR ANY INJURY OR DAMAGE TO LICENSEE, OR
TO ANY OTHER PERSON CAUSED DIRECTLY OR INDIRECTLY BY THE USE OF THE BASE
TECHNOLOGY OR THE SALE, USE OR OPERATION OF ANY RESULTING TECHNOLOGY USING THE
SAME. IN NO EVENT SHALL LICENSOR BE LIABLE TO ANY THIRD PARTY FOR ANY LOSS OR
INJURY TO EARNINGS, PROFITS, OR GOODWILL, OR FOR ANY DIRECT, SPECIAL, INDIRECT,
OR CONSEQUENTIAL DAMAGES ARISING OUT OF LICENSEE'S USE OF THE BASE TECHNOLOGY,
THE RESULTING TECHNOLOGY AND THE INTELLECTUAL PROPERTY RIGHTS.
9. INFRINGEMENT PROSECUTIONS AND DEFENSE.
(a) Licensor or Licensee acting on its own may bring an action for
infringement of the Base Technology, the Resulting Technology and the
Intellectual Property Rights related thereto by any third party. Neither party
shall be a necessary party to an action brought by the other party. The party
bringing the action shall have sole control over the prosecution of such action
and the settlement thereof; provided, however, that if the settlement of the
action shall
<PAGE>
have a material adverse effect on the other party, the settlement shall be
subject to the consent of the other party, which consent shall not be
unreasonably withheld.
(b) Each party shall be responsible for its own costs and expenses,
including attorneys' fees incurred, in defending any infringement lawsuit
brought against such party by any third party arising from its possession, use
or distribution of the Base Technology, the Resulting Technology, or any of the
Intellectual Property Rights related thereto, and shall not be entitled to
indemnity from the other party hereto with respect to any loss, liability or
damages sustained or owed as a result of any such lawsuit.
10. LIMITATION OF LIABILITY.
Licensee agrees that Licensor will not be liable for defense or indemnity
with respect to any claim against Licensee by any third party arising from
Licensee's possession, use or distribution of the Base Technology, the Resulting
Technology or the Intellectual Property Rights relating thereto, or products
incorporating such Intellectual Property Rights. Licensee shall include the
disclaimers of Licensor set forth in Section 8 in all sublicense agreements
between Licensee and its customers.
11. SEVERABILITY.
The provisions of this Agreement are severable, and if any one or more such
provisions are judicially determined to be illegal or otherwise unenforceable,
in whole or in part, the remaining provisions or portions of this Agreement
shall nevertheless be binding on and enforceable by and between the parties
hereto.
12. ASSIGNMENT; SUCCESSORS AND ASSIGNS.
This Agreement and all of the terms thereof shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
assigns.
13. EXPORT CONTROL LAWS.
Licensee agrees to comply with all laws, rules and regulations applicable
to the export of the Resulting Technology or the Base Technology. Specifically,
Licensee shall not export, re-export, transfer, or license the Base Technology
or the Resulting Technology, or any documentation thereof, in violation of any
United States laws and regulations as may from time to time be applicable.
14. GENERAL.
<PAGE>
(a) All notices and other communications required or permitted hereunder
shall be in writing and shall be deemed effectively given upon personal delivery
or on the day sent by facsimile transmission if a true and correct copy is sent
the same day by first class mail, postage prepaid, or by dispatch by an
internationally recognized express courier service, and in each case addressed
to the address of the parties as set forth below, unless such party first
notifies the other parties hereto in writing of any change in its address:
If addressed to Licensor:
Clement Mok Designs
Penthouse, 600 Townsend Street
San Francisco, CA 94103
Attention: President
If addressed to Licensee:
NetObjects, Inc.
2055 Woodside Road, Ste. 250
Redwood City, CA
Attention: President
(b) The relationship of Licensor and Licensee under this Agreement shall
be solely that of licensor and licensee. Neither party has the authority to
assume or create any obligation for or on behalf of the other party, express or
implied.
(c) This Agreement, together with Exhibit A attached hereto, constitutes
the entire agreement between the parties relating to the subject matter
hereunder and supersedes all prior or contemporaneous oral or written agreements
and understandings between the parties. No modification of this Agreement shall
be binding on any party unless it is in writing and signed by the party to be
charged. No waiver of any provision of this Agreement shall be effective unless
made in writing. No waiver of any breach of any provision of this Agreement
shall constitute a waiver of any subsequent breach of the same or of any other
provision of this Agreement.
(d) In the event it is necessary to enforce this Agreement or in the event
of any dispute between the parties with respect to its interpretation, validity,
or performance, the prevailing party in any such action shall be entitled to
costs of suit and reasonable attorneys fees.
(e) The validity, performance and interpretation of this License Agreement
shall be governed by the laws of the State of California.
<PAGE>
IN WITNESS WHEREOF, this Agreement is executed and effective as of the date
and year first above written.
CLEMENT MOK DESIGNS NETOBJECTS, INC.
By: /s/ Clement Mok By: /s/ Samir Arora
------------------------------- ------------------------------
Its: Chairman Its: CEO
------------------------------ ------------------------------
<PAGE>
DISTRIBUTION AGREEMENT
THIS DISTRIBUTION AGREEMENT ("Agreement"), is entered into this 6th day of
March, 1997, by and between INGRAM MICRO INC. ("Ingram"), a Delaware
corporation, having its principal place of business at 1600 E. St. Andrew Place,
Santa Ana, California 92705, and Net Objects, Inc. ("Vendor"), a Delaware
corporation, having its principal place of business at 2055 Woodside Road,
Redwood City, California 94061. The parties desire to and hereby do enter into
a distributor/supplier relationship, the governing terms and mutual promises of
which are set out in this Agreement.
1. DISTRIBUTION RIGHTS
1.1. TERRITORY. Vendor grants to Ingram, including its affiliates for
resale, and Ingram accepts, the non-exclusive right to distribute in North,
Central and South America all computer products produced and/or offered by
Vendor ("Product") during the term of this Agreement. Ingram shall have the
right to purchase, sell and ship to any reseller within the territory or to
Ingram's affiliate, or at Vendor's option Ingram's affiliate may purchase direct
from Vendor.
1.2. PRODUCT. Vendor agrees to make available and to sell to Ingram such
Product as Ingram shall order from Vendor at the prices and subject to the terms
set forth in this Agreement. Ingram shall not be required to purchase any
minimum amount or quantity to the Product.
2. TERM AND TERMINATION
2.1. TERM. The initial term of this Agreement is one (1) year. Thereafter
the Agreement will automatically renew for successive one (1) year terms, unless
it is earlier terminated.
2.2. TERMINATION.
(a) Either party may terminate this Agreement, with or without cause,
by giving thirty (30) days written notice to the other party.
(b) Either party may immediately terminate this Agreement with
written notice if the other party:
(i) materially breaches any term of this Agreement and such
breach continues for thirty (30) business days after written
notification thereof; or
(ii) ceases to conduct business in the normal course, becomes
insolvent, makes a general assignment for the benefit of
creditors, suffers or permits the appointment of a receiver for
its business or assets, or avails itself or becomes subject to
any proceeding under
1
<PAGE>
any Bankruptcy Act or any other federal or state statute relating
to insolvency or the protection of rights of creditors; or
(iii) attempts to assign or otherwise transfer its rights
hereunder unless both have agreed in writing to such assignment
or transfer.
3. INGRAM OBLIGATIONS
3.1. PRODUCT AVAILABILITY. Ingram will list Product in its catalog(s) as
appropriate and endeavor to make such Product available to customers.
3.2. ADVERTISING. Ingram will advertise and/or promote Product in a
commercially reasonable manner and will transmit as reasonably necessary Product
information and promotional materials to its customers.
3.3. SUPPORT. Ingram will make its facilities reasonably available for
Vendor and will assist in Product training and support. Ingram will provide
reasonable, general Product technical assistance to its customers, and will
direct all other technical directly to Vendor.
3.4. ADMINISTRATION.
(a) Upon request, Ingram will furnish Vendor with a valid tax
exemption certificate.
(b) Ingram will provide Vendor within five (5) days after the end of
each calendar month, a printed and/or electronic file in a format acceptable to
Ingram and Vendor, a sales-out report and inventory report showing: current
inventory levels of each Vendor's Products (including items in transit), weekly
runrate snapshots, total sales to the channel for all of Ingram's shipping
locations. Reports shall include but are not limited to, the Vendor part
number, Ingram part number, Ingram cost, quantity sold and customer zip code.
(c) Ingram may handle its customers' Product returns by batching them
for return to Vendor at regular intervals.
4. VENDOR OBLIGATIONS
4.1. SHIPPING EXPORT.
(a) Vendor shall ship Product pursuant to Ingram purchase order(s)
("P.O."). The terms and conditions of this Agreement shall apply to each order
accepted or shipped by Vendor hereunder. The provisions of Ingram's form of
purchase order or other business form shall not apply to any order
notwithstanding Vendor's acknowledgment or acceptance of such order except for
the following terms which Vendor shall accept with respect to each order
pursuant and subject to the provisions of this Agreement: (i) quantity and type
of Ingram Products ordered; (ii)
2
<PAGE>
requested delivery dates and (iii) freight terms. Product shall be shipped
F.O.B. Ingram's designated warehouse with risk of loss or damage to pass to
Ingram upon delivery to the warehouse specified in Ingram's P.O.
(b) Ingram requires concurrent with the execution of this Agreement
Export Administration Regulations product classification and supporting
documentation: Certificate of Origin (General Use and/or NAFTA), Export
Commodity Control Number's; (ECCN's), General License and/or Individual
Validated License information and Schedule "B"/Harmonized Numbers. This applies
when distribution rights granted under Section 1.1 are outside the United States
for the initial Product/s and when additions or changes to these Products
occurs.
4.2. INVOICING. For each Product shipment to Ingram, Vendor shall issue to
Ingram an invoice showing Ingram's order number, the Product part number,
description, price and any discount. Upon Ingram's request, Vendor shall
provide an aging report listing all invoices outstanding.
4.3. PRODUCT AVAILABILITY. Vendor agrees to maintain sufficient Product
inventory to fill Ingram's orders. If a shortage of any Product exists, Vendor
agrees to allocate its available inventory of such Product to Ingram in
proportion to Ingram's percentage of all Vendor's customer orders for such
Product during the previous sixty (60) days.
4.4. PRODUCT MARKING. Vendor will clearly mark each unit of Product with
the Product name and computer compatibility. Such packaging will also bear a
machine-readable bar code identifier scannable in standard Uniform Product Code
(UPC) format. The bar code must identify the Product as specified by the
Uniform Code Council (UCC). If the Vendor or Ingram customers' require serial
number tracking the serial number must be clearly marked and bar coded on the
outside of the individual selling unit. The bar code shall fully comply with
all conditions regarding standard product labeling set forth in Exhibit B in the
then-current Ingram GUIDE TO BAR CODE: THE PRODUCT LABEL. Vendor may be
assessed a reasonable per unit charge for all Product not in conformance
herewith.
4.5. PRODUCT NOTES. Vendor will either thirty (30) days provide product
note information in accordance with Ingram's specifications noted in Exhibit C
or instruct Ingram to do so in which case a charge per SKU will apply.
4.6. SUPPORT. At no charge to Ingram, Vendor shall support Product and any
reasonable Ingram efforts to sell Product. Vendor shall also provide to Ingram,
its employees, and its customers reasonable amounts of sales literature,
advertising materials, and training and support in Product sales.
4.7. NEW PRODUCT. Vendor shall endeavor to notify Ingram at least thirty
(30) days before the date any new Product is introduced. Vendor shall make such
Product
3
<PAGE>
available for distribution by Ingram no later than the date it is first offered
for sale in the marketplace.
4.8. INSURANCE. Vendor shall carry insurance coverage for product
liability/completed operations with minimum limits of three million
($3,000,000). Within ten (10) days of full execution of this Agreement, Vendor
shall provide Ingram with a Certificate of Insurance. This Certificate of
Insurance must include: (i) a broad form endorsement naming Ingram as an
additional insured, and (ii) a mandatory thirty (30) day notice to Ingram of
insurance cancellation.
4.9. WARRANTIES/CERTIFICATION.
(a) GENERAL WARRANTY. Vendor represents and warrants that (i) it has
good transferable title to the Products, (ii) the Product or its use does not
infringe any patents, copyrights, trademarks, trade secrets,, or any other
intellectual property rights, (iii) that there are no suits or proceedings
pending or threatened which allege any infringement of such proprietary rights,
and (iv) the Product sales to Ingram do not in any way constitute violations of
any law, ordinance, rule or regulation in the distribution territory.
(b) PRODUCT WARRANTY AND LIMITATION OF LIABILITY. EXCEPT FOR THE
EXPRESS WARRANTIES IN THE END USER LICENSE AGREEMENTS ACCOMPANYING THE VENDOR'S
PRODUCTS, VENDOR DISCLAIMS ALL WARRANTIES, WHETHER EXPRESS OR IMPLIED, WITH
REGARD TO THE VENDOR PRODUCTS LICENSED HEREUNDER, INCLUDING ALL WARRANTIES OR
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, AND AGAINST INFRINGEMENT OR
THE LIKE. In no event shall Vendor be liable for any damages arising from
performance or nonperformance of any Vendor Products or for any lost profits or
other consequential damages even if Vendor has been advised the possibility of
such damages, nor shall Vendor be liable for any claim against Ingram or its
customers by any other party except as provided otherwise in the applicable End
User License Agreement. The warranty provided in the applicable End User
License Agreement is the only warranty made with respect to the Vendor Product
sand the remedy provided therein for breach of such warranty is Ingram's and its
customers' exclusive remedy therefor.
(c) WARRANTY. Vendor hereby represents and warrants that any Product
offered for distribution does not contain any obscene, defamatory or libelous
matter or violate any right of publicity or privacy.
(d) END-USER WARRANTY. Vendor shall provide a warranty statement
with Product for end user benefit. This warranty shall commence upon Product
delivery to end-user.
(e) MADE IN AMERICA CERTIFICATION. Vendor by the execution of this
Agreement certifies that it will not label any of its products as being "Made in
America,"
4
<PAGE>
"Made in U.S.A.," or with similar wording, unless all components or elements of
such Product is in fact made in the United States of America. Vendor further
agrees to defend, indemnify and hold harmless from and against any and all
claims, demands, liabilities, penalties, damages, judgments or expenses
(including attorney's fees and court costs) arising out of or resulting in any
way from Product that does not conform to the Certification.
5. PRICING
5.1. INGRAM PRICING. The suggested retail price and any Ingram discount
for Product is set out in Exhibit D. Vendor may modify Exhibit D with a minimum
of thirty (30) days advance written notice to Ingram. All Ingram order Products
will be billed at the price in effect when the order is placed. Ingram shall
have sole discretion as to selling price of Product to its customers.
5.2. VENDOR PRICING. Vendor agrees that the prices and terms it offers to
Ingram are now and will continue to be the same as any other similar type of
customer as Ingram for the territory Ingram has distribution rights to. If
Vendor offers price discounts, promotional discounts or other special prices to
its other customers, Ingram shall also be entitled to participate in and receive
notice of the same no later than Vendor's other similar type of customer as
Ingram for the territory Ingram has distribution rights to.
5.3. INTERNATIONAL PRICING. If Vendor offers a better price outside the
U.S. and Ingram has distribution rights in that territory then the same price
shall be offered to Ingram for Product sales into that territory.
5.4. PRICE ADJUSTMENTS. If Vendor reduces any Product price, or offers
increased discounts to any other similar type of customer as Ingram for the
territory Ingram has distribution rights to, Vendor will promptly credit Ingram
for the difference between the original Product price and the reduce Product
price for Ingram's inventory, including: (i) any Customer Product in-transit
from/to Ingram, (ii) any unshipped orders, and (iii) orders in-transit to Ingram
on the price reduction or increased discount offer date. In the event that
Vendor shall raise the list price of a Product, all orders for such Product
placed prior to the effective date of the price increase shall be invoiced at
the lower price. Vendor shall provide Ingram with thirty (30) days advance
notice of any price increases.
5.5. PAYMENT TERMS. Ingram's initial order payment terms shall be net
sixty (60) days. Subsequent order payment terms shall be [***] percent
([***]%) fifteen (15) days, net thirty (30) days. Payment shall be deemed
made on the payment postmark date.
5.6. RIGHT TO WITHHOLD. Notwithstanding any other provision in this
Agreement to the contrary, Ingram shall not be deemed in default if it withholds
any specific amount
*** Portions of this exhibit have been omitted and filed separately with the
Commission pursuant to a request for confidential treatment under Rule 406
5
<PAGE>
to Vendor because of a legitimate dispute between the parties as to that
specific amount pending the timely resolution of the disputed amount.
6. MARKETING
6.1. TRADEMARKS. Ingram may advertise and promote the Product and/or
Vendor, and may thereby use Vendor's trademarks, service marks and trade names.
Neither party shall acquire any rights in the trademarks, service marks or trade
names of the other.
6.2. MARKETING DEVELOPMENT FUNDS. Vendor agrees to provide allowances
for the reimbursement of Ingram's expenditures for advertising and market
development of Vendor's Products. Such allowances will accrue in an amount
equal to [***] percent ([***]%) of the total amount invoiced by Vendor to
Ingram (net of Product returns and similar deductions) for shipments of
Products but only if Ingram has provided to Vendor on a timely basis the
proof of performance. Vendor and Ingram will agree to the market development
expenditures in advance. Vendor may provide additional project based funds
for marketing development at Vendor's sole discretion. Vendor reserves the
right in its sole discretion to increase, decrease or terminate such
allowance for any reason upon forty-five (45) days advance written notice to
Ingram. Such allowance may only be used to reimburse Ingram for advertising
and market development which occurs in the six (6) month period following the
calendar month in which such allowance was accrued. To be eligible for such
allowance Ingram must provide Vendor with evidence of Ingram's expenditure on
which such claim for reimbursement is based on and such other information as
Vendor may reasonably request. Such reimbursement will take the form of a
credit on Ingram's account for future orders from Ingram under this Agreement
or as mutually agreed to, a deduction from Vendor's invoice to Ingram for
past orders from Vendor.
6.3. QUARTERLY MINIMUMS, VOLUME CREDITS. Vendor agrees to provide Ingram
with Volume Incentive Rebate program which will be paid on net sales. Ingram
will receive a guaranteed [***] percent ([***]%) rebate and will be eligible to
receive additional rebates up to [***] percent ([***]%) based on the following
functional objectives: (1) Reseller breadth, (2) net sales (excluding site
management licenses) and (3) an additional function objective to be determined
quarterly. Prior to the beginning of each calendar quarter during the term of
this Agreement, Vendor will notify Ingram of all goals. Vendor will provide
Ingram a credit within thirty (30) days after the end of the quarter based on
the invoice amount or the quantity of Products that Ingram sold to Resellers
during such quarter if Ingram meets the goals established by Vendor in such
notice. Not withstanding any other provision of this Agreement, Ingram will not
be entitled to any credits for any quarter under this section if: (1) Vendor
has not given Ingram notice of Minimum Amount and Breadth goals and credits for
such quarter, (2) Ingram does not provide Vendor on a timely basis with all the
reports required by section 3.4b (the monthly sales and inventory reports) for
each month of such quarter. All credits under this section will apply to
outstanding invoices from Vendor under this
*** Portions of this exhibit have been omitted and filed separately with the
Commission pursuant to a request for confidential treatment under Rule 406
6
<PAGE>
Agreement. If there are no outstanding invoices Vendor shall issue a check. In
the event that this Agreement is terminate, Vendor will, within thirty (30) days
after termination, pay Ingram all unused or unpaid credits which has accrued to
Ingram's account, less any amounts owed by Ingram to vendor. Upon request,
Ingram will provide documentation regarding Ingram's attainment of Breadth and
Minimum Amount goals.
6.4. SUPPORT PRODUCT. Vendor shall consign a reasonable amount of
demonstration Product to aid Ingram in its support and promotion of Product.
All such consigned Product will be returned to Vendor upon request.
7. RETURNS
7.1. STOCK BALANCING. For the purpose of inventory balancing, Ingram may
return Products once per calendar quarter provided Products are in their
original packaging for full credit of the Products' purchase price, plus all
freight charges for returned Product. The aggregate dollar amount of all
individual Ingram returns shall not exceed twenty-five percent (25%) of the
value of Ingram's net purchase of Products from Vendor during the three (3)
months immediately preceding such returns. Vendor agrees to consider in good
faith any Ingram requests on a cases by case basis for returns in excess of said
twenty-five percent (25%) amount.
7.2. POST-TERM/TERMINATION For one hundred eighty (180) days after the
expiration or earlier termination of this Agreement, Ingram may return to Vendor
any Product for credit against outstanding invoices, or if there are no
outstanding invoices for a cash refund. Any credit or refund due Ingram for
returned Product shall be equal to the Product purchase price plus all freight
charges incurred by Ingram in returning the Product.
7.3. PRODUCT DISCONTINUATION Vendor shall give Ingram thirty (30) days
advance written notice of Product discontinuation. Ingram may return all such
Product to Vendor within one hundred eighty (180) days following discontinuation
for full credit of Product purchase price plus all freight charges incurred by
Ingram in returning the Product.
7.4. DEFECTIVE PRODUCT
(a) Ingram may return any Product to Vendor that Ingram or its
customer finds defective during the warranty period. Vendor shall immediately
credit Ingram for the Product purchase price, plus all freight charges incurred
by Ingram in returning the defective Product.
(b) If any Product is recalled by Vendor because of defects,
revisions or upgrades, Ingram will, at Vendor's request, provide reasonable
assistance with the recall. Vendor will pay Ingram's expenses in connection
with such recall.
7
<PAGE>
8. INDEMNIFICATION
8.1. PRODUCT INDEMNITY Vendor shall defend, indemnify, and hold harmless
Ingram from and against any claims, demands, liabilities, or expenses (including
attorney's fees and costs), any personal or bodily injury or property damage,
arising out of or resulting in any way from any defect in Products. This duty
to indemnify Ingram shall be in addition to the warranty obligations of Vendor.
8.2. GENERAL INDEMNITY Each party shall indemnify, defend and hold the
other harmless from and against any and all claims, actions, damages, demands,
liabilities, costs and expenses, including reasonable attorney's fees and
expenses, resulting from any act or omission of the acting party or its
employees under this Agreement, that causes or results in property damage,
personal injury or death.
8.3. INTELLECTUAL PROPERTY RIGHTS INDEMNITY Vendor shall defend, indemnify
and hold Ingram, harmless from and against all damages and costs incurred by any
of them arising from the infringement of any U.S. patent, copyright, trademark,
trade secret or other proprietary right by reason of the manufacture, sale,
marketing, or use of Product.
8.4. PRODUCT INFRINGEMENT. Upon threat of claim of infringement, Vendor
may, at its expense and option (i) procure the right to continue using any part
of Product, (ii) replace the infringing Product with a non-infringing Product of
similar performance, or (iii) modify Product to make it non-infringing. If
Vendor does not so act within ninety (90) days after such claim, Ingram may
return Product to Vendor for a full credit against future purchases or for a
cash refund, at Ingram's option.
8.5. LIMITATION OF LIABILITY. NEITHER PARTY SHALL BE LIABLE TO THE OTHER
FOR LOST PROFITS OF BUSINESS, INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES,
WHETHER BASED IN CONTRACT OR TORT (INCLUDING NEGLIGENCE, STRICT LIABILITY OR
OTHERWISE), AND WHETHER OR NOT ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
THIS LIMITATION IS IN NO WAY MEANT TO LIMIT VENDOR'S LIABILITY FOR PERSONAL
INJURY OR DEATH AS A RESULT OF A DEFECT IN ANY PRODUCT IN THOSE JURISDICTIONS
WHERE THE LAW DOES NOT ALLOW THIS LIMITATION.
9. COMPLIANCE WITH FEDERAL LAWS AND REGULATIONS
9.1. EXECUTIVE ORDER 11246. Vendor agrees to include the Equal Employment
Opportunity Clause by reference in every contract, agreement and purchase order
entered into with subcontractors or suppliers as required by 41 CFR 60-1.4.
9.2. EMPLOYER INFORMATION REPORT EEO-1/ WRITTEN AFFIRMATIVE ACTION PROGRAM.
Vendor agrees that if the value of any contract or purchase order is fifty
thousand dollars ($50,000) or more and the Vendor has fifty (50) or more
employees, Vendor will
8
<PAGE>
(i) file an EEO-1 report (Standard Form 100) and comply with and file such other
compliance reports as may be required under Executive Order 11246, as amended,
and Rules and Regulations adopted thereunder and (ii) will develop a written
affirmative action compliance program for each of its establishments as required
by Title 41 CFR 60-1.40.
9.3. VETERANS EMPLOYMENT CLAUSE. Vendor agrees to abide by and comply with
the provisions of the Affirmative Action Clause, 41 CFR 60-250.4.
9.4. EMPLOYMENT OF HANDICAPPED PERSONS. Vendor agrees that it will abide
by and comply with the provisions of the Affirmative Action Clause, CFR
60-741.4.
9.5. SMALL BUSINESS CONCERNS AND SMALL BUSINESS CONCERNS OWNED AND
CONTROLLED BY SOCIALLY AND ECONOMICALLY DISADVANTAGED INDIVIDUALS. Where a
government contract is expected to exceed five hundred thousand dollars
($500,000), Vendor agrees to comply with all requirements of P.L. 95-507 and
regulations promulgated thereunder. Vendor shall comply with instructions
contained in Exhibit F.
9.6. WOMEN-OWNED BUSINESS CONCERNS. Vendor shall comply with instructions
contained in Exhibit F. Where a government contract is expected to exceed five
hundred thousand dollars ($500,000), Vendor agrees to comply with all
requirements of Executive Order 12138 and all regulations promulgated
thereunder.
10. GOVERNMENT PROGRAM
10.1. PARTNERSHIP AMERICA. Vendor may, at its sole option, participate
in Ingram's government reseller program in which case the provisions of Exhibit
G, Partnership America, shall apply. A draft copy is provided solely for your
information and review.
11. GENERAL PROVISIONS
11.1. NOTICES. Any notice which either party may desire to give the
other party must be in writing and may be given by (i) personal delivery to an
officer of the party, (ii) by mailing the same by registered or certified mail,
return receipt requested, to the party to whom the party is directed at the
address of such party as set forth at the beginning of this Agreement, or such
other address as the parties may hereinafter designate, and (iii) by facsimile
or telex communication subsequently to be confirmed in writing pursuant to item
(ii) herein.
11.2. GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with the laws of the State of California, except that body of law
concerning conflicts of law. The United Nations Convention on Contracts for the
International Sale of Goods shall not apply to this Agreement.
9
<PAGE>
11.3. COOPERATION. Each party agrees to execute and deliver such
further documents and to cooperate as may be necessary to implement and give
effect to the provisions contained herein.
11.4. FORCE MAJEURE. Neither party shall be liable to the other for
any delay or failure to perform which results from causes outside its reasonable
control.
11.5. ATTORNEYS FEES. In the event there is any dispute concerning the
terms of this Agreement or the performance of any party hereto pursuant to the
terms of this Agreement, and any party hereto retains counsel for the purpose of
enforcing any of the provisions of this Agreement or asserting the terms of this
Agreement in defense of any suit filed against said party, each party shall be
solely responsible for its own costs and attorney's fees incurred in connection
with the dispute irrespective of whether or not a lawsuit is actually commenced
or prosecuted to conclusion.
11.6. EXPORT REGULATIONS. Ingram agrees by the purchase or Products to
conform to, and abide by, the export laws and regulations of the United States,
including but not limited to, the Export Administration Act of 1979 as amended
and its implementing regulations. Ingram shall include a statement in it's
standard sales terms and conditions that any shipment of Product outside the
United States will require a valid export license. Ingram further agrees to
distribute Product in accordance with the territory as defined in Section 1.1.
Whenever a EU country is specified as Territory under Section 1.1, Territory
shall include all EU countries.
12. AGREEMENT
12.1. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
12.2. SECTION HEADINGS. Section headings in this Agreement are for
convenience only, and shall not be used in construing the Agreement.
12.3. INCORPORATION OF ALL EXHIBITS. Each and every exhibit referred
to hereinabove herein by reference as if set forth herein in full.
12.4. SEVERABILITY. A judicial determination that any provision of
this Agreement is invalid in whole or in part shall not affect the
enforceability of those provisions found to be valid.
12.5. NO IMPLIED WAIVERS. If either party fails to require performance
of any duty hereunder by the other party, such failure shall not affect its
right to require performance of that or any other duty thereafter. The waiver
by either party of a breach of any provision of this Agreement shall not be a
waiver of the provision itself or a waiver of any breach thereafter, or a waiver
of any other provision herein.
10
<PAGE>
12.6. BINDING EFFECT/ASSIGNMENT. This Agreement shall be binding upon
and shall inure to the benefit of the parties hereto, and their respective
representatives, successors and permitted assigns. This Agreement shall not be
assignable by Vendor, without the express written consent of Ingram, which
consent shall not be unreasonably withheld, including to a Person in which it
has merged or which has otherwise succeeded to all or substantially all of such
party's business and assets to which this Agreement pertains and which has
assumed in writing or by operation of law its obligations under this Agreement.
Any attempted assignment in violation of this provision will be void.
12.7. SURVIVAL. Sections 5.5 (Payment Terms), 5.6 (Right to Withhold),
7.2 (Post-Term Termination) and 8, (Indemnification) shall survive the
expiration or earlier termination of this Agreement.
12.8. ENTIRETY. This Agreement constitute the entire agreement between
the parties regarding its subject matter. This Agreement supersedes any and all
previous proposals, representations or statements, oral or written. Any
previous agreements between the parties pertaining to the subject matter of this
Agreement are expressly terminated. The terms and conditions of each party's
purchase orders, invoices, acknowledgments/confirmations or similar documents
shall not apply to any order under this Agreement, and any such terms and
conditions on any such document are objected to without need of further notice
or objection. Any modifications to this Agreement must be in writing and singed
by authorized representatives of both parties.
12.9. AUTHORIZED REPRESENTATIVE. Either party's authorized
representative for execution of this Agreement or any amendment hereto shall be
president, a partner, or a duly authorized vice-president of their respective
party. The parties executing this Agreement warrant that they have the
requisite authority to do so.
IN WITNESS WHEREOF, the parties hereunto have executed this Agreement.
"Ingram" "Vendor"
Ingram Micro Inc. NetObjects, Inc.
1600 E. St. Andrew Place 2055 Woodside Road
Santa Ana, California 92705 Redwood, City, California 94601
By: /s/ V L Cotten By: /s/ Mark Patton
--------------------------------- ------------------------------------
Name: Victoria L. Cotten Name: Mark Patton
------------------------------- ----------------------------------
Title: Sr. Vice President Purchasing Title: V.P. Sales & Corp. Marketing
------------------------------ ---------------------------------
Date: 5-30-97 Date: 5/22/97
------------------------------- ----------------------------------
*AGREEMENT MUST BE SIGNED BY PRESIDENT OR BY A DULY AUTHORIZED VICE PRESIDENT OR
PARTNER.
11
<PAGE>
EXHIBITS:
A - Vendor Routing Guide
B - Guide to Bar Code: The Product Label
C - Product Notes
D - Product Price List
E - "IMAGINE" Program
F - Small And Disadvantaged Business Certification
G - Partnership America
12
<PAGE>
COMMERCIAL APPLICATION PARTNER (CAP) AGREEMENT
----------------------------------------------
This Agreement is made effective 30 June 1997 between Sybase, Inc. ("Sybase")
with offices at 6475 Christie Ave, Emeryville, California 94608, and NetObjects,
Inc. ("Partner") with offices at 2055 Woodside Road, Redmond City, California
94061.
1. LICENSE GRANT. Subject to the terms and conditions below, Sybase grants to
Partner a nonexclusive and nontransferable license to market and distribute
copies of unmodified object code versions of those Sybase and/or Powersoft
software products identified in the attached initialed Schedules along with
accompanying documentation ("Programs") to Partner's customers ("End-Users") who
will use the Programs only for their own internal business purposes in the
applicable Territory described in each Schedule A, provided that the Programs
are distributed for use with computer application programs developed by Partner
for commercial distribution to more than one third party and containing
significant added functionality over the Programs ("Application Software").
Partner shall license to each End-User the same number of copies of the Programs
and the same number of Seats/Named Users for such Programs as Partner licenses
to such End-User for its Application Software. In addition to being able to
distribute "full use" copies of the Programs, "full use" Seats and "full use"
Named Users, Partner may also distribute, with respect to certain Programs
identified in Sybase's then-current price list, Application Deployment Copies,
Application Deployment Seats and Application Deployment Named Users (which are
restricted licenses defined in the Sybase license agreement accompanying each
copy of the Program ("Sybase Shrinkwrap")). Partner may also sell to End-Users
certain Sybase services as described in the Schedule(s). Notwithstanding the
above, if the Territory includes any of the Prohibited Countries set forth in
Sybase's then current "Prohibited Country List" (a current copy of which has
been provided to Partner), Partner may not market or distribute Programs for use
in such Prohibited Countries. Partner shall not use or allow its End Users to
use the Programs for timesharing, rental or service bureau purposes or on behalf
of any third party (but the foregoing restrictions shall not be construed to
prevent Partner from distributing the Application Software together with the
Programs over the internet). In connection with the distribution rights granted
above, Partner may appoint distributors to distribute the Programs to End-Users
within the Territory. The appointment of distributors shall be by contracts
which require that the distributor market the Programs only in accordance with
the terms of this Agreement and on a basis which protects the proprietary
interests of Sybase in and to the Programs to the same extent that Partner's
proprietary interests in its own products are protected (but in any event no
less than a reasonable extent). Partner may order under this Agreement (a)
copies of the Programs for its own internal production purposes and/or
developing and supporting the Application Software ("Internal Use Copies"), (b)
copies of the Programs which may only be used for developing and supporting the
Application Software ("Development Copies"), (c) copies of the Programs which
may be distributed to End-Users for evaluation purposes and for up to the number
of days designated in the applicable Schedule A, ("Evaluation Copies") which
Partner agrees to ensure become disabled after such period of time, and (d) up
to that number of copies of the Programs shown on Schedule A for purposes of
Partner providing demonstrations and training for the Application Software
("Demonstration Copies"). Partner is authorized to incorporate into the
documentation for the Application Software portions of the documentation for the
Program to the extent such portions are necessary to document usage of the
Program in conjunction with the Application Software.
2. FEES AND PAYMENT TERMS. For the first year of this Agreement, Partner
shall be responsible for paying to Sybase a non-refundable program fee shown in
Schedule A ("Initial Fee"). The Initial Fee is due upon execution of this
Agreement by Partner. For each additional year, a non-refundable annual program
renewal fee ("Annual Renewal Fee") as set forth in such Schedule is due and
payable upon each anniversary of the date of this Agreement. Fees as set forth
in the attached Schedule(s) shall be due to Sybase for each copy of the Programs
and each service ordered by Partner; such fees shall be based on Sybase's
then-current price list for the country in which the Programs are to be used or
the services are to be delivered ("Price List"). The license fee for
Development Copies is the same as the fee for Internal Use Copies unless Sybase
designates otherwise in its Price List. The license fee for Demonstration
Copies, if any, is set forth in the Schedule(s). Notwithstanding the above,
there is no charge for authorized Evaluation Copies distributed to End-Users.
License fees, if any, for Internal Use Copies, Development Copies, Demonstration
Copies, and copies of the Programs which Sybase ships to Partner for
distribution to End-Users shall be due and payable to Sybase with Partner's
order for the Programs or, upon Sybase credit approval of Partner, 60 days after
the date of Sybase's invoice for the Programs. Any past-due invoice may subject
Partner to credit hold at the sole discretion of Sybase. All fees under this
Agreement are stated in United States dollars.
3. OWNERSHIP. Programs are owned by Sybase or its licensors and are protected
by copyright law, trade secret laws and international conventions. All rights
in and to patents, copyrights, trademarks and trade secrets in the Programs are
and shall remain with Sybase and its licensors. No title to or ownership of the
Programs is transferred to Partner or End-User. Partner shall not translate,
localize or modify any portion of the Programs without the prior written consent
of Sybase.
4. ORDERING AND DELIVERY. Internal Use Copies, Development Copies,
Demonstration Copies, Evaluation Copies and copies of the Programs for
distribution directly or indirectly to End-Users shall be ordered from Sybase
and delivered by Sybase to Partner (or in the case of Evaluation Copies and
copies for distribution to End-Users, Sybase shall deliver the copies directly
to the End-Users if so instructed by Partner). Partner will use the "Exhibit A"
form adopted by Sybase from time to time (or a Purchase Order containing the
same information) to order Programs from Sybase. All shipments are FOB origin,
<PAGE>
and Partner is responsible for all shipping charges. Except for taxes on
Sybase's income, Partner shall be responsible for any sales, use, excise or any
other form of taxes resulting from this Agreement.
5. LICENSE ACCOMPANYING PROGRAMS. If Partner uses the Programs, Partner
agrees to be bound by the terms and conditions of the Sybase Shrinkwrap.
Notwithstanding the above, Development Copies and Demonstration Copies shall
only be used for the purposes outlined in Section 1 above and shall be returned
to Sybase upon expiration or termination of this Agreement. Partner shall
ensure that the End-User's use of the Programs is either subject to the terms
and conditions of (a) the Sybase Shrinkwrap or (b) an executed license agreement
or shrinkwrap agreement between Partner and End-User which is substantially
similar to, and no less restrictive in protecting Sybase's interests than, the
Sybase Shrinkwrap. If Evaluation Copies are being licensed, the Sybase
Shrinkwrap or license agreement between Partner and End-User (as applicable)
shall be modified by Partner to provide that the Programs may only be used for
the designated evaluation period (which is not to exceed 90 days in length)
after which the license shall terminate and the Programs will become disabled.
If a conflict arises between this Agreement and any such license agreement, the
terms of this Agreement shall prevail. Partner shall undertake reasonable
efforts to enforce the terms of any license agreement between Partner and an
End-User as it relates to the Programs.
6. REPORTS. Partner shall keep or cause to be kept full and accurate accounts
and records of all transactions made by it and by its authorized distributors
under this Agreement (including Evaluation Copies) in form such that all amounts
owing hereunder to Sybase may be readily and accurately determined. Partner
shall undertake to assure that its distributors are (a) accurately reporting to
Partner all sales to End-Users and (b) otherwise complying with this Agreement.
Partner shall allow Sybase to examine its records to determine compliance with
this Agreement, and not more than annually provided a previous audit did not
show non-compliance with this Agreement. Any examination shall be at the
expense of Sybase, shall occur during regular business hours at Partner's
offices and shall not interfere unreasonably with Partner's regular activities.
Sybase shall give Partner 30 days or more prior written notice of the date of
each such examination and the name of the accountant who will be conducting the
examination. All information obtained from conducting the examinations shall be
maintained as Confidential Information. Partner agrees to pay Sybase any
amounts owing as a result of Partner's non-compliance with the payment
provisions of this Agreement within 60 days of the date of the examination
report which details such non-compliance. In the event such amounts owed by
Partner to Sybase exceeds 10% of total royalties due, Partner shall pay the
costs of such examination.
7. SUPPORT & MAINTENANCE. Partner shall be solely responsible for providing
End-User technical support and service of warranty claims for Partner's
Application Software, including the Programs, provided that Partner may also
sell Sybase technical support services for the Programs only, on the terms
described in the attached Schedules. Partner may distribute to End-Users to
whom it has licensed Application Deployment Copies of a Program updates to such
Program which are made generally available by Sybase so long as Partner has paid
Sybase all applicable Application Deployment Maintenance Fees.
8. INDEPENDENT CONTRACTORS. Partner and Sybase are independent contractors
and are not agents or representatives of each other. Partner does not have the
right to bind Sybase and shall not misstate or misrepresent its relationship to
Sybase.
9. ADVERTISING; TRADEMARKS. Sybase may identify Partner as a Commercial
Application Partner in Sybase advertising and marketing materials given
Partner's prior approval. Partner shall not make any representations concerning
the Programs which are inconsistent with Sybase's marketing materials and
advertising. Partner may utilize applicable Sybase trademarks and logos only in
accordance with Sybase's then-current published guidelines, and trademarks shall
remain the exclusive property of Sybase or its licensors. Partner shall
suitably feature, except when Partner's business interests may be adversely
affected, the Programs and related trademarks and Sybase's ownership of the
Program in any advertising, marketing literature, product documentation, and
packaging of the Application Software. Partner shall give recognition in the
Application Software of Sybase's proprietary rights in the Programs, and shall
do so in the same manner, places and times, and no less conspicuously, than the
recognition of the proprietary rights of any other software (excluding the
Application Software), but in any event Partner shall include such recognition
in the "Help About" dialogue box or equivalent.
10. TERM AND RIGHTS UPON TERMINATION. This Agreement will become effective as
of the date first shown above and shall continue in force for a period of 3
years, subject to (a) Partner's payment of all fees owing hereunder, or (b)
termination under Section 11 below. Thereafter, this Agreement shall
automatically renew for additional one-year terms subject to payment of Sybase's
then-current Annual Renewal Fee and provided that Partner is not then in default
of this Agreement, unless written notice of termination is given by either party
at least 30 days prior to the expiration of the term then in effect. No
expiration or termination of this Agreement shall impair or affect (i) Internal
Use Copies, which shall continue so long as Partner is not in breach of the
Sybase Shrinkwrap or (ii) copies of Programs distributed by Partner to End-Users
in accordance with this Agreement prior to the effective date of the expiration
or termination of this Agreement. All Demonstration Copies shall be returned to
Sybase. Termination or expiration shall not release either party from its
liability to pay any fees accruing prior to the date of the termination or
expiration. Sections 3, 5, 10, 11, 12, 13, 14 and 18 of this Agreement shall
survive any expiration or termination of this Agreement.
11. DEFAULT. Either party may immediately terminate this Agreement or any
license granted hereunder by written notice to the other if such other party
breaches any term or condition of this Agreement, including but not limited to
failure to pay
<PAGE>
when due any fee hereunder, and does not remedy such breach within 30 days of
written notice thereof from the non-breaching party. Each party will reimburse
the other party for all reasonable costs incurred by the other party (including
attorneys' fees) in collecting past due amounts hereunder. Any breach which by
its nature cannot be remedied shall entitle the non-breaching party to terminate
this Agreement immediately upon written notice to the other party. This remedy
shall not be an exclusive remedy and shall be in addition to any other remedies
which the non-breaching party may have under this Agreement or otherwise.
12. CONFIDENTIAL INFORMATION. Each party will not disclose or use any business
and/or technical information of the other designated orally or in writing as
"Confidential" or "Proprietary" (together, "Confidential Information") without
the prior written consent of the other party. Such restrictions do not extend
to any item of information which (a) is now or later becomes available in the
public domain without the fault of the receiving party; (b) is disclosed or made
available to the receiving party by a third party without restrictions and
without breach of any relationship of confidentiality; (c) is independently
developed by the receiving party without access to the disclosing party's
Confidential Information, (d) is known to the recipient at the time of
disclosure, or (e) is produced in compliance with applicable law or court order,
provided that the disclosing party is given reasonable notice of such law or
order and an opportunity to attempt to preclude or limit such production. Upon
termination or expiration of this Agreement, each party shall immediately return
all copies of Confidential Information received from the other party. Partner
shall not release the results of any benchmark of the Programs to any third
party without the prior written approval of Sybase for each such release.
13. DISCLAIMER OF WARRANTY; LIMITATION OF LIABILITY. Except as expressly
provided in the Sybase Shrinkwrap, NO EXPRESS OR IMPLIED WARRANTY OR CONDITION
IS MADE WITH RESPECT TO THE PROGRAMS OR SERVICES SUPPLIED BY SYBASE OR ITS
SUBSIDIARIES, INCLUDING WITHOUT LIMITATION ANY IMPLIED WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. The aggregate liability to
Sybase and its subsidiaries, if any, for any losses or damages arising out of or
in connection with this Agreement, whether the claim is in contract, tort or
otherwise, shall not exceed the amount paid by Partner to Sybase under this
Agreement for the affected Programs or services. UNDER NO CIRCUMSTANCES SHALL
SYBASE, ITS SUBSIDIARIES OR ITS LICENSORS BE LIABLE FOR SPECIAL, INDIRECT,
EXEMPLARY, INCIDENTAL AND/OR CONSEQUENTIAL DAMAGES, INCLUDING, BUT NOT LIMITED
TO, LEGAL FEES, LOSS OF PROFITS, LOSS OR INACCURACY OF DATA OR LOSS RESULTING
FROM BUSINESS DISRUPTION, EVEN IF SYBASE HAS BEEN ADVISED OF THE POSSIBILITY OF
SUCH DAMAGES.
EXCEPT IF PARTNER IS FOUND TO HAVE (i) MADE UNAUTHORIZED COPIES OF THE
PROGRAM(S) OR (ii) DISTRIBUTED THE PROGRAM(S) TO THIRD PARTIES IN VIOLATION OF
THIS AGREEMENT, PARTNER SHALL NOT BE LIABLE FOR SPECIAL, INDIRECT, EXEMPLARY,
INCIDENTAL AND/OR CONSEQUENTIAL DAMAGES, INCLUDING, BUT NOT LIMITED TO, LEGAL
FEES, EVEN IF PARTNER HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
14. INDEMNIFICATION. Partner indemnifies and holds harmless Sybase, its
affiliates, directors, employees and agents from all third party claims,
including court costs and reasonable fees of attorneys and expert witnesses,
arising in connection with (a) a breach by Partner of its agreement with an
End-User or distributor (unless such breach was caused by Sybase's breach of
this Agreement or the Sybase Shrinkwrap), or (b) use of the Application Software
if liability is not caused in whole or in part by the Programs as provided by
Sybase. Sybase indemnifies and holds harmless Partner, its affiliates,
directors, employees and agents from all third party claims, including court
costs and reasonable fees of attorneys and expert witnesses, arising in
connection with (i) a breach by Sybase of the Sybase Shrinkwrap or (ii) use of
the Programs as provided by Sybase if liability is not caused in whole or in
part by the Application Software.
15. EXPORT RESTRICTION. Partner shall not transfer, directly or indirectly,
any restricted Programs or technical data received from Sybase or its
subsidiaries, or the direct product of such data, to any destination subject to
export restrictions under U.S. law, unless prior written authorization is
obtained from the appropriate U.S. agency.
16. ASSIGNMENT. This Agreement may not be assigned (by operation of law or
otherwise) or otherwise transferred in whole or in part by Partner unless
Partner has received prior written permission from Sybase, such permission not
to be unreasonably denied by Sybase. Notwithstanding the immediately preceding
sentence, Partner may assign or otherwise transfer this Agreement to the
surviving entity as a result of a merger, acquisition or reorganization of all
or substantially all of the Partner's assets or stock provided that (a) such
entity is not a direct competitor of Sybase, (b) such entity agrees that it will
be bound by the terms and conditions of this Agreement and (c) in the event of
any assignment to a surviving entity, such entity's rights to use the Program
shall be limited to use of the Program in connection with the business acquired
from Partner. To the extent Partner is permitted to assign this Agreement, all
provisions of this Agreement shall be binding upon Partner's successors or
assigns.
17. NOTICES. All notices under this Agreement shall be in writing and either
delivered personally, sent by first class mail, express carrier or by confirmed
facsimile transmission to the address of the party set forth above (and if to
Sybase, to the attention of the General Counsel). All notices shall be deemed
given on the business day actually received.
<PAGE>
18. OTHER. This Agreement, the initialed Schedules, and any documents
explicitly referred to therein, constitute the entire agreement between the
parties, supersede any and all previous agreements authorizing Partner to
distribute the Programs to third parties and no representation, condition,
understanding or agreement of any kind, oral or written, shall be binding upon
the parties unless incorporated herein. This Agreement may not be modified or
amended, nor will the rights of either party be deemed waived, except by an
agreement in writing signed by authorized representatives of Partner and Sybase.
Purchase orders shall be binding as to the products and services ordered, and
the site for delivery of Programs or performance of services as set forth on the
face side of or a special attachment to the purchase order. Other terms and
preprinted terms on or attached to any purchase order shall be void. This
Agreement shall be governed by, and construed in accordance with, the laws of
the State of California without regard to its conflict of laws rules or the
United Nations Convention on the International Sale of Goods. If any provision
of this Agreement is held to be unenforceable, the parties shall substitute for
the affected provision an enforceable provision which approximates the intent
and economic effect of the provision. The parties have requested that this
Agreement and all documents contemplated hereby be drawn up in English.
ACCEPTED AND AGREED ON BEHALF OF:
NetObjects, Inc. ("Partner") Sybase, Inc. ("Sybase")
/s/ Morris Taradalsky /s/ Mitchell L. Gaynor
- ----------------------------------- --------------------------------------
(Authorized Signature) (Authorized Signature)
Morris Taradalsky Mitchell L. Gaynor
- ----------------------------------- ---------------------------------------
(Printed Name) (Printed Name)
Vice President, General
EVP Business Development 6/30/97 Counsel and Secretary 6/30/97
- ----------------------------------- ---------------------------------------
(Title) (Date) (Title) (Date)
<PAGE>
SCHEDULE A - SILVER LEVEL
TO THE COMMERCIAL APPLICATION PARTNER AGREEMENT
DEVELOPMENT TOOL PARTNER FEES AND GUIDELINES
- -------------------------------------------------------------------------------
TERRITORY United States and Canada; however, Partner may sell
application-specific deployment seats worldwide.
- -------------------------------------------------------------------------------
INITIAL FEE $[***]
ANNUAL RENEWAL FEE $[***]
ONLY ONE INITIAL AND ANNUAL FEE REQUIRED PER AGREEMENT.
- -------------------------------------------------------------------------------
EVALUATION COPIES Entitled to 90-Day Evaluation Copies.
- -------------------------------------------------------------------------------
DISCOUNT FOR SOFTWARE Sybase will check block and initial if authorized to
PROGRAMS sell:
/ / DEVELOPMENT TOOLS
/ / DESIGN TOOLS
/ / WORKPLACE DATABASES
Discounts for the above software Programs are specified
in the then-current Development Tools Partner Products
Price List.
- -------------------------------------------------------------------------------
DISCOUNT FOR SALE OF [***] discount off then-current Price List on technical
END-USER TECHNICAL support offerings that Sybase makes generally available
SUPPORT OR UPGRADE to its customers.
SUBSCRIPTIONS
[***] discount off then-current Price List on upgrade
subscriptions.
PARTNER SHALL NOT SELL RENEWALS OF EITHER UPGRADE
SUBSCRIPTIONS OR TECHNICAL SUPPORT.
- -------------------------------------------------------------------------------
COMMISSION INCENTIVES When a Partner refers Sybase to a potential sale and
has significantly influenced the customer decision to
purchase the software Programs, Partner may be eligible
to receive a commission. All commissions shall be in
accordance with Sybase then-current policy which Sybase
may change at its sole discretion from time to time.
- -------------------------------------------------------------------------------
DISCOUNT FOR PARTNER [***] discount off then-current Price List on any
TECHNICAL SUPPORT commercially available end-user technical support
offering.
- -------------------------------------------------------------------------------
DISCOUNT FOR PARTNER [***] discount off then-current Price List on any
TRAINING Sybase standard training rates for Partner employees or
agents trained at Sybase or Powersoft public training
centers.
- -------------------------------------------------------------------------------
ACCEPTED AND AGREED: (MT) 6/30/97 MG 6/30/97
---------------------------- --------------------------
(PARTNER INITIALS) (Date) (SYBASE INITIALS) (Date)
DEVELOPMENT TOOLS PRODUCTS LIST AND ALL DISCOUNTS ARE SUBJECT TO CHANGE
UPON 30 DAYS PRIOR WRITTEN NOTICE.
*** Portions of this exhibit have been omitted and filed separately with the
Commission pursuant to a request for confidential treatment under Rule 406.
<PAGE>
SQL ANYWHERE -TM- MASTER DISK ADDENDUM (PAGE 1 OF 3)
TO THE COMMERCIAL APPLICATION PARTNER (CAP) AGREEMENT
This Master Disk Addendum ("Addendum") for SQL Anywhere database server software
("SQL Anywhere") is made 30 June 1997 between Sybase, Inc. ("Sybase") and
NetObjects, Inc. ("Partner"). This Addendum supplements and amends the terms of
the Commercial Application Partner Agreement dated 30 June 1997 ("Agreement")
between the parties hereto. In the event of a conflict between the Agreement
and this Addendum, the terms and conditions of this Addendum shall prevail.
This Addendum shall expire or terminate with the Agreement. Capitalized terms
not otherwise defined in this Addendum shall have the meanings set forth in the
Agreement. For purposes of this Addendum, "Application Software" means
Partner's software known as "Fusion Multi-User Software" or such successor name.
SQL ANYWHERE MASTER DISK PROGRAM AND GUIDELINES
- -------------------------------------------------------------------------------
LICENSE FEE Upon Partner's signing of this Addendum, Partner shall pay
PREPAYMENT Sybase the Prepay Amount designated below. The Prepay Amount is
non-refundable and irrevocable, and may only be used as
specified in this Addendum.
- -------------------------------------------------------------------------------
REPORTING & Partner shall, within 30 days after each calendar-quarter end,
LICENSE FEE provide Sybase (i) a written report showing the cumulative
PAYMENTS number of SA Servers or 10-Seat-Bundles and SA Server Updates or
10-Seat-Bundle Updates (including Evaluation Copies and
Demonstration Copies) distributed by Partner during such
preceding calendar quarter along with the name of the
Application Software with which such SA Servers or 10-Seat-
Bundles and SA Server Updates or 10-Seat-Bundle Updates were
distributed and (ii) payment (once the Prepay Amount is
depleted) for any SA Server or 10-Seat-Bundle fees and SA Server
or 10-Seat-Bundle Update fees due.
- -------------------------------------------------------------------------------
ACCESS AND (1) An "SA Server" is a copy of SQL Anywhere bundled with
AD SEATS Partner's Application Software and licensed for use with not
more than ten (10) AD Seats (without the purchase of additional
licenses).
(2) A "10-Seat-Bundle" is a license which permits an additional
ten (10) AD Seats to access an existing licensed SA Server.
(3) An application deployment seat ("AD Seat")" is a license for
a copy of a Program or a Seat (as applicable) which can only be
used for the purpose of (1) an End-User running non-custom
Application Software (excluding any third party application
programs marketed by Partner) and (2) extracting data on a read
only basis from the Application Software for use with other
applications; such extraction may either be through tools within
the Application Software or through third party tools. As used
in the prior sentence, the phrase "running non-custom
Application Software" means that the End User cannot use the
Programs to create or alter columns, tables, schemas or
databases unless (a) such columns, tables, schemas and databases
are created or altered by and within the context of the
Application Software (i.e., the Application Software must
generate the commands without the End-User itself using the
Program's command verbs) and only include data first captured in
the specific Application Software in which the new columns or
tables are created or altered (i.e., not transferred into such
Application Software from other Application Software or
applications), and (b) the commands to insert, delete or modify
data in the new or altered columns, tables, schemas or databases
must be included within existing "begin transaction" and "commit
transaction" statements in the original version of the
Application Software. Moreover, an AD Seat may not be used to
run copies of Programs which have been modified through a full-
use license to include modifications not permitted above.
Notwithstanding the above, the End User may use standard
database administration command verbs used for backup, recovery,
space/index management and consistency checking in the course of
systems administration. Additionally, for the purpose of this
Addendum only, use of SQL Anywhere on a server or a standalone
device such as a laptop shall also be counted as an AD Seat.
(4) A "Seat" means a specific identifiable unique accessor of
information such as a terminal, PC, single user workstation or
real time device licensed to access SQL Anywhere without regard
to when the access occurs; use of software or hardware which
reduces the number of accessors (sometimes called "multiplexing"
or "pooling") does not reduce the number of Seats, but rather
the number of Seats is equal to the number of distinct inputs to
the multiplexing software or hardware.
(5) Partner may exercise all rights granted under the Agreement
and this Addendum with regard to SA Servers and 10-Seat-Bundles
on a worldwide basis only in conjunction with their Application
Software.
(6) Partner may use SA Servers and 10-Seat-Bundles for internal
use only in conjunction with their Application Software. In
addition, Partner may use SA Servers and 10-Seat-Bundles as
Demonstration Copies and need not return said Demonstartion
Copies to Sybase.
- -------------------------------------------------------------------------------
----------------THIS ADDENDUM IS CONTINUED ON THE NEXT PAGE----------------
<PAGE>
SQL ANYWHERE -TM- MASTER DISK ADDENDUM (PAGE 2 OF 3)
- -------------------------------------------------------------------------------
AD SEAT Except if this Addendum or this Agreement is terminated due to
SURVIVAL Partner's default, should Partner have SA Servers or 10-Seat-
Bundles that remain of those prepaid for herein, then upon
expiration or termination of this Addendum Partner may continue
to distribute said remaining SA Servers or 10-Seat-Bundles (in
inventory as of the date of said expiration or termination) in
accordance with the terms and conditions of this Addendum and
the Agreement. It is expressly understood and agreed by Partner
that any price protection or price related to maintenance,
updates or support shall expire upon said expiration or
termination.
- -------------------------------------------------------------------------------
RESTRICTION Partner shall comply with the authentication routines
("Routine(s)") delivered within SQL Anywhere that allows SQL
Anywhere to work only with Partner's Application Software and
with other software all as described above in the section
"Access and AD Seats". Partner shall ensure that the
Routine(s) operates effectively. Partner shall not take any
action which may reduce the effectiveness of the Routine(s).
All aspects of the Routine(s) including its mechanism and the
manner in which it is applied to the Application Software is
Confidential Information under section 12 of the Agreement.
Partner shall verify the effectiveness of the Routine prior to
releasing the Application Software. Such verification will
include tests to ensure that SQL Anywhere operates with the
Application Software and with other software only as described
above in the section "Access and AD Seats". If the Routine(s)
is ineffective, Partner shall (a) promptly notify Sybase in
writing and (b) refrain from distributing the Application
Software until the Routine(s) is corrected provided that Sybase
promptly corrects and delivers to Partner revised Routine(s) to
include in the Application Software and Partner cooperates with
Sybase in determining the cause of the ineffectiveness of the
Routine(s). Partner shall be released from its obligation under
(b) above if Sybase fails to deliver corrected Routine(s) within
five (5) business days of Sybase's receipt of written notice
pursuant to (a) above.
- -------------------------------------------------------------------------------
DISTRIBUTORS Notwithstanding anything contained in this Addendum or the
Agreement to the contrary, Partner may appoint its distributors
to reproduce, license and sublicense the SA Servers and 10-Seat-
Bundles on behalf of Partner only as part of Partner's
Application Software worldwide. Partner represents and warrants
that it shall ensure that each such distributor arrangement be
pursuant to the following requirements:
(i) be in the form of a written agreement between Partner and
distributor that complies with the terms and conditions of this
Agreement, and
(ii) that Partner shall enforce the terms and conditions of
such agreements with said distributors, and
(iii) that Partner and distributor exercising such rights shall
be jointly and severally liable to Sybase under this Agreement,
and
(iv) any such agreement with each distributor must specifically
identify Sybase as an intended third party beneficiary.
- -------------------------------------------------------------------------------
MASTER DISK Partner and its distributors are authorized to distribute SA
Servers and AD Seats (as defined below) and Partner, but not its
distributors, is authorized to make Evaluation Copies and
Demonstration Copies of the Programs and copies of the Programs
to be licensed as SA Servers and AD Seats from Master Disks
("Master Disks") that Sybase will make available to Partner.
Partner may make as many Evaluation Copies and Demonstration
Copies as it reasonably requires. Partner shall ensure that all
Sybase copyright and other proprietary notices which are
included in the Master Disks are included on any copies made
from the Master Disks. Partner acknowledges that Master Disks
may contain devices which count or limit the number of copies
which can be made and Partner will not tamper with such devices.
Partner shall maintain Master Disks under lock and key and shall
allow only a specified number of its own employees to make
copies from Master Disks. Partner shall fully account for all
copies of the Programs. Partner shall not modify or alter any
proprietary rights notice contained within the Programs.
Partner is strictly prohibited from providing access or
transferring the Master Disk to any third party without the
prior written approval of Sybase, except as authorized in the
immediately preceding section to this Addendum titled
"Distributors". If Partner elects under Section 5 of the
Agreement to utilize the Sybase Shrinkwrap in connection with
its distribution of the Programs, Partner may reproduce the
Sybase Shrinkwrap for such purposes.
Sybase shall deliver to Partner a Master Disk of SQL Anywhere
containing its database engine, network server, ODBC drivers,
network requestor software and related administration tools.
Sybase shall exercise reasonable efforts to provide Partner with
a trial version of SQL Anywhere suitable for downloading over
the internet in conjunction with downloadable version of the
Application Software. Partner acknowledges that such trial
version of SQL Anywhere may be limited in functionality or may
contain a mechanism to disable it after a certain time period
has elapsed.
- -------------------------------------------------------------------------------
----------------This Addendum Is Continued On The Next Page---------------
<PAGE>
SQL ANYWHERE -TM- MASTER DISK ADDENDUM (PAGE 3 OF 3)
- -------------------------------------------------------------------------------
PARTNER Partner shall perform the following marketing obligations:
MARKETING => Spend at least $100,000 during the twelve (12) months
OBLIGATIONS following the signing of the Agreement on mutually-agreed joint
marketing activities with Sybase. Such activities shall be
agreed to in advance in writing by the Parties respective
authorized representatives. Partner shall notify Sybase in
writing of its representative authorized to approve such
marketing activities.
=> Assist in issuing a mutually agreed upon joint press release
between the parties.
=> The SQL Anywhere logo, as provided by Sybase, shall be
prominently displayed, except when Partner's business interests
may be adversely affected, on the exterior of each package that
contains the Application Software that is used in conjunction
with SQL Anywhere.
=> As appropriate, publicize SQL Anywhere by specifically
promoting it in press releases, press tours, consultant and/or
analyst briefings relating to your Application Software.
=> A senior executive of Partner shall provide Sybase a positive
testimonial regarding SQL Anywhere for use by Sybase in its own
advertising and marketing activities as mutually agreed upon by
the parties.
- -------------------------------------------------------------------------------
SYBASE At no charge to Partner and with mutual agreement between the
MARKETING parties, Sybase commits to:
OBLIGATIONS => Spend at least $100,000 during the twelve (12) months
following the signing of the Agreement on mutually-agreed joint
marketing activities with Partner. Such activities shall be
agreed to in advance in writing by the Parties respective
authorized representatives. Sybase's authorized representative
for purposes of such joint marketing activities shall be Brian
Vink.
=> Assist in issuing a mutually agreed upon joint press release
between the parties.
=> Place Partner's name on Sybase's partner website and
internet website.
=> Provide a web-link to Partner's website from Sybase's
partner website.
=> Provide a half-page Partner ad in one issue of the Sybase
"Connections" newsletter.
=> Availability through 31 December 1997 to Sybase's partner
mailing list via a blind third-party mailing house for Partner's
direct mailing use.
- -------------------------------------------------------------------------------
VERSION OF SQL ANYWHERE BEING ACQUIRED: SQL Anywhere AD Seats for
Windows 3.1, Windows'95, Windows NT, DOS, OS/2 and Netware.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
PREPAY AMOUNT* PER SA SERVER FEE OR PER PER SA SERVER UPDATE FEE OR
(NON-REFUNDABLE) 10-SEAT-BUNDLE FEE PER 10-SEAT-BUNDLE UPDATE FEE
- -------------------------------------------------------------------------------
<S> <C> <C>
$[***] $[***] $[***]
- -------------------------------------------------------------------------------
</TABLE>
* ONLY SA SERVER AND 10-SEAT-BUNDLE FEES CAN BE APPLIED AGAINST THE PREPAY
AMOUNT. THE PREPAY AMOUNT EXCLUDES SA SERVER UPDATE FEES AND
10-SEAT-BUNDLE UPDATE FEES.
UPDATES: Sybase may make certain minor corrections, fixes, etc. ("Maintenance
Releases") to SQL Anywhere that are available to other existing Sybase
customers. Sybase will make such Maintenance Releases available to Partner.
Partner may provide such Maintenance Releases to new users in accordance with
the per AD Seat fee contained in this Addendum and Partner may update existing
users of SQL Anywhere to the Maintenance Releases at no additional charge.
Sybase may make certain major corrections, enhancements, etc. ("Update") to SQL
Anywhere. Partner may provide an Update to NEW users in accordance with the per
SA Server fee or per 10-Seat-Bundle fee, as applicable, contained in this
Addendum, and Partner may provide an Update to EXISTING users of SQL Anywhere
for the per SA Server Update fee or per 10-Seat-Bundle Update fee, as
applicable, indicated above. For each Update, an Update fee is required.
Except as amended above, the Agreement shall remain in full force and effect.
NetObjects, Inc. ("Partner") Sybase, Inc. ("Sybase")
/s/ Morris Taradalsky /s/ Mitchell L. Gaynor
- -------------------------------- -------------------------------------
(Authorized Signature) (Authorized Signature)
Morris Taradalsky Mitchell L. Gaynor
- -------------------------------- -------------------------------------
(Printed Name) (Printed Name)
Vice President, General
EVP Business Development 6/30/97 Counsel and Secretary 6/30/97
- -------------------------------- -------------------------------------
(Title) (Date) (Title) (Date)
*** Portions of this exhibit have been omitted and filed separately with the
Commission pursuant to a request for confidential treatment under Rule 406.
<PAGE>
INSTALLMENT PAYMENT AGREEMENT
This Installment Payment Agreement ("IPA") is made as of the date
set forth below by and between Sybase, Inc. ("Licensor") and NetObjects Inc.
("Customer"). Customer promises to pay to the order of Licensor ("Payee"),
at its office located at 6475 Christie Avenue, Emeryville, CA 94608, or at
such other place as the holder of this IPA may from time to time designate,
total fees of [***] UNITED STATES DOLLARS (U.S. $[***]). Such fees are owing
in connection with the licensing of software products and services as
specified in the SQL Anywhere Master Disk Addendum dated June 30, 1997, to
the Commercial Application Partner (CAP) Agreement (as amended, the
"AGREEMENT") between Sybase and Partner dated June 30, 1997. Customer has
elected to pay in installments the total amount set forth above rather than
make the payments specified on the SQL Anywhere Master Disk Addendum within
30 days. Sales and use taxes relating to such products and services are not
included in the installments and will be due and payable by Customer within
30 days of the date hereof.
1. The fees shall be due and payable in six consecutive quarterly
installments, each in the amount of $[***], commencing on December 30, 1997,
and on the same day of each quarter thereafter to and including March 30, 1999,
when the remaining unpaid balance of this IPA, together with any interest on
late payments, if any, accrued thereon, shall be immediately due and payable.
If any installment shall not be paid when due, such overdue payment shall bear
interest (calculated on the basis of a 365-day year and actual days elapsed) at
the rate of 10% per annum until paid. Customer may prepay payments under this
IPA at any time, but shall not be entitled to any discount or rebate therefor.
Customer hereby waives grace, demand, presentment for payment, notice of
non-payment, protest and notice of protest, notice of dishonor or default,
notice of intent to accelerate, notice of acceleration and diligence in
collecting and bringing of suit. All obligations of Customer under this IPA
shall survive any termination of the licenses relating to the Licensed Software.
2. Customer represents and warrants to the holder hereof that (a) the Customer
is a corporation duly organized, validly existing and in good standing under
applicable state law; (b) this IPA is a genuine, legal, valid and binding
obligation of Customer, enforceable against Customer in accordance with its
terms, subject to applicable bankruptcy and other similar laws affecting
creditors' rights generally, and the execution, delivery and performance of the
IPA will not violate or create a default under any law (including any applicable
usury law), regulation, judgment, order, instrument, agreement or charter
document binding on Customer or its property; (c) the IPA has been duly
authorized, executed and delivered by Customer; (d) each signatory of this IPA
has the authority to bind Customer to this IPA; (e) the Licensed Software has
been delivered to and accepted by Customer and (f) the financial statements and
other information furnished and to be furnished to Payee are and will be true
and correct and prepared in accordance with generally accepted accounting
principles (GAAP) consistently applied.
3. If any of the following events shall occur (each an "Event of Default"),
then the holder of this IPA may, at its option and without notice to Customer or
any other person, declare the outstanding balance of this IPA, together with
any interest or other sums that Customer may owe to the holder hereof under or
in connection with this IPA, immediately due and payable and exercise any other
remedies available at law or equity:
(i) Customer fails to pay when due all or any portion of any installment or
any other amounts payable hereunder; (ii) any representation or warranty made
by Customer or any endorser, guarantor or surety hereof in any writing furnished
in connection with this IPA or the indebtedness evidenced hereby proves to be
false in any material respect when made; (iii) final judgment for the payment
of money shall be rendered against Customer or any endorser, guarantor or surety
hereof and the same shall remain undischarged for a period of 60 days during
which execution of such judgment shall not be effectively stayed, if the amount
of such judgment is such that it may materially adversely affect Customer's
financial condition or its ability to perform its obligations under this IPA; or
(iv) Customer or any endorser, guarantor or surety shall cease doing business
as a going concern or transfer all or a substantial part of its assets; or
become or be adjudicated insolvent or bankrupt, admit in writing its inability
to pay its debts as they become due, or make an assignment for the benefit of
creditors; or Customer or any endorser, guarantor or surety shall apply for or
consent to the appointment of any receiver, trustee or similar officer for it or
for all or any substantial part of its property; or such receiver, trustee or
similar officer shall be appointed without the consent of Customer; or Customer
or any endorser, guarantor or surety shall institute any bankruptcy, insolvency,
reorganization, moratorium, arrangement, readjustment of debt, dissolution,
liquidation or similar proceeding relating to it under the laws of any
jurisdiction, or any such proceeding is instituted against Customer or any
endorser, guarantor or surety and is not dismissed within 60 days; or any
judgment, writ, warrant or attachment or execution of similar process is issued
or levied against a substantial part of Customer's property and remains
unsatisfied for 30 days.
4. In the event that suit is brought hereon, or an attorney is employed or
costs or expenses are incurred to compel payment of this IPA or any portion of
the indebtedness evidenced hereby or to protect, preserve or enforce the rights
of the holder hereof, Customer promises to pay all such costs, expenses and
attorneys' fees (including but not limited to those incurred on appeal) to the
holder hereof in addition to all other amounts owing hereunder. Notwithstanding
any other provisions of this IPA or any document or instrument executed or
delivered in connection with this IPA, interest, fees and the like shall not
exceed the maximum rate permitted by applicable law. In addition to all other
rights and remedies of Licensor and the Assignee, upon an Event of Default
Licensor shall have the right, to terminate all licenses granted to Customer
under the Software Agreement relating to Licensed Software, except that licenses
granted to customers and users will remain in effect.
*** Portions of this exhibit have been omitted and filed separately with the
Commission pursuant to a request for confidential treatment under Rule 406.
<PAGE>
5. No delay or omission on the part of the holder hereof in exercising any
right hereunder shall operate as a waiver of such right or of any other right
under this IPA or under any other document or instrument executed or delivered
in connection with this IPA. Each notice or other communication required or
permitted to be given or delivered hereunder shall be in writing and shall be
sent or delivered, if to Customer, at the address indicated beneath Customer's
signature below and, if to the holder hereof, at the address set forth in the
first paragraph hereof, or, if such holder is not the Payee, at the last address
designated by such holder to Customer and shall become effective when delivered,
or if mailed, when deposited in the United States mail with proper postage
prepaid for registered or certified mail, return receipt requested.
6. This IPA has been entered into in connection with a Commercial Application
Partner (CAP) Agreement (as amended, the "AGREEMENT") between Sybase and
Partner. The use of the Licensed Software by Customer is subject to the terms
of the applicable Agreement. In the event that software licensed from Licensor
does not perform as warranted or in the event of any other dispute or default
under an Agreement, Customer shall be entitled to pursue against Licensor all of
Customer's rights and remedies arising under the applicable Agreement. Customer
hereby acknowledges and agrees that Payee has transferred or assigned, or may
transfer or assign, this IPA to such transferee or assignee as Payee in its
discretion may select (each such transferee or assignee, together with any
subsequent transferees or assignees, being collectively referred to as
"ASSIGNEE"). The Customer agrees that upon such transfer or assignment it will
not assert against Assignee any claim or defense which it may have against Payee
or Licensor, and that upon the written instruction of Payee or Assignee that
payments under this IPA are to be made to Assignee, Customer shall promptly
comply with, and (if requested) acknowledge in writing, such instructions. The
Customer agrees that upon such transfer or assignment its obligations to pay
amounts due under this IPA to Assignee are absolute and unconditional, and shall
not be subject to any defenses, setoffs or counterclaims that it may have
against Licensor, regardless of whether or not (a) Licensor has breached any of
its warranties or other covenants under an Agreement, (b) the licenses granted
under the Agreements and/or any maintenance, support or other services provided
thereunder have been revoked or otherwise terminated for any reason whatsoever
or (c) an Agreement has expired or been terminated for any reason whatsoever.
Accordingly, in the event of any breach or default under an Agreement,
Customer's sole remedy shall be against Licensor under that Agreement, and
Customer shall have no right to not make the installment payments required
hereunder. ASSIGNEE MAKES NO WARRANTIES, EXPRESS OR IMPLIED, CONCERNING THE
SOFTWARE OR SERVICES COVERED BY THE AGREEMENT, INCLUDING, WITHOUT LIMITATION,
ANY WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE OR OF MERCHANTABILITY.
CUSTOMER HEREBY WAIVES ANY CLAIM (INCLUDING ANY CLAIM BASED ON STRICT OR
ABSOLUTE LIABILITY IN TORT) THAT IT MAY HAVE AGAINST ASSIGNEE FOR ANY LOSS,
DAMAGE (INCLUDING, WITHOUT LIMITATION, LOSS OF PROFITS, LOSS OF DATA OR SPECIAL,
PUNITIVE, INCIDENTAL OR CONSEQUENTIAL DAMAGE) OR EXPENSE CAUSED BY THE SOFTWARE
OR ANY SERVICES COVERED BY THE AGREEMENT, EVEN IF ASSIGNEE HAS BEEN ADVISED OF
THE POSSIBILITY OF SUCH DAMAGE, LOSS, EXPENSE OR COST. CUSTOMER ACKNOWLEDGES
THAT ASSIGNEE DID NOT SELECT, MANUFACTURE, DISTRIBUTE OR LICENSE THE SOFTWARE
COVERED BY THE AGREEMENT AND THAT THE CUSTOMER HAS MADE THE SELECTION OF SUCH
SOFTWARE BASED UPON ITS OWN JUDGMENT AND EXPRESSLY DISCLAIMS ANY RELIANCE ON
STATEMENTS MADE BY ASSIGNEE OR ITS AGENTS.
7. This IPA shall be governed in all respects by and construed in accordance
with the laws of the State of California. Any action against Customer
concerning this IPA and the indebtedness evidenced hereby may be brought in any
court of competent jurisdiction located in the State of California, and Customer
hereby accepts the nonexclusive jurisdiction of any such court and waives, to
the fullest extent permitted by law, the defense of an inconvenient forum to the
maintenance of such action. This IPA shall constitute the complete and
exclusive agreement of Customer and Payee with respect to the payment of the
amounts owing hereunder and supersedes all prior oral or written understandings.
No term or provision of this IPA may be amended, waived, discharged or
terminated except by a written instrument signed by Customer and the Payee.
IN WITNESS WHEREOF, the undersigned have executed this IPA as of the date set
forth below.
SYBASE, INC. NETOBJECTS INC.
By /s/ Scott Ivey By /s/ Morris Taradalsky
------------------------------ -------------------------------
Name: Scott Ivey Name: Morris Taradalsky
--------------------------- ----------------------------
Title: Treasurer Title: EVP Business Development
-------------------------- ---------------------------
Date: 6/27/97 Address: 2055 Woodside Rd
Redwood City, CA 94061
--------------------------- --------------------------
<PAGE>
NOTICE OF ASSIGNMENT
June 25, 1997
NetObjects Inc.
2055 Woodside Road Ste. 250
Redwood City, CA 94061
Re: Installment Payment Addendum or Installment Payment Agreement ("IPA") of
NetObjects Inc. ("Customer") dated June 30, 1997, payable to the order of
Sybase, Inc. in the original principal amount of $[***]. There are six
quarterly payments of $[***] remaining as of the date hereof with the next
payment being due December 30, 1997.
Customer:
Notice is hereby given that Sybase, Inc. has sold and assigned the rights to
receive the remaining payments due under the IPA, to Newcourt Financial USA Inc.
("Assignee").
Customer is hereby directed, and by signature below agrees, to pay directly to
the Assignee at the address set forth below, all payments required to be paid by
the Customer under the terms of the IPA. Assignee is the holder in due course of
the IPA.
Assignee:
Newcourt Financial USA Inc.
P.O. Box 71521
Chicago, IL 60694-1521
Very truly yours, AGREED
Sybase, Inc. NetObjects Inc.
By: /s/ Scott Ivey By: /s/ Morris Taradalsky
--------------------------- --------------------------------
Title: Treasurer Title: EVP Business Development
------------------------ -----------------------------
*** Portions of this exhibit have been omitted and filed separately with the
Commission pursuant to a request for confidential treatment under Rule 406.
<PAGE>
EXHIBIT 10.15
NETOBJECTS, INC.
MASTER DISTRIBUTOR AGREEMENT
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. Definitions.. . . . . . . . . . . . . . . . . . . . . . . . . . . 1
(a) "Actual Sales Percentage". . . . . . . . . . . . . . . . . . 1
(b) "Adapted Documentation". . . . . . . . . . . . . . . . . . . 1
(c) "Confidential Information" . . . . . . . . . . . . . . . . . 1
(d) "Distributor". . . . . . . . . . . . . . . . . . . . . . . . 2
(e) "Distributor Sales". . . . . . . . . . . . . . . . . . . . . 2
(f) "Effective Date" . . . . . . . . . . . . . . . . . . . . . . 2
(g) "End-User License Agreement" . . . . . . . . . . . . . . . . 2
(h) "Golden Master". . . . . . . . . . . . . . . . . . . . . . . 2
(i) "Minimum Value". . . . . . . . . . . . . . . . . . . . . . . 2
(j) "NetObjects" . . . . . . . . . . . . . . . . . . . . . . . . 2
(k) "NetObjects Products". . . . . . . . . . . . . . . . . . . . 2
(l) "Packaging Specifications" . . . . . . . . . . . . . . . . . 2
(m) "Prior Agreement " . . . . . . . . . . . . . . . . . . . . . 3
(n) "Products" . . . . . . . . . . . . . . . . . . . . . . . . . 3
(o) "Stand-Alone Product". . . . . . . . . . . . . . . . . . . . 3
(p) "Suggested Resale Price" . . . . . . . . . . . . . . . . . . 3
(q) "Target Sales Percentage". . . . . . . . . . . . . . . . . . 3
(r) "Term" . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(s) "Territory". . . . . . . . . . . . . . . . . . . . . . . . . 3
(t) "US Street Price". . . . . . . . . . . . . . . . . . . . . . 3
(u) "Worldwide Sales". . . . . . . . . . . . . . . . . . . . . . 3
2. Appointment as Authorized NetObjects Distributor. . . . . . . . . 3
(a) Exclusive Right to Distribute Stand-Alone Products . . . . . 3
(b) Non-Exclusive OEM Rights . . . . . . . . . . . . . . . . . . 4
(c) Nature of Distribution . . . . . . . . . . . . . . . . . . . 4
(d) Appointment of Subdistributors and Resellers.. . . . . . . . 4
3. Adaptation for Local Market . . . . . . . . . . . . . . . . . . . 5
(a) Local Adaptation of NetObjects Fusion 2.0 Windows-TM-. . . . 5
(b) Local Adaptation of Other NetObjects Products. . . . . . . . 5
4. Grant of License; Delivery of Golden Master and Adapted
Documentation . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(a) Grant of License.. . . . . . . . . . . . . . . . . . . . . . 5
(b) Delivery of Golden Master and Adapted Documentation. . . . . 5
(c) No Other License or Right. . . . . . . . . . . . . . . . . . 5
5. Media; Packaging. . . . . . . . . . . . . . . . . . . . . . . . . 6
i
<PAGE>
TABLE OF CONTENTS
(continued)
<CAPTION>
Page
<S> <C>
6. Technical Support.. . . . . . . . . . . . . . . . . . . . . . . . 6
(a) Pre- and Post-Sale Support; Technical Support. . . . . . . . 6
(b) Training.. . . . . . . . . . . . . . . . . . . . . . . . . . 6
7. Acknowledgment of Obligation for Payment Under Prior
Agreement; Pre-Payment of Royalty . . . . . . . . . . . . . . . . 6
(a) Payment for Distribution Rights. . . . . . . . . . . . . . . 6
(b) Royalty Pre-Payment. . . . . . . . . . . . . . . . . . . . . 7
8. Royalty Payment; Independent Pricing by Distributor . . . . . . . 7
(a) Royalty Payment. . . . . . . . . . . . . . . . . . . . . . . 7
(b) Payment Terms. . . . . . . . . . . . . . . . . . . . . . . . 7
(c) No Set-off . . . . . . . . . . . . . . . . . . . . . . . . . 7
(d) Independent Pricing. . . . . . . . . . . . . . . . . . . . . 7
9. Withholding Tax . . . . . . . . . . . . . . . . . . . . . . . . . 8
10. Target Sales Percentage . . . . . . . . . . . . . . . . . . . . . 8
(a) Target Sales Percentage. . . . . . . . . . . . . . . . . . . 8
(b) Failing to Meet Target Sales Percentage. . . . . . . . . . . 8
11. Inspections, Records and Reporting. . . . . . . . . . . . . . . . 9
(a) Reports. . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(b) Notification . . . . . . . . . . . . . . . . . . . . . . . . 9
(c) Audits . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
12. Promotional Activities Distributor. . . . . . . . . . . . . . . . 9
(a) Promotion Efforts; Failure to Perform. . . . . . . . . . . . 9
(b) Quarterly Marketing Plans. . . . . . . . . . . . . . . . . . 9
(c) Marketing Reports. . . . . . . . . . . . . . . . . . . . . . 10
(d) Distributor Personnel. . . . . . . . . . . . . . . . . . . . 10
(e) Technical Expertise. . . . . . . . . . . . . . . . . . . . . 10
(f) Distributor Covenants. . . . . . . . . . . . . . . . . . . . 10
(g) Compliance with Law. . . . . . . . . . . . . . . . . . . . . 10
(h) Governmental Approval. . . . . . . . . . . . . . . . . . . . 10
(i) Market Conditions. . . . . . . . . . . . . . . . . . . . . . 11
(j) Marketing Materials. . . . . . . . . . . . . . . . . . . . . 11
(k) Costs and Expenses . . . . . . . . . . . . . . . . . . . . . 11
ii
<PAGE>
TABLE OF CONTENTS
(continued)
<CAPTION>
Page
<S> <C>
13. Promotional Activities of NetObjects. . . . . . . . . . . . . . . 11
(a) Marketing Manager. . . . . . . . . . . . . . . . . . . . . . 11
(b) Marketing Payments . . . . . . . . . . . . . . . . . . . . . 12
14. Confidential Information. . . . . . . . . . . . . . . . . . . . . 12
(a) Confidential Information.. . . . . . . . . . . . . . . . . . 12
(b) Markings.. . . . . . . . . . . . . . . . . . . . . . . . . . 12
(c) Injunctive Relief. . . . . . . . . . . . . . . . . . . . . . 12
15. Trademarks, Trade Names, Logos, Designations, and Copyrights. . . 12
(a) NetObjects Trademarks. . . . . . . . . . . . . . . . . . . . 12
(b) Distributor Does Not Acquire Proprietary Rights. . . . . . . 13
(c) No Continuing Rights . . . . . . . . . . . . . . . . . . . . 13
16. No Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . 13
17. Duration and Termination of Agreement . . . . . . . . . . . . . . 13
(a) Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(b) NetObjects Termination For Cause . . . . . . . . . . . . . . 13
(c) Distributor Termination For Cause. . . . . . . . . . . . . . 14
(d) Effect of Termination or Expiration. . . . . . . . . . . . . 14
(e) No Damages for Termination, Expiration or Lapse of
Exclusive Rights . . . . . . . . . . . . . . . . . . . . . . 15
(f) Survival . . . . . . . . . . . . . . . . . . . . . . . . . . 15
18. Relationship of the Parties . . . . . . . . . . . . . . . . . . . 15
19. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . 16
(a) Indemnification of Distributor . . . . . . . . . . . . . . . 16
(b) No Combination Claims. . . . . . . . . . . . . . . . . . . . 16
(c) Limitation . . . . . . . . . . . . . . . . . . . . . . . . . 16
(d) Indemnification of NetObjects. . . . . . . . . . . . . . . . 16
20. Limited Warranty; Disclaimer of Warranties. . . . . . . . . . . . 17
(a) Limited Warranty . . . . . . . . . . . . . . . . . . . . . . 17
(b) Disclaimer of Warranties . . . . . . . . . . . . . . . . . . 17
(c) Distributor Warranty . . . . . . . . . . . . . . . . . . . . 17
21. Limited Liability . . . . . . . . . . . . . . . . . . . . . . . . 17
iii
<PAGE>
TABLE OF CONTENTS
(continued)
<CAPTION>
Page
<S> <C>
22. Entire Agreement; Superseding Effect. . . . . . . . . . . . . . . 18
23. General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(a) Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(b) Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(c) Attorneys' Fees. . . . . . . . . . . . . . . . . . . . . . . 18
(d) Execution of Agreement, Controlling Law, Jurisdiction. . . . 18
(f) Severability . . . . . . . . . . . . . . . . . . . . . . . . 19
(g) Force Majeure. . . . . . . . . . . . . . . . . . . . . . . . 19
(h) Release of Claims. . . . . . . . . . . . . . . . . . . . . . 19
(i) Choice of Language . . . . . . . . . . . . . . . . . . . . . 19
(j) Due Execution. . . . . . . . . . . . . . . . . . . . . . . . 19
(k) Counterparts; Facsimile. . . . . . . . . . . . . . . . . . . 19
</TABLE>
iv
<PAGE>
MASTER DISTRIBUTOR AGREEMENT
This Master Distributor Agreement (this "Agreement") is made as of
September 30, 1997 by and between NetObjects, Inc., a Delaware corporation
("NetObjects"), and Mitsubishi Corporation, a Japanese corporation
("Distributor").
RECITALS
A. NetObjects and Distributor are parties to the Master Distributor
Agreement, dated as of September 30, 1997 (the "Prior Agreement"), pursuant
to which, among other things, (i) NetObjects appointed Distributor as the
exclusive master distributor of certain products of NetObjects on a
stand-alone basis, (ii) NetObjects agreed to appoint Distributor as a
non-exclusive distributor of certain NetObjects products on a bundled basis,
upon terms to be negotiated, (iii) in consideration of the rights granted to
Distributor under the Prior Agreement, Distributor agreed to pay to
NetObjects a non-refundable fee of [***] U.S. Dollars (US$[***]), and
(iv) the parties agreed to further negotiate and execute a revised and
restated Master Distributor Agreement to constitute their comprehensive
agreement regarding their relationship.
B. The parties desire to enter into this Agreement to memorialize
their comprehensive agreement regarding their relationship, which shall
supersede the Prior Agreement in its entirety.
AGREEMENT
NOW, THEREFORE, NetObjects and Distributor agree as follows:
1. DEFINITIONS. Terms used in this Agreement and its appendices shall
have the meaning ascribed to them in this Section 1:
(a) "ACTUAL SALES PERCENTAGE" shall have the meaning ascribed
thereto in Section 10(a) hereof.
(b) "ADAPTED DOCUMENTATION" shall have the meaning ascribed
thereto in Section 3(a) hereof.
(c) "CONFIDENTIAL INFORMATION" shall mean, (i) as to NetObjects
all documentation and all information relating to the Products disclosed to
Distributor under this Agreement which is marked as "Confidential" or
described as "confidential" at the time of disclosure and subsequently
confirmed in writing as "confidential, and (ii) as to either party, any
information disclosed pursuant to this Agreement, including product plans,
designs, costs, prices, project names, finances, financial conditions,
marketing plans, business opportunities, supplier lists, and information,
research, development or know-how that is designated in writing by the
disclosing party as confidential or, if
*** Portions of this exhibit have been omitted and filed separately with the
Commission pursuant to a request for confidential treatment under Rule
406.
<PAGE>
disclosed orally, designated as the "confidential" at the time of disclosure;
and the terms and conditions of this Agreement and the Prior Agreement.
However, "Confidential Information" will not include information that (i) is
or becomes generally known or available by publication, commercial use or
otherwise through no fault of the receiving party; (ii) is already known by a
party and is not subject to restriction; (iii) is independently developed by
the receiving party without use of the disclosing party's Confidential
Information; (iv) is lawfully obtained from a third party who has the right
to make such disclosure; or (v) is released for publication by the disclosing
party in writing.
(d) "DISTRIBUTOR" shall have the meaning ascribed thereto in the
Preamble to this Agreement.
(e) "DISTRIBUTOR SALES" shall mean the total revenues of
Distributor consistent with its revenue recognition policies for external
financial reporting purposes with respect to Stand-Alone Products excluding
(i) credits to third parties for discounts, rebates, actual returns and
allowances for defective products, and (ii) freight, insurance, packing,
sales or use taxes.
(f) "EFFECTIVE DATE" shall mean September 30, 1997.
(g) "END-USER LICENSE AGREEMENT" shall have the meaning ascribed
thereto in Section 2(d) hereof.
(h) "GOLDEN MASTER" shall mean the software programs for the
Stand-Alone Products, in object-code format only, delivered in a magnetic
medium suitable for duplication for further distribution by Distributor under
the terms of this Agreement.
(i) "MINIMUM VALUE" shall be the lower of (i) $[***] or (ii) the
amount calculated as follows:
Minimum Value = US Street Price X ([***]/[***]) X 0.[***].
For illustrative purposes, assuming that the US Street Price is $[***], the
Minimum Value shall be $[***] X ([***]/[***]) X 0.[***], or $[***]. This
amount represents the Minimum Value on the Effective Date.
(j) "NETOBJECTS" shall have the meaning ascribed thereto in the
Preamble to this Agreement.
(k) "NETOBJECTS PRODUCTS" shall mean the software products
developed and marketed from time to time by NetObjects, in any version or
release, including without limitation NetObjects-Registered Trademark- Fusion
2.0 for Windows-TM-.
(l) "PACKAGING SPECIFICATIONS" shall mean the packaging
specifications for the Stand-Alone Products as determined upon by NetObjects
and as set forth in EXHIBIT C hereto.
*** Portions of this exhibit have been omitted and filed separately with the
Commission pursuant to a request for confidential treatment under Rule
406.
2
<PAGE>
(m) "PRIOR AGREEMENT " shall have the meaning ascribed thereto in
Recital A to this Agreement.
(n) "PRODUCTS" shall mean and include the NetObjects Products and
the Stand-Alone Products.
(o) "STAND-ALONE PRODUCT" shall mean a version of a NetObjects
Product, as adapted for the local market in the Territory pursuant to Section
3 hereof, packaged for sale, license and transfer solely as a stand-alone
product and marketed solely under the trade names and trademarks of
NetObjects.
(p) "SUGGESTED RESALE PRICE" shall mean the suggested resale
price in the Territory of the Stand-Alone Products, as determined from time
to time by Distributor in its discretion.
(q) "TARGET SALES PERCENTAGE" shall have the meaning ascribed
thereto in Section 10(a) hereof.
(r) "TERM" shall have the meaning ascribed thereto in Section
17(a) hereof, as may be renewed or extended hereunder.
(s) "TERRITORY" shall mean Japan.
(t) "US STREET PRICE" shall mean the U.S. price of the NetObjects
Products, as determined by NetObjects in good faith at any time and from time
to time, but with reference to prices paid by end user customers of such
Products.
(u) "WORLDWIDE SALES" shall mean the total worldwide revenues of
NetObjects with respect to all versions of any of the Products which have
been localized for the Territory, as determined in accordance with U.S.
generally accepted accounting principles excluding (i) credits to third
parties for discounts, rebates, actual returns and allowances for defective
products, (ii) freight, insurance, packing, sales or use taxes and duties;
and (iii) revenue derived from service, support and maintenance which is
charged for separately from the sale and license of Products; provided,
Worldwide Sales shall not include revenues with respect to NetObjects
Products which have not been adapted for the local market in the Territory
pursuant to Section 3 hereof within a reasonable time after the Effective
Date or after such NetObjects Products have been released for commercial
shipment in the United States, whichever is later.
2. APPOINTMENT AS AUTHORIZED NETOBJECTS DISTRIBUTOR.
(a) EXCLUSIVE RIGHT TO DISTRIBUTE STAND-ALONE PRODUCTS. Subject
to the terms of this Agreement, and subject to the distribution rights in the
Territory granted by NetObjects to its contractual partners prior to the
Effective Date, including without limitation, the distribution rights of IBM
Corporation and Lotus Development Corp., NetObjects hereby appoints
Distributor, and Distributor accepts such appointment, as the exclusive
master distributor of the Stand-Alone Products in and limited to the
3
<PAGE>
Territory, with rights to appoint subdistributors and resellers as provided
in Section 2(d) hereof. After the Effective Date, and for so long as
Distributor is not in default under this Agreement, NetObjects shall not
appoint any other distributor in the Territory with respect to the
Stand-Alone Products, and Distributor shall not distribute web site or web
page creation and maintenance software of any other firm while Distributor
acts as such exclusive master distributor. If Distributor fails to meet the
Target Sales Percentage for any calculation period as set forth in Section 10
hereof, or if Distributor fails to meet its marketing and support activities
as set forth in Section 12 of this Agreement, NetObjects shall have the right
to terminate the exclusive right of Distributor, and if it exercises such
right by written notice to Distributor, NetObjects shall no longer be bound
by the provisions of this Section 2(a). Thereafter, Distributor may remain a
non-exclusive distributor of the Stand-Alone Products for the remainder of
the Term (as defined in Section 17), at Distributor's option.
(b) NON-EXCLUSIVE OEM RIGHTS. After the Effective Date, the
parties hereto shall negotiate in good faith the distribution rights of
Distributor with respect to OEM distribution rights for certain NetObjects
Products, which shall be on a non-exclusive, royalty-bearing basis.
Distributor agrees and acknowledges that NetObjects has granted OEM rights
and bundled distribution rights worldwide for certain NetObjects Products
under certain conditions to Netscape Communications, Inc. and other companies.
(c) NATURE OF DISTRIBUTION. Distributor's appointment only grants
to Distributor a license to distribute the Stand-Alone Products, and does not
transfer any right, title or interest to any such Stand-Alone Products to
Distributor or Distributor's customers. Stand-Alone Products shall be
distributed only pursuant to the terms of an End-User License Agreement
relating to such Products, containing substantially the terms set forth in
the attached Exhibit A ("End-User License Agreement"), as adapted for the
local market in the Territory and as may be amended from time to time by
NetObjects. NetObjects will sell Products to Distributor only to the extent
that such Products consist of non-software items on the terms specified
herein. Use of the terms "sell," "license," "purchase," "license fees" and
"price" will be interpreted in accordance with this Section 2(c).
(d) APPOINTMENT OF SUBDISTRIBUTORS AND RESELLERS. Distributor may
appoint subdistributors and resellers in the Territory, solely for the
further distribution of the Stand-Alone Products, as packaged by Distributor,
subject to the reasonable prior written consent of NetObjects.
Notwithstanding the foregoing, Distributors shall at all times remain
primarily liable under this Agreement for all of its actions and the actions
of its subdistributors and resellers. In no event shall Distributor permit
its subdistributors and resellers to have access to the Golden Masters.
Nothing in this Agreement shall be deemed to create any business relationship
between NetObjects, on the one hand, and any of the subdistributors and
resellers of Distributor.
4
<PAGE>
3. ADAPTATION FOR LOCAL MARKET
(a) LOCAL ADAPTATION OF NETOBJECTS FUSION 2.0 WINDOWS-TM-.
NetObjects has engaged Lotus Development Corporation's Japanese subsidiary to
adapt NetObjects Fusion 2.0 for Windows-TM- for the local market, and to
translate and modify the documentation and manuals relating to such
NetObjects Products (the "Adapted Documentation")].
(b) LOCAL ADAPTATION OF OTHER NETOBJECTS PRODUCTS. Within five
(5) months from the Effective Date, NetObjects and Distributor shall mutually
agree upon the NetObjects Products to be adapted as Stand-Alone Products,
which may include NetObjects Fusion 3.0 for Windows-TM- in single-user format
and multi-user format. Within four (4) months from the Effective Date,
NetObjects and Distributor shall mutually agree upon the timetable for local
adaptation of the NetObjects Products to be adapted as Stand-Alone Products,
together with the Adapted Documentation related thereto.
4. GRANT OF LICENSE; DELIVERY OF GOLDEN MASTER AND ADAPTED DOCUMENTATION.
(a) GRANT OF LICENSE. Subject to the terms hereof, and subject to
Distributor's exclusive rights in Section 2(a) hereof, NetObjects hereby
grants to Distributor a personal, non-exclusive and non-transferable right
and license to make, copy, bundle, display, distribute, sell and offer for
sale the Stand-Alone Products, together with the Adapted Documentation for
such Products, solely within the Territory. Distributor may appoint
subdistributors and resellers solely for the distribution of the Stand-Alone
Products, and may grant sublicenses to such parties solely to display,
distribute, sell and offer for sale the Stand-Alone Products.
(b) DELIVERY OF GOLDEN MASTER AND ADAPTED DOCUMENTATION. Within
ninety (90) days from the Effective Date, NetObjects shall provide
Distributor with the Golden Master and the Adapted Documentation relating to
NetObjects Fusion 2.0 for Windows-TM-. NetObjects shall provide Distributor
with the Golden Master and Adapted Documentation for other NetObjects
Products when and as may be agreed upon by NetObjects and Distributor.
Distributor may not copy or permit others to copy any portion of the Golden
Master except to fulfill Distributor's distribution obligations pursuant to
this Agreement.
(c) NO OTHER LICENSE OR RIGHT. Other than as expressly provided
in this Agreement, Distributor has no right or license with respect to any
copyrights, trademarks, patents, trade secrets and intellectual property
rights of NetObjects. Title and ownership of the NetObjects Products, the
Stand-Alone Products, the Bundled Products, the Adapted Documentation and all
proprietary rights and intellectual property rights relating thereto,
including copyrights, patents, trademarks, and trade secrets shall remain the
property of NetObjects at all times. At the request of NetObjects,
Distributor shall execute and deliver, and cause its subdistributors and
resellers to execute and
5
<PAGE>
deliver, any and all assignments, instruments and documents necessary to vest
and confirm all such right, title and ownership in and to NetObjects at all
times.
5. MEDIA; PACKAGING. Distributor shall bear all costs of preparing and
manufacturing the computer media, documentation and packaging for the
Stand-Alone Products. The Stand-Alone Products, including the Adapted
Documentation, shall be packaged in accordance with the packaging
specifications attached hereto as Exhibit B ("Packaging Specifications").
NetObjects reserves the right to change the packaging specifications for the
Stand-Alone Products at any time and from time to time, provided, however,
that NetObjects shall provide Distributor with sufficient prior written
notice to allow Distributor to prepare and manufacture the new packaging, and
Distributor shall have the right to use its existing inventory of preexisting
packaging until such inventory has been exhausted.
6. TECHNICAL SUPPORT.
(a) PRE- AND POST-SALE SUPPORT; TECHNICAL SUPPORT. Distributor
shall provide demonstrations, samples and pre- and post-sales support to the
end users of the Stand-Alone Products in the Territory. Distributor shall
provide level one and level two technical support to the end-users of the
Stand-Alone Products, on terms as may be agreed upon by the parties,
generally comparable to the level of technical support for similar or
competitive products within the Territory as defined in Exhibit C ("Technical
Support"). At the request of NetObjects, Distributor may provide additional
technical support for the Stand-Alone Products on a fee-based basis, and
Distributor shall pay additional fees to the NetObjects based on revenues
derived from such fees, upon such terms as may be agreed upon by the parties.
(b) TRAINING. Distributor shall send two (2) of its employees to
attend training at NetObjects' principal office or at such other place as may
be designated by NetObjects upon a schedule as may be designated by
NetObjects on the features, uses and technical support of the Stand-Alone
Products. Such training shall be provided by NetObjects and charged to
Distributor at the same rates that NetObjects charges its U.S. distributors.
Distributor shall be responsible for all transportation, lodging and other
incidental costs incurred by its employees in connection with such training
classes.
7. ACKNOWLEDGMENT OF OBLIGATION FOR PAYMENT UNDER PRIOR AGREEMENT;
PRE-PAYMENT OF ROYALTY.
(a) PAYMENT FOR DISTRIBUTION RIGHTS. In consideration of the
rights granted to Distributor by NetObjects under the Prior Agreement,
Distributor agreed to pay to NetObjects a non-refundable payment of [***] US
Dollars (US$[***]).
*** Portions of this exhibit have been omitted and filed separately with the
Commission pursuant to a request for confidential treatment under Rule
406.
6
<PAGE>
(b) ROYALTY PRE-PAYMENT. Upon the delivery of the Golden Master
and the Adapted Documentation on relating to NetObjects Fusion 2.0 for
Windows-TM-to Distributor pursuant to Section 4(b) hereof, Distributor shall
pay to NetObjects a non-refundable prepayment of [***] U.S. Dollars (US$[***])
(the "Prepayment Credit"), less any applicable withholding tax. Distributor
estimates the withholding tax to be [***] U.S. Dollars ($[***]), and shall
withhold this amount and provide NetObjects with a withholding tax
certificate, unless NetObjects and Distributor, together with their
respective tax advisors, have determined prior to payment that withholding
tax is not required to be withheld. The Prepayment Credit shall be credited
towards future royalty payment as follows: For any Stand-Alone Products sold
or distributed by Distributor in the Territory (regardless of type of product
or channel sold through) within the first two years after the first customer
shipment date mutually agreed by the parties in the Territory, Distributor
may apply the Prepayment Credit towards 33 percent of the royalty otherwise
due to NetObjects with respect to such product sale, until all of the
Prepayment Credit has been applied. Any Prepayment Credit not applied within
the first two years after the first customer shipment date as provided above
shall be forfeited by Distributor.
8. ROYALTY PAYMENT; INDEPENDENT PRICING BY DISTRIBUTOR.
(a) ROYALTY PAYMENT. With respect to any Stand-Alone Product
sold, distributed or otherwise transferred by Distributor to its customers
(regardless of the type of product or channel sold through), Distributor
shall pay to NetObjects a royalty equal to the greater of (i) [***] percent
of the Suggested Resale Price or (ii) the Minimum Value.
(b) PAYMENT TERMS. All payments shall be made in United States
dollars, free of any currency control or other restrictions to NetObjects at
the address designated by NetObjects or in the absence of such designation,
at the address set forth in Section 23(b). Within fifteen (15) days from
the end of each calendar month, Distributor shall submit a distribution
report to NetObjects setting forth, in reasonable detail, the number, types
and time of sale of Stand-Alone Products sold, distributed and transferred in
the previous month. NetObjects shall prepare and issue an invoice to
Distributor based on such monthly reports, setting forth the royalty amount
due, and Distributor shall pay such invoice in full within thirty (30) days
from the date of invoice, less any amounts withheld to satisfy withholding
tax in Japan, if any.
(c) NO SET-OFF. Distributor will not set off or offset against
NetObjects' invoices amounts that Distributor claims are due to it.
Distributor will bring any claims or causes of action it may have in a
separate action and waives any right it may have to set off or withhold any
payment owned to NetObjects by Distributor.
(d) INDEPENDENT PRICING. Notwithstanding any provision herein to
the contrary, NetObjects shall have no right or authority at any times to
determine the price at which Distribution or its subdistributors or resellers
sell the Stand-Alone Products in the Territory.
*** Portions of this exhibit have been omitted and filed separately with the
Commission pursuant to a request for confidential treatment under Rule
406.
7
<PAGE>
9. WITHHOLDING TAX. With respect to withholding required by the
government of Japan in connection with royalty payments to NetObjects under
this Agreement, Distributor shall withhold such amounts from the royalty
payments and make payment to the appropriate tax authorities in Japan. The
parties shall cooperate with each other to minimize the withholding tax on
any royalty payment under this Agreement. Distributor agrees to furnish
NetObjects with copies of any withholding tax certificate, official tax
receipt or other appropriate evidence of any taxes or withholding imposed by
law on payments made under this Agreement. Distributor shall use its best
efforts to cooperate with NetObjects to obtain refunds of any withholding tax
to the extent permitted by Japanese laws. Upon thirty (30) days' written
notice to Distributor, NetObjects may elect to supply packaged NetObjects
Products to Distributor instead of letting Distributor copy Golden Masters of
the NetObjects Products and provide the packaging itself or through
Distributor's own vendors, if NetObjects has determined that by fulfilling
Distributor's and its subdistributor's orders for NetObjects Products,
NetObjects will reduce its tax liabilities. In that event, Distributor will
stop making copies of NetObjects Products from Golden Masters and will
purchase packaged Products from NetObjects or its suppliers upon NetObjects'
standard terms and conditions of sale. Further, Distributor will no longer
be obligated to pay royalties to NetObjects but instead shall purchase the
NetObjects Products at prices to be determined by NetObjects and Distributor
taking into account the previously effective royalties and NetObjects'
fulfillment costs. Thereafter, this method of fulfillment will apply for all
purposes under this Agreement until termination or agreed otherwise by the
parties.
10. TARGET SALES PERCENTAGE.
(a) TARGET SALES PERCENTAGE. NetObjects and Distributor expect
that Distributor will achieve the Target Sales Percentages set forth below.
Distributor's Actual Sales Percentage for each year (or part year) ending as
of each anniversary of the Effective Date will be the Distributor Sales
divided by the Worldwide Sales for such year (or part year) with the quotient
multiplied by 100. The Target Sales Percentage for each year following the
Effective Date is set forth in the following table:
<TABLE>
<CAPTION>
<S> <C>
YEAR Target Sales Percentage
1(partial year) [***] percent of Worldwide Sales
2 [***] percent of Worldwide Sales
3 [***] percent of Worldwide Sales
</TABLE>
(b) FAILING TO MEET TARGET SALES PERCENTAGE. If Distributor fails
to meet the Target Sales Percentage for any given year (or part year) because
the Target Sales Percentage exceeds the Actual Sales Percentage, NetObjects
may immediately terminate Distributor's exclusive distribution rights under
Section 2(a) of this Agreement upon written notice to Distributor.
*** Portions of this exhibit have been omitted and filed separately with the
Commission pursuant to a request for confidential treatment under Rule
406.
8
<PAGE>
11. INSPECTIONS, RECORDS AND REPORTING.
(a) REPORTS. Within thirty (30) days after the end of each
calendar month, Distributor will provide to NetObjects a written report
showing, for the periods reasonably requested by NetObjects, Distributor's
unit sales for the month by channel, and current inventory levels by product,
including all Stand-Alone Products distributed by Distributor. If
Distributor's inventory of each Stand-Alone Product exceeds its forecast of
sales for the next four (4) months, the report also shall include
Distributor's description of its plan for reducing inventory levels.
(b) NOTIFICATION. Distributor will: (i) notify NetObjects in
writing of any claim or proceeding involving NetObjects Products within ten
(10) days after Distributor learns of such claim or proceeding; (ii) report
promptly to NetObjects all claimed or suspected product defects; and (iii)
notify NetObjects of any material change in market conditions affecting sales
of Stand-Alone Products.
(c) AUDITS. NetObjects may, upon reasonable notice in writing to
Distributor, cause an independent audit to be made of the books and records
of Distributor, and the inventory of Stand-Alone Products held by
Distributor, in order to verify the royalty statements rendered hereunder,
and the inventory level, and prompt adjustment shall be made by Distributor
to compensate for any errors or omissions disclosed by such audit, together
with interest thereon at a rate of [eighteen percent per annum (18%)] or such
lower maximum rate as may be allowed by law from the date such payment should
have been made. Any such audit shall be conducted only by an independent,
certified public accountant during regular business hours at Distributor's
office, no more often than once per calendar year. NetObjects will bear all
expenses and fees of the audit, but if such audit or statement reveals an
underpayment of royalties by Distributor of more than five percent (5%),
Distributor shall pay all expenses incurred in connection with such audit.
12. PROMOTIONAL ACTIVITIES DISTRIBUTOR.
(a) PROMOTION EFFORTS; FAILURE TO PERFORM. Distributor will use
its best efforts to vigorously promote the distribution of the Stand-Alone
Products in the Territory as set forth in this Section 12, as well as the
general marketing policies of NetObjects announced from time to time.
Distributor agrees to be responsible for promoting market and customer
awareness and acceptance of the NetObjects Products and trademarks in Japan
for as long as Distributor has exclusive rights pursuant to Section 2(a) of
this Agreement.
(b) QUARTERLY MARKETING PLANS. Within thirty (30) days after the
commencement of each calendar quarter, Distributor shall provide to
NetObjects a quarterly marketing plan, including proposed advertising and
public relations activities, trade shows and other event-based marketing such
as roadshows, channel promotions, web site marketing and other significant
marketing activities, together with the proposed budget for such activities.
9
<PAGE>
(c) MARKETING REPORTS. Within thirty (30) days after the end of
each calendar month, Distributor will provide to NetObjects a written report
summarizing its marketing activities with respect to the Stand-Alone Products
for the previous month.
(d) DISTRIBUTOR PERSONNEL. Distributor will train and maintain a
sufficient number of capable technical and sales personnel having the
knowledge and training necessary to: (i) inform customers properly concerning
the features and capabilities of the Stand-Alone Products and, if necessary,
competitive products; (ii) service and support the Stand-Alone Products in
accordance with Distributor's obligations under this Agreement; and (iii)
otherwise carry out the obligations and responsibilities of Distributor under
this Agreement.
(e) TECHNICAL EXPERTISE. Distributor and its staff will be
conversant with the technical language conventional to the Products and
similar computer software in general, and will develop sufficient knowledge
of the industry, of the Products and of products competitive with the
Products (including specifications, features and benefits) to be able to
explain in detail to its customers the differences between Stand-Alone
Products and competitive products.
(f) DISTRIBUTOR COVENANTS. Distributor will: (i) conduct business
in a manner that reflects favorably at all times on the Products and the good
name, good will and reputation of NetObjects; (ii) avoid deceptive,
misleading, or unethical practices that are or might be detrimental to
NetObjects, the Products or the public; (iii) make no false or misleading
representations with regard to NetObjects or the Products; (iv) not publish
or employ, or cooperate in the publication or employment of, any misleading
or deceptive advertising material with regard to NetObjects or the Products;
(v) make no representations, warranties or guarantees to customers or to the
trade with respect to the specifications, features, or capabilities of the
Products that are inconsistent with the literature distributed by NetObjects
or by Distributor; (vi) not enter into any contract or engage in any practice
detrimental to the interests of NetObjects or the Products; and (vii) sell
and deliver the Stand-Alone Products only in the Territory.
(g) COMPLIANCE WITH LAW. Distributor will comply with all
applicable international, national, state, regional, and local laws and
regulations in performing its duties hereunder and in any of its dealings
with respect to the Products.
(h) GOVERNMENTAL APPROVAL. If any approval with respect to this
Agreement, or the notification or registration thereof, will be required at
any time during the term of this Agreement with respect to giving legal
effect to this Agreement in the Territory, or with respect to compliance with
exchange regulations or other requirements so as to assure the right of
remittance abroad of U.S. dollars pursuant to Section 8 hereof or otherwise,
Distributor will immediately take whatever steps may be necessary in this
respect, and any charges incurred in connection therewith will be for the
account of Distributor. Distributor will keep NetObjects currently informed
of its efforts in this connection. NetObjects will be under no obligation to
ship the Golden Masters to Distributor hereunder until Distributor has
provided NetObjects with
10
<PAGE>
satisfactory evidence that such approval, notification or registration is not
required or that it has been obtained.
(i) MARKET CONDITIONS. Distributor will advise NetObjects
promptly concerning any market information that comes to Distributor's
attention respecting NetObjects, the Stand-Alone Products, NetObjects' market
position or the continued competitiveness of the Stand-Alone Products in the
marketplace. Distributor will confer with NetObjects from time to time at the
request of NetObjects on matters relating to market conditions, sales
forecasting and product planning relating to the Stand-Alone Products.
(j) MARKETING MATERIALS. Distributor shall adapt and translate
marketing materials provided by NetObjects for the Products for the local
market in the Territory, using such standards as are consistent with
NetObjects' standards for marketing materials, and shall use such marketing
materials in its marketing efforts, as adapted and translated for the local
market, subject to the prior written consent of NetObjects. All rights and
title to the marketing materials, as provided by NetObjects or as adapted and
translated by Distributor for the local market in the Territory, shall be
vested in NetObjects, and Distributor shall execute such assignments and
instruments as may be reasonably requested by NetObjects to transfer and vest
all of such rights and title in NetObjects.
(k) COSTS AND EXPENSES. Except as expressly provided herein or
agreed to in writing by NetObjects and Distributor, Distributor will pay all
costs and expenses incurred in the performance of Distributor's obligations
under this Agreement.
13. PROMOTIONAL ACTIVITIES OF NETOBJECTS.
(a) MARKETING MANAGER. After the Effective Date, NetObjects
agrees to hire an individual whose primary responsibility will be to help
Distributor market and establish the Products in the Territory. NetObjects
and Distributor shall mutually discuss the scope of the principal
responsibilities of such manager, which may include the following:
(i) providing assistance to the parties in scheduling the release dates
for the Stand-Alone Products, and the functions and specifications
of each such Product;
(ii) providing assistance to the parties in preparing product marketing
information, specifically in the Territory, for the Stand-Alone
Products;
(iii) coordinating resolution of problems with the Stand-Alone Products,
including problems unique to the versions adapted to the local
market in the Territory;
11
<PAGE>
(iv) providing assistance to the parties in preparing and reviewing
technical support information in the Territory, particularly
contents published at NetObjects' web site or web page specifically
for the Territory; and
(v) managing any other communications issues between the parties with
respect to marketing and technical support.
(b) MARKETING PAYMENTS. For the first two calendar quarters
following the Effective Date commencing January 1, 1998, NetObjects agrees to
contribute [***] U.S. Dollars ($[***]) per quarter to support marketing
activities approved by NetObjects. Payment shall be made within thirty (30)
days after the end of the quarter.
14. CONFIDENTIAL INFORMATION.
(a) CONFIDENTIAL INFORMATION. Each party understands that all
Confidential Information exchanged between the parties under the terms of
this Agreement is proprietary and confidential to the disclosing party, and
the receiving party is obligated to protect and maintain the confidentiality
of the same. Each party shall refrain from disclosing any Confidential
Information to any third party except pursuant to the terms of this Agreement
and shall take necessary and appropriate action to preserve the secrecy and
prevent disclosure of such Confidential Information through the establishment
of reasonable security procedures to prevent unauthorized access to the
Confidential Information. Notwithstanding the foregoing to the contrary,
each person may disclose Confidential Information, subject to any available
protective order, to the extent required in connection with legal proceedings
or by applicable securities laws or export control laws.
(b) MARKINGS. Each party receiving Confidential Information from
the other party shall appropriately identify and mark all reproductions,
copies, extracts or the like of any documents marked as "Confidential,"
before distributing the same to its partners, representatives, employees, or
where permitted hereunder, to others.
(c) INJUNCTIVE RELIEF. Each party agrees that the unauthorized
use and disclosure of Confidential Information disclosed under this Section
14 would lead to irreparable harm which could not be compensable by damages
alone, and that each party shall have the right to enforce this Section 14 by
injunction, specific performance or other equitable relief without prejudice
to any other rights and remedies that the parties may have under this
Agreement.
15. TRADEMARKS, TRADE NAMES, LOGOS, DESIGNATIONS, AND COPYRIGHTS.
(a) NETOBJECTS TRADEMARKS. During the term of this Agreement,
Distributor is authorized by NetObjects to use the trademarks, trade names,
logos and designations NetObjects uses for NetObjects Products solely to
identify the Stand-
*** Portions of this exhibit have been omitted and filed separately with the
Commission pursuant to a request for confidential treatment under Rule
406.
12
<PAGE>
Alone Products in connection with Distributor's advertisement, promotion,
distribution and sale of such Products and shall use only the NetObjects'
trademarks, trade names, logos and designations in connection therewith.
Distributor's use of such trademarks, trade names, logos and designations
will be in accordance with NetObjects' policies in effect from time to time.
Distributor will include on each copy of a Stand-Alone Product that it
distributes, and on all containers and storage media therefor, all trademark,
copyright and other notices of proprietary rights required by NetObjects with
respect to such Products.
(b) DISTRIBUTOR DOES NOT ACQUIRE PROPRIETARY RIGHTS Distributor
has paid no consideration for the use of NetObjects' trademarks, trade names,
logos, designations or copyrights, and nothing contained in this Agreement
will give Distributor any right, title or interest in any of them.
(c) NO CONTINUING RIGHTS. Upon expiration or termination of this
Agreement for any reason, Distributor will immediately cease all display,
advertising and use of all NetObjects trademarks, trade names, logos and
designations and will not thereafter use, advertise or display any trademark,
trade name, logo or designation which is, or any part of which is, similar to
or confusing with any trademark, trade name, logo or designation associated
with any Product.
16. NO ASSIGNMENT.
NetObjects has entered into this Agreement with Distributor because
of Distributor's commitments in this Agreement and NetObjects' confidence in
Distributor, which is personal in nature. This Agreement will not be
assignable by Distributor, and Distributor may not delegate its duties
hereunder without the prior written consent of NetObjects. Except as
otherwise provided herein, the provisions hereof shall be binding upon and
inure to the benefit of the parties, their successors and permitted assigns.
17. DURATION AND TERMINATION OF AGREEMENT.
(a) TERM. This Agreement is for a term (the "Term") of two (2)
years from the Effective Date; PROVIDED THAT, if Distributor is not in
default at the expiration of the initial Term, Distributor may renew this
Agreement on a non-exclusive basis for one (1) additional year from the date
of expiration of the initial Term by delivering a written notice of renewal
to NetObjects no later than sixty (60) days prior to the date of expiration
of the initial Term. Distributor may renew this Agreement on an exclusive
basis with the written consent of NetObjects. Notwithstanding the provisions
of this Section 17(a), or any other provisions of this Agreement to the
contrary, this Agreement may be terminated prior to the expiration of its
stated term as set forth below.
(b) NETOBJECTS TERMINATION FOR CAUSE. NetObjects may terminate
this Agreement upon written notice at any time prior to the expiration of its
stated term in the event that:
13
<PAGE>
(i) Distributor defaults in any payment due to NetObjects and
such default continues unremedied for a period of ten (10) days following
written notice of such default;
(ii) Distributor fails to perform any other material
obligation, warranty, duty or responsibility or is in default with respect to
any term or condition undertaken by Distributor under this Agreement and such
failure or default continues unremedied for a period of thirty (30) days
following written notice of such failure or default;
(iii) if a receiver is appointed for Distributor or its
property, Distributor makes an assignment for the benefit of its creditors,
any proceedings are commenced by, for or against Distributor under any
bankruptcy, insolvency or debtor's relief law, or Distributor is liquidated
or dissolved;
(iv) Distributor is merged, consolidated, sells all or
substantially all of its assets, or implements or suffers any substantial
change in management or control; or
(v) Any bill, law or regulation granting Distributor extra
contractual compensation upon termination or expiration of this Agreement is
introduced into or by the legislature or other governing body of the
Territory.
(c) DISTRIBUTOR TERMINATION FOR CAUSE. Distributor may terminate
this Agreement upon written notice at any time prior to the expiration of its
stated term in the event that:
(i) NetObjects fails to perform any other material
obligation, warranty, duty or responsibility or is in default with respect to
any term or condition undertaken by NetObjects under this Agreement and such
failure or default continues unremedied for a period of thirty (30) days
following written notice of such failure or default; or
(ii) if a receiver is appointed for NetObjects or its
property, NetObjects makes an assignment for the benefit of its creditors,
any proceedings are commenced by, for or against NetObjects under any
bankruptcy, insolvency or debtor's relief law, or NetObjects is liquidated or
dissolved.
(d) EFFECT OF TERMINATION OR EXPIRATION. Upon termination or
expiration of this Agreement for cause:
(i) Distributor shall immediately cease any distribution,
sale or transfer of the Stand-Alone Products, shall make or have made no
additional copies of the Golden Master, and shall return the Golden Master to
NetObjects upon request. In addition, upon the request of NetObjects,
Distributor shall certify to the destruction of its inventory of Stand-Alone
Products.
14
<PAGE>
(ii) All royalty payments accrued and payable to NetObjects
shall become due and payable on the effective date of termination, even if
longer terms had been provided previously.
(e) NO DAMAGES FOR TERMINATION, EXPIRATION OR LAPSE OF EXCLUSIVE
RIGHTS. NETOBJECTS SHALL NOT BE LIABLE TO DISTRIBUTOR FOR DAMAGES OF ANY
KIND, INCLUDING INCIDENTAL OR CONSEQUENTIAL DAMAGES, ON ACCOUNT OF THE
TERMINATION OR EXPIRATION OF THIS AGREEMENT IN ACCORDANCE WITH THIS SECTION
17, OR THE CONVERSION OF THE EXCLUSIVE TERM OF THIS AGREEMENT TO A
NON-EXCLUSIVE TERM. DISTRIBUTOR WAIVES ANY RIGHT IT MAY HAVE TO RECEIVE ANY
COMPENSATION OR REPARATIONS ON TERMINATION OR EXPIRATION OR CONVERSION TO
NON-EXCLUSIVE STATUS OF THIS AGREEMENT UNDER THE LAW OF THE TERRITORY OR
OTHERWISE, OTHER THAN AS EXPRESSLY PROVIDED IN THIS AGREEMENT. NetObjects
shall not be liable to Distributor on account of termination or expiration or
conversion to a non-exclusive status of this Agreement for reimbursement or
damages for the loss of goodwill, prospective profits or anticipated income,
or on account of any expenditures, investments, leases or commitments made by
Distributor or for any other reason whatsoever based upon or growing out of
such termination or expiration. Distributor acknowledges that (i)
Distributor has no expectation and has received no assurances that any
investment by Distributor in the promotion of the Products will be recovered
or recouped or that Distributor will obtain any anticipated amount of profits
by virtue of this Agreement, and (ii) Distributor will not have or acquire by
virtue of this Agreement or otherwise any vested, proprietary or other right
in the promotion of the Products or in "goodwill" created by its efforts
hereunder. THE PARTIES ACKNOWLEDGE THAT THIS SECTION HAS BEEN INCLUDED AS A
MATERIAL INDUCEMENT FOR NETOBJECTS TO ENTER INTO THIS AGREEMENT AND THAT
NETOBJECTS WOULD NOT HAVE ENTERED INTO THIS AGREEMENT BUT FOR THE LIMITATIONS
OF LIABILITY SET FORTH HEREIN.
(f) SURVIVAL. NetObjects' rights and Distributor's obligations to
pay NetObjects all amounts due hereunder, as well as Distributor's
obligations under Sections 6(a), 8(c), 9, 11, 15, 17, and 19 shall survive
termination or expiration of this Agreement. Sections 14, 20, 21, 22 and 23
shall survive termination or expiration of this Agreement.
18. RELATIONSHIP OF THE PARTIES.
Distributor's relationship with NetObjects during the term of this
Agreement will be solely that of an independent contractor. Distributor is
not an agent of NetObjects for any purpose, and Distributor will not have,
and will not represent that it has, any power, right or authority to bind
NetObjects, or to assume or create any obligation or responsibility, express
or implied, on behalf of NetObjects or in NetObjects' name, except as herein
expressly provided.
15
<PAGE>
19. INDEMNIFICATION.
(a) INDEMNIFICATION OF DISTRIBUTOR. NetObjects will, at its
expense, defend Distributor against and, subject to the limitations set forth
herein, pay all costs and damages made in settlement or awarded against
Distributor resulting from any claim based on an allegation during the Term
of the Agreement (and any renewal periods) that a Stand-Alone Product as
supplied by NetObjects hereunder infringes a patent or copyright of a third
party created under the law of the Territory, provided that Distributor (i)
has given NetObjects prompt written notice of any such claim, (ii) allows
NetObjects to direct the defense and settlement of the claims, and (iii)
provides NetObjects with the information and assistance necessary for the
defense and settlement of the claim. If a final injunction is obtained in an
action based on any such claim against Distributor's use or sale of a
Stand-Alone Product by reason of such infringement, or if in NetObjects'
opinion such an injunction is likely to be obtained, NetObjects may, at its
sole option, either (i) obtain for Distributor the right to continue using
such Stand-Alone Product, (ii) replace or modify the Stand-Alone Product so
that it becomes noninfringing, or (iii) if neither (i) nor (ii) can be
reasonably effected by NetObjects, credit to Distributor the royalties paid
to NetObjects for the allegedly infringing product the twelve (12) months
prior to the credit, and Distributor shall immediately cease all further
duplication, marketing, sales and distribution of such allegedly infringing
product.
(b) NO COMBINATION CLAIMS. Notwithstanding subsection (a) of this
Section 19, NetObjects shall not be liable to Distributor for any claim
arising from or based upon the combination, operation or use of any
Stand-Alone Product with equipment, data or programming not supplied by
NetObjects, or arising from any alteration or modification of Products by any
person or entity other than NetObjects or an agent of NetObjects designated
in writing.
(c) LIMITATION. THE PROVISIONS OF THIS SECTION 19 SET FORTH THE
ENTIRE LIABILITY OF NETOBJECTS AND THE SOLE REMEDIES OF DISTRIBUTOR WITH
RESPECT TO INFRINGEMENT AND ALLEGATIONS OF INFRINGEMENT OF INTELLECTUAL
PROPERTY RIGHTS OR OTHER PROPRIETARY RIGHTS OF ANY KIND IN CONNECTION WITH
THE INSTALLATION, OPERATION, DESIGN, DISTRIBUTION OR USE OF THE PRODUCTS.
(d) INDEMNIFICATION OF NETOBJECTS. Distributor agrees to
indemnify NetObjects (including paying all reasonable attorneys' fees and
costs of litigation) against and hold NetObjects harmless from, any and all
claims by any other party resulting from the acts of Distributor, or its
subdistributors, resellers and agents (other than the marketing of the
Products as approved by NetObjects), omissions or misrepresentations,
regardless of the form of action.
16
<PAGE>
20. LIMITED WARRANTY; DISCLAIMER OF WARRANTIES.
(a) LIMITED WARRANTY. NETOBJECTS MAKES NO IMPLIED OR EXPRESS
WARRANTIES OR REPRESENTATIONS AS TO THE PERFORMANCE OF THE STAND-ALONE
PRODUCTS OR AS TO SERVICE TO DISTRIBUTOR OR TO ANY OTHER PERSON, EXCEPT AS
SET FORTH IN NETOBJECTS' LIMITED WARRANTY ACCOMPANYING THE STAND-ALONE
PRODUCTS. NETOBJECTS RESERVES THE RIGHT TO CHANGE THE WARRANTY AND SERVICE
POLICY SET FORTH IN SUCH LIMITED WARRANTY, OR OTHERWISE, AT ANY TIME,
EFFECTIVE UPON NOTICE TO DISTRIBUTOR.
(b) DISCLAIMER OF WARRANTIES. TO THE EXTENT PERMITTED BY
APPLICABLE LAW, ALL IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED, TO
IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND
NONINFRINGEMENT, ARE HEREBY EXCLUDED BY NETOBJECTS.
(c) DISTRIBUTOR WARRANTY. Distributor will make no warranty,
guaranty or representation, whether written or oral, on NetObjects' behalf.
21. LIMITED LIABILITY.
(a) NOTWITHSTANDING ANY PROVISION HEREIN OR IN THE END-USER
LICENSE AGREEMENT (AS ADAPTED FOR THE STAND-ALONE PRODUCTS) TO THE CONTRARY,
NETOBJECTS WILL NOT BE LIABLE FOR ANY LOST PROFITS OR FOR ANY DIRECT,
INDIRECT, INCIDENTAL, CONSEQUENTIAL, PUNITIVE OR OTHER SPECIAL DAMAGES
SUFFERED BY DISTRIBUTOR, ITS CUSTOMERS OR OTHERS ARISING OUT OF OR RELATED TO
THIS AGREEMENT OR THE PRODUCTS, FOR ALL CAUSES OF ACTION OF ANY KIND
(INCLUDING TORT, CONTRACT, NEGLIGENCE, STRICT LIABILITY AND BREACH OF
WARRANTY) EVEN IF NETOBJECTS HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES.
(b) IN NO EVENT WILL NETOBJECTS' TOTAL CUMULATIVE LIABILITY IN
CONNECTION WITH THIS AGREEMENT OR THE PRODUCTS, FROM ALL CAUSES OF ACTION OF
ANY KIND, INCLUDING TORT, CONTRACT, NEGLIGENCE, STRICT LIABILITY AND BREACH
OF WARRANTY, EXCEED THE TOTAL AMOUNT PAID BY DISTRIBUTOR HEREUNDER.
(c) Distributor agrees that the limitations of liability and
disclaimers of warranty set forth in this Agreement will apply regardless of
whether NetObjects has tendered delivery of any products or services
hereunder or whether Distributor has accepted any product or services
hereunder. Distributor acknowledges that NetObjects has set its prices and
entered into this Agreement in reliance on the disclaimers of liability, the
disclaimers of warranty and the limitations of liability set forth in this
Agreement and that the same form a basis of the bargain between the parties.
17
<PAGE>
22. ENTIRE AGREEMENT; SUPERSEDING EFFECT. This Agreement and the
Exhibits hereto constitute the complete and exclusive agreement between the
parties pertaining to the subject matter hereof, and supersede in their
entirety any and all written or oral agreements between the parties with
respect to such subject matter, including without limitation, the Prior
Agreement. Distributor acknowledges that it is not entering into this
Agreement on the basis of any representations not expressly contained herein.
Any modifications of this Agreement must be in writing and signed by both
parties hereto. Any such modification shall be binding upon NetObjects only
if and when signed by one of its duly authorized officers.
23. GENERAL.
(a) WAIVER. The waiver by either party of any default by the
other shall not waive subsequent defaults of the same or different kind.
(b) NOTICES. All notices and demands hereunder will be in writing
and will be served by personal service, mail or confirmed facsimile
transmission at the address of the receiving party set forth below (or at
such different address as may be designated by such party by written notice
to the other party), and shall be deemed complete upon dispatch.
IF TO NETOBJECTS: NetObjects, Inc.
602 Galveston Drive
Redwood City, California 94063
Facsimile No.: 650/562-0288
Attn: Vice President, International Sales
IF TO DISTRIBUTOR: Mitsubishi Corporation
3-1, Marunouchi 2-Chome
Chiyoda-Ku, Tokyo
Facsimile No.: 81/3210-7616
Attn: General Manager, Computer Business Unit
(c) ATTORNEYS' FEES. In the event any litigation is brought by
either party in connection with this Agreement, the prevailing party in such
litigation shall be entitled to recover from the other party all the costs,
attorneys' fees and other expenses incurred by such prevailing party in the
litigation.
(d) EXECUTION OF AGREEMENT, CONTROLLING LAW, JURISDICTION. This
Agreement will become effective only after it has been signed by Distributor
and has been accepted by NetObjects at its principal place of business, and
its effective date shall be the date on which it is signed by NetObjects. It
shall be governed by and construed in accordance with the laws of the State
of California, excluding that body of law known as conflicts of laws. The
Convention on Contracts for the International Sale of Goods is expressly not
applicable to this Agreement. The English-language version
18
<PAGE>
of this Agreement controls when interpreting this Agreement. Distributor
consents to the enforcement of any judgment rendered in California in any
action between Distributor and NetObjects.
(e) JURISDICTION; VENUE. In the event any litigation is brought
by either party in connection with this Agreement, the parties agree to
submit to the exclusive jurisdiction and venue of the State Court of
California for Palo Alto, California, and the Federal District Court for the
Northern District of California, and the parties agree to waive all defenses
based on personal or subject matter jurisdiction or venue.
(f) SEVERABILITY. In the event that any of the provisions of this
Agreement shall be held by a court or other tribunal of competent
jurisdiction to be unenforceable, such provision will be enforced to the
maximum extent permissible and the remaining portions of this Agreement shall
remain in full force and effect.
(g) FORCE MAJEURE. NetObjects shall not be responsible for any
failure to perform due to unforeseen circumstances or to causes beyond
NetObjects' reasonable control, including but not limited to acts of God,
war, riot, embargoes, acts of civil or military authorities, fire, floods,
accidents, strikes, failure to obtain export licenses or shortages of
transportation, facilities, fuel, energy, labor or materials.
(h) RELEASE OF CLAIMS. Any and all claims against NetObjects
arising under prior agreements, whether oral or in writing, between
NetObjects and Distributor are waived and released by Distributor by
acceptance of this Agreement.
(i) CHOICE OF LANGUAGE. The original of this Agreement has been
written in English. Distributor waives any right it may have under the law
of Distributor's Territory to have this Agreement written in the language of
Distributor's Territory.
(j) DUE EXECUTION. The individual executing this Agreement on
behalf of the parties hereto represents and warrants that he has been duly
authorized under charter documents of NetObjects or Distributor, as may be
applicable, and applicable law to execute this Agreement on behalf of such
party.
(k) COUNTERPARTS; FACSIMILE. This Agreement may be executed in
multiple counterparts and by facsimile.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective on the date specified on the first page hereof.
NETOBJECTS INC. MITSUBISHI CORPORATION
Signature: /s/ Samir Arora Signature: /s/ Mitsuhiko Kato
------------------------ ----------------------------
Printed Name: Samir Arora Printed Name: Mitsuhiko Kato
-------------------- ------------------------
Title: Chairman & Chief Executive Title: General Manager Information
Officer Systems & Services Div. B
---------------------------- -------------------------------
19
<PAGE>
STANDARD INBOUND LICENSE AGREEMENT
(Distribution of Third Party Products)
1. PREAMBLE. This Standard Inbound License Agreement ("Agreement") is agreed
to by the entity identified in the table below ("Company") and Novell,
Inc., a Delaware corporation with principal offices at 122 East 1700 South,
Provo, Utah 84606 ("Novell").
<TABLE>
<CAPTION>
---------------------------------------------------------------
COMPANY NAME NetObjects, Inc.
---------------------------------------------------------------
<S> <C>
ADDRESS NetObjects, Inc.
602 Galveston Dr.
Redwood City, CA 94063
---------------------------------------------------------------
PHONE 650.482.3200
---------------------------------------------------------------
JURISDICTION OF Delaware corporation
FORMATION AND C corporation
BUSINESS FORM
---------------------------------------------------------------
FAX 650.582.0288
---------------------------------------------------------------
URL www.netobjects.com
---------------------------------------------------------------
</TABLE>
2. PURPOSE. Company develops and markets a NetObjects Fusion software product
that enables users to create Web sites. Novell desires to make Company's
NetObjects Fusion solution available to its customers by distributing it
with Novell's NetWare for Small Business product offering. Company desires
to gain additional market recognition by having Company's NetObjects Fusion
product distributed by Novell. This Agreement sets forth the terms and
conditions under which Company will license the Licensed Work defined below
to Novell, including obligations of Company to meet certain technical
requirements to ensure the suitability of the Licensed Work for operation
with Novell products.
3. DEFINITIONS. The following terms shall have the definitions stated below:
a. BINARY CODE OR CODE - shall mean code that loads and executes without
further processing by a software compiler or linker or that results
when source code is processed by a software compiler.
1
<PAGE>
b. CHANGE OF CONTROL - shall mean when, subsequent to the Effective Date,
(1) any person or group (within the meaning of Rule 13d-5 under the
Securities Exchange Act of 1934 as in effect on the date hereof) shall
come to own, directly or indirectly, beneficially or of record, voting
securities representing more than 50% of the total voting power of one
of the parties, (2) or one of the parties becomes a Subsidiary of some
third-party. Novell acknowledges that Company is a majority-owned
subsidiary of IBM.
c. CODE ERROR - a program function that is described in user
Documentation or the Agreement but is omitted from the Code, or a
program function or user Interface that does not operate or that gives
incorrect results when measured against its design specifications.
d. COMPARABLE PRODUCT - shall mean Company product that: (1) are marketed
under the same product name as the Licensed Works: and/or (2) have
functionality substantially similar to that of the Licensed Works but
are written for platforms other than those of Novell.
e. DOCUMENTATION - shall mean user manuals and other written Materials
that relate to, or are made available to facilitate, end use of
particular Code.
f. DOCUMENTATION ERROR - a failure of the Documentation to describe
accurately a program function contained in the Agreement; or, a
failure of the Documentation to meet the requirements of the
Agreement; or, a failure of the Documentation to enable reasonably
competent users to correctly operate the associated Code.
g. EFFECTIVE DATE - shall mean September 30, 1998.
h. ERROR - shall mean a Code Error and/or a Documentation Error.
i. FCS - shall mean the date that Novell makes the NetWare for Small
Business 4.2 product Generally Available.
j. GENERAL AVAILABILITY and GENERALLY AVAILABLE - shall mean, with
respect to a particular item, the date that the item is made available
to members of the general public.
k. HARMFUL CODE - shall mean any Code constructed with the ability to
damage, interfere with, or adversely affect computer programs, data
files, or hardware without the consent or intent of the computer user.
This definition is intended to mean Code in the
2
<PAGE>
nature of self-replacing and self-propagating programming instructions
commonly called "viruses," "trojan horses" and "worms."
l. INITIAL TERM - shall have the meaning set forth in Section 13.
m. LICENSED TRADEMARKS - shall mean the word marks listed on Exhibit B,
their associated design marks, and all other trademarks and trade
dress used by Company to identify and/or market the Licensed Works
and/or Comparable Products.
n. LICENSED WORKS - shall mean the materials identified as Licensed Works
on Exhibit A and associated Documentation.
o. NWSB - shall mean any versions and releases of Novell's NetWare for
Small Business product or any other Novell product offering, including
without limitation ports to other platforms, translations, and/or
localizations, whether such versions and releases are created,
marketed, distributed, and/or sold by Novell or third parties.
p. NEW VERSION - shall mean a new version or release of a product that is
designated by Novell as a change to the left of the decimal point
and/or in the tenths digit [(x).(x)x] of the version number. E.g.
Version 5.2 or 6.0 would be considered a New Version of the 5.1
version of a product, but the 5.11 version would not be considered a
New Version of the 5.1 version of a product.
q. SUBSIDIARY - shall mean a corporation, company, or other entity (1)
fifty percent (50%) or more of whose outstanding shares or securities
(representing the right to vote for the election of directors or other
managing authority) are, or (2) which does not have outstanding shares
or securities, as may be the case in a partnership, joint venture or
unincorporated association, but at least fifty percent (50%) of whose
ownership interest representing the right to make the decisions for
such corporation, company or other entity is, now or hereafter, owned
or controlled, directly or indirectly, by a party hereto. However,
such corporation, company, or other entity shall be deemed to be a
Subsidiary only so long as such ownership or control exists.
4. PROJECT MANAGERS. Each party's Project Manager (named in Exhibit D) shall
be responsible for managing that party's performance under the Agreement
and for all necessary coordination with the other party's Project Manager.
Each party's Project Manager will provide periodic progress reports to the
other party's Project Manager. In the
3
<PAGE>
event of disputes regarding this Agreement, the Project Managers have the
primary responsibility to resolve such disputes, up to and including the
dispute resolution procedures set forth in Section 14.
5. LICENSE GRANTS TO NOVELL
a. LICENSED WORKS. The Licensed Works source code is not licensed to
Novell under this Agreement. All licenses are limited to Binary code
only.
Company grants to Novell the following non-exclusive, worldwide and
irrevocable license in the Licensed Works:
i. To use, reproduce, and distribute the Licensed Works internally
within Novell, subject to the limitations of Section 8.
ii. To distribute externally, either directly or indirectly, copies
of those portions of the Licensed Works that are not Code (e.g.
Documentation).
iii. To distribute externally by sale, lease, rental or otherwise
transfer possession to end-users, either directly or indirectly,
copies in Binary Code form only of the Licensed Works.
Subject to the bundling requirements herein, distribution of the
Licensed Works as permitted above may be in combination with other
works.
b. SUBLICENSING. Novell shall have the right to sublicense, directly or
indirectly, the rights granted in Section 5.a(ii) and 5.a(iii) to
third parties ("Sublicensees") through multiple tiers, subject to the
limitations set forth in this Agreement.
c. INTELLECTUAL PROPERTY LICENSE. Each copyright license shall also
automatically include a grant by Company to Novell of a worldwide,
non-exclusive license under all of Company's inventions, discoveries,
patents, copyrights, trade secrets, inventor's certificates, utility
models (and similar forms of legal protection of any country) and
other proprietary rights, including those of third parties under which
Company has the right to grant licenses, necessary to exercise the
rights granted under this Agreement, regardless of when such
proprietary rights were first conceived, reduced to practice, created,
or perfected. Such license shall be limited in scope to the minimum
extent that is consistent with the grant of the copyright license.
Such patent license is also
4
<PAGE>
extended, at the minimum scope necessary to be consistent with the
grant of the copyright license to licensees and sublicensees of the
copyright license.
d. BUNDLING REQUIREMENT. Distribution of the Licensed Works shall be
solely as bundled with NWSB, except that Novell shall be free to
distribute updates, upgrades (that are made Generally Available to
customers free of charge), replacement copies, Error Corrections, and
fixes on a stand-alone basis, including electronic distribution.
e. Upon request, Novell shall provide Company with a list of countries in
which it intends to distribute the Licensed Works.
6. OWNERSHIP. Company shall retain all rights in and title to the Licensed
Works.
7. TRADEMARK LICENSE AND PRODUCT NAME.
a. LICENSE GRANT. Company grants Novell and its distributors, a
worldwide, non-exclusive, non-transferable and royalty-free license to
use the Licensed Trademarks on the Licensed Works and in connection
with the distribution and marketing of Licensed Works. Novell shall
have the right to use the Licensed Trademarks in proximity to
trademarks relating to Novell and third party products distributed or
marketed in conjunction with the Licensed Works. Novell shall have
the right to seek and obtain copyright protection, including
registrations, on packaging and marketing materials which may display
the Licensed Trademarks; notwithstanding the foregoing, in no event
shall this right be construed as transferring any interest of Company
in the Licensed Trademarks to Novell.
b. PROTECTION AND DEFENSE OF THE LICENSED TRADEMARKS. Novell and Company
will at all times use their commercially reasonable efforts to
preserve the value and validity of the Licensed Trademarks. Company
shall notify Novell of all claims that the Licensed Trademarks
conflict with the rights of third parties. Company hereby expressly
represents, to the best of its knowledge (without further research or
due diligence), that the existing Licensed Trademarks are valid and
are the exclusive property of Company within those jurisdictions in
which Company has registered or applied to register the Licensed
Trademarks. Nothing in this Agreement shall be construed to give
Novell any right, title, interest or responsibility in or for any
Licensed Trademarks, except as expressly provided herein. Any
trademark rights accruing through the use of the Licensed Trademarks
by Novell shall accrue to the benefit of Company alone; in the event
Novell uses Novell or third party
5
<PAGE>
marks in proximity to the License Trademarks, the good will accruing
from the use of such marks shall inure to the benefit of Novell and/or
its licensors. Novell shall cooperate with Company in registering
Novell as a registered user of the Licensed Trademarks whenever, in
Company's judgment, such registration is appropriate.
c. NEW NAME. In the event Novell has a reasonable and objectively
substantial business concern that Novell will not be able to freely
market and distribute the Licensed Works due to a conflict with third
parties over the use of the Licensed Marks, Novell shall notify
Company and Company shall resolve the conflict or provide a
replacement trademark within two weeks of Novell's notice. The
replacement trademark shall be deemed a "Licensed Trademark." If
Company cannot resolve the conflict or provide a suitable replacement
trademark in such time period, Novell shall be free to market and
distribute the Licensed Works under a name comprised of a Novell
trademark followed by a generic name. If Company later provides a
suitable replacement name, Novell will discontinue use of the generic
name and will use the new replacement name, Novell will discontinue
use of the generic name and will use the new replacement trademark as
soon as it is able to do so without incurring additional costs or
disruption of distribution. In the event that there is a dispute
between the parties as to whether the replacement trademark or generic
name should be used only in a particular jurisdiction versus
worldwide, then each party shall escalate the dispute to the senior
vice president level and the respective senior vice president level
and the respective senior vice presidents shall promptly meet and
resolve the dispute.
d. USAGE. Novell agrees not to use NETOBJECTS product names as
possessives and, subject to Section 7.c, to always include NetObjects
in the product name of the Licensed Works (i.e. NetObjects Fusion, not
simply Fusion). In addition, Novell agrees to attribute the Licensed
Marks in an industry acceptable manner.
8. CONSIDERATION. Unless otherwise stated in this Agreement, each party shall
bear its respective costs in performing hereunder.
a. LICENSE FEES AND OTHER PAYMENT SCHEDULE. The parties shall pay
license fees and other payments set forth in Exhibit G.
b. NO LICENSE FEES FOR CERTAIN USES. No royalty or other charge shall be
payable by Novell for any copies of Licensed Works that are returned
and/or unused copies (e.g., payments previously made on returned
copies may be taken as a credit against payments owed
6
<PAGE>
for further copies), or that are used, executed, reproduced,
displayed, performed and/or distributed:
i. For internal development, maintenance or support activities
pertaining to the License Works. (Internal use by Novell for
other purposes shall be royalty-bearing as set forth in Exhibit
G), or
ii. For sales demonstrations or customer evaluation, testing,
maintenance or support activities, or
iii. Provided free of charge (bundled with NWSB) to non-profit
organizations or educational institutions such as universities,
for uses not related to the internal administration and operation
of such institution, or
iv. For training or educational purposes that are directly related to
the sale and licensing of the Licensed Works, or
v. As back-up, archival, or escrow copies for customers, or
vi. For use by resellers (to the extent Novell authorizes royalty
free use of Novell products by resellers under its standard
reseller programs and only if bundled with NWSB in a
free-of-charge bundle; provided that program and subscription
fees for reseller programs shall not be considered a "charge" for
purposes of this subsection vi), or
vii. For promotional purposes and only if bundled with NWSB in a
free-of-charge bundle. The term "promotional purposes" shall not
be construed to include providing the Licensed Works to a
customer or third party in connection with a revenue-generating
transaction (e.g. Selling copies of a Novell product and offering
promotional copies of the Licensed Work in connection with the
sale of the Novell product.)
c. PRICING CHANGE. If Company or its licensees make the Licensed Works
(other than updates, error corrections, and fixes) Generally Available
free of charge, all licenses to Novell under this Agreement shall
immediately convert to royalty-free licenses and Novell's obligation
to pay royalties for copies sold after such time shall also terminate.
d. INVOICES AND LICENSE REPORTS. Within forty-five (45) days after end
of each Novell fiscal quarter, Novell will provide Company with
7
<PAGE>
payment and a license report indicating all royalties payable for that
quarter and the basis for calculation of such royalties in a form
reasonably determined by Novell. If no license activity occurred
during the quarter, Novell will submit a report indicating no
activity. Novell will send all license reports and payments to
Company at the Company accounting address designated in Exhibit D,
which address may be changed by providing written notice to Novell.
e. TAX CONSEQUENCES. All license fees are exclusive of all applicable
taxes. The party making payment ("Payer") shall be responsible for
all sales, use, excise, value added and/or equivalent taxes arising
out of the payment and shall either include such taxes with the
payment or shall provide the other party, in advance, with a valid
exemption certificate or other documentation to successfully claim
exemption from the tax. Payer shall not be responsible for: (a)
taxes based upon the other party's net income, capital, or gross
receipts, or (b) any withholding taxes imposed if such withholding tax
is allowed as a credit against U.S. income taxes of Payer such as a
withholding tax on a royalty payment where such withholding is
required by law. In the event Payer is required to withhold taxes,
Payer agrees to furnish to the other party all required receipts and
documentation substantiating such payment. If Novell is required by
law to remit any tax or duty on behalf, or for the account, of other
party agrees to reimburse Novell within thirty (30) days after Novell
notifies other party in writing of such remittance.
f. AUDIT. The parties will maintain complete and accurate accounting
records, in accordance with generally accepted accounting practices,
to support and document amounts due and will retain such records for
three (3) years after payment is made. A party will, upon written
request of the other party, provide audit access to such records to a
mutually acceptable independent accounting firm that is chosen and
compensated by the other party. Such access will be granted only
during normal business hours and no more frequently than once in each
calendar year. The audit will not interfere with the audited party's
normal business activity. The accounting firm will be required to
hold all information received during the audit in confidence and will
be authorized to report to the other party only the amount of payments
actually due under the Agreement for the period examined. The costs
for such audit shall be paid for (i) by Company if the Discrepancy is
less than 5%; (ii) equally by both Company and Novell if the
Discrepancy is 5-10%; or (iii) by Novell if the Discrepancy is more
than 10%. "Discrepancy" for the purposes of this provision shall mean
the
8
<PAGE>
difference between what was reported or paid to Company and the actual
royalty due to Company.
9. DELIVERY AND ACCEPTANCE. Company shall deliver the Licensed Works at each
milestone in accordance with the schedule of Milestones in Exhibit C. The
Licensed Works and Documentation shall be on a CD in a form designated by
Novell. The Licensed Works must meet the Product Requirements as defined
in Exhibit C.
10. DEVELOPMENT REQUIREMENTS. Company shall develop the Licensed Works in
compliance with this Section.
a. PRODUCT REQUIREMENTS. The Licensed Works shall meet the Product
Requirements in Exhibit C and the Localization Requirements in Exhibit
F.
b. UPDATE. Within thirty (30) days of General Availability of Code
implementing enhancements or new features in a Comparable Product.
Company shall deliver Code to Novell that implements the same
enhancements and new features in the Licensed Works.
c. HARMFUL CODE. Company agrees to implement reasonable procedures
adequate to prevent any Code provided to Novell hereunder from being
contaminated with Harmful Code. If Company learns or suspects that
any Code provided to Novell under this Agreement contains any Harmful
Code, Company will immediately notify Novell and make reasonable
efforts to remove the Harmful Code. The remedies provided by this
section are in addition to any other remedies Novell may have.
11. ENGINEERING AND END USER SUPPORT.
a. ENGINEERING SUPPORT. These engineering support obligations are
independent of the maintenance and end user support obligations of
Section 11.b, and do not modify the obligations of that Section in any
way.
i. Engineering Support. The Engineering Managers in Exhibit D shall
be the sole points of communication on all engineering support
issues.
b. MAINTENANCE AND END USER SUPPORT.
i. Company shall provide maintenance and support for the Licensed
Works according to the terms and conditions of Exhibit E hereto.
9
<PAGE>
ii. Within thirty (30) days of General Availability of Code
correcting an Error in a Comparable Product, Company shall
deliver Code to Novell that corrects the same Error in the
Licensed Works. This requirement shall not be construed as
modifying or limiting Company's obligations under Exhibit E.
12. PRODUCT PACKAGING & END USER LICENSE. Novell will determine the packaging
for the Licensed Works at its sole discretion. Company will embed the
following in the master copy of the Licensed Works provided to Novell: (i)
Company's standard terms and conditions under which the end user will
license or evaluate the Licensed Work (with Company as the licensor) in
electronic form (the "EULA"), and (ii) the end user Documentation in
electronic form. Novell will reproduce the Licensed Works without
modification as delivered to Novell, including the EULA. Novell will have
no obligation to insert or include any additional license agreement other
than the hard copy EULA, any brochure, or other materials with the Licensed
Work. Company shall be responsible for producing and delivering all hard
copy EULAs to the shipping address designated by Novell. The form
(excluding content) of the EULA is subject to Novell's reasonable approval.
Company shall bear all production and insertion costs related to including
the EULA in NWSB.
13. TERM AND TERMINATION. This Agreement shall be effective upon the Effective
Date and shall remain in force for a period of one (1) year from FCS (the
"Initial Term"), unless otherwise terminated as provided in this Section
13. After the Initial Term, this Agreement shall automatically renew for
consecutive one (1) year periods, unless terminated as provided in this
Section 13.
a. TERMINATION WITHOUT CAUSE. After the Initial Term, Novell may
terminate this Agreement without cause upon not less than 90 days
written notice to Company. After the first renewal year (i.e. Initial
Term plus one year), Company may terminate this Agreement without
cause upon not less than 90 days written notice to Novell.
b. TERMINATION FOR CAUSE. Either party may terminate this Agreement for
the substantial breach by the other party of a material term. The
terminating party shall first give the other party written notice of
the alleged breach and a reasonable period of at least thirty (30)
days in which to cure the alleged breach. If a cure is not achieved
during the cure period, then the parties shall enter into the dispute
resolution procedures specified in Section 14. In the event of
unsuccessful completion of such dispute resolution procedures, the
parties shall submit to mandatory mediation with a mutually agreed
upon mediator, such mediation to be completed within thirty (30)
10
<PAGE>
days and to be held in Salt Lake City, Utah. Termination of the
Agreement shall occur upon the expiration of the cure period and the
subsequent unsuccessful completion of the dispute resolution
procedures specified in Section 14 and mandatory mediation as required
by this Section. Neither party shall be precluded from seeking
temporary equitable remedies.
c. EFFECT OF TERMINATION. Upon termination, the licenses granted to
Novell pursuant to this Agreement shall terminate with respect only to
any New Version of NWSB that is made Generally Available after the
effective date of termination. Except as stated in this Section 13.c,
termination of this Agreement shall not affect any licenses granted to
Novell, provided that all licenses shall terminate upon Novell's
discontinuance of all versions of NWSB released prior to such New
Version.
14. DISPUTE RESOLUTION PROCEDURES. The parties agree to negotiate in good
faith to resolve all contract disputes arising out of or related to this
Agreement in accordance with this Section 14. Primary responsibility for
instigating resolution of any contract dispute arising out of or related to
this Agreement shall reside in the parties' Project Managers or their
designees; the parties do not hereby give their Project Mangers authority
to bind the parties, but agree that binding resolutions can only be entered
by duly authorized representatives, and that this Agreement does not
appoint the Project Mangers as such. The party instigating dispute
resolution procedures shall be referred to below as the "Complaining
Party," and the other party shall be referred to below as the "Responding
Party." Any physical meetings between the parties shall be held at the
offices of the Responding Party, or another mutually agreed upon location,
all travel and expenses to be born by the Complaining Party. The "Dispute
Resolution Period" shall commence on expiration of the cure period.
a. During the first ten (10) days of the Dispute Resolution Period, the
Project Manager of the Complaining Party shall initiate one (1) or
more meetings (by teleconference or other mutually agreeable
arrangement) with the Project Manager of the Responding Party at which
the parties shall attempt to reach a mutually agreeable resolution of
the contract dispute. In the event the Project Manager of the
Complaining Party fails to initiate discussions, the dispute shall be
deemed resolved without prejudice. In the event the Project Manager
of the Complaining Party fails to initiate discussions, the dispute
shall be deemed resolved without prejudice. In the event the Project
Manger of the Responding party
11
<PAGE>
refuses to be reasonably available for such efforts, the dispute
resolution procedures shall be deemed unsuccessfully completed.
b. During the second ten (10) days of the Dispute Resolution Period, the
Project Manager of the Complaining Party shall initiate one (1) or
more meetings (by teleconference or other mutually agreeable
arrangement) between representatives at the next level of management
above that of the Project Mangers of Company and Novell at which the
parties shall attempt to reach a mutually agreeable resolution of the
contract dispute. In the event the project Manager of the Complaining
Party fails to initiate such meetings or the Complaining Party
representative fails to participate, the dispute shall be deemed
resolved without prejudice. In the event the Responding Party fails
to identify its representative or to make its representative
reasonably available for such meetings, the dispute resolution
procedures shall be deemed unsuccessfully completed.
c. During the third ten (10) days of the Dispute Resolution Period, if
negotiations have failed to resolve any such contract dispute to the
satisfaction of both parties, then each party shall nominate one
officer of a rank that is the next level of management above its
representative designated in Section 14.b. The Project Manager of the
Complaining Party shall initiate the meeting between the meeting
between these representatives. These representatives shall attempt in
good faith to resolve the contract dispute. In the event the Project
Manager of the Complaining Party fails to initiate such meetings or
the Responding Party representative fails to participate, the dispute
shall be deemed resolved without prejudice. In the event the
Responding Party fails to identify its representative or to make its
representative reasonably available for such meetings, the dispute
resolution procedures shall be deemed unsuccessfully completed.
15. GENERAL TERMS.
a. ASSIGNMENT. Neither party shall transfer or assign any right or
obligation set forth in this Agreement without the prior written
consent of the other party, which consent shall not be unreasonably
withheld.
b. CHANGE OF CONTROL OR ACQUISITION. If a Change of Control to Company
occurs, Novell shall have the right upon written notice to terminate
this Agreement immediately and have returned any or all Confidential
Information then in the possession of Company.
12
<PAGE>
c. CHANGES. This Agreement may be modified only by a writing that is
executed by authorized representatives of both parties.
d. CONFIDENTIALITY AND INFORMATION EXCHANGE. It is the intention of
Company and Novell to transfer and/or exchange information, including
confidential information, as may be necessary. Such information may
be disclosed in oral, visual, or written form (including magnetic,
optical, or other media).
i. The party receiving confidential information under the Agreement
("Recipient") shall make use of the confidential information only
for the purposes of the Agreement. Nothing in this Agreement
shall be construed to limit either party's right to independently
develop or acquire products without use of the other party's
confidential information. Further, either party shall be free to
use the residuals resulting from access to or work with the other
party's confidential information, provided that such party
otherwise complies with the non-disclosure provisions hereof.
The term "residuals" means general information in non-tangible
form which may be retained by persons who have had access to the
confidential information. The foregoing residuals rights shall
not be deemed to grant either party a license, by implication,
estoppel or otherwise, under the other party's patents or
copyrights.
ii. The Recipient shall protect the disclosed confidential
information by using the same degree of care, but no less than a
reasonable degree of care, to prevent the unauthorized use,
dissemination, or publication of the confidential information as
the Recipient uses to protect its own confidential information of
a like nature.
iii. The Recipient's duty to hold confidential information in
confidence expires five (5) years, or in the case of source code
fifteen (15) years, after its receipt. The expiration of the
duty of confidentiality shall not modify other restrictions on
the Recipient including, or example, any restrictions on
distribution of source code arising out of a granted copyright
license.
iv. The Recipient's obligations shall only extend to confidential
information that is marked as confidential at the time of
disclosure or that is unmarked (e.g., orally disclosed) but is
treated as confidential at the time of disclosure.
13
<PAGE>
v. This Agreement imposes no obligation upon Recipient with respect
to information that: (a) was in Recipient's possession before
receipt from the disclosing party ("Discloser"); (b) is or
becomes a matter of public knowledge through no fault of
Recipient; (c) is rightfully received by the Recipient from a
third party without a duty of confidentiality; on the third
party; (e) is independently developed by the Recipient without
thereby violating the Discloser's patent or copyright; (f) is
disclosed under operation of law after all reasonable means have
been afforded to the Discloser to protect the information; or,
(g) is disclosed by the Recipient with Discloser's prior written
approval.
e. CONSTRUCTION. The headings in this Agreement are provided for
reference only and shall not be used as a guide to interpretation.
When used in this Agreement, the singular includes the plural and the
plural includes the singular, and gender related pronouns include the
feminine, masculine and neuter.
f. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement and
understanding between the parties as to its specific subject matter
and merges all prior discussions between them with regard to such
specific subject matter. Neither of the parties shall be bound by any
conditions, definitions, warranties, understandings, agreements, or
representations, whether written or oral, with respect to such
specific subject matter other than as expressly provided in the
Agreement or as duly set forth on or subsequent to its effective date,
in a written document that is signed by a duly authorized
representative of each party. However, the parties acknowledge that
they do not intend, at the present time, to merge any independent
written agreements existing between them and executed prior to the
execution of this Agreement, and such independent agreements shall not
be considered merged into this Agreement except as specifically set
forth in this Agreement.
g. EXPORT OF TECHNICAL DATA. Each Party agrees to comply with U.S.
export laws and regulations when exporting any materials or any items
licensed or developed under this Agreement or any portion thereof, or
any system containing such materials or items or portion thereof, or
any technical data or other Confidential Information, or any direct
product of any of the foregoing (collectively, "Program") from the
U.S. or re-exporting (as defined in Section 734.2(b) of the Export
Administration Regulations, as amended ("Regulations")) a Program from
one foreign country to another. It is the exporting party's
responsibility to comply with the U.S. Government
14
<PAGE>
requirements as they may be amended from time to time. Without
limiting the generality of the foregoing: (i) regardless of any
disclosure made by the exporting party to the other party of an
ultimate designation of a Program, the exporting party shall not
export or transfer, whether directly or indirectly, a Program, to
anyone outside the U.S. (including further export if the exporting
party took delivery of the Program outside the U.S.) without first
complying strictly and fully with all export controls that may be
imposed on the Program by the U.S. Government or any country or
organization of nations within whose jurisdiction the exporting party
operates or does business; and (ii) absent any required prior
authorization from the Bureau of Export Administration, U.S.
Department of Commerce, 14th and Constitution Avenue, Washington DC
20230, the exporting party will not export or re-export the Program to
any country in Country Groups D:1 or E:2 as defined in the supplement
No. 1 to Section 740 of the Regulations, or such other countries as
come under restriction (including embargo) by action of the U.S.
Government, or to nationals from or residing in the foregoing
countries, without first obtaining permission from the appropriate
U.S. Government authorities. Each party will reasonably cooperate
with the other party in obtaining export licenses or approvals.
h. WAIVER. No waiver of any provision of this Agreement shall be
effective unless it is set forth in a writing that refers to the
provisions so waived and is executed by an authorized representative
of the party waiving its rights. No failure or delay by either party
in exercising any right, power or remedy will operate as a waiver of
any such right, power or remedy.
i. FORCE MAJEURE. Neither party shall be liable in damages or have the
right to cancel or terminate this Agreement for any delay or default
in performance if such delay or default is caused by unforeseen
conditions or conditions beyond the control of the delaying or
defaulting party, including but not limited to acts of God, government
restrictions, continuing domestic or international problems such as
wars or insurrections, strikes, fires, floods, work stoppages and
embargoes. Either party shall have the right to terminate this
Agreement upon sixty (60) days prior written notice if the delay or
default of the other party due to any of the above-mentioned causes
continues for a period of six (6) months. Each party shall give the
other party prompt written notice of any such condition likely to
cause any delay or default.
15
<PAGE>
j. FREEDOM OF ACTION. This Agreement shall not prevent either party from
(i) entering into any agreement similar to this Agreement with any
corporation or other entity in any industry or any non-profit body
such as a university or a government, (ii) developing, manufacturing
and/or selling any product or service that can compete with the other
party's products or services in the marketplace, or (iii) developing
for its products features that are the same as or similar to features
of products of the other party. The foregoing shall not be deemed to
grant either party any license, by implication, estoppel or otherwise,
under the other party's patents, copyrights, trade secrets or other
intellectual property rights.
k. INTELLECTUAL PROPERTY INDEMNITY.
i. Company shall defend or settle any claim made or suit or
proceeding brought against Novell and its subsidiaries or
affiliates under its control, and their directors, officers,
employees, and agents, against any and all losses, judgments,
awards, and costs (including reasonable legal fees and expenses)
arising out of or related to any claim that the Licensed
Trademarks or Licensed Works infringe or violate the copyright,
trademark, trade name, trade secret, or patent rights of any
third party. Company will defend at its sole expense all suits
or proceedings arising out of the claims described above,
provided that Novell gives Company prompt notice and control of
any claim of which it learns. No settlement that prevents Novell
from continuing to use Licensed Works will be made without
Novell's prior written consent unless Company procures for Novell
the right to continue using the Licensed Works, or replaces or
modifies the Licensed Works so that it becomes non-infringing.
Novell will have the right to participate in the defense of any
claim involving the use of Licensed Works, provided that Company
will not be responsible for indemnifying Novell for the cost of
Novell's attorney's fees should Novell elect to participate in
such defense.
ii. Company shall have no liability for any claim based upon
combination of Licensed Works with non-Company software or
hardware if such infringement would have been avoided but for
such. The foregoing limitation with respect to hardware shall
not apply if the Licensed Works are merely being executed on
industry standard hardware and software in accordance with the
manner in which Company intends its Licensed Works to be
operated. Company shall have no
16
<PAGE>
liability for any claim based upon a modified version of the
Licensed Work where the alleged infringement would not have
occurred but for the modifications to the Licensed Works not
performed by Company or its agent.
iii. If the Licensed Works, in whole or in part, are or in Company's
option may become, the subject of any claim, suit or proceeding
for infringement of, or it is judicially determined that the
Licensed Works, in whole or in part, infringe any third party's
intellectual property right, or if the Licensed Work's use is
enjoined, then Company may, at its option and expense, and using
reasonable efforts to act as soon as possible: (1) procure for
Novell the right to continue use of the Licensed Works; (2)
replace or modify the Licensed Works so as not to infringe such
third party's intellectual property right while conforming, as
closely as possible, to the specifications agreed upon by the
parties, (3) if the parties mutually agree, Novell may undertake
to replace or modify the Licensed Works so as not to infringe
such third party's intellectual property right and such work
shall be reimbursed by Company at a mutually agreeable fee
structure.
iv. This Section 15.k shall represent the entire and exclusive
obligation of Company to Novell regarding any claim that the
Licensed Works infringe the intellectual property rights of a
third party.
l. INDEPENDENT CONTRACTORS. Each party is and shall remain an
independent contractor with respect to all performance under this
Agreement. No employee of either party shall be considered an
employee or agent of the other party for any purpose. Each party
assumes sole responsibility for the supervision, daily direction and
control, payment of salary (including withholding of income taxes and
social security), worker's compensation, disability benefits and the
like of its employees. Nothing in this Agreement shall be construed
to prevent either party from delegating performance under this
Agreement to independent contractors who have entered into written
agreements consistent with and at least as restrictive as the
provisions contained in this Agreement. However, the contracting
party shall remain primarily responsible for the performance of its
subcontractors and their compliance with such provisions, and hereby
waives any defense alleging that it has no liability as a result of a
claim of breach by any such permitted subcontractors.
17
<PAGE>
m. LAWS. The validity, construction, and performance of this Agreement
will be governed by the substantive laws of the State of Utah without
regard to any choice of law provisions. The parties agree that any
dispute relating to this Agreement shall be subject to any court of
competent jurisdiction after satisfaction of any condition precedent
stated in this Agreement. The prevailing party in any action to
enforce the terms of this Agreement entered into hereunder shall be
entitled to recover its costs and expenses, including reasonable
attorney's fees, incurred in connection therewith, in addition to any
other relief to which such party is entitled. Each party shall, at
its own expense, comply with any governmental law, statute, ordinance,
administrative order, rule or regulation relating to its duties,
obligations or performance under this Agreement.
n. LIMITATION OF LIABILITIES. THE REMEDIES PROVIDES IN THIS AGREEMENT
ARE THE SOLE AND EXCLUSIVE REMEDIES OF THE PARTIES. NEITHER PARTY
SHALL IN ANY EVENT BE LIABLE TO THE OTHER, OR TO ANY LICENSEE,
SUBLICENSEE, OR CUSTOMER OF THE OTHER UNDER THIS AGREEMENT FOR LOSS OF
PROFITS, LOSS OF BUSINESS, LOSS OF USE OR OF DATA, OR FOR INTERRUPTION
OF BUSINESS. NEITHER PARTY SHALL IN ANY EVENT BE LIABLE FOR INDIRECT,
SPECIAL, RELIANCE, INCIDENTAL, COVER, OR CONSEQUENTIAL LOSS OR DAMAGE
OF ANY KIND ARISING UNDER THIS AGREEMENT, WHETHER IN A CONTRACT, TORT
OR OTHER ACTION FOR OR ARISING OUT OF ALLEGED BREACH OF WARRANTY,
ALLEGED BREACH OF CONTRACT, DELAY, NEGLIGENCE, STRICT LIABILITY OR
OTHERWISE. Except as to the obligations set forth in Section 15.k, in
no event shall either party be liable under this Agreement to the
other, its successors and assigns for any damages exceeding total
payments paid or due by both parties under this Agreement.
o. NOTICES. All notices to a party under this Agreement shall be
delivered to that party's Project Manager at the address stated in
Exhibit D. All notices required or permitted to be given under this
Agreement shall be in writing. A notice shall be validly given upon
the earlier of confirmed receipt by the recipient or fourteen (14)
days after deposit, postage prepaid, with the US Postal Service as
first class mail. Notices may be delivered by telefax, overnight
service or courier and shall be validly given upon confirmed receipt.
18
<PAGE>
p. REPRESENTATIONS AND WARRANTIES.
i. Ownership. Company warrants to Novell that Company has a valid
right to modify, distribute, and sublicense the Licensed Works.
Company further warrants that, to the best of its knowledge
(without further research or due diligence), the Licensed Works
do not infringe any person's patent, copyright, trademark, trade
name or trade secret rights, that Company has the right to grant
to Novell all rights to Licensed Works granted herein without
violating any rights of any third party, and that to Company's
knowledge there is currently no actual or threatened suit by any
third party based on an alleged violation of these rights by
Company.
ii. Performance. Company warrants to Novell (and not to End Users),
for a period of 90 days from the date of their respective initial
delivery, that the initial delivery of the Licensed Works and
each upgrade commencing on the last Milestone in Exhibit C will
perform without Error. Novell's sole and exclusive remedy for
breach of the foregoing warranty shall be for Company to use
commercially reasonable efforts to fix non-conformities promptly
and redeliver a corrected copy to Novell. Company further
warrants to Novell, for a period of 90 days from the date of
their respective initial delivery, that all media containing
Licensed Works and related materials delivered to Novell will be
free from physical defects in materials and workmanship.
Novell's sole and exclusive remedy for breach of the foregoing
warranty shall be for Company to ____ the Licensed Works.
iii. Year 2000. Upon execution of this Agreement, Company will inform
Novell in writing of its year 2000 policies and of the level of
compliance of the Licensed Works with the Year 2000 warranty
below. Company warrants the Licensed Works are Year 2000
compliant in that (i) they accurately process, address, store,
and calculate date data from, into, and beyond the years 1999,
2000 and 2001, including leap year calculations, and (ii) all of
their date-related functionality and data fields identify century
and millennium, and (iii) they are able accurately to perform
calculations that involve a four-digit year field. This warranty
begins when Novell accepts the Licensed Works as meeting the
relevant Product Requirements and ends the first date after
January 1, 2001, that the Licensed Works operate without a breach
19
<PAGE>
of this warranty for a consecutive six month period. If Company
breaches this warranty, in addition to any other remedies
available to Novell and at no additional cost to Novell, Company
will promptly assign senior engineering staff to work full-time
remedying the breach until the Licensed Works comply with this
warranty. This warranty shall survive termination of this
Agreement.
iv. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, NEITHER PARTY
MAKES ANY WARRANTIES OR REPRESENTATIVE OF ANY KIND, EXPRESS OR
IMPLIED, WITH RESPECT TO DELIVERABLES, LICENSED WORKS, MATERIALS,
INVENTIONS, INFORMATION OR ANY OTHER WORK OR OTHERWISE UNDER THIS
AGREEMENT, AND EACH PARTY HEREBY EXPRESSLY DISCLAIMS ALL SUCH
WARRANTIES, INCLUDING BUT NOT LIMITED TO THE IMPLIED WARRANTIES
OF MERCHANTABILITY, TITLE, NON-INFRINGEMENT AND FITNESS FOR A
PARTICULAR PURPOSE.
q. SEVERABILITY. If any provision of this Agreement is held by a court
of competent jurisdiction to be invalid, illegal or unenforceable, the
remaining provisions shall remain in full force and effect and shall
be interpreted, to the extent possible, to achieve the purpose of this
Agreement as originally expressed. The parties further agree to
substitute for the invalid provision a valid provision which most
closely approximates the intent and economic effect of the invalid
provision.
r. SUBSIDIARIES. All rights and licenses granted to Novell in this
Agreement shall apply to Novell's Subsidiaries. Company agrees that
it may not seek to enforce any obligation of Novell (or its
Subsidiaries) through a legal action brought against a Subsidiary
except to the extent that such action seeks injunctive relief against
that particular Subsidiary. Novell hereby guarantees the performance
of its Subsidiaries under this Agreement, and shall be jointly and
severally liable for its Subsidies' acts and omissions.
s. SURVIVAL OF TERMS. In the event of a termination of this Agreement,
all obligations of confidentiality (including those specified in
Section 15.d), the terms of Section 15.k (Intellectual Property
Indemnity), Section 15.n (Limitation Of Liabilities), and Section 15.p
(Representations And Warranties), and other provisions which by
20
<PAGE>
their nature survive termination, shall continue in effect in
accordance with their terms.
t. VOLUME OBLIGATIONS. Except as explicitly stated in this Agreement,
neither party shall have an obligation (i) to offer any product or
service to any third party by way of sale, license or otherwise, or
(ii) to use any minimum level of effort in the promotion, marketing,
licensing or sales of any products or services, including products or
services to the other party, or (iii) to purchase or license any
minimum amount of products or services from the other party.
u. RESERVATION OF RIGHTS. Except as explicitly stated in this Agreement,
neither party grants any rights, in whole or in part, other than as
expressly granted therein. Each party reserves to itself all rights
not explicitly granted to the other in this Agreement.
16. SIGNATURES.
IN WITNESS WHEREOF, each party has executed this Agreement by signature of
its authorized representative, and this Agreement shall become effective as of
the Effective Date.
NOVELL, INC. NETOBJECTS, INC.
Signature: /s/ Christopher Stone Signature:/s/ Michael J. Shannahan
---------------------- ------------------------
Name: Christopher Stone Name: Michael J. Shannahan
--------------------------- -----------------------------
Title: SVP Title: VP & CFO
-------------------------- ----------------------------
Date: 10/16/98 Date: 10/16/98
--------------------------- -----------------------------
21
<PAGE>
EXHIBIT G
LICENSE FEES ANY PAYMENT SCHEDULE
1. PER COPY ROYALTY. Subject to the terms of this Agreement and specifically
Section 8.b, Novell shall pay Company $[***].00 per each NWSB sold that
includes the Licensed Work (referred to as a "Copy for purposes of this
Exhibit G).
INTERNAL USE BY NOVELL. For Novell's internal use of the Licensed Work for
purposes other than the royalty-free purposes specified in Section 8.b,
Novell shall pay Company $[***].00 for each copy of the Licensed Works.
2. MINIMUM ROYALTY. Novell agrees to pay Company a minimum royalty of
[***] Dollars ([***]) during the Initial Term of the Agreement ("Minimum
Royalty"). The Minimum Royalty will be paid quarterly in four (4) equal
installments of $[***], beginning with the first full quarter after FCS.
No Minimum Royalty shall be owed during any renewal terms.
No Minimum Royalty shall be owed during the Initial Term if Novell is not
reasonably able to distribute or continue distribution of the Licensed Work
due to (i) Company's material breach of this Agreement, or (ii) an
allegation or claim that the Licensed Work violates the intellectual or
other proprietary rights of a third party. If there is a dispute regarding
whether (i) Novell is reasonably able to distribute or continue
distribution, or (ii) whether the interference with distribution is
material, then the Project Managers shall have the primary responsibility
to resolve such dispute, up to and including the dispute resolution
procedures set forth in Section 14.
3. QUARTERLY RECONCILIATION OF MINIMUM ROYALTY. Novell shall be entitled to
accumulate the quarterly royalty payments and offset them against future
quarterly Minimum Royalty amounts. (e.g. If actual royalties due to
Company in Q1 are $[***] and in Q2 are $[***], then Novell would not be
required to pay the $[***] Minimum Royalty installment for Q2.)
4. NATURE OF DISTRIBUTION. This Agreement only grants to Novell a license to
distribute the Licensed Works, and does not transfer any right, title or
interest to any such Licensed Works to Novell's customers. Novell will
have the right to sell Licensed Works to customers only to the extent that
such products consist of non-software items. Use of the terms "sell,"
"license," "purchase," "license fees" and "price" and similar terms will be
interpreted in accordance with the foregoing.
*** Portions of this exhibit have been omitted and filed separately with the
Commission pursuant to a request for confidential treatment under Rule
406.
<PAGE>
EXHIBIT 10.17
BUILD-IT LICENSE AGREEMENT BETWEEN IBM AND NETOBJECTS
1. Ownership and License.
The software product formerly marketed by Wallop Software, Inc. as "Build-IT
version 2.7 for the Enterprise" ("Software") is owned by International
Business Machines Corporation ("IBM") and is copyrighted and licensed, not
sold.
IBM grants NetObjects, Incorporated ("you") a world-wide, non-exclusive,
non-transferable, copyright license to:
1) reproduce and create derivative works from the object code and source code
versions of the Software; and 2) distribute the Software and derivative works
thereof, in object code only, and only when you provide some "value-add" with
the Software or derivative work thereof ("Bundle"). Examples of value-add
would be other software or hardware products. No license to any other IBM
intellectual property is granted hereunder.
IBM wishes to continually improve upon the Software. You agree to provide to
IBM a copy of any modifications to the Software that you develop or otherwise
receive ("Software Modifications") by sending a copy of all such Software
Modifications, in source code and object code form, to IBM. You hereby grant
to IBM and its subsidiaries a world-wide, non-exclusive, non-transferable,
royalty-free license to execute, reproduce, create derivative works from and
distribute the Software Modifications and derivative works thereof.
2. Termination
IBM may request, upon one hundred twenty (120) days written notice that you
discontinue further distribution of the Software and that you delete or
destroy all copies of the Software you possess except:
a) for one copy that may be kept in your archives for reference purposes; and
b) you may distribute any inventory of Bundles on hand at the time of such
termination, provided you make available to IBM an accounting of such
inventory promptly upon termination; and
c) you may continue to distribute Bundles for a period of up to three
(3) months after termination to fill any orders received in the normal course
of business by you prior to the effective date of termination.
Any licenses to the Software that you granted to your customers prior to such
termination will continue to be in effect following such termination.
3. Warranty Disclaimer and Limitation of Liability
IBM represents and warrants that it has the right to grant the licenses
granted to you hereunder. IBM licenses the Software to you on an "AS IS"
basis, without warranty of any kind. Except as provided above in this Section
3, IBM HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES OR CONDITIONS, EITHER
EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OR
CONDITIONS OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. IBM WILL
NOT BE LIABLE FOR ANY DIRECT DAMAGES OR FOR ANY SPECIAL, INCIDENTAL, OR
INDIRECT DAMAGES OR FOR ANY ECONOMIC CONSEQUENTIAL DAMAGES (INCLUDING LOST
PROFITS OR SAVINGS), EVEN IF IBM HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES. IBM will not be liable for the loss of, or damage to, your records
or data, the records or data of any third party, or any damages claimed by
you based on a third party claim.
You agree to distribute the Software and any derivative works thereof under a
license agreement that: 1) is sufficient to notify all licensees of the
Software and any derivatives thereof that IBM and its subsidiaries assume no
liability for any claim that may arise regarding the Software or any
derivative works thereof; and 2) that disclaims all warranties, both express
and implied, from IBM regarding the Software and any derivative works thereof.
<PAGE>
4. Payment
For each Bundle distributed by you, you will pay to IBM [***] ([***]%) of the
gross revenue you receive for the Bundle, net of discounts and returns ("Net
Revenue"), provided that for each copy of the Software that is distributed by
you, you will pay to IBM a minimum of [***] dollars ($[***]) and a maximum of
[***] dollars (i.e., if [***]% of the Net Revenue is less than [***] dollars
($[***]), you will pay to IBM a royalty of [***] dollars ($[***]), and if
[***]% of the Net Revenue is more than [***] dollars ($[***]), you will pay
to IBM a royalty of [***] dollars ($[***])).
You shall provide to IBM, within forty-five (45) days after the conclusion of
each calendar quarter, a quarterly accounting, and payment based on such
accounting, of all royalties accruing to IBM for all copies of Software
distributed externally or installed internally during such calendar quarter
by you or your distributors.
5. General
All confidential information shall be exchanged under the terms of the
Agreement for the Exchange of Confidential Information between the parties,
dated April 30, 1996.
This Agreement is governed by the laws of the State of New York. You and IBM
each waive its rights to a jury trial in any resulting litigation. Neither
party may assign this agreement without the prior written consent of the
other.
This Agreement does not grant You or your licensees the right to use any IBM
trademark or name.
This Agreement is the only understanding and agreement we have regarding your
use of the Software. It supersedes all other communications, understandings
or agreements we may have had prior to this Agreement. Any reproduction of
this Agreement made by reliable means (for example, photocopy or facsimile)
is an original.
ACCEPTED AND AGREED TO:
NETOBJECTS, INC. INTERNATIONAL BUSINESS MACHINES
CORPORATION
BY: /s/ E. Cicogna BY: /s/ R.G. Anderegg
---------------------------------- -------------------------------
NAME: E. Cicogna NAME: R.G. Anderegg
--------------------------------- -----------------------------
TITLE: VP Finance TITLE: Asst. General Counsel
--------------------------------- -----------------------------
DATE: Feb. 2, 1999 DATE: Feb. 2, 1999
--------------------------------- -----------------------------
***Portions of this exhibit have been omitted and filed separately with the
Commission pursuant to a request for confidential treatment under Rule 406.
<PAGE>
EXHIBIT 10.18
TRADEMARK LICENSE AGREEMENT
THIS TRADEMARK LICENSE AGREEMENT (the "Agreement") is entered into by
and among International Business Machines Corporation, a New York corporation
("IBM"), and NetObjects, Inc., a Delaware corporation ("NetObjects").
WHEREAS, IBM deems it to be in its self interest to obtain a license to
use the "NetObjects" trademark to rebrand IBM's "TopPage" software product,
and any subsequent versions, enhancements and derivative works thereof (the
"Product"), as "NetObjects TopPage"; and
WHEREAS, NetObjects deems it to be in its self interest to grant such a
license to IBM in order to enhance the goodwill and recognition of its
"NetObjects" trademark.
NOW, THEREFORE, in consideration of the mutual promises and agreements
set forth below, IBM and NetObjects agree as follows:
NetObjects hereby grants IBM a non-exclusive, sub-licensable, worldwide
license to use the "NetObjects" trademark and associated artwork attached
hereto as Exhibit 1 (the "Trademark") as part of a new "NetObjects TopPage"
trademark (the "New Trademark"), and to use the New Trademark in conjunction
with the Product including, without limitation, to name and to market the
Product using the New Trademark. NetObjects warrants that it has all
requisite rights in the Trademark to make the forgoing license grant to IBM.
IBM may sublicense its rights under this Agreement so long as IBM enters
into a written agreement with each sublicensee that is at least as protective
of NetObjects' intellectual property and other rights as is this Agreement
and provides payment obligations at least equivalent to those set forth in
this Agreement.
In consideration for the forgoing license grant, for each authorized
copy of the Product branded with the New Trademark ("Rebranded Product")
licensed to an end user by IBM on a stand-alone basis (i.e., without any
other software, hardware or services), IBM will pay NetObjects a royalty of
[***] ($[***]).
IBM has no royalty obligation for copies of the Rebranded Product used
by IBM, its subsidiaries or their contractors: internally; for development,
maintenance or support activities, marketing demonstrations, customer testing
or trial periods (including early support, prerelease, or other similar
programs); for training or education; or for backup and archival purposes. In
addition, IBM has no royalty obligation: for copies of the Rebranded Product
used by a licensed end user at home or on travel when such Product is stored
on both the user's primary machine as well as another machine, provided that
the end user is not authorized to actively use the Product on both machines
at the same time; for copies of Rebranded Product licensed or distributed by
or through NetObjects; for copies of Rebranded Product not licensed for full
productive use ("Limited Functionality Copies") so long as such Limited
Functionality Copies have limited time of use or limited functionality; for
copies of the Rebranded Product that become available
*** Portions of this exhibit have been omitted and filed separately with the
Commission pursuant to a request for confidential treatment under Rule 406.
<PAGE>
generally to third parties without a payment obligation; for documentation
provided with, contained in, or derived from the Rebranded Product; for
copies of the Rebranded Product sold in combination with other software or
hardware products, or services; for copies of the Rebranded Product which
contain error corrections or enhancements to earlier versions of Rebranded
Product ("Error Correction Copies") so long as such Error Correction Copies
are made available only to previous purchasers of Rebranded Product; for
copies of the Rebranded Product distributed with for warranty replacement
copies of the Rebranded Product; for transfer of copies of Rebranded Product
to, or possession of such copies by, IBM or its subsidiaries from a customer
under an outsourcing arrangement; for any pictorial, graphic, and audiovisual
works (such as icons, screens, sounds, and characters) generated by execution
of the Rebranded Product; and for any programming interfaces, languages or
protocols implemented in Rebranded Product to enable interaction with other
computer programs. Royalties, if any, shall be paid quarterly, and payment
shall be made by the last day of the second calendar month following each
royalty payment quarter.
IBM and NetObjects acknowledge that they are negotiating a separate
agreement (the "IBM Software License Agreement") whereby, in exchange for a
mutually-agreeable royalty payment to IBM, NetObjects will acquire
non-exclusive rights to distribute Rebranded Product. The Parties agree to
use commercially reasonable efforts to negotiate and execute the IBM Software
License Agreement by March 31, 1999. The Parties propose that relevant
terms of the IBM Software License Agreement may include terms related to or
in accordance with the following: IBM and NetObjects will both have the
rights to distribute the Rebranded Product in different geographic regions;
NetObjects will pay IBM a royalty for licensing the Rebranded Product; and
technical support duties of the Parties. Although each party may exchange
written or oral proposals (including, but not limited to the proposal
included in this paragraph), term sheets, draft agreements or other
materials, neither party will have any obligations or liability to the other
unless and until their authorized representatives sign the IBM Software
License Agreement. Exchanged terms are non-binding to the extent they are
not included in the IBM Software License Agreement. Either company can end
these discussions at any time, for any reason, and without liability to the
other. Each company remains free to negotiate or enter into similar
relationships with others. Each of the parties agree to pay all costs it
incurs in connection with the negotiation of the IBM Software License
Agreement. Neither party is authorized to make any commitments or
statements on behalf of the other. Information disclosed during the course of
negotiations shall be considered confidential under, and shall be disclosed
under the terms of a the Agreement for the Exchange of Confidential
Information between the parties, dated April 30, 1996.
The term of this Agreement will be six (6) months from the date the last
party executes it or until the IBM Software License Agreement is executed,
whichever may occur first, and will be automatically renewable for an
additional one (1) year term unless notice of termination is provided at
least thirty (30) days prior to such renewal date. Upon any termination or
expiration of this Agreement, IBM will be allowed to continue use of the New
Trademark, under the terms of this Agreement, until IBM makes generally
available to the public the next release of the Product.
Page 2
<PAGE>
Each party shall have the right to terminate this Agreement in the event
of a material breach by the other party of its obligations hereunder. Such
termination shall be made by written notice to the breaching party
specifically identifying the breach on which termination is based and shall
become effective sixty (60) days after giving such notice, unless the
breaching party shall have corrected the breach during the sixty (60) day
period. Correction of the breach described in such notice shall render the
notice void.
In the event of any termination or expiration of this Agreement, all
rights and licenses granted to IBM herein shall terminate except that:
a) the termination shall not affect any rights or licenses exercised or
granted by IBM prior to termination under this Section; , and
b) the rights and licenses granted to IBM in this Agreement (and
associated royalty obligations) will continue to permit IBM to provide error
corrections and enhancements to the Rebranded Product, and to fill orders
received before termination or expiration, and to fill new orders to
distribute existing inventory, and to continue distributing the versions and
releases of the Rebranded Product that had already been announced prior to
any termination or expiration of this Agreement. For example, if this
Agreement terminates or expires (i.e., the term ends) on 4/1/99, and prior to
4/1/99, IBM had already announced the following versions and releases of the
Rebranded Products: 1.1, 1.2, 2.1, 2.2, then IBM may continue to distribute
those same versions and releases of the Rebranded Products and will pay the
applicable royalty to NetObjects, but any future versions and releases of
that same product (e.g., 2.3, 3.0) cannot carry the Trademark under the terms
of this Agreement.
This Agreement represents the entire agreement of the parties hereto with
respect to the subject matter hereof, and may be amended only by a writing
signed by both parties hereto. This Agreement shall be governed by the laws
of the State of New York without regard to conflicts of law principles. Both
parties waive the right to a jury in any resulting litigation. Any
reproduction of this Agreement, by reliable means (e.g., photocopy or
facsimile) shall be deemed an original.
IN WITNESS WHEREOF, the parties hereto have caused their duly authorized
representatives to execute this Agreement on their behalf.
INTERNATIONAL BUSINESS
MACHINES CORPORATION NETOBJECTS, INC.
By: /s/ Seita Iida By: /s/ E. Cicogna
-------------------- --------------------
Name: S. Iida Name: E. Cicogna
-------------------- --------------------
Its: ESBU Marketing Its: V.P. Finance
-------------------- --------------------
Date: 1/19/99 Date: 1/19/99
-------------------- --------------------
Page 3
<PAGE>
EXHIBIT 16.1
February 5, 1999
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Ladies and Gentlemen:
We have read paragraphs one through three included under the heading "Change
in Auditors" included on page 74 of Form S-1 dated February 4, 1999, of
NetObjects, Inc. We are in agreement with the statements contained in the
first sentence of paragraph one and paragraphs two and three. We have no
basis to agree or disagree with the statements made in the second and third
sentences of paragraph one.
Very Truly Yours,
/s/ Ernst & Young LLP
Ernst & Young LLP
<PAGE>
EXHIBIT 21.1
Subsidiaries of the Registrant
NetObjects Limited
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
NetObjects, Inc.:
We consent to the use of our reports included herein and to the reference to our
firm under the heading "Experts" in the Prospectus.
Our report dated December 21, 1998 contains an explanatory paragraph that states
that the Company has suffered recurring losses from operations and has a net
capital deficiency, which raise substantial doubt about its ability to continue
as a going concern. The Consolidated Financial Statements and Financial
Statement Schedules do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ KPMG LLP
Mountain View, California
February 4, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE COMPANY'S CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 1998 AND DECEMBER
31, 1998, AND THE RELATED CONSOLIDATED STATEMENTS OF OPERATIONS, FOR THE FISCAL
YEAR ENDED SEPTEMBER 30, 1998 AND FOR THE THREE MONTHS ENDED DECEMBER 31, 1998,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> SEP-30-1999 SEP-30-1999
<PERIOD-START> OCT-01-1997 OCT-01-1998
<PERIOD-END> SEP-30-1998 DEC-31-1998
<CASH> 459 1288
<SECURITIES> 0 0
<RECEIVABLES> 4555 4863
<ALLOWANCES> (2263) (1789)
<INVENTORY> 0 0
<CURRENT-ASSETS> 3505 5399
<PP&E> 3520 4223
<DEPRECIATION> (1880) (2120)
<TOTAL-ASSETS> 5145 7502
<CURRENT-LIABILITIES> 33734 28789
<BONDS> 0 0
0 0
109 113
<COMMON> 20 21
<OTHER-SE> (29054) (29311)
<TOTAL-LIABILITY-AND-EQUITY> 5145 7502
<SALES> 0 0
<TOTAL-REVENUES> 15270 5617
<CGS> 5093 2083
<TOTAL-COSTS> 31147 7628
<OTHER-EXPENSES> 0 3792
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1194 712
<INCOME-PRETAX> (22164) (8598)
<INCOME-TAX> 60 2
<INCOME-CONTINUING> (22224) (8600)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (22224) (8600)
<EPS-PRIMARY> (12.39) (4.44)
<EPS-DILUTED> (12.39) (4.44)
</TABLE>
