<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 27, 1998
REGISTRATION NO. 333-51121
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
------------------------
AMENDMENT NO. 2 TO FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SOFTWARE.NET CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
CALIFORNIA 7375 94-3212136
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
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3031 TISCH WAY, STE. 900
SAN JOSE, CALIFORNIA 95128
(408) 556-9300
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
WILLIAM S. MCKIERNAN
CHAIRMAN OF THE BOARD
SOFTWARE.NET CORPORATION
3031 TISCH WAY, STE. 900
SAN JOSE, CALIFORNIA 95128
(408) 556-9300
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES OF ALL COMMUNICATIONS, INCLUDING ALL COMMUNICATIONS SENT TO THE
AGENT FOR SERVICE, SHOULD BE SENT TO:
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<S> <C>
RICHARD SCUDELLARI DONALD M. KELLER, JR.
SHANE M. BYRNE GLEN R. VAN LIGTEN
JACKSON TUFTS COLE & BLACK, LLP VENTURE LAW GROUP
60 SOUTH MARKET STREET, 10TH FLOOR A PROFESSIONAL CORPORATION
SAN JOSE, CALIFORNIA 95113 2800 SAND HILL ROAD
(408) 998-1952 MENLO PARK, CALIFORNIA 94025
(650) 854-4488
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
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: [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, PROSPECTUS DATED MAY 27, 1998
LOGO
- --------------------------------------------------------------------------------
5,000,000 SHARES
COMMON STOCK
- --------------------------------------------------------------------------------
All of the 5,000,000 shares of Common Stock, par value $0.001 per share
("Common Stock"), are being sold by software.net Corporation ("software.net" or
the "Company"). Prior to this offering, there has been no public market for the
Common Stock. It is currently estimated that the initial public offering price
will be between $7.00 and $9.00 per share. See "Underwriting" for a discussion
of the factors considered in determining the initial public offering price. The
Company has applied to have the Common Stock approved for listing on the Nasdaq
National Market under the symbol "SWNT."
FOR INFORMATION CONCERNING CERTAIN RISK FACTORS WHICH SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS, SEE "RISK FACTORS" COMMENCING ON PAGE 5.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
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<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
<S> <C> <C> <C>
Per Share $ $ $
Total(3) $ $ $
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses estimated at $750,000, payable by the Company.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
750,000 additional shares of Common Stock solely to cover over-allotments,
if any. If such option is exercised in full, the total Price to Public,
Underwriting Discount and Proceeds to Company will be $ , $
and $ , respectively. See "Underwriting."
The shares of Common Stock are offered by the Underwriters, subject to prior
sale, when, as and if delivered to and accepted by them, and subject to
approval of certain legal matters by counsel and certain other conditions. The
Underwriters reserve the right to withdraw, cancel or modify such offer and to
reject orders in whole or part. Delivery of the shares of Common Stock offered
hereby to the Underwriters is expected to be made in New York, New York on or
about , 1998.
DEUTSCHE MORGAN GRENFELL
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MERRILL LYNCH & CO.
C.E. UNTERBERG, TOWBIN
The date of this Prospectus is , 1998.
<PAGE> 3
[INSIDE FRONT COVER -- GRAPHICS, LOGOS, ETC.]
The Company has applied for Federal registration of the mark "SOFTWARE.NET." All
other trademarks or service marks appearing in this Prospectus are trademarks or
service marks of the respective companies that utilize them.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY, INCLUDING BY ENTERING STABILIZING BIDS, EFFECTING SYNDICATE
COVERING TRANSACTIONS OR IMPOSING PENALTY BIDS. SUCH STABILIZING ACTIONS, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
Except as otherwise noted, all information in this Prospectus, including share
and per share information, (i) assumes no exercise of the Underwriters'
over-allotment option, (ii) assumes the reincorporation of the Company in
Delaware and (iii) reflects the automatic conversion of each outstanding share
of the Company's Series A and Series B Preferred Stock into two shares of Common
Stock and each outstanding share of the Company's Series C and Series D
Preferred Stock into one share of Common Stock upon the consummation of this
offering (the "Preferred Stock Conversion").
Portions Copyright Netscape Communications Corporation, 1997. All Rights
Reserved. Netscape, Netscape Navigator and the Netscape N logo are registered
trademarks of Netscape in the United States and other countries.
<PAGE> 4
PROSPECTUS SUMMARY
The following summary should be read in conjunction with, and is qualified
in its entirety by, the more detailed information and financial statements and
notes thereto appearing elsewhere in this Prospectus.
THE COMPANY
software.net Corporation (the "Company") is a leading online reseller of
commercial off-the-shelf computer software ("Software") to the consumer, small
business and large enterprise markets. Through its online store
(www.software.net), the Company offers customers a comprehensive selection of
Software, customer service and competitive pricing. The Company believes that
the software.net site is one of the most widely known and used sites on the
World Wide Web for the purchase of Software. The Company fulfills a customer
purchase either through physical delivery of the shrink-wrap Software package or
through electronic software delivery ("ESD"). The Company believes it provides
superior value to its customers by offering one of the largest selections of
brand-name, high quality Software available online and the convenience of
shopping from home or office, twenty-four-hours-a-day, seven-days-a-week.
software.net's business is based on scaleable technology that permits the
sale, order processing and delivery of Software with limited human intervention.
This technology, combined with significant operational experience, enables the
Company to address the complex process of real time ESD. The Company has
developed relationships with approximately 300 leading Software publishers which
have granted the Company the right to distribute approximately 2,800 Software
stock-keeping units via ESD. The Company has also established strategic
marketing alliances with America Online, Inc., Excite, Inc. and Netscape
Communications Corporation.
THE OFFERING
Common Stock offered........................ 5,000,000 shares
Common Stock to be outstanding after the
offering.................................... 26,557,779 shares(1)
Use of Proceeds............................. Working capital, payment of
obligations and general
corporate purposes. See "Use of
Proceeds."
Proposed Nasdaq National Market Symbol...... "SWNT"
CONSOLIDATED SUMMARY FINANCIAL DATA
(In thousands)
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YEAR ENDED QUARTER ENDED
DECEMBER 31, MARCH 31,
-------------------------- ----------------
1995 1996 1997 1997 1998
------ ------- ------- ------ -------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net revenues................................................ $1,003 $ 5,858 $16,806 $3,158 $ 6,192
Gross profit................................................ 380 721 1,933 375 938
Total operating expenses.................................... 898 1,585 3,843 584 3,190
Loss from continuing operations............................. (511) (779) (1,743) (169) (2,227)
Net loss.................................................... (511) (1,515) (5,359) (752) (2,227)
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1998
----------------------------
PROFORMA
ACTUAL AS ADJUSTED(1)(2)
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<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 2,232 $41,401
Working capital............................................. 918 40,087
Total assets................................................ 8,388 47,557
Redeemable convertible preferred stock...................... 15,257 --
Stockholders' equity (net capital deficiency)............... (13,443) 40,983
</TABLE>
- ---------------
(1) Based on shares outstanding as of March 31, 1998. Includes: (i) the
conversion into Common Stock of 276,466 shares of Series D Preferred Stock
issued in April 1998; and (ii) 268,817 shares of Common Stock to be issued
to AOL immediately prior to the consummation of this offering assuming an
initial public offering price of $8.00 per share and an underwriting
discount of $0.56 per share. Excludes as of the date of this Prospectus: (i)
3,729,055 shares of Common Stock issuable upon exercise of options
outstanding under the Company's 1995 and 1998 Stock Option Plans, as amended
(collectively, the "Plans"), at a weighted average exercise price of $2.43
per share; (ii) 1,000,000 shares of Common Stock issuable upon exercise of
outstanding options granted outside of the Plans at a weighted average
exercise price of $0.004 per share; (iii) 1,180,945 shares of Common Stock
reserved for future issuance under the Plans; and (iv) 403,226 shares of
Common Stock reserved for issuance pursuant to the exercise of a warrant
issued by the Company to AOL at an exercise price of $7.44 per share
(assuming an initial public offering price of $8.00 per share and an
underwriting discount of $0.56 per share). See "Certain Transactions,"
"Description of Capital Stock" and Notes 3 and 7 of Notes to Consolidated
Financial Statements.
(2) Adjusted to give effect to the sale by the Company of the shares of Common
Stock offered hereby at an assumed initial public offering price of $8.00
per share and after deducting the estimated underwriting discount and
offering expenses, and the receipt of the net proceeds therefrom. See "Use
of Proceeds" and "Capitalization."
3
<PAGE> 5
THE COMPANY
software.net Corporation ("software.net" or the "Company") is a leading
online reseller of commercial off-the-shelf computer software ("Software") to
the consumer, small business and large enterprise markets. Through its online
store (www.software.net), the Company offers customers a comprehensive selection
of Software, customer service and competitive pricing. The Company believes that
the software.net site is one of the most widely known and used sites on the
World Wide Web (the "Web") for the purchase of Software. The Company fulfills a
customer purchase either through physical delivery of the shrink-wrap Software
package or through electronic software delivery ("ESD"). The Company believes it
provides superior value to its customers by offering one of the largest
selections of brand-name, high quality Software available online, and the
convenience of shopping from home or office, twenty-four-hours-a-day,
seven-days-a-week ("24x7").
The Company believes that the Internet is an ideal medium for the sale and
delivery of Software for several reasons: (i) the demographics of Internet users
overlap one-to-one with the demographics of potential Software purchasers; (ii)
many Software titles and their related stock-keeping units ("SKUs") can be
delivered via ESD, providing instant gratification to the customer; and (iii)
large enterprise customers can use ESD to achieve efficient and cost effective
distribution of Software. software.net's business is based on scaleable
technology that permits the sale, order processing and delivery of Software with
limited human intervention. This technology, combined with significant
operational experience, enables the Company to address the complex process of
real time ESD. The Company has developed relationships with approximately 300
leading Software publishers which have granted the Company the right to
distribute approximately 2,800 Software SKUs via ESD. The Company has also
established strategic marketing alliances with America Online, Inc. ("AOL"),
Excite, Inc. ("Excite") and Netscape Communications Corporation ("Netscape").
The Software reselling industry is large and growing. According to
International Data Corporation ("IDC"), total software Sales to consumers and
corporate end users from software retailers, dealers and third-party mail order
cataloguers in the United States were estimated to be approximately $14 billion
in 1997 and are expected to grow to approximately $24 billion in 2001,
representing a compound annual growth rate of approximately 14.7%. Jupiter
Communications, Inc. ("Jupiter") estimates that online PC software sales revenue
in 1997 were $69 million and are projected to grow to $2.3 billion in 2002. In
addition, the Company believes that the Software reselling industry is highly
fragmented with many participants, including regional and national chains of
superstores, systems integrators, VARs and small single location stores.
The Company intends to extend its momentum as a "first mover" in online
Software reselling to deliver outstanding value to its customers and to leverage
the online store model to achieve economies of scale. The Company's strategy is
to enhance recognition of its brand, promote ESD, leverage and further develop
its strategic relationships and capitalize on opportunities in the consumer,
small business and large enterprise markets while creating an economic model
that is superior to that of traditional Software reselling businesses. Since the
launch of its Web site in November 1994, the Company has sold Software products
to approximately 140,000 customers and has distributed freeware and trial
download products to tens of thousands of additional users. The Company's sales
increased from approximately $6 million in 1996 to approximately $17 million in
1997.
The Company (formerly CyberSource Corporation) was incorporated in 1994
under the laws of the State of California. Prior to the completion of this
offering, the Company intends to reincorporate under the laws of the State of
Delaware. In December 1997, in order to focus on its core business of selling
Software over the Internet, the Company spun-off its Internet commerce services
business to a new Delaware corporation which now operates under the name
CyberSource Corporation ("CyberSource"). See "Certain Transactions." Unless the
context otherwise requires, the term "Company" or "software.net" refers to
software.net Corporation and its California predecessor.
The Company's executive offices are located at 3031 Tisch Way, Suite 900,
San Jose, California 95128, its telephone number is (408) 556-9300 and its Web
site address is www.software.net. Information contained on the Company's Web
site is not part of this Prospectus.
4
<PAGE> 6
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. In addition to the other information in this Prospectus, the
following risk factors should be considered carefully in evaluating an
investment in the Common Stock offered by this Prospectus. When used in this
Prospectus, the words "expects," "anticipates," "intends," "plans," "estimates"
and similar expressions are intended to identify forward looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended.
Such statements are subject to risks and uncertainties that could cause actual
results to differ materially from those projected. These risks and uncertainties
include, but are not limited to, those risks discussed below and elsewhere in
this Prospectus. Actual results could differ materially from those projected in
the forward looking statements as a result of the risk factors discussed below
and elsewhere in this Prospectus.
Limited Operating History; History of Net Operating Losses; Accumulated
Deficit. Since inception, the Company has incurred significant losses, and as
of March 31, 1998, the Company had an accumulated deficit of approximately $13.5
million. The Company incurred net losses of $511,000, $1.5 million, $5.4 million
and $2.2 million in the periods ended December 31 1995, 1996, 1997 and the first
quarter of 1998, respectively. The Company was founded in August 1994 and began
selling Software on its Web site in November 1994. Accordingly, the Company has
a limited operating history on which to base an evaluation of its business and
prospects. The Company's prospects must be considered in light of the risks,
expenses and difficulties frequently encountered by companies in their early
stage of development, particularly companies in new and rapidly evolving markets
such as online commerce. To address these risks, the Company must, among other
things, maintain and increase its customer base, maintain and develop
relationships with Software publishers, implement and successfully execute its
business and marketing strategy, continue to develop and upgrade its technology
and transaction-processing systems, improve its Web site, provide superior
customer service and order fulfillment, respond to competitive developments, and
attract, retain and motivate qualified personnel. There can be no assurance that
the Company will be successful in addressing such risks, and the failure to do
so could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
Anticipated Losses and Negative Cash Flow. The Company intends to expend
significant financial and management resources on brand development, marketing
and promotion, site content development, strategic relationships, and technology
and operating infrastructure, including ESD capabilities. Because the Company
has relatively low gross margins, achieving profitability given planned
investment levels depends upon the Company's ability to generate and sustain
substantially increased levels of net revenue. As a result, the Company expects
to incur additional losses and continued negative cash flow from operations for
the foreseeable future, and such losses are anticipated to increase
significantly from current levels. There can be no assurance that the Company's
revenues will increase or even continue at their current level or that the
Company will achieve or maintain profitability or generate cash from operations
in future periods. The Company's current and future expense levels are to a
large extent fixed and are based on its operating plans and estimates of future
revenues. Sales and operating results generally depend on the volume and timing
of orders received, which are difficult to forecast. The Company may be unable
to adjust spending in a timely manner to compensate for any unexpected revenue
shortfall. Accordingly, any significant shortfall in revenues would have an
immediate adverse effect on the Company's business, financial condition and
results of operations. In view of the rapidly evolving nature of the Company's
business and its limited operating history in the online Software reselling
business, the Company is unable to accurately forecast its revenues and believes
that period-to-period comparisons of its operating results are not necessarily
meaningful and should not be relied upon as an indication of future performance.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
5
<PAGE> 7
Unpredictability of Future Operating Results. The Company expects to
experience significant fluctuations in its revenues due to a variety of factors,
many of which are outside the Company's control. Factors that could have a
material adverse effect on the business, financial condition and results of
operations of the Company include: (i) the Company's ability to retain existing
customers, attract new customers at a steady rate and maintain customer
satisfaction; (ii) the announcement or introduction of new sites, services and
products by the Company and its competitors; (iii) price competition; (iv) the
level of use of the Internet and online services and decreased consumer
acceptance of the Internet and other online services for the purchase of
consumer products such as those offered by the Company; (v) the Company's
ability to upgrade and develop its systems and infrastructure and attract new
personnel in a timely and effective manner; (vi) the level of traffic on the
Company's Web site; (vii) the termination of any strategic marketing alliances
such as those with AOL, Excite or Netscape pursuant to which the Company has
exposure to traffic on third-party Web sites, or the termination of contracts
with major purchasers, particularly United States government agencies (the "U.S.
government"); (viii) technical difficulties, system downtime or Internet
brownouts; (ix) the failure of Internet bandwidth to increase significantly over
time and/or an increase in the cost to consumers of obtaining or utilizing
Internet bandwidth; (x) the amount and timing of operating costs and capital
expenditures relating to expansion of the Company's business, operations and
infrastructure; (xi) the number of popular Software titles introduced during the
period; (xii) certain government regulations; and (xiii) general economic
conditions and economic conditions specific to the Internet, online commerce and
the Software Industry.
The Company's future success, and in particular its revenues and operating
results, depends upon its ability to successfully execute several key aspects of
its business plan. The Company must increase the dollar volume of Software sales
through its online sites, either by generating significantly higher and
continuously increasing levels of traffic to its online sites or by increasing
the percentage of visitors to its online sites who purchase Software, or through
some combination thereof. The Company must also increase the number of repeat
purchasers of Software through its online sites. Although the Company has
implemented strategies, including its relationships with AOL, Excite and
Netscape, designed to accomplish these objectives, there can be no assurance
that the Company will be able to increase the dollar volume of Software sales
through its online sites, increase traffic to its online sites, increase the
percentage of visitors who purchase Software or increase the number of repeat
purchasers. The failure to do one or more of the foregoing would likely have a
material adverse effect on the Company's business, financial condition and
operating results. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
The Company may experience seasonality in its business, reflecting seasonal
fluctuations in the Software industry, Internet and commercial online service
usage and traditional retail, government and corporate seasonal spending
patterns and advertising expenditures. In particular, Internet and online
service usage and the rate of growth of such usage may decline in the summer.
Such seasonality may cause quarterly fluctuations in the Company's operating
results and could have a material adverse effect on the Company's business,
operating results and financial condition. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
The Company's gross margins may be impacted by a number of factors,
including the mix of revenues from sales of shrink-wrap products and revenues
from ESD products, the mix of Software products sold, the mix of revenues among
sales to government, corporate and consumer purchasers, the mix of revenues
derived from its relationships with strategic partners such as AOL, Excite,
Netscape and the Company's Web site, and the amount of advertising or
promotional revenues received during a period. The Company realizes higher gross
margins from advertising and promotional revenues than it does from Software
product sales. The Company typically realizes higher gross margins on ESD
Software product sales than it does on sales of shrink-wrap
6
<PAGE> 8
Software products, and also on sales of specialty Software products as compared
to those on sales of widely available commodity Software products. In addition,
the Company typically realizes higher gross margins on sales to consumer
purchasers than it does on sales to government or corporate purchasers. The
Company also may from time to time offer discount pricing, which periodically
may reduce its gross margins. Any change in one or more of the foregoing factors
could materially adversely affect the Company's gross margins and operating
results in future periods. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Due to the foregoing factors, the Company's annual or quarterly operating
results may fall below the expectations of securities analysts and investors. In
such event, the trading price of the Common Stock would likely be materially
adversely affected. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Dependence on the Internet and Internet Infrastructure Development. The
increased use of the Internet for retrieving, sharing and transferring
information among businesses, consumers and suppliers has only recently begun to
develop, and the Company's success will depend in large part on continued growth
in, and the use of, the Internet. Critical issues concerning the commercial use
of the Internet, including security, reliability, cost, ease of access, quality
of service and necessary increases in bandwidth availability, remain unresolved
and are likely to affect the development of the market for the Company's
services. The adoption of the Internet for information retrieval and exchange,
commerce and communications, particularly by those enterprises that have
historically relied upon traditional means of commerce and communications,
generally will require the acceptance by these entities of a new medium of
conducting business and exchanging information. Such acceptance is likely only
in the event that the Internet provides these entities with greater efficiency
and an improved area of commerce and communication. Demand and market acceptance
of the Internet are subject to a high level of uncertainty and are dependent on
a number of factors, including the growth in consumer access to and acceptance
of new interactive technologies, the development of technologies that facilitate
interactive communication between organizations and targeted audiences and
increases in user bandwidth. If the Internet as a commercial or business medium
fails to develop or develops more slowly than expected, the Company's business,
results of operations and financial condition could be materially adversely
affected. The recent growth in the use of the Internet has caused frequent
periods of performance degradation, requiring the upgrade of routers and
switches, telecommunications links and other components forming the
infrastructure of the Internet by Internet service providers and other
organizations with links to the Internet. Any perceived degradation in the
performance of the Internet as a whole could undermine the benefits of the
Company's services. The Company's ability to increase the speed with which it
provides services to customers and to increase the scope of such services
ultimately is limited by and reliant upon the speed and reliability of the
networks operated by third parties. Consequently, the emergence and growth of
the market for the Company's services is dependent on improvements being made to
the entire Internet infrastructure to alleviate overloading and congestion.
Online Commerce Security Risks; Credit Card Fraud. A significant barrier
to online commerce and communications is the secure transmission of confidential
information over public networks. The Company relies on encryption and
authentication technology licensed from third parties to provide the security
and authentication necessary to effect secure transmission of confidential
information, such as customer credit card numbers. There can be no assurance
that advances in computer capabilities, new discoveries in the field of
cryptography, or other events or developments will not result in a compromise or
breach of the algorithms used by the Company to protect customer transaction
data. If any such compromise were to occur, it could have a material adverse
effect on the Company's business, financial condition and results of operations.
A party who is able to circumvent the Company's security measures could
misappropriate proprietary information or cause interruptions in the Company's
operations. The Company may be required to expend significant capital and other
resources to protect against such security breaches or to alleviate
7
<PAGE> 9
problems caused by such breaches. Concerns over the security of transactions
conducted on the Internet and other online services and the privacy of users may
also inhibit the growth of the Internet and other online services generally, and
online commerce in particular. To the extent that activities of the Company or
third party contractors involve the storage and transmission of proprietary
information, such as credit card numbers, security breaches could damage the
Company's reputation and expose the Company to a risk of loss or litigation and
possible liability. There can be no assurance that the Company's security
measures will prevent security breaches or that a failure to prevent such
security breaches will not have a material adverse effect on the Company's
business, financial condition and results of operations. In addition, the
Company has suffered losses as a result of orders placed with fraudulent credit
card data, even though the payment of such orders had been approved by the
associated financial institution. Under current credit card practices, a
merchant is liable for fraudulent credit card transactions where, as is the case
with the transactions processed by the Company, no cardholder signature is
obtained. There can be no assurance that the Company will not suffer significant
losses as a result of fraudulent use of credit card data in the future, a
situation which could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Technology."
Risks Associated with Electronic Software Delivery. The Company's success
will depend in large part on customer acceptance of ESD as a method of buying
Software. In addition, the Company typically derives higher gross margins from
sales of Software via ESD than it does on sales of shrink-wrap Software. ESD is
a relatively new method of selling Software products and the growth and market
acceptance of ESD is highly uncertain and subject to a number of factors. These
factors include: the availability of sufficient network bandwidth to enable
purchasers to rapidly download Software, the impact of time-based Internet
access fees, the number of Software SKUs that are available for purchase through
electronic delivery as compared to those available through traditional methods,
the level of consumer comfort with the process of downloading Software and the
relative ease of such process and concerns about transaction security. If ESD
does not achieve widespread market acceptance, the Company's business, financial
condition and results of operations will be materially adversely affected. Even
if ESD achieves widespread acceptance, there can be no assurance that the
Company will overcome the substantial existing and future technical challenges
associated with electronically delivering Software reliably and consistently on
a long-term basis. A failure by the Company to do so would also materially and
adversely affect the Company's business, financial condition and results of
operations. See "Business -- Products."
Reliance on Strategic Marketing Alliances with America Online, Excite and
Netscape. The Company has entered into marketing agreements with AOL, Excite
and Netscape. The AOL agreement (the "AOL Agreement") provides that the Company
shall be the exclusive and semi-exclusive reseller of Software on certain
screens on the AOL service and AOL's Web site, aol.com. Under the terms of the
Excite agreement (the "Excite Agreement"), the Company has the right to display
banner advertisements and links to the Company's Web site on certain screens on
Excite Web sites, and Excite cannot display paid promotional links or banner
advertisements of any other Software reseller on specified screens of the Excite
Web site related to Software. Each of AOL and Excite is obligated, under its
respective agreement with the Company, to deliver minimum numbers of screen
views with links to the Company's Web site ("Impressions"). The Company's
current agreement with AOL provides for fixed payments to AOL totalling
approximately $21 million. In addition, the Company's agreement with Excite
provides for substantial payments to Excite during the three year term of that
agreement. In addition, the Company is obligated to pay AOL and Excite a
percentage of certain transactional revenues and, in the case of AOL,
advertising revenues earned by the Company in excess of specified thresholds.
The AOL Agreement terminates in August 2001, or earlier in the event of a
material breach, and the Excite Agreement terminates when Excite has satisfied
certain obligations with respect to delivery of Impressions, but no earlier than
April 2001, other than in the event of a material breach.
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In June 1997, the Company entered into an agreement with Netscape for a
term of 24 months pursuant to which the Company created and manages a Web site,
the "Netscape Software Depot by software.net." This Web site is an online
Software store accessible through Netscape's Internet site, created for the
purpose of marketing and distributing Software products which are compatible
with the Netscape ONE platform. Under the terms of the Netscape agreement, sales
and advertising revenues generated from this online store are allocated between
the parties in accordance with specified percentages. In connection with this
agreement, the Company made an initial prepayment to Netscape for a license to
use certain Netscape trademarks. The Netscape agreement terminates on July 31,
1999, and can also be terminated by either party in the event that certain
specified Impressions and net revenue milestones have not been met.
There can be no assurance that the Company will achieve sufficient online
traffic, or generate sufficient sales to realize economies of scale that justify
the Company's significant fixed financial obligations to AOL and Excite, or to
satisfy its contractual obligations necessary to prevent termination of the AOL,
Excite or Netscape agreements. The failure of the Company to do so would likely
have a material adverse effect on the Company's business, results of operations
and financial condition. In addition, neither the AOL, Excite nor Netscape
agreements provides the Company with automatic renewal rights upon expiration of
their respective terms. There can be no assurance that such agreements will be
renewed on commercially acceptable terms, or at all. Furthermore, the Company's
significant investment in the AOL, Excite and Netscape relationships is based on
the continued positive market presence, reputation and anticipated growth of
AOL, Excite and Netscape, as well as the commitment by each of AOL and Excite to
deliver specified numbers of Impressions. Any decline in the significant market
presence, business or reputation of AOL, Excite or Netscape, or the failure of
any of AOL or Excite to deliver the specified numbers of Impressions, will
reduce the value of these strategic agreements to the Company and will likely
have a material adverse effect on the business, results of operations and
financial condition of the Company. In addition, AOL and the Company have the
right to separately pursue and sell advertising in the Company's content areas
distributed through AOL. There can be no assurance that the Company and AOL will
not compete for limited software reseller advertising revenues. The Company's
arrangements with AOL, Excite and Netscape are expected to represent significant
distribution channels for the Company's Software sales, and any termination of
any or all of the Company's agreements with AOL, Excite and Netscape would
likely have a material adverse effect on the Company's business, results of
operations and financial condition. See "Use of Proceeds,"
"Business -- Strategic Relationships" and Note 3 of Notes to Consolidated
Financial Statements.
Need for Additional Capital. The Company requires substantial working
capital to fund its business and expects to use a portion of the net proceeds of
this offering to fund its operating losses. Since inception, the Company has
experienced negative cash flow from operations and expects to continue to
experience significant negative cash flow from operations for the foreseeable
future. The Company currently anticipates that the net proceeds of this
offering, together with its existing capital resources, will be sufficient to
meet the Company's capital requirements through the next twelve months, although
there can be no assurance that the Company will not have additional capital
needs prior to the end of such period. Thereafter, the Company may be required
to raise additional funds, in part to fund its financial obligations to AOL and
Excite. There can be no assurance that such financing will be available when
required by the Company on terms acceptable to the Company, or at all. See "Use
of Proceeds" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."
Competition. The online commerce market is new, rapidly evolving and
intensely competitive, and the Company expects competition to intensify in the
future. Barriers to entry are minimal, and current and new competitors can
launch new Web sites at a relatively low cost. In addition, the Software
reselling industry is intensely competitive. The Company currently competes
primarily with traditional Software resellers, other online Software resellers
and other vendors. In the online market, the Company competes with online
Software resellers and vendors that maintain similar
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commercial Web sites, including CompUSA, CNET, Cyberian Outpost and Egghead.com,
and a growing number of Software publishers that sell their Software products
directly online. The Company also anticipates that it may in the near future
compete with other Software publishers, including Microsoft, that plan to sell
their products directly to customers online, and with indirect competitors that
specialize in online commerce or derive a substantial portion of their revenues
from online commerce, including AOL, Netscape, Amazon.com and Yahoo!. These
entities may themselves offer, or others may offer through such entities,
Software products. In addition, entities experienced in mail-order and/or direct
marketing of computer products (including cataloguers such as Micro Warehouse
and manufacturers such as Dell Computer and Gateway), major Software product
distributors such as Ingram Micro and Tech Data, and other major retailers of
products, such as OfficeMax, Staples and Office Depot, have established, or may
establish in the near future, commercial Web sites offering Software products.
Competitive pressures created by any one of these current or future competitors,
or by the Company's competitors collectively, could have a material adverse
effect on the Company's business, financial condition and results of operations.
The Company believes that the principal competitive factors in its market
are brand recognition, selection, convenience, price, speed and accessibility,
customer service, quality of site content, and reliability and speed of
fulfillment. In addition to the foregoing, the large enterprise market focuses
on compatibility of products, administration and reporting, single source
supply, security and cost-effective deployment. Many of the Company's current
and potential competitors have longer operating histories, larger customer
bases, greater brand recognition and significantly greater financial, marketing
and other resources than the Company. In addition, larger, well-established and
well-financed entities may acquire, invest in or form joint ventures with online
competitors as the use of the Internet and other online services increases.
Certain of the Company's actual or potential competitors, such as Ingram Micro
and Tech Data, may be able to secure merchandise from vendors on more favorable
terms, devote greater resources to marketing and promotional campaigns, adopt
more aggressive pricing or inventory availability policies and devote
substantially more resources to Web site and systems development than the
Company. Certain of the Company's competitors such as Software Spectrum, GTSI
and Corporate Software & Technology have greater experience in selling Software
to the large enterprise market. In addition, new technologies and the expansion
of existing technologies, such as price comparison programs that select specific
titles from a variety of Web sites and may direct customers to online Software
resellers that compete with the Company, may increase competitive pressures on
the Company. Increased competition may result in reduced operating margins, as
well as a loss of both market share and brand recognition. Further, as a
strategic response to changes in the competitive environment, the Company may
from time to time make certain pricing, service or marketing decisions or
acquisitions that could have a material adverse effect on its business,
financial condition and results of operations. In addition, companies that
control access to Internet transactions through network access or Web browsers
could promote the Company's competitors or charge the Company a substantial fee
for inclusion in their product or service offerings. There can be no assurance
that the Company will be able to compete successfully against current and future
competitors, and any inability to do so could have a material adverse effect on
the Company's business, operating results and financial condition. See
"Business -- Competition."
Reliance on Software Publishers and Distributors. The Company is entirely
dependent upon the Software publishers and distributors that supply it with
Software for resale, and the availability of such Software is unpredictable. In
1997 and the first quarter of 1998, a substantial portion of the Company's
revenues were derived from sales of Software collectively supplied by Microsoft
and a major software distributor. As is common in the industry, the Company has
no long-term or exclusive contracts or arrangements with any publisher or
distributor that guarantees the availability of Software for resale. There can
be no assurance that the publishers or distributors that currently supply
Software to the Company will continue to do so or that the Company will be able
to establish new relationships with publishers and distributors. The Company
also relies on
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software distributors to ship shrink-wrap Software to customers that do not
utilize ESD. The Company has limited control over the shipping procedures of its
distributors, and shipments by these distributors have in the past been, and may
in the future be, subject to delays. Although most Software sold by the Company
carries a warranty supplied by the publisher, the Company has accepted returns
from customers for which the Company did not receive reimbursements from its
publishers or distributors. If the Company is unable to develop and maintain
satisfactory relationships with publishers and distributors on acceptable
commercial terms, if the Company is unable to obtain sufficient quantities of
Software (including ESD products), particularly from Microsoft or the major
distributor noted above, if the quality of service provided by such publishers
or distributors falls below a satisfactory standard or if the Company's level of
returns exceeds its expectations, the Company's business, results of operations
and financial condition could be materially adversely affected.
Customer Concentration; Risks Associated with Reliance on United States
Government Contracts. The Company has entered into three contracts with United
States government agencies (the "U.S. government"). Collectively, these
agreements accounted for approximately 33.2% and 43.1% of the Company's revenues
in 1997 and the quarter ended March 31, 1998, respectively. These agreements
will expire in June 1998, July 1998, and August 1999. The Company expects that
these three contracts will continue to account for a substantial portion of the
Company's revenues for the foreseeable future. Each of these contracts is
subject to annual review and renewal by the applicable government entity, and
may be terminated, without cause, at any time. Accordingly, there can be no
assurance that the Company will derive any revenue from sales of Software to the
U.S. government in any given future period. In the event that any one of these
contracts is not renewed or is otherwise terminated by the U.S. government, the
Company's business, financial condition and results of operations would be
materially adversely affected. See "Business -- Products."
Management of Potential Growth; New Management Team; Limited Senior
Management Resources. The Company has rapidly and significantly expanded its
operations, and anticipates that further significant expansion will be required
to address potential growth in its customer base and market opportunities. This
expansion has placed, and is expected to continue to place, a significant strain
on the Company's managerial, operational and financial resources. The majority
of the Company's senior management joined the Company within the last two
months, including the Company's President and Chief Executive Officer and the
Company's Chief Financial Officer. The Chairman of the Company's Board of
Directors, William S. McKiernan, serves as the President and Chief Executive
Officer of CyberSource and, accordingly, plays a limited role in the Company's
management. The Company's new employees include a number of key managerial,
technical and operations personnel who have not yet been fully integrated into
the Company, and the Company expects to add additional key personnel in the near
future. To manage the expected growth of its operations and personnel, the
Company will be required to improve existing and implement new transaction
processing, operational and financial systems, procedures and controls, and to
expand, train and manage its growing employee base, including its finance,
administrative and operations staff. There can be no assurance that the
Company's current or planned personnel, systems, procedures and controls will be
adequate to support the Company's future operations, that management will be
able to hire, train, retain, motivate and manage required personnel or that the
Company's management will be able to successfully identify, manage and exploit
existing and potential market opportunities. If the Company is unable to manage
growth effectively, its business, financial condition and results of operations
would be materially adversely affected. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations,"
"Business -- Employees," and "Management."
Dependence on Key Personnel; Need for Additional Personnel. The Company's
performance is substantially dependent on the continued services and on the
performance of its senior management and other key personnel, particularly
William S. McKiernan, Chairman of the Company's
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Board of Directors, Mark L. Breier, its President and Chief Executive Officer,
and John P. Pettitt, its Executive Vice President and Chief Technology Officer.
The Company's performance also depends on the Company's ability to retain and
motivate its other officers and key employees. The loss of the services of any
of its executive officers or other key employees could have a material adverse
effect on the Company's business, financial condition and results of operations.
The Chairman of the Company's Board of Directors, William S. McKiernan, is the
President and Chief Executive Officer of CyberSource and, accordingly, will play
a limited role in the Company's management. The Company does not have long-term
employment agreements with any of its key personnel. The Company's future
success also depends on its ability to identify, attract, hire, train, retain
and motivate other highly skilled technical, managerial, editorial,
merchandising, marketing and customer service personnel. Competition for such
personnel is intense, and there can be no assurance that the Company will be
able to successfully attract, assimilate or retain sufficiently qualified
personnel. In particular, skilled technical employees are highly sought after in
the Silicon Valley area, and there can be no assurance that the Company will be
able to retain or attract such employees. The failure to retain and attract the
necessary technical, managerial, merchandising, marketing and customer service
personnel could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Employees" and
"Management."
Risk of Capacity Constraints; Reliance on Internally Developed Systems;
System Development Risks. A key element of the Company's strategy is to
generate a high volume of traffic on, and use of, its Web site. The Company's
revenues depend on the number of customers who use its Web site to purchase
Software. Accordingly, the satisfactory performance, reliability and
availability of the Company's Web site, transaction-processing systems and
network infrastructure are critical to the Company's operating results, as well
as to its reputation and its ability to attract and retain customers and
maintain adequate customer service levels. Any systems interruptions that result
in the unavailability of the Company's Web site or reduced order fulfillment
performance would reduce the volume of goods sold and the attractiveness of the
Company's product and service offerings, which could have a material adverse
effect on the Company's business, financial condition and results of operations.
The Company has experienced periodic system interruptions, which it
believes will continue to occur from time to time. The Company is continually
enhancing and expanding its technology and transaction-processing systems, and
network infrastructure and other technologies to accommodate a substantial
increase in the volume of traffic on the Company's Web site. There can be no
assurance that the Company will be successful in these efforts or that the
Company will be able to accurately project the rate or timing of increases, if
any, in the use of its Web site or timely expand and upgrade its systems and
infrastructure to accommodate such increases. In addition, there can be no
assurance that additional network capacity will be available from third party
suppliers as it is needed by the Company. There can be no assurance that the
Company's or its suppliers' network will be able to timely achieve or maintain a
sufficiently high capacity of data transmission, especially if the customer
usage of the Company's Web site increases. The Company's failure to achieve or
maintain high capacity data transmission could significantly reduce consumer
demand for its services and have a material adverse effect on its business,
financial condition and results of operations. See "-- Risks Associated with
Dependence on CyberSource Corporation; Relationship with CyberSource
Corporation" and "Business -- Technology."
Risks Associated with Dependence on CyberSource Corporation; Relationship
with CyberSource Corporation. The Company is dependent upon CyberSource for
certain services such as credit card processing, fraud screening, export
control, sales tax computation, electronic licensing, hosting of electronic
downloads and fulfillment messaging. In addition, pursuant to the terms of an
Inter-Company Cross License Agreement between the Company and CyberSource, the
Company licenses certain technology, including Sm@rtCert, from CyberSource on a
non-exclusive basis subject to certain limitations. Any discontinuation of such
services or termination of such license or
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any reduction in performance that requires the Company to replace such services
or internally develop or license such technology from a third party, would be
disruptive to the Company's business and could have a material adverse effect on
the Company's business, financial condition and results of operations. In
addition, any failure by CyberSource to ensure that such software complies with
"Year 2000" requirements could have a material adverse effect on the Company's
business, financial condition and results of operations. CyberSource also
provides these services and licenses such technology to other customers,
including competitors of the Company.
Certain former members of the Company's management have joined CyberSource
in executive management positions including William S. McKiernan, the Chairman
of the Company's Board of Directors, who serves as President and Chief Executive
Officer of CyberSource. Furthermore, five of the six members of the Company's
Board of Directors serve on the CyberSource Board of Directors. Nothing in the
Company's agreements with CyberSource prohibits CyberSource from competing
directly with the Company or being acquired by a third party, either of which
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business -- Technology," "Certain
Transactions" and "Management -- Compensation Committee Interlocks and Insider
Participation."
Risk of System Failure; Single Site. The Company's success, in particular
its ability to successfully receive and fulfill orders and provide high quality
customer service, largely depends on the efficient and uninterrupted operation
of its computer and communications systems. Substantially all of the Company's
development and management systems are located at a single facility leased by
the Company in San Jose, California. The Company contracts with a third party
for facilities for the Company's production, computer and communications
hardware systems and for mission critical Internet connectivity, and these
systems are located at a single location in Santa Clara, California. The
Company's systems and operations are vulnerable to damage or interruption from
fire, flood, power loss, telecommunications failure, break-ins, earthquake and
similar events. The Company does not have a formal disaster recovery plan and
does not carry sufficient business interruption insurance to compensate it for
losses that may occur. Furthermore, there can be no assurance that either the
security mechanisms of the Company or of the Company's other suppliers will
prevent security breaches or service breakdowns. Despite the implementation of
these security measures by the Company, its servers may be vulnerable to
computer viruses, physical or electronic break-ins and similar disruptions,
which could lead to interruptions, delays, loss of data or the inability to
accept and fulfill customer orders. The occurrence of any of the foregoing risks
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business -- Technology" and
"-- Facilities."
Risks Associated With Global Expansion. Although the Company sells
Software to customers outside the United States, the Company does not currently
have any overseas fulfillment or distribution facility or arrangement or any Web
site content localized for foreign markets, and there can be no assurance that
the Company will be able to expand its global presence. In addition, there are
certain risks inherent in doing business on a global level, such as regulatory
requirements, export restrictions, tariffs and other trade barriers,
difficulties in staffing and managing foreign operations, difficulties in
protecting intellectual property rights, longer payment cycles, problems in
collecting accounts receivable, political instability, fluctuations in currency
exchange rates and potentially adverse tax consequences, which could adversely
impact the success of the Company's global operations. In addition, the export
of certain Software from the United States is subject to export restrictions as
a result of the encryption technology in such Software and may give rise to
liability to the extent the Company violates such restrictions. There can be no
assurance that the Company will be able to successfully market, sell and
distribute its products in local markets or that one or more of such factors
will not have a material adverse effect on the Company's future global
operations, and consequently, on the Company's business, financial condition and
results of operations.
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Uncertain Acceptance of the Company's Brand. The Company believes that
establishing, maintaining and enhancing the Company's brand is a critical aspect
of its efforts to attract and expand its online traffic. The growing number of
Internet sites that offer competing products and services, many of which already
have well-established brands in online services or the Software industry
generally, increase the importance of establishing and maintaining brand name
recognition. Promotion of the Company's brand will depend largely on the
Company's success in providing a high quality online experience supported by
dedicated customer service which cannot be assured. In addition, to attract and
retain online users and to promote and maintain the Company's brand in response
to competitive pressures, the Company may find it necessary to increase
substantially its financial commitment to creating and maintaining a strong
brand loyalty among customers. If the Company is unable to provide high quality
online services or customer support, or otherwise fails to promote and maintain
its brand, or if the Company incurs excessive expenses in an attempt to promote
and maintain its brand, the Company's business, financial condition and results
of operations would be materially adversely affected.
Rapid Technological Change. To remain competitive, the Company must
continue to enhance and improve the responsiveness, functionality and features
of the software.net online store. The Internet and the online commerce industry
are characterized by rapid technological change, changes in user and customer
requirements and preferences, frequent new product and service introductions
embodying new technologies and the emergence of new industry standards and
practices that could render the Company's existing Web site and proprietary
technology and systems obsolete. The Company's success will depend, in part, on
its ability to both license and internally develop leading technologies useful
in its business, enhance its existing services, develop new services and
technology that address the increasingly sophisticated and varied needs of its
prospective customers, and respond to technological advances and emerging
industry standards and practices on a cost-effective and timely basis. The
development of Web site and other proprietary technology entails significant
technical and business risks. There can be no assurance that the Company will
successfully use new technologies effectively or adapt its Web site, proprietary
technology and transaction-processing systems to customer requirements or
emerging industry standards. If the Company is unable, for technical, legal,
financial or other reasons, to adapt in a timely manner to changing market
conditions, customer requirements or emerging industry standards, its business,
financial condition and results of operations could be materially adversely
affected. See "Business -- Technology."
Year 2000 Compliance. Many currently installed computer systems and
software products are coded to accept only two digit entries in the date code
field. These date code fields will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. This could result in
system failures or miscalculations causing disruptions of operations including,
among other things, a temporary inability to process transactions, send
invoices, or engage in similar normal business activities. As a result, many
companies' software and computer systems may need to be upgraded or replaced in
order to comply with such "Year 2000" requirements. The Company utilizes
third-party equipment and software that may not be Year 2000 compliant. The
Company is in the early stages of conducting an audit of its third-party
suppliers as to the Year 2000 compliance of their systems. Failure of the
Company's internal computer systems or of such third-party equipment or
software, or of systems maintained by the Company's suppliers, to operate
properly with regard to the Year 2000 and thereafter could require the Company
to incur unanticipated expenses to remedy any problems, which could have a
material adverse effect on the Company's business, financial condition and
results of operations. Furthermore, the purchasing patterns of customers or
potential customers may be affected by Year 2000 issues as companies expend
significant resources to correct their current systems for Year 2000 compliance.
These expenditures may result in reduced funds available to purchase products
from the Company, which could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
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Risks Associated with Acquisitions and Entry into New Business Areas. The
Company has experienced substantial changes in the expansion of its business and
operations since inception. The Company may choose to expand its operations by
developing new Web sites, promoting new or complementary products or sales
formats, expanding the breadth and depth of products and services offered or
expanding its market presence through relationships with third parties. In
addition, the Company may broaden the scope and content of its online store
through the acquisition of existing online services, or content and businesses
specializing in ESD and Software distribution. Although no such acquisitions are
currently being negotiated, any future acquisitions would expose the Company to
increased risks, including risks associated with the assimilation of new
operations, sites and personnel, the diversion of resources from the Company's
existing businesses, sites and technologies, the inability to generate revenues
from new sites or content sufficient to offset associated acquisition costs, the
maintenance of uniform standards, controls, procedures and policies and the
impairment of relationships with employees and customers as a result of any
integration of new management personnel. Acquisitions may also result in
additional expenses associated with amortization of acquired intangible assets
or potential businesses. There can be no assurance that the Company would be
successful in overcoming these risks or any other problems encountered in
connection with such acquisitions, and its inability to overcome such risks
could have a material adverse effect on the Company's business, financial
condition and results of operations.
Uncertain Protection of Intellectual Property. The Company regards its
copyrights, service marks, trademarks, trade dress, trade secrets and similar
intellectual property as critical to its success, and relies on trademark and
copyright law, trade secret protection and confidentiality and/or license
agreements with its employees, customers, partners and others to protect its
proprietary rights. The Company pursues the registration of its trademarks and
service marks in the U.S., and has applied for the registration of certain of
its trademarks and service marks. The Company applied for Federal registration
of the service mark "SOFTWARE.NET" on August 24, 1994, and there can be no
assurance that a Federal registration of this service mark or any other service
mark will issue. Effective trademark, service mark, copyright and trade secret
protection may not be available in every country in which the Company's products
and services are made available online. The Company has licensed in the past,
and expects that it may license in the future, certain of its proprietary
rights, such as trademarks or copyrighted material, to third parties. While the
Company attempts to ensure that the quality of its brand is maintained by such
licensees, there can be no assurance that such licensees will not take actions
that might materially adversely affect the value of the Company's proprietary
rights or reputation, which could have a material adverse effect on the
Company's business, financial condition and results of operations. There can be
no assurance that the steps taken by the Company to protect its proprietary
rights will be adequate or that third parties will not infringe or
misappropriate the Company's trade secrets, copyrights, trademarks, trade dress
and similar proprietary rights. In addition, there can be no assurance that
others will not independently develop substantially equivalent intellectual
property. A failure by the Company to protect its intellectual property in a
meaningful manner could have a material adverse effect on the Company's
business, financial condition and results of operations. In addition, litigation
may be necessary in the future to enforce the Company's intellectual property
rights, to protect the Company's trade secrets or to determine the validity and
scope of the proprietary rights of others. Such litigation could result in
substantial costs and diversion of management and technical resources, either of
which could have a material adverse effect on the Company's business, financial
condition and results of operations.
In addition, there can be no assurance that other parties will not assert
infringement claims against the Company. From time to time, the Company has
received, and may receive in the future, notice of claims of infringement of
other parties' proprietary rights. There can be no assurance that such claims
will not be asserted or prosecuted against the Company in the future or that any
past or future assertions or prosecutions will not materially adversely affect
the Company's business, financial condition and results of operations. The
defense of any such claims, whether such claims
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are with or without merit, could be time-consuming, result in costly litigation
and diversion of technical and management personnel, cause product shipment
delays or require the Company to develop non-infringing technology or enter into
royalty or licensing agreements. Such royalty or licensing agreements, if
required, may not be available on terms acceptable to the Company, or at all. In
the event of a successful claim of product infringement against the Company and
the failure or inability of the Company to develop non-infringing technology or
license the infringed or similar technology on a timely basis, the Company's
business, financial condition and results of operations could be materially
adversely affected. See "Business -- Legal Proceedings" and "-- Intellectual
Property."
Government Regulation and Legal Uncertainties. The Company is not
currently subject to direct regulation by any domestic or foreign governmental
agency, other than regulations applicable to businesses generally, export
control laws and laws or regulations directly applicable to online commerce.
However, due to the increasing popularity and use of the Internet and other
online services, it is possible that a number of laws and regulations may be
adopted with respect to the Internet or other online services covering issues
such as user privacy, pricing, content, copyrights, distribution and
characteristics and quality of products and services. Furthermore, the growth
and development of the market for online commerce may prompt calls for more
stringent consumer protection laws that may impose additional burdens on those
companies conducting business online. The adoption of certain additional laws or
regulations may decrease the growth of the Internet or other online services,
which could, in turn, decrease the demand for the Company's products and
services and increase the Company's cost of doing business, or otherwise have an
adverse effect on the Company's business, financial condition and results of
operations.
Applicability to the Internet of existing laws governing issues such as
property ownership, copyrights and other intellectual property issues, taxation,
libel, obscenity and personal privacy is uncertain. The vast majority of such
laws were adopted prior to the advent of the Internet and related technologies
and, as a result, do not contemplate or address the unique issues of the
Internet and related technologies. Changes to such laws intended to address
these issues, including some recently proposed changes, could create uncertainty
in the Internet marketplace which could reduce demand for the services of the
Company or increase the cost of doing business as a result of costs of
litigation or increased service delivery costs, or could in some other manner
have a material adverse effect on the Company's business, financial condition
and results of operations.
In addition, as the Company's services are available over the Internet in
multiple states and foreign countries, such jurisdictions may claim that the
Company is required to qualify to do business as a foreign corporation in each
such state or foreign country. The Company is qualified to do business only in
California and Virginia, and failure by the Company to qualify as a foreign
corporation in a jurisdiction where it is required to do so could subject the
Company to taxes and penalties for the failure to qualify and could result in
the inability of the Company to enforce contracts in such jurisdictions. Any
such new legislation or regulation, the application of laws and regulations from
jurisdictions whose laws do not currently apply to the Company's business, or
the application of existing laws and regulations to the Internet and other
online services could have a material adverse effect on the Company's business,
financial condition and results of operations.
Liability for Internet Content. The Company believes that its future
success will depend in part upon its ability to deliver original and compelling
descriptive content about the Software products it sells on the Internet. As a
publisher of online content, the Company faces potential liability for
defamation, negligence, copyright, patent or trademark infringement, or other
claims based on the nature and content of materials that the Company publishes
or distributes. Such claims have been brought, and sometimes successfully
litigated, against online services. In addition, in the event that the Company
implements a greater level of interconnectivity on its site, the Company will
not and cannot practically screen all of the content generated or accessed by
its users, and the Company could be exposed to liability with respect to such
content. Although the Company carries general
16
<PAGE> 18
liability insurance, the Company's insurance may not cover claims of these types
or may not be adequate to indemnify the Company for all liability that may be
imposed. Any imposition of liability, particularly liability that is not covered
by insurance or is in excess of insurance coverage, could have a material
adverse effect on the Company's reputation and its business, financial condition
and results of operations.
Sales and Other Taxes. The Company does not currently collect sales or
other similar taxes in respect of shipments of goods or ESD sales into states
other than California and Virginia. However, one or more local, state or foreign
jurisdictions may seek to impose sales tax collection obligations on out of
state companies, such as the Company, which engage in online commerce. In
addition, any new operation in states outside California and Virginia could
subject shipments into such states to state sales taxes under current or future
laws. A successful assertion by one or more states or any foreign country that
the Company should collect sales or other taxes on the sale of merchandise could
have a material adverse effect on the Company's business, financial condition
and results of operations.
Control of the Company. Upon completion of this offering, the Company's
directors and executive officers and their respective affiliates will
beneficially own in the aggregate approximately 61.3% of the outstanding Common
Stock. In particular, William S. McKiernan, the Chairman of the Company's Board
of Directors, will hold approximately 33.9% of the outstanding Common Stock. As
a result, these stockholders, if they act together, will be able to exercise
significant influence over all matters requiring stockholder approval, including
the election of directors and approval of significant corporate transactions.
Such concentration of ownership also may have the effect of delaying, preventing
or deterring a change in control of the Company which could have an adverse
effect on the market price of the Common Stock. See "Management," "Certain
Transactions" and "Principal Stockholders."
No Prior Public Market; Possible Volatility of Stock Price. The trading
price of the Common Stock is likely to be highly volatile and could be subject
to wide fluctuations in response to factors such as actual or anticipated
variations in quarterly operating results, announcements of technological
innovations, new sales formats or new products or services by the Company or its
competitors, changes in financial estimates by securities analysts, conditions
or trends in the Internet and online commerce industries, changes in the
economic performance and/or market valuations of other Internet, online service
or retail companies, announcements by the Company of significant acquisitions,
strategic partnerships, joint ventures or capital commitments, additions or
departures of key personnel, sales of Common Stock and other events or factors,
many of which are beyond the Company's control. In addition, the stock market in
general, and the Nasdaq National Market and the market for Internet-related and
technology companies in particular, has experienced extreme price and volume
fluctuations that have often been unrelated or disproportionate to the operating
performance of such companies. The trading prices of many technology companies'
stocks are at or near historical highs and reflect price earnings ratios
substantially above historical levels. There can be no assurance that these
trading prices and price earnings ratios will be sustained. These broad market
and industry factors may materially and adversely affect the market price of the
Common Stock, regardless of the Company's actual operating performance. In the
past, following periods of volatility in the market price of a company's
securities, securities class-action litigation has often been instituted against
such companies. Such litigation, if instituted, could result in substantial
costs and a diversion of management's attention and resources, which would have
a material adverse effect on the Company's business, financial condition and
results of operations.
Shares Eligible For Future Sale. Sales of significant amounts of Common
Stock in the public market after the offering or the perception that such sales
will occur could materially and adversely affect the market price of the Common
Stock or the future ability of the Company to raise capital through an offering
of its equity securities. The 21,557,779 shares of Common Stock held by existing
stockholders immediately prior to the closing of the offering will be
"restricted securities"
17
<PAGE> 19
as that term is defined in Rule 144 under the Securities Act of 1933, as amended
(the "Securities Act") (which amount includes 268,817 shares of Common Stock to
be issued to AOL immediately prior to the consummation of this offering assuming
an initial public offering price of $8.00 per share and an underwriting discount
of $0.56 per share and which amount further assumes that no options are
exercised in the interim). Restricted securities may be sold in the public
market only if registered or if they qualify for an exemption from registration
under Rule 144 or 701 promulgated under the Securities Act. Beginning 180 days
after the date of this Prospectus, upon expiration of lock-up agreements (the
"Lock-up Agreements") between the Representatives of the Underwriters and the
officers, directors and stockholders of the Company, approximately 4,687,202
shares will be eligible for sale without restriction under Rule 144(k) and
15,448,114 shares will be eligible for sale subject to compliance with the
volume and other restrictions of Rule 144. The remaining 1,422,663 shares will
become eligible for sale at various times within a period of 1 year from the
expiration of the Lock-up Agreements, subject in some cases to the volume and
other restrictions of Rule 144. In addition, there are outstanding options to
purchase 3,729,055 shares of Common Stock which will be eligible for sale in the
public market from time to time upon the expiration of the Lock-up Agreements,
subject to vesting and in some cases the volume and other restrictions of Rule
144. In addition, (i) certain stockholders, representing approximately
21,198,962 shares of Common Stock and (ii) AOL in respect of (a) the shares of
Common Stock to be issued to AOL immediately prior to the consummation of this
offering and (b) the shares of Common Stock issuable to AOL pursuant to a
Warrant to be issued by the Company to AOL immediately prior to the consummation
of this offering have the right, subject to certain conditions, to include their
shares in future registration statements relating to the Company's securities
and/or to cause the Company to register certain shares of Common Stock owned by
them.
After the date of this Prospectus, the Company intends to file a Form S-8
registration statement under the Securities Act to register all shares of Common
Stock issuable under the Company's 1995 and 1998 Stock Option Plans. Such
registration statement is expected to become effective immediately upon filing,
and shares covered by that registration statement will thereupon be eligible for
sale in the public markets, subject to certain lock-up agreements and Rule 144
limitations applicable to affiliates. See "Management -- Stock Option Plans,"
"Description of Capital Stock -- Registration Rights," "Shares Eligible for
Future Sale," and "Underwriting."
Anti-Takeover Effect Of Certain Charter Provisions. Upon the closing of
this offering, the Company's Board of Directors will have the authority to issue
up to 6,823,596 shares of Preferred Stock and to determine the price, rights,
preferences, privileges and restrictions, including voting rights, of those
shares without any further vote or action by the stockholders. The rights of the
holders of Common Stock will be subject to, and may be adversely affected by,
the rights of the holders of any Preferred Stock that may be issued in the
future. The issuance of Preferred Stock may have the effect of delaying,
deferring or preventing a change in control of the Company without further
action by the stockholders and may adversely affect the voting and other rights
of the holders of Common Stock. The Company has no present plans to issue shares
of Preferred Stock. Further, certain provisions of the Company's Certificate of
Incorporation and Bylaws and Delaware law could delay or make more difficult a
merger, tender offer or proxy contest involving the Company. See "Description of
Capital Stock."
Immediate and Substantial Dilution. The initial public offering price is
substantially higher than the value per outstanding share of Common Stock.
Accordingly, purchasers in this offering will suffer an immediate and
substantial dilution of $6.50 per share in the net tangible value of the Common
Stock from the initial public offering price (assuming an initial public
offering price of $8.00 per share). Additional dilution will occur upon exercise
of outstanding options granted by the Company. See "Dilution."
18
<PAGE> 20
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 5,000,000 shares of
Common Stock offered hereby, assuming an initial public offering price of $8.00
per share, are estimated to be approximately $36.4 million (approximately $42.0
million if the Underwriters' over-allotment option is exercised in full), after
deducting the estimated underwriting discount and offering expenses.
The principal purposes of this offering are to obtain additional capital,
to create a public market for the Common Stock, to facilitate future access by
the Company to public equity markets, and to provide increased visibility and
credibility in a marketplace where many of the Company's current and potential
competitors are or will be publicly held companies. The Company intends to use a
portion of the net proceeds to pay for a portion of its obligations to AOL and
Excite pursuant to the Company's agreements with these parties, which total
approximately $25 million over the next three years, and of which approximately
$14 million must be paid within the next twelve months. In addition, the Company
may, when the opportunity arises, use an unspecified portion of the net proceeds
to acquire or invest in complementary businesses, products and technologies.
From time to time, in the ordinary course of business, the Company expects to
evaluate potential acquisitions of such businesses, products or technologies.
However, the Company has no present understandings, commitments or agreements
with respect to any material acquisition or investment. The Company has no
specific plan for use of the remaining proceeds and expects to use such proceeds
for general corporate purposes, including working capital to fund anticipated
operating losses and capital expenditures. Pending use of the net proceeds for
the above purposes, the Company intends to invest such funds in short-term,
interest bearing, investment grade securities. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" and "Risk Factors -- Need for Additional Capital."
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital
stock. However, in connection with the Spin-off of the Company's Internet
commerce service business on December 31, 1997, the Company's shareholders were
issued shares of capital stock of Internet Commerce Services Corporation
(currently operating as CyberSource Corporation ("CyberSource")) in
consideration of the transfer by the Company to CyberSource of all of the assets
and liabilities of the Company's Internet commerce business. The Company
currently intends to retain all available funds and any future earnings of its
business for use in the operation of its business and does not anticipate paying
any cash or other dividends in the foreseeable future. See "Certain
Transactions."
19
<PAGE> 21
CAPITALIZATION
The following table sets forth as of March 31, 1998: (i) the actual
capitalization of the Company; (ii) the proforma capitalization of the Company
giving effect to the conversion of the outstanding Preferred Stock into Common
Stock upon the closing of this offering, including 276,466 shares of Series D
Preferred Stock issued in April 1998, into an aggregate of 12,198,962 shares of
Common Stock; and (iii) the proforma capitalization of the Company as adjusted
to reflect the receipt of the estimated net proceeds from the sale of the
5,000,000 shares of Common Stock offered hereby at an assumed initial public
offering price of $8.00 per share, after deducting estimated underwriting
discounts and offering expenses and the sale of 268,817 shares of Common Stock
at $7.44 per share to AOL immediately prior to the consummation of this
offering. This table should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1998
-----------------------------------
(IN THOUSANDS)
PROFORMA AS
ACTUAL PROFORMA ADJUSTED
-------- -------- -----------
<S> <C> <C> <C>
Long-term obligations, net of current maturities.... $ 33 $ 33 $ 33
Redeemable Convertible Preferred Stock; no par
value, 10,000,000 shares authorized actual and
proforma; 7,899,938 shares issued and outstanding,
actual; no shares authorized, issued or
outstanding proforma and proforma as adjusted..... 15,257 -- --
Stockholders' equity:
Preferred Stock, no par value, no shares
authorized, issued or outstanding actual;
15,000,000 shares authorized proforma and
proforma as adjusted; no shares issued or
outstanding proforma and proforma as
adjusted....................................... -- -- --
Common Stock, no par value: 30,000,000 shares
authorized actual; 50,000,000 shares,
authorized proforma and proforma as adjusted;
9,090,000 shares issued and outstanding actual;
40,000,000 shares authorized, 21,288,962 shares
issued and outstanding proforma; 26,557,779
shares issued and outstanding proforma as
adjusted(1).................................... 47 16,023 54,473
Accumulated deficit............................... (13,490) (13,490) (13,490)
-------- -------- --------
Total stockholders' equity (net capital
deficiency).................................. (13,443) 2,533 40,983
-------- -------- --------
Total capitalization...................... $ 1,847 $ 2,566 $ 41,013
======== ======== ========
</TABLE>
- ---------------
(1) Based on shares outstanding as of March 31, 1998. Includes: (i) the
conversion into Common Stock of 276,466 shares of Series D Preferred Stock
issued in April 1998, and (ii) 268,817 shares of Common Stock to be issued
to AOL immediately prior to the consummation of this offering assuming an
initial public offering price of $8.00 per share and an underwriting
discount of $0.56 per share. Excludes as of the date of this Prospectus: (i)
3,729,055 shares of Common Stock issuable upon exercise of options
outstanding under the Company's 1995 and 1998 Stock Option Plans, as amended
(collectively, the "Plans"), at a weighted average exercise price of $2.43
per share; (ii) 1,000,000 shares of Common Stock issuable upon exercise of
outstanding options granted outside of the Plans at a weighted average
exercise price of $0.004 per share; (iii) 1,180,945 shares of Common Stock
reserved for future issuance under the Plans, and (iv) 403,226 shares of
Common Stock reserved for issuance pursuant to the exercise of a warrant
issued by the Company to AOL at an exercise price of $7.44 per share
(assuming an initial public offering price of $8.00 per share and an
underwriting discount of $0.56 per share). See "Certain Transactions,"
"Description of Capital Stock" and Notes 3 and 7 of Notes to Consolidated
Financial Statements.
20
<PAGE> 22
DILUTION
The proforma net tangible book value of the Company as of March 31, 1998
was approximately $1.3 million, or $0.06 per share of Common Stock. Proforma net
tangible book value per share represents the amount of total tangible assets
less total liabilities, divided by the total proforma number of shares of Common
Stock outstanding, after giving effect to the automatic conversion of all
outstanding shares of Preferred Stock (including 276,466 shares of Series D
Preferred Stock issued in April 1998) into an aggregate of 12,198,962 shares of
Common Stock. After giving effect to the sale of the 5,000,000 shares of Common
Stock offered by the Company hereby at an assumed initial public offering price
of $8.00 per share, after deducting underwriting discounts and commissions and
estimated offering expenses payable by the Company, and the sale of 268,817
shares of Common Stock to AOL at an assumed price of $7.44 per share, the
proforma net tangible book value of the Company, as adjusted, at March 31, 1998
would have been $39.8 million or $1.50 per share of Common Stock. This amount
represents an immediate increase in such net tangible book value of $1.44 per
share to existing shareholders and an immediate dilution of $6.50 per share to
new investors. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Estimated initial public offering price per share........... $8.00
Proforma net tangible book value at March 31, 1998........ $0.06
Increase attributable to AOL.............................. .09
Increase attributable to new investors.................... 1.35
-----
Adjusted proforma net tangible book value after this
offering and the sale of shares to AOL.................... 1.50
-----
Dilution per share to new investors......................... $6.50
=====
</TABLE>
The following table summarizes, on a proforma basis as of March 31, 1998,
the number of shares of Common Stock purchased from the Company, the total
consideration paid to the Company, and the average price per share paid by
existing shareholders and to be paid by AOL and purchasers of the shares offered
by the Company hereby (at an assumed initial public offering price of $8.00 per
share before deducting underwriting discounts and commissions and estimated
offering expenses payable by the Company).
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- -------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- -------- -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Existing Stockholders(1)(2)... 21,288,962 80.2% $15,741 27.3% $0.74
AOL(2)(3)..................... 268,817 1.0 2,000 3.5 7.44
New Investors................. 5,000,000 18.8 40,000 69.2 8.00
---------- ----- ------- -----
Total(1)(2)(3)...... 26,557,779 100.0% $57,741 100.0%
========== ===== ======= =====
</TABLE>
- ---------------
(1) Based on shares outstanding as of March 31, 1998, including conversion into
Common Stock of 276,466 shares of Series D Preferred Stock issued in April
1998.
(2) Excludes as of the date of this Prospectus: (i) 3,729,055 shares of Common
Stock issuable upon exercise of options outstanding under the Company's 1995
and 1998 Stock Option Plans, as amended (collectively, the "Plans"), at a
weighted average exercise price of $2.43 per share; (ii) 1,000,000 shares of
Common Stock issuable upon exercise of outstanding options granted outside
of the Plans, at a weighted average exercise price of $0.004 per share;
(iii) 1,180,945 shares of Common Stock reserved for future issuance under
the Plans; and (iv) 403,225 shares of Common Stock reserved for issuance
pursuant to the exercise of a warrant issued by the Company to AOL at an
exercise price of $7.44 per share (assuming an initial public offering price
of $8.00 per share and an underwriting discount of $0.56 per share). See
"Certain Transactions," "Description of Capital Stock" and Notes 3 and 7 of
Notes to Consolidated Financial Statements.
(3) Reflects 268,817 shares of Common Stock to be issued to AOL immediately
prior to the consummation of this offering at an assumed price of $7.44 per
share.
21
<PAGE> 23
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the Consolidated Financial Statements and Notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Prospectus. The consolidated statement of
operations data for the years ended December 31, 1995, 1996 and 1997 and the
consolidated balance sheet data at December 31, 1996 and 1997 are derived from
the Consolidated Financial Statements of the Company which have been audited by
Ernst & Young LLP, independent auditors, and are included elsewhere in this
Prospectus, and are qualified by reference to such Consolidated Financial
Statements and the Notes thereto. The consolidated statement of operations data
for the period from August 12, 1994 (date of incorporation) to December 31, 1994
and the consolidated balance sheet data at December 31, 1995 are derived from
the consolidated financial statements of the Company not included herein which
have been audited by Ernst & Young LLP, independent auditors. The consolidated
balance sheet data as of December 31, 1994, are derived from unaudited financial
statements of the Company not included herein. The selected consolidated
financial data as of March 31, 1998, and for the quarters ended March 31, 1997
and 1998, are derived from unaudited consolidated financial statements of the
Company, which in the opinion of management include all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of the
financial information set forth therein. The historical results are not
necessarily indicative of future results.
<TABLE>
<CAPTION>
PERIOD FOR
AUGUST 12, 1994
(DATE OF
INCORPORATION) QUARTER ENDED
TO YEAR ENDED DECEMBER 31, MARCH 31,
DECEMBER 31, -------------------------- ----------------
1994 1995 1996 1997 1997 1998
--------------- ------ ------- ------- ------ -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Net revenues..................... $ 40 $1,003 $ 5,858 $16,806 $3,158 $ 6,192
Cost of revenues................. 3 623 5,137 14,873 2,783 5,254
----- ------ ------- ------- ------ -------
Gross profit..................... 37 380 721 1,933 375 938
Operating expenses
Research and development....... 164 388 431 1,060 155 602
Sales and marketing............ 57 407 704 1,696 265 1,953
General and administrative..... 43 103 450 1,087 164 635
----- ------ ------- ------- ------ -------
Total operating expenses..... 264 898 1,585 3,843 584 3,190
----- ------ ------- ------- ------ -------
Loss from operations............. (227) (518) (864) (1,910) (209) (2,252)
Interest income, net............. -- 7 85 167 40 25
----- ------ ------- ------- ------ -------
Loss from continuing operations.. (227) (511) (779) (1,743) (169) (2,227)
Loss from discontinued
operations..................... -- -- (736) (3,616) (583) --
----- ------ ------- ------- ------ -------
Net loss......................... $(227) $ (511) $(1,515) $(5,359) $ (752) $(2,227)
===== ====== ======= ======= ====== =======
Proforma basic and diluted net
loss per share from continuing
operations..................... $ (0.10) $ (0.11)
Proforma basic and diluted net
loss per share from
discontinued operations........ (0.20) --
------- -------
Proforma basic and diluted net
loss per share................. $ (0.30) $ (0.11)
======= =======
Shares used in computation of
proforma net loss per share
amounts........................ 17,828 20,252
======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------ MARCH 31,
1994 1995 1996 1997 1998
------ ------ ------- -------- ---------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents..................... $ 12 $ 255 $ 3,737 $ 2,571 $ 2,232
Working capital (deficiency).................. (89) (106) 3,543 1,093 918
Total assets.................................. 36 579 5,691 9,586 8,388
Long-term obligations, net of current
portion..................................... 105 105 105 99 33
Redeemable convertible preferred stock........ -- 651 6,395 12,565 15,257
Stockholders' equity (net capital
deficiency)................................. $ (181) $ (793) $(2,409) $(11,191) $(13,443)
</TABLE>
22
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements and the Notes thereto and the other
information included elsewhere in this Prospectus. Certain statements in this
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations" are forward looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended. The forward looking statements contained
herein are based on current expectations and entail various risks and
uncertainties that could cause actual results to differ materially from those
expressed in such forward looking statements. For a more detailed discussion of
these and other business risks, see "Risk Factors."
OVERVIEW
software.net is a leading online reseller of Software to the consumer,
small business and large enterprise markets. The Company operates its own Web
site and delivers Software to its customers over the Internet through electronic
software delivery ("ESD") and through physical delivery in shrink-wrap packages.
The Company launched its Web site in November 1994 and, in addition to selling
Software, the Company initially charged Software publishers a fee to list their
products on the Company's Web site. The Company ceased this practice in 1996. In
July of 1996, the Company expanded its business by entering into its first
contract with a U.S. government agency for the sale of Software products and
provision of related services. In July 1997, the Company expanded its third
party sales channel by entering into an agreement with Netscape pursuant to
which the Company created, manages and maintains the Netscape Software Depot Web
site.
In March 1998, the Company further expanded its third party sales channel
by entering into strategic relationships with AOL and Excite. The AOL agreement
(the "AOL Agreement") establishes the Company as the exclusive and
semi-exclusive reseller of Software on certain screens on the AOL service and
AOL's Web site, aol.com. Under the terms of the Excite agreement (the "Excite
Agreement"), the Company has the right to display banner advertisements and
links to the Company's Web site on certain Excite screens and Excite cannot
display paid promotional links or banner advertisements of any other Software
reseller on specified Excite screens related to Software. Each of AOL and Excite
is obligated, under their respective agreements with the Company, to deliver
minimum numbers of screen views with links to the Company's Web site
("Impressions"). The AOL Agreement provides for fixed payments totalling
approximately $21 million. In addition, the Company's agreement with Excite
provides for substantial payments to Excite during the three year term of that
agreement. In addition, the Company is obligated to pay AOL and Excite a
percentage of certain transactional revenues and, in the case of AOL,
advertising revenues earned by the Company in excess of specified thresholds.
The AOL Agreement terminates in August 2001, and the Excite Agreement terminates
when Excite has satisfied certain obligations with respect to delivery of
Impressions, but no earlier than April 2001. The Company's arrangements with
Netscape, AOL and Excite are expected to represent significant distribution
channels for the Company, and termination of one or more of such agreements
would likely have a material adverse effect on the Company's business, financial
condition and results of operations. See "Risk Factors -- Reliance on Strategic
Marketing Alliances with America Online, Excite and Netscape" and
"Business -- Strategic Relationships."
In order to focus on its core business of selling Software products online,
in December 1997, the Company spun off its Internet commerce related services
business (which included credit card processing, fraud screening, export
control, territory management, and electronic fulfillment) to CyberSource (the
"Spin-off"). As a result of the Spin-off, the Company's results of operations
during 1996 and 1997 reflect a loss from discontinued operations in the amount
of $736,000 and $3.6 million, respectively. Under the terms of an Internet
commerce services agreement, the Company uses services supplied by CyberSource
on a non-exclusive basis for credit card
23
<PAGE> 25
processing, fraud screening, export control, sales tax computation, electronic
licensing, hosting of electronic downloads and fulfillment notification. The
Company is also a party to a license agreement with CyberSource pursuant to
which the Company licenses certain technology, including Sm@rtCert, from
CyberSource on a non-exclusive, perpetual basis subject to certain limitations.
In addition, certain former members of the Company's executive management have
joined CyberSource in executive management positions. In particular, William S.
McKiernan, the Chairman of the Company's Board of Directors, serves as the
President and Chief Executive Officer of CyberSource. In addition, five out of
six members of the Company's Board of Directors serve on CyberSource's Board of
Directors. See "Risk Factors -- Risks Associated with Dependence on CyberSource
Corporation; Relationship with CyberSource Corporation,"
"Business -- Relationship with CyberSource Corporation" and "Certain
Transactions."
The Company's revenues are primarily derived from sales of Software to
customers using credit cards, to corporate customers that are invoiced directly
under credit terms, to various U.S. government agencies pursuant to contractual
arrangements and, to a lesser extent, amounts received from Software publishers
for advertising and promotion. Revenues from the sale of Software, net of
estimated returns, are recognized upon either shipment of the physical product
or delivery of the electronic product. Net revenues associated with the sale of
Software pursuant to contracts with the U.S. government that require continuing
service, support, and performance by the Company, are deferred and recognized
over the period that the service, support, and performance are provided.
Revenues derived from Software publishers for advertising and promotional
activities are recognized as the services are provided. The Company's U.S.
government contracts are subject to annual review and renewal by the applicable
government agency and are terminable without cause without prior notice.
Accordingly, there can be no assurance that the Company will generate revenues
from U.S. government contracts in any future period. See "Risk
Factors -- Customer Concentration; Risks Associated with Reliance on United
States Government Contracts."
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
relationship of certain items from the Company's consolidated statement of
operations to total net revenues.
<TABLE>
<CAPTION>
QUARTER ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------- ----------------
1995 1996 1997 1997 1998
------ ------ ------ ------ ------
(UNAUDITED)
----------------
<S> <C> <C> <C> <C> <C>
Net Revenues.......................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues...................... 62.1 87.7 88.5 88.1 84.9
------ ------ ------ ------ ------
Gross profit.......................... 37.9 12.3 11.5 11.9 15.1
Operating expenses:
Research and development............ 38.7 7.3 6.3 4.9 9.7
Sales and marketing................. 40.6 12.0 10.1 8.4 31.5
General and administrative.......... 10.2 7.7 6.5 5.2 10.3
------ ------ ------ ------ ------
Total operating expenses............ 89.5 27.0 22.9 18.5 51.5
------ ------ ------ ------ ------
Loss from operations.................. (51.6) (14.7) (11.4) (6.6) (36.4)
Interest income, net.................. 0.7 1.4 1.0 1.3 0.4
------ ------ ------ ------ ------
Loss from continuing operations....... (50.9) (13.3) (10.4) (5.3) (36.0)
Loss from discontinued operations..... 0.0 (12.6) (21.5) (18.5) --
------ ------ ------ ------ ------
Net loss.............................. (50.9)% (25.9)% (31.9)% (23.8)% (36.0)%
====== ====== ====== ====== ======
</TABLE>
24
<PAGE> 26
QUARTERS ENDED MARCH 31, 1997 AND 1998
Net Revenues. Net revenues increased from $3.2 million in the quarter
ended March 31, 1997 to $6.2 million in the quarter ended March 31, 1998,
primarily as a result of new U.S. government contracts and increased sales to
consumer and corporate customers.
Cost of Revenues. Cost of revenues consists primarily of the costs of
Software sold to consumer and corporate customers and related credit card
processing fees, as well as the costs of Software licenses and Software updates
provided to the U.S. government. Total cost of revenues increased from $2.8
million in the quarter ended March 31, 1997 to $5.3 million in the quarter ended
March 31, 1998, as a result of increased Software sales.
Gross Margin. Gross margin (gross profit as a percentage of net revenues)
increased from 11.9% in the quarter ended March 31, 1997 to 15.1% in the quarter
ended March 31, 1998. This increase primarily was due to a shift in the
Company's revenue mix, resulting from an increased level of higher margin
advertising and promotional revenues received from Software publishers. The
Company may in the future expand or increase the discounts it offers to its
customers and may otherwise alter its pricing structures and policies. Such
actions may have an adverse impact on gross margin in future periods. In
addition, the Company's gross margin in future periods may decline to the extent
that revenues from sales to the U.S. government or sales to large enterprise
customers increase as a percentage of the Company's total net revenues.
Research and Development Expenses. Research and development expenses
primarily consist of personnel and other expenses associated with developing and
enhancing the Company's Web sites, as well as associated facilities-related
expenses. Research and development expenses increased from $155,000 in the
quarter ended March 31, 1997 to $602,000 in the quarter ended March 31, 1998.
Research and development expenses as a percentage of net revenues increased from
4.9% in the quarter ended March 31, 1997 to 9.7% in the quarter ended March 31,
1998. Research and development expenses increased in absolute dollars and as a
percentage of net revenues primarily due to an increase in personnel and
equipment-related costs. The Company believes that continued investment in
research and development is critical to attaining its strategic objectives and,
as a result, expects research and development expenses to increase significantly
in absolute dollars in future periods.
Sales and Marketing Expenses. Sales and marketing expenses consist
primarily of personnel and related expenses, promotional expenditures and costs
associated with operating the Company's Web sites. In addition, sales and
marketing expenses include the expenditures associated with the Company's
strategic marketing alliances. Sales and marketing expenses increased from
$265,000 in the quarter ended March 31, 1997 to $2.0 million in the quarter
ended March 31, 1998. Sales and marketing expenses as a percentage of net
revenues were 8.4% in the quarter ended March 31, 1997 and 31.5% in the quarter
ended March 31, 1998. Sales and marketing expenses increased in absolute dollars
and as a percentage of net revenues primarily due to costs associated with the
Company's strategic marketing alliances, as well as an increase in personnel and
advertising expenditures. The Company's current strategic marketing alliances
with AOL, Excite and Netscape provide for payments totaling approximately $26
million in accordance with the terms of these agreements. The costs associated
with these agreements will be expensed ratably over their respective terms. The
Company may enter into similar strategic marketing alliances requiring
significant minimum payments in the future and, as a result, may experience
substantial increases in its sales and marketing expenses. In addition, the
Company intends to pursue an aggressive branding and marketing campaign and
therefore expects sales and marketing expenses to increase significantly in
absolute dollars in future periods. See Note 3 of Notes to Consolidated
Financial Statements.
General and Administrative Expenses. General and administrative expenses
primarily consist of personnel expenses, legal expenses and facilities-related
expenses. General and administrative expenses increased from $164,000 in the
quarter ended March 31, 1997 to $635,000 in the
25
<PAGE> 27
quarter ended March 31, 1998. General and administrative expenses as a
percentage of net revenues were 5.2% in the quarter ended March 31, 1997 and
10.3% in the quarter ended March 31, 1998. General and administrative expenses
increased in absolute dollars and as a percentage of net revenues primarily due
to increased personnel-related costs and facilities-related expenses associated
with the hiring of additional personnel as well as increased bad debt reserves
associated with the increase in net revenues. The Company expects general and
administrative expenses to increase in absolute dollars as the Company builds
its infrastructure and as a result of the costs associated with being a public
company.
Interest Income, Net. Interest income, net, consists of earnings on the
Company's cash and cash equivalents, net of interest expense. Interest income,
net, decreased from $40,000 in the quarter ended March 31, 1997 to $25,000 in
the quarter ended March 31, 1998, due to reduced earnings on lower average cash
and cash equivalents balances during the quarter.
Income Taxes. The Company has recorded a net loss for the quarters ended
March 31, 1997 and March 31, 1998. As a result, no provision for income taxes
has been recorded in either of these quarters.
RESULTS OF OPERATIONS -- YEARS ENDED DECEMBER 31, 1996 AND 1997
Net Revenues. Net revenues increased from $5.9 million in 1996 to $16.8
million in 1997, primarily as a result of increased sales to consumer and
corporate customers and new U.S. government contracts.
Cost of Revenues. Cost of revenues increased from $5.1 million in 1996 to
$14.9 million in 1997, due to the execution of additional U.S. government
contracts and increased product sales to consumer and corporate customers.
Gross Margin. Gross margin decreased from 12.3% in 1996 to 11.5% in 1997.
This decrease was due primarily to a shift in the Company's revenue mix,
resulting from an increased level of lower margin U.S. government contract
revenues as a percentage of total net revenues. The decrease in overall gross
margin was partially offset by an increase in higher margin advertising and
promotional revenues received from Software publishers.
Research and Development Expenses. Research and development expenses
increased from $431,000 in 1996 to $1.1 million in 1997. Research and
development expenses as a percentage of net revenues decreased from 7.3% in 1996
to 6.3% in 1997. The absolute dollar increase in research and development
expenses from 1996 to 1997 was primarily attributable to an increase in
personnel-related costs. The decrease in research and development expenses as a
percentage of net revenues was primarily attributable to the substantial
increase in net revenues in 1997.
Sales and Marketing Expenses. Sales and marketing expenses increased from
$704,000 in 1996 to $1.7 million in 1997. Sales and marketing expenses as a
percentage of net revenues were 12.0% in 1996 and 10.1% in 1997. The absolute
dollar increase in sales and marketing expenses from 1996 to 1997 primarily was
attributable to an increase in personnel and advertising expenditures, as well
as costs associated with a strategic marketing alliance. The decrease in sales
and marketing expenses as a percentage of net revenues primarily was
attributable to the substantial increase in net revenues in 1997.
General and Administrative Expenses. General and administrative expenses
increased from $450,000 in 1996 to $1.1 million in 1997. General and
administrative expenses as a percentage of net revenues were 7.7% in 1996 and
6.5% in 1997. The increase in general and administrative spending on an absolute
dollar basis in 1997 primarily was due to increased salaries and facilities-
related expenses associated with the hiring of additional personnel, increased
legal expenses associated with the settlement of certain litigation, and
increased bad debt reserves associated with the increase in net revenues. The
decrease in general and administrative expenses as a
26
<PAGE> 28
percentage of net revenues primarily was attributable to the substantial
increase in net revenues in 1997.
Interest Income, Net. Interest income, net, increased from $85,000 in 1996
to $167,000 in 1997 due to earnings on higher average cash and cash equivalents
balances in 1997.
Income Taxes. The Company had a net loss for both 1996 and 1997.
Accordingly, no provision for income taxes has been recorded in either of such
years. As of December 31, 1997, the Company had approximately $7.2 million of
net operating loss carryforwards for Federal income tax purposes, which expire
between 2009 and 2012. Given the Company's limited operating history, losses
incurred to date and the difficulty in accurately forecasting the Company's
future results, management does not believe that the realization of the related
deferred income tax assets meets the criteria required by generally accepted
accounting principles and, accordingly, a full 100% valuation allowance has been
recorded to reduce the deferred income tax assets to $0. Furthermore, as a
result of changes in the Company's equity ownership from the Company's Preferred
Stock financings and this offering, utilization of the net operating losses and
tax credits may be subject to substantial annual limitations due to the
ownership change limitations provided by the Internal Revenue Code of 1986, as
amended and similar state provisions. The annual limitation may result in the
expiration of net operating losses and tax credits before utilization. See Note
10 of Notes to Consolidated Financial Statements.
RESULTS OF OPERATIONS -- YEARS ENDED DECEMBER 31, 1995 AND 1996
Net Revenues. Net revenues increased from $1.0 million in 1995 to $5.9
million in 1996 due primarily to the growth of the Company's consumer and
corporate customer base.
Cost of Revenues. Cost of revenues increased from $623,000 in 1995 to $5.1
million in 1996, primarily reflecting an increase in product sales to consumer
and corporate customers.
Gross Margin. Gross margin decreased from 37.9% in 1995 to 12.3% in 1996.
This decrease was due primarily to a shift in the Company's business model.
During 1995, a number of Software publishers made certain payments to the
Company in exchange for the Company's inclusion of these publishers' products in
its online store. During 1996, the Company moved to its current Software
reseller model, resulting in the substantial reduction of such payments and the
associated decrease in gross margin.
Research and Development Expenses. Research and development expenses
increased from $388,000 in 1995 to $431,000 in 1996. Research and development
expenses as a percentage of net revenues decreased from 38.7% in 1995 to 7.3% in
1996. The absolute dollar increase in research and development expenses from
1995 to 1996 primarily was attributable to an increase in personnel-related
costs. The decrease in research and development expenses as a percentage of net
revenues primarily was attributable to the substantial increase in net revenues
in 1996.
Sales and Marketing Expenses. Sales and marketing expenses increased from
$407,000 in 1995 to $704,000 in 1996. Sales and marketing expenses as a
percentage of net revenues were 40.6% in 1995 and 12.0% in 1996. The absolute
dollar increase in sales and marketing expenses from 1995 to 1996 was primarily
attributable to an increase in personnel-related costs. The decrease in sales
and marketing expenses as a percentage of net revenues was primarily
attributable to the substantial increase in net revenues in 1996.
General and Administrative Expenses. General and administrative expenses
increased from $103,000 in 1995 to $450,000 in 1996. General and administrative
expenses as a percentage of net revenues were 10.2% in 1995 and 7.7% in 1996.
The increase in general and administrative spending on an absolute dollar basis
in 1996 primarily was due to increased salaries and facilities-related expenses
associated with the hiring of additional personnel, increased professional fees,
and increased bad debt reserves associated with the increase in net revenues.
The decrease in general and administrative expenses as a percentage of net
revenues primarily was attributable to the substantial increase in net revenues
in 1996.
27
<PAGE> 29
Interest Income, Net. Interest income, net, increased from $7,000 in 1995
to $85,000 in 1996 due to earnings on higher average cash and cash equivalents
balances in 1996.
Income Taxes. The Company has recorded a net loss for the years ended
December 31, 1995 and 1996. Accordingly, no provision for income taxes has been
recorded in either of such years.
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited quarterly consolidated
statement of operations data for each of the four quarters during the year ended
December 31, 1997 as well as the quarter ended March 31, 1998. In the opinion of
management, this information has been prepared substantially on the same basis
as the audited 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. The quarterly data should be read in conjunction with the
audited Consolidated Financial Statements of the Company and the Notes thereto
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>
QUARTER ENDED
-------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31,
1997 1997 1997 1997 1998
--------- -------- --------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net revenues........................ $3,158 $3,434 $ 4,825 $ 5,389 $ 6,192
Cost of revenues.................... 2,783 2,892 4,295 4,903 5,254
------ ------ ------- ------- -------
Gross profit........................ 375 542 530 486 938
Operating expenses:
Research and development.......... 155 184 302 419 602
Sales and marketing............... 265 332 442 657 1,953
General and administrative........ 164 247 265 411 635
------ ------ ------- ------- -------
Total operating expense... 584 763 1,009 1,487 3,190
------ ------ ------- ------- -------
Loss from operations................ (209) (221) (479) (1,001) (2,252)
Interest income, net................ 40 32 24 71 25
------ ------ ------- ------- -------
Loss from continuing operations..... (169) (189) (455) (930) (2,227)
Loss from discontinued operations... (583) (455) (1,036) (1,542) --
------ ------ ------- ------- -------
Net loss............................ $ (752) $ (644) $(1,491) $(2,472) $(2,227)
====== ====== ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
AS A PERCENTAGE OF TOTAL REVENUE
-------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31,
1997 1997 1997 1997 1998
--------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
Net revenues....................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues................... 88.1 84.2 89.0 91.0 84.9
------ ------- ------- ------- -------
Gross profit....................... 11.9 15.8 11.0 9.0 15.1
Operating expenses:
Research and development......... 4.9 5.4 6.3 7.8 9.7
Sales and marketing.............. 8.4 9.7 9.2 12.2 31.5
General and administrative....... 5.2 7.2 5.4 7.6 10.3
------ ------- ------- ------- -------
Total operating expense.......... 18.5 22.3 20.9 27.6 51.5
------ ------- ------- ------- -------
Loss from operations............... (6.6) (6.5) (9.9) (18.6) (36.4)
Interest income, net............... 1.3 0.9 0.5 1.3 0.4
------ ------- ------- ------- -------
Loss from continuing operations.... (5.3) (5.6) (9.4) (17.3) (36.0)
Loss from discontinued
operations....................... (18.5) (13.2) (21.5) (28.6) --
------ ------- ------- ------- -------
Net loss........................... (23.8)% (18.8)% (30.9)% (45.9)% (36.0)%
====== ======= ======= ======= =======
</TABLE>
28
<PAGE> 30
The Company's net revenues have increased significantly in each consecutive
quarter presented due to increased sales to consumer and corporate customers and
the execution of new U.S. government contracts. The Company's gross margins
fluctuated on a quarterly basis during these quarters, primarily as a result of
changes in the Company's product mix. In particular, the Company's gross margin
increased in the second quarter of 1997 and in the first quarter of 1998
primarily due to an increase in advertising and promotional revenues as a
percentage of the Company's net revenues during such periods. Gross margins
decreased in the third and fourth quarters of 1997 primarily due to an increased
level of lower margin U.S. government contract revenues as a percentage of the
Company's net revenues and a decrease in advertising and promotional revenues as
a percentage of the Company's net revenues. Research and development and general
and administrative expenses increased in absolute dollars in each quarter
presented primarily due to personnel-related costs. Sales and marketing expenses
also increased on a quarterly basis in each quarter presented due to increases
in personnel-related costs and significantly increased in the first quarter of
1998 due to expenditures associated with the Company's strategic marketing
alliances. Sales and marketing expenses and general and administrative expenses
each increased in absolute dollars in the third quarter of 1997, but declined as
a percentage of net revenues due to the increase in the Company's net revenues
during such period.
As a result of the Company's limited operating history and the emerging
nature of the markets in which it competes, the Company may be unable to
accurately forecast its revenues. The Company's current and future expense
levels are to a large extent fixed and are based on its operating plans and
estimates of future revenues. Sales and operating results generally depend on
the volume and timing of orders received, which are difficult to forecast. The
Company may be unable to adjust spending in a timely manner to compensate for
any unexpected revenue shortfall. Accordingly, any significant shortfall in
revenues in relation to the Company's planned expenditures would have an
immediate adverse effect on the Company's business, financial condition and
results of operations. Further, as a strategic response to changes in the
competitive environment, the Company may from time to time make certain pricing,
service or marketing decisions that could have a material adverse effect on its
business, financial condition and results of operations. See "Risk
Factors -- Limited Operating History; History of Net Operating Losses;
Accumulated Deficit," "-- Unpredictability of Future Operating Results" and
"Business -- Competition."
The Company expects to experience significant fluctuations in its future
quarterly operating results due to a variety of factors, many of which are
outside of the Company's control. Factors that may adversely affect the
Company's quarterly operating results include (i) the Company's ability to
retain existing customers, attract new customers and maintain customer
satisfaction; (ii) the announcement or introduction of new sites, services and
products by the Company and its competitors: (iii) price competition; (iv) the
level of use of the Internet and online services and increasing consumer
acceptance of the Internet and other online services for the purchase of
consumer products such as those offered by the Company; (v) the Company's
ability to upgrade and develop its systems and infrastructure and attract new
personnel in a timely and effective manner; (vi) the level of traffic on the
Company's Web site; (vii) the termination of any strategic marketing alliances
such as those with AOL, Excite or Netscape pursuant to which the Company has
exposure to traffic on third party Web sites, or the termination of contracts
with major purchasers, particularly U.S. government agencies; (viii) technical
difficulties, system downtime or Internet brownouts; (ix) the failure of
Internet bandwidth to increase significantly over time and/or an increase in the
cost to consumers of exploiting Internet bandwidth; (x) the amount and timing of
operating costs and capital expenditures relating to expansion of the Company's
business, operations and infrastructure; (xi) the number of popular Software
titles introduced during the period; (xii) certain government regulations; and
(xiii) general economic conditions and economic conditions specific to the
Internet, online commerce and the Software industry. The Company expects that it
may experience seasonality in its business, reflecting a combination of seasonal
fluctuations in Internet usage and traditional retail, governmental and
corporate entity seasonal spending patterns. "Risk Factors -- Unpredictability
of Future Operating Results."
29
<PAGE> 31
Gross margins may be impacted by a number of different factors, including
the mix of revenues from sales of shrink-wrap products versus revenues from ESD
product sales, the mix of Software products sold, the mix of revenues among
sales to government, corporate and consumer purchasers and the mix of revenues
from strategic partners such as AOL, Excite, Netscape and the Company's Web
site. The Company typically derives higher gross margins from advertising and
promotional revenues than from Software product sales. The Company typically
realizes higher gross margins on ESD Software product sales than on sales of
shrink-wrap Software products and lower gross margins on sales of widely
available commodity Software products than on sales of specialty Software
products. In addition, the Company typically realizes higher gross margins on
sales to consumer purchasers than on sales to government or corporate
purchasers. In addition, the Company also may from time to time offer attractive
pricing programs, which may reduce its gross margins periodically. Any change in
one or more of the foregoing factors could materially adversely affect the
Company's gross margins and operating results in future periods. See "Risk
Factors -- Unpredictability of Future Operating Results."
Due to the foregoing factors, quarterly revenues and operating results are
difficult to forecast, and the Company does not believe that period-to-period
comparisons of its operating results will necessarily be meaningful and should
not be relied upon as indicators of future performance. In one or more future
quarters the Company's operating results may fall below the expectations of
securities analysts and investors. In such event, the trading price of the
Common Stock would likely be materially adversely affected.
LIQUIDITY AND CAPITAL RESOURCES
From inception through March 31, 1998, the Company has financed its
operations primarily through private sales of Preferred Stock through which the
Company raised net cash proceeds totaling $14.1 million.
Net cash used in operating activities was $299,000 for the year ended
December 31, 1997 and $2.7 million for the first quarter of 1998. Cash used in
operating activities in 1997 was attributable to a net loss of $5.4 million and
increases in costs of deferred revenue, partially offset by increases in
accounts payable, deferred revenue, and the loss from discontinued operations.
Cash used in operating activities for the first quarter of 1998 resulted from a
net loss of $2.2 million and a decrease in deferred revenue, largely offset by
decreases in cost of deferred revenue. Net cash used in investing activities of
$4.9 million for the year ended December 31, 1997 was primarily attributable to
cash used for discontinued operations. Net cash used in investing activities for
the first quarter of 1998 of $165,000 were attributable to purchases of property
and equipment.
Net cash provided by financing activities of $4.1 million and $2.6 million
for the year ended December 31, 1997 and the first quarter of 1998,
respectively, primarily consisted of proceeds from the issuance of Preferred
Stock, which was partially offset for the year ended December 31, 1997 by cash
used for discontinued operations.
As of March 31, 1998, the Company had approximately $2.2 million of cash
and cash equivalents. The Company's current strategic marketing alliances
provide for payments of approximately $6.9 million in the remainder of 1998,
approximately $8.3 million in 1999, approximately $9.0 million in the year 2000
and approximately $500,000 in the year 2001. The Company currently has no other
material commitments other than those under its operating leases and for certain
equipment leases.
The Company entered into a credit agreement (the "Credit Agreement") with
Deutsche Bank AG ("Deutsche Bank"), in May 1998. Deutsche Bank is the parent
corporation of Deutsche Morgan Grenfell Inc., one of the representatives of the
Underwriters. Pursuant to the Credit Agreement, in May 1998, Deutsche Bank
issued a standby letter of credit to the Company in the amount of approximately
$600,000 (the "Credit Facility") and loaned the Company approxi-
30
<PAGE> 32
mately an additional $4,200,000 (the "Loan"). The Loan bears interest at a rate
equal to the higher of (i) the daily Federal Funds Rate plus 0.5% per annum or
(ii) Deutsche Bank's daily prime lending rate (the "Base Rate"), plus 3.0%.
Interest is payable quarterly, in arrears, during the term of the Credit
Agreement. The Company is also required to pay a standby letter of credit fee
equal to a percentage of the face amount of the Credit Facility equal to the
Base Rate plus 3.0% less the LIBOR rate for a three-month loan. In conjunction
with the Credit Agreement the Company is required to pay Deutsche Bank (i) an
upfront fee of $120,000 and (ii) a credit line fee equal to 7.50% of the amount
by which the Company's gross revenues during the term of the Credit Agreement
exceed certain agreed upon thresholds, subject to maximum payments of $337,500
in the aggregate. All amounts borrowed under the Credit Agreement are due on
November 16, 1998. In connection with the Credit Agreement, Deutsche Bank has
received a first priority lien on all of the Company's assets, including
intellectual property. Pursuant to the terms of the Credit Agreement, the
Company is subject to certain financial and non-financial covenants. The Company
intends, upon the expiration of the Credit Agreement, to convert the amounts
outstanding under the Credit Facility and the Loan into a new credit facility in
approximately the same or a greater principal amount; however, there can be no
assurances that the amounts outstanding under the Credit Facility and the Loan
will be able to be converted into a new credit facility on commercially
acceptable terms, if at all. See "Underwriting."
The Company believes that the net proceeds from this offering, together
with its current cash and cash equivalents, and the funds borrowed under the
Credit Agreement in May 1998, will be sufficient to meet its anticipated cash
needs for working capital and capital expenditures through at least the next
twelve months. Thereafter, if cash generated from operations is insufficient to
satisfy the Company's liquidity requirements, the Company may seek to sell
additional equity or debt securities or to obtain additional credit facilities,
in part to fund its financial obligations to AOL and Excite. The sale of
additional equity or convertible debt securities could result in additional
dilution to the Company's stockholders. There can be no assurance that financing
will be available in amounts or on terms acceptable to the Company, if at all.
See "Risk Factors -- Need for Additional Capital."
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field. These date code fields
will need to accept four digit entries to distinguish 21st century dates from
20th century dates. This could result in system failures or miscalculations
causing disruptions of operations including, among other things, a temporary
inability to process transactions, send invoices, or engage in similar normal
business activities. As a result, many companies' software and computer systems
may need to be upgraded or replaced in order to comply with such "Year 2000"
requirements. The Company utilizes third-party equipment and software that may
not be Year 2000 compliant. The Company is in the early stages of conducting an
audit of its third-party suppliers as to the Year 2000 compliance of their
systems. The Company does not believe it will incur significant costs in order
to comply with Year 2000 requirements. However, failure of the Company's
internal computer systems or of such third-party equipment or software, or of
systems maintained by the Company's suppliers, to operate properly with regard
to the Year 2000 and thereafter could require the Company to incur unanticipated
expenses to remedy any problems, which could have a material adverse effect on
the Company's business, financial condition and results of operations. See "Risk
Factors -- Year 2000 Compliance."
31
<PAGE> 33
BUSINESS
software.net Corporation ("software.net" or the "Company") is a leading
online reseller of commercial off-the-shelf computer software ("Software") to
the consumer, small business and large enterprise markets. Through its online
store (www.software.net), the Company offers customers a comprehensive selection
of Software, customer service and competitive pricing. The Company believes that
the software.net site is one of the most widely known and used sites on the
World Wide Web (the "Web") for the purchase of Software. The Company fulfills a
customer purchase either through physical delivery of the shrink-wrap Software
package or through electronic software delivery ("ESD"). The Company believes it
provides superior value to its customers by offering one of the largest
selections of brand-name, high quality Software available online, and the
convenience of shopping from home or office, twenty-four-hours-a-day, seven-
days-a-week ("24x7").
The Company believes that the Internet is an ideal medium for the sale and
delivery of Software for several reasons: (i) the demographics of Internet users
overlap one-to-one with the demographics of potential Software purchasers; (ii)
many Software titles and their related stock-keeping units ("SKUs") can be
delivered via ESD, providing instant gratification to the customer; and (iii)
large enterprise customers can use ESD to achieve efficient and cost effective
distribution of Software. software.net's business is based on scaleable
technology that permits the sale, order processing and delivery of Software with
limited human intervention. This technology, combined with significant
operational experience, enables the Company to address the complex process of
real time ESD. The Company has developed relationships with approximately 300
leading Software publishers which have granted the Company the right to
distribute approximately 2,800 Software SKUs via ESD.
The Company also has established strategic marketing alliances with America
Online, Inc. ("AOL"), Excite, Inc. ("Excite") and Netscape Communications
Corporation ("Netscape"). According to RelevantKnowledge, Inc., an
Internet-focused market research firm, the Web sites of these companies are each
among the five most visited sites on the Internet. The agreements with these
companies provide software.net with prominent display space on certain screens
on each of these Web sites. The Company believes these alliances have enabled it
to further consolidate its position as a leading online Software reseller. Since
the launch of its Web site in November 1994, the Company has sold Software
products to approximately 140,000 customers and has distributed freeware and
trial download products to tens of thousands of additional users. The Company's
sales increased from approximately $6 million in 1996, to approximately $17
million in 1997.
INDUSTRY BACKGROUND
Growth of the Internet and Online Commerce
The Web and commercial online services such as AOL have emerged as
significant global communications media, enabling millions of people to share
information and conduct business electronically. International Data Corporation
("IDC") projects that the total value of goods and services purchased over the
Web will increase from approximately $12.4 billion in 1997 to approximately $425
billion by 2002. A number of factors have contributed to the growth of the
Internet and its commercial use, including: (i) the large and growing installed
base of advanced personal computers in the home and workplace; (ii) improvements
in network infrastructure and bandwidth; (iii) easier and cheaper access to the
Internet; (iv) increased awareness of the Internet among consumer and business
users; and (v) the rapidly expanding availability of online content and commerce
which increases the value to users of being connected to the Internet. According
to IDC, the number of Web users worldwide will grow from approximately 69
million at the end of 1997 to approximately 320 million by 2002. In addition,
IDC estimates that the percentage of such users buying goods and services on the
Internet is projected to grow from
32
<PAGE> 34
26% in December 1997 to 40% in December 2002. The Internet also has emerged as
an attractive medium for the purchase and distribution of Software. Jupiter
estimates that revenues from online sales of PC software in 1997 were $69
million and are projected to grow to $2.3 billion in 2002.
Traditional Software Industry
The Software reselling industry is large and growing. According to IDC,
total Software sales to consumer and corporate end users from software
retailers, dealers and third-party mail order cataloguers in the United States
were estimated to be approximately $14 billion in 1997 and are expected to grow
to approximately $24 billion in 2001, representing a compound annual growth rate
of approximately 14.7%. In addition, the Company believes that the Software
reselling industry is highly fragmented with many participants, including
regional and national chains of superstores, cataloguers, systems integrators,
VARs and small single location stores.
The two primary categories of Software purchasers are (i) consumers and
small businesses and (ii) large enterprises such as corporations, government
agencies and universities. These two market segments have different requirements
and are served by different sales channels. For the consumer and small business
market, Software publishers primarily sell their Software through a network of
distributors and resellers and, to a lesser extent, directly to consumers. There
are many Software resellers in the United States serving the consumer and small
business market. These resellers vary in size from large regional and national
chains of superstores, such as CompUSA, ComputerCity and Office Depot, which may
carry hundreds of Software titles in a single store, to cataloguers such as
Micro Warehouse and CDW Computer Centers that offer several thousand Software
titles, to small, single location stores carrying only a limited number of
titles. For the large enterprise market, publishers typically sell direct or
through large corporate and value-added resellers, including Software Spectrum
and Corporate Software and Technology. Large distributors, such as Ingram Micro,
Merisel and Tech Data, serve as the primary suppliers for most resellers and
carry extensive inventories of leading Software titles.
Several characteristics of the traditional Software reselling industry
create inefficiencies for all industry participants. In the consumer and small
business market, physical store-based resellers must make significant
investments in real estate, inventory (which is limited due to space constraints
and cost) and personnel for each retail location. Cataloguers are constrained by
practical catalog size limitations (limiting both the number of products and the
information on those products that can be included in the catalog), printing
expenses, mailing costs and inherent delays in reacting rapidly to price and
product changes. In each case, these constraints limit the Software product
selection available to consumers. The traditional Software reselling model also
creates inefficiencies for participants in the large enterprise market.
Publishers, resellers and the purchasing enterprises are each challenged by the
logistical complexities, administrative burden and costs of distributing and
tracking Software titles and updates across a large and dispersed user base.
Under the traditional model, publishers face additional inefficiencies. In
addition to only being able to offer a fraction of their total available titles
in retail stores and catalogs, publishers typically must grant their resellers
and distributors generous rights of return because of the high cost of inventory
and risk of product obsolescence that would otherwise be borne by their channel
partners. Therefore, publishers effectively bear the risk of customer demand
forecasting, creating administrative costs and significant revenue recognition
and restatement issues associated with any difference between projected and
actual sales. Finally, publishers, distributors, and traditional Software
resellers cannot easily obtain demographic and behavioral data about end users,
which limits the opportunities for direct marketing and personalized services.
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THE SOFTWARE.NET SOLUTION
software.net is a leading online reseller of Software to the consumer,
small business and large enterprise markets, and offers a solution to many of
the inefficiencies inherent in the traditional Software reselling industry. Key
components of the software.net solution include:
Customer Convenience. software.net provides enhanced customer convenience
by enabling customers to purchase Software online 24x7 from home or office.
Additionally, Software purchased online from software.net can be delivered in
shrink-wrap packages or immediately downloaded and installed via ESD. ESD also
enables large enterprise customers to achieve more efficient internal
distribution and tracking of Software and updates relative to the alternative
distribution methods.
Selection. software.net has the capacity for unlimited online shelf space
and offers customers an extensive selection of titles, SKUs and related product
information without the expense of maintaining a physical store-based
infrastructure. The Company carries approximately 30,000 Software SKUs, as well
as approximately 2,800 SKUs that can be delivered to customers via ESD.
Customized Service. The Company captures significant customer preference
data during each customer session from its online site and can use this
information to customize a user's shopping experience on subsequent visits. As
an online reseller, the Company also is better able to educate the customer
about Software products through online product reviews, trial downloads,
additional product information and online customer support.
Publisher Benefits. Because the Company is not constrained by the inherent
limitations of physical stores, the Company enables publishers to offer all of
their available titles to customers in its online store. In addition, by
offering products for ESD through software.net's publishers can reduce the risk
of customer demand forecasting, and the associated administrative costs and
significant revenue recognition and restatement concerns. Finally, publishers
can work with the Company to obtain demographic and behavioral data about end
users, which expands publishers' opportunities for marketing and targeted
services.
STRATEGY
The Company's objective is to be the dominant reseller of Software to
consumers, small businesses and large enterprises. The Company intends to
capitalize on and extend its market position as one of the "first movers" in
online Software reselling through the following key strategies:
Enhance Brand Recognition. The Company believes that building brand
awareness of its Web site is critical to attracting and expanding its Internet
customer base. The Company intends to promote, advertise and increase its brand
recognition through a variety of marketing and promotional techniques, including
co-marketing agreements with major online sites and services and through
customer service. The Company also intends to promote its brand through
advertising on leading Web sites and other media, conducting an ongoing public
relations campaign and developing other business alliances and partnerships.
Promote Electronic Software Delivery. The Company is currently a leader in
ESD, with approximately 2,800 Software SKUs available for ESD from the
software.net store direct to the end user's personal computer. ESD offers
convenience to customers and economic advantages to the Company and Software
publishers which the Company believes are superior to traditional methods of
Software delivery. By working with Software publishers on ESD initiatives,
enhancing its own technology and systems and implementing ESD promotional
activities, the Company is focused on increasing the number of Software SKUs
available for purchase by ESD and the number of customers who utilize ESD.
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Leverage and Further Develop Strategic Relationships. The Company intends
to continue to leverage its strategic marketing alliances with AOL, Excite and
Netscape to enhance brand recognition and increase customer acquisitions and
sales. The Company also intends to expand its online visibility and may enter
into relationships with additional Internet access providers, search engines and
other high-traffic Web sites.
Capitalize on Large Enterprise Opportunities. In addition to targeting
consumer and small business customers, the Company will also market its services
to large enterprise customers such as major corporations, government agencies
and universities. The Company believes that the speed, convenience and cost
advantages offered by ESD make ESD an attractive alternative method of
purchasing for large enterprises. The Company intends to capitalize on its
success in supplying the needs of its government customers to become the online
reseller of choice for large enterprise customers.
Maintain Technology Focus and Expertise. The Company intends to leverage
its scaleable, state-of-the-art, interactive commerce platform to enhance
software.net's service offering and expand the benefits of online Software
reselling. The Company's internal development group continues to expend
substantial efforts developing, purchasing, licensing and implementing
technology-driven enhancements to its Web site and transaction-processing
systems.
Leverage Superior Economic Model; Focus on Online Environment. The Company
believes it has an inherent economic advantage relative to Software resellers
operating from physical stores or through catalogs because it is not burdened by
the cost or legacy of a physical store network and related personnel or the
costs and limitations of selling through printed catalogs. The Company further
believes that the demographics of Internet users overlap one-to-one with the
demographics of potential Software purchasers, providing an exceptional target
market for online Software sales. The Company intends to leverage its online
model and focus on delivering an increasing number of Software products via ESD
to achieve cost and margin advantages as compared to traditional Software
resellers.
Strengthen First-Mover Advantages. The Company believes that significant
barriers exist that make it increasingly difficult to enter the online Software
marketplace in a cost-effective manner. These barriers include: (i) the
necessary up-front investment in technology and technical infrastructure, such
as that required for real time processing of both payment and order fulfillment;
(ii) the time and expense required to build a brand that effectively draws
customers to a Web site; (iii) the time, expense and expertise necessary to
develop publisher and distributor relationships; and (iv) the need to develop
strategic alliances with high-traffic, high-profile Web sites. The Company
intends to extend its first-mover advantages in each of these areas.
THE SOFTWARE.NET ONLINE SOFTWARE STORE
Customers enter the software.net store through the Company's simple,
intuitive and easy to use Web site. The Web site instantly recognizes the
browser type of the customer's computer and tailors the format of the
software.net store to that system. With customized pages for particular browsers
and for large enterprise accounts, the Company's goal is to make the shopping
process as easy as possible for customers. Users accessing the software.net
store generally fall into one of two categories: (i) individuals who know what
product they want to buy and seek to purchase it immediately in a highly
convenient manner; or (ii) individuals who are browsing the store and seeking an
entertaining and informative shopping experience. The software.net store is
designed to satisfy both types of users in a simple, intuitive fashion.
Presently, customers can conduct targeted searches through a catalog of
approximately 30,000 Software SKUs, browse from among featured titles and
special offers, participate in promotions and check order status. The
software.net site also offers visitors a variety of highlighted subject areas
and special features, including features of topical or current-event interest,
such as the Windows 95 Center, the Macintosh Center and the 1997 Tax Center. The
site also
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periodically offers previews of new or upcoming releases, such as Windows 98.
The Company expects to implement further improvements to its store which may
include specialty sections within the site, product reviews, greater
interactivity and customer-specific product presentations based on demonstrated
customer preferences.
Shoppers purchase products by simply clicking on a button to add products
to their virtual shopping baskets. Customers can add and subtract products from
their shopping baskets as they browse, prior to making a final purchase
decision, just as in a physical store. To execute orders, customers click on the
buy button and are prompted to supply shipping and, in the case of consumers,
credit card details, either by email or by telephone. The store design enables
purchasers to buy several products at once, rather than having to repeat the
same purchase process for each desired product. All customer information is
stored on the Company's secure server, and repeat customers are presented with a
customized order form. The Company's system automatically confirms each
physically shipped order by email to the customer within minutes after the order
is placed and advises customers by email shortly after orders are shipped.
Company representatives handle customer service and support and general
questions about software.net and provide product information over the telephone,
fax and via email. The Company believes that these representatives are a
valuable source of feedback regarding customer satisfaction, which the Company
uses to improve its services. Customers of the Company are not currently charged
for service and support services. See "-- Products" and "-- Marketing and
Sales."
PRODUCTS
The Company's software.net store carries approximately 30,000 Software SKUs
from leading Software publishers for physical delivery. The efficiencies of
online inventory permit the software.net store to offer a broad selection of
hard-to-find and specialty titles which may not be available in traditional
Software stores. A single Software title often has multiple SKUs depending upon
operating systems (i.e. MacIntosh, Windows, Windows NT); media (i.e. CD-Rom,
floppy disk) or license type (i.e. single or multi-user licenses). The Company
also offers approximately 2,800 SKUs from approximately 300 publishers for
immediate delivery via ESD, including popular titles by Adobe, Cybermedia,
FileMaker Pro Inc. (formerly Claris), IBM, JavaSoft, Lotus, Microsoft, Network
Associates (formerly McAfee), QUALCOMM, Sun Microsystems and Symantec.
The Company has focused on making available via ESD as many major Software
titles as practical. As a result of the limited bandwidth and relatively slow
modem speeds now available, the size of many popular Software titles currently
makes them unsuitable for ESD. However, as Internet infrastructure and bandwidth
improvements and advancements are made, such as cable modems and digital
subscriber line technologies, the Company believes that the demand for products
delivered via ESD will increase. However, if ESD does not achieve widespread
market acceptance, the Company's business, financial condition and results of
operations will be materially adversely affected. Even if ESD achieves
widespread acceptance, there can be no assurance that the Company will overcome
the substantial existing and future technical challenges associated with
electronically delivering Software reliably and consistently on a long-term
basis. A failure by the Company to do so would materially and adversely affect
the Company's business, financial condition and results of operations. See "Risk
Factors -- Risks Associated with Dependence on Electronic Software Delivery."
The Company sources product for physical delivery from traditional
distributors and sources the substantial majority of its ESD SKUs directly from
Software publishers. The Company does not carry any inventory and relies on
rapid fulfillment of physical products from distributors directly to customers.
When a customer places an order for shrink-wrap Software, the order information
is instantly transmitted to the distributor for processing and rapid
fulfillment. A major Software distributor supplied the Company with Software
that accounted for a substantial portion of the Company's total Software sales
in 1997 and in the first quarter of 1998. The Company has
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developed customized information systems and automated ordering processes to
enable it to offer an extensive selection of products, avoid the high costs and
capital requirements associated with owning and warehousing product inventory,
and escape the significant operational effort associated with same day
processing and shipment. As is common in the Software industry, the Company does
not have long-term contracts or arrangements with its vendors that would ensure
the availability of SKUs, and there can be no assurance that the Company's
current vendors will continue to supply SKUs to the Company. See "Risk
Factors -- Reliance on Software Publishers and Distributors."
The Company has entered into three contracts with departments of United
States government agencies (the "U.S. government"). Collectively, these
agreements accounted for approximately 33.2% and 43.1% of the Company's revenues
in 1997 and the first quarter of 1998, respectively. A substantial portion of
the Software sold pursuant to these agreements is supplied to the Company by
Microsoft. Each of these contracts is subject to annual review and renewal with
the U.S. government, and may be terminated without cause at any time.
Accordingly, there can be no assurance that the Company will derive any revenue
from sales of Software to the U.S. government in any given future period. The
Company's contract with Microsoft is terminable without cause upon limited
notice. In the event that any one of these agreements is not renewed or is
otherwise terminated by the U.S. government or if Microsoft does not supply its
Software product to the Company for resale to the U.S. government pursuant to
these agreements, the Company's business, financial condition and results of
operations would be materially adversely affected. The Company does not have any
other customers that accounted for more than 10% of the Company's revenues in
1997 or the first quarter of 1998. See "Risk Factors -- Reliance on Software
Publishers and Distributors; and -- Customer Concentration; Risks Associated
with Reliance on United States Government Contracts."
MARKETING AND SALES
Strategic Relationships
software.net pursues strategic relationships to expand the Company's online
presence, increase its access to online customers and build brand recognition.
In pursuing these relationships, the Company seeks exclusive or semi-exclusive
positioning for the sale of Software on key screens of major Web sites. To date,
the Company has established the following strategic marketing alliances:
America Online. software.net and AOL, the leading online service provider
with approximately twelve million members, entered into an agreement (the "AOL
Agreement") in March 1998 for a term of 42 months, pursuant to which AOL has
agreed to promote software.net as the exclusive and semi-exclusive reseller of
Software products on certain screens in the AOL service and AOL's Web site,
aol.com (the "AOL Online Area"). AOL will promote software.net as the exclusive
Software reseller on certain screens in the Computing Channel, the AOL Personal
Finance Channel and the Games Channel areas, among others, of the AOL Online
Area. AOL also will promote software.net as a Software reseller on a
semi-exclusive basis on certain screens in the Computing Channel and the
Entertainment Web Channel, among others, of the AOL Online Area. The exclusivity
rights set forth above are subject to a number of significant exceptions,
including Software products sold by or on behalf of publishers and by AOL
through "pop-ups." Over the term of the AOL Agreement, subject to certain
limitations or adjustment to the payments required of the Company, AOL is
obligated to deliver a specified number of screen views with links to the
Company's Web site ("Impressions"). The Company is obligated to make minimum
payments totaling $21 million to AOL by March 1, 2000, and over the term of the
AOL Agreement, is obligated to pay a percentage of certain transactional
revenues earned by the Company on Software sales to AOL members in excess of
certain thresholds. The Company has the right to sell advertising on its
promotional screens in the AOL Online Area, subject to the Company's obligation
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to pay a percentage of certain advertising revenues above certain threshold
amounts to AOL. In addition, AOL has the right, in its sole discretion, to
reduce or cease placements of the promotions granted under this agreement, or
restrict access from the AOL service to the Company's Web site, in certain
circumstances, including, if the functional integrity of the AOL service is
compromised or the ability of AOL to provide service to its users is adversely
affected. Subject to adjustment to the payments required of the Company, AOL may
also change its business model so that a substantially larger number of AOL
members pay hourly charges for general access and use of the AOL service, which
may have a material adverse effect on the sale of the Company's products. The
Company's agreement with AOL expires in August 2001, or earlier in the event of
a material breach and AOL has the right to renew this agreement for two
successive one-year terms, during which time AOL has no exclusivity obligations
to the Company. Subject to certain conditions, (i) AOL has also agreed to
purchase shares of the Company's Common Stock at a price per share equal to the
initial public offering price (less the underwriting discount) for an aggregate
purchase price of $2 million and (ii) the Company has agreed to concurrently
issue to AOL a warrant for a number of shares of Common Stock equal to 1.5 times
the number of shares of Common Stock purchased by AOL in the aforementioned
investment at a per share exercise price equal to the initial public offering
price (less the underwriting discount), in each case in a private placement
transaction that will close immediately prior to the consummation of the
offering contemplated by this Prospectus. The Company has also granted AOL
certain registration rights. See "Certain Transactions" and "Description of
Capital Stock -- Registration Rights."
Excite. software.net and Excite, a leading search engine provider with
over two million visitors a day, entered into an agreement in March 1998 for a
term of at least 36 months, under which Excite agreed, subject to certain
limitations, not to display paid promotional links or banner advertisements of
other specified types of resellers of Software products on certain screens
within certain channels of Excite's Excite.com Web site (the "Excite Online
Area"). These screens include certain screens in Excite.com's Computers and
Internet Channel and the Computers and Software Department of the Shopping
Channel. In addition, the Company has the right to display links to the
Company's Web site on certain other screens within the Excite Online Area. Over
the term of the Excite Agreement, Excite is obligated to deliver a specified
number of Impressions. Over the first three years of the agreement, the Company
is obligated to make substantial payments to Excite as well as pay a percentage
of certain transactional revenues earned by the Company in excess of certain
thresholds. The Company's arrangement with Excite terminates when Excite has
satisfied certain obligations with respect to delivery of Impressions, but no
earlier than April 2001 except in the event of a material breach.
Netscape. software.net and Netscape, a leading provider of open software
for linking people and information over intranets, extranets and the Internet
entered into an agreement in June 1997 for a term of 24 months from August 1,
1997, to create the "Netscape Software Depot by software.net." This Web site is
an online Software store, created for the purpose of marketing and distributing
Software products which are compatible with the Netscape ONE platform Internet
Site. Under the terms of the Netscape agreement, sales and advertising revenues
generated from this online store are allocated in accordance with specified
percentages. In connection with this agreement, the Company made an initial
payment to Netscape for a license to use certain Netscape trademarks. The
Netscape agreement terminates on July 31, 1999 and can also be terminated by
either party in the event that certain specified Impressions and net revenue
milestones have not been met.
There can be no assurance that the Company will achieve sufficient online
traffic, or generate sufficient sales to realize economies of scale that justify
the Company's significant fixed financial obligations to AOL and Excite, or to
satisfy its contractual obligations necessary to prevent termination of the AOL,
Excite or Netscape agreements. The failure of the Company to do so would likely
have a material adverse effect on the Company's business, results of operations
and financial condition. In addition, neither the AOL, Excite nor Netscape
agreements provides the Company
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with automatic renewal rights upon expiration of their respective terms. There
can be no assurance that such agreements will be renewed on commercially
acceptable terms, or at all. Furthermore, the Company's significant investment
in the AOL, Excite and Netscape relationships is based on the continued positive
market presence, reputation and anticipated growth of AOL, Excite and Netscape,
as well as the commitment by each of AOL and Excite to deliver specified numbers
of Impressions. Any decline in the significant market presence, business or
reputation of AOL, Excite or Netscape, or the failure of any of AOL and Excite
to deliver the specified numbers of Impressions, will reduce the value of these
strategic agreements to the Company and will likely have a material adverse
effect on the business, results of operations and financial condition of the
Company. In addition, AOL and the Company have the right to separately pursue
and sell advertising in the Company's content areas distributed through AOL.
There can be no assurance that the Company and AOL will not compete for limited
software reseller advertising revenues. The Company's arrangements with AOL,
Excite and Netscape are expected to represent significant distribution channels
for the Company's Software sales, and any termination of either or all of the
Company's agreements with AOL, Excite and Netscape would likely have a material
adverse effect on the Company's business, results of operations and financial
condition. See "Risk Factors -- Reliance on Strategic Marketing Alliances with
America Online, Excite and Netscape," "Use of Proceeds" and Note 3 of Notes to
Consolidated Financial Statements.
Co-branded Sites. software.net has also sought to increase sales by
creating and managing co-branded stores such as CMP's TechShopper Software Store
(http:// www.techweb.com/shopper/softwarestore), Computer Currents Interactive
Software Shop (http://currents.software.net), and Gate Software Store
(http://sfgate.software.net) and others. These co-branded stores are intended to
further the software.net brand and access additional Internet traffic.
Information contained on these aforementioned Web sites is not a part of this
Prospectus.
Direct Marketing
The Company believes that the demographics of Internet users overlap
one-to-one with the demographics of potential Software purchasers and that the
Internet provides additional opportunities for direct marketing to the Company's
customers through a variety of mechanisms. The Company is exploring such direct
marketing opportunities as store customization to present each customer with a
customized merchandise assortment based on historic purchasing patterns and
equipment type. The Company is also investigating opportunities to use direct
marketing techniques to target new and existing customers with customized offers
such as an email newsletter that includes purchase recommendations based on
demonstrated customer preferences or prior purchases.
Online Advertising
In addition to its primary strategic alliances, the Company utilizes
numerous online sales and marketing techniques to increase brand recognition and
drive traffic to the Company's online stores, including purchasing banner
advertising on search engine Web sites and Internet directories and direct links
from publisher home pages. Such banner advertisements can be permanently
displayed for designated periods of time or displayed when a user searches for
information relating to certain keywords (such as "software") and programs, as
well as the names of publishers. Direct links from certain publishers' home
pages enable customers electing to purchase Software directly from the publisher
to be automatically linked to the software.net order form.
Associates Program.
The Company recently established an Associates Program for the purpose of
extending the Company's market presence. This program enables "Associate" Web
sites to offer Software to their audiences for fulfillment by software.net. The
Associate embeds a hyperlink to software.net's
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site, together with Software recommended for that Associate's targeted customer
base. The Associate's customers are automatically connected to the software.net
store and may place their orders. The Associate is able to offer enhanced
services and recommendations, avoiding the expenses associated with ordering and
fulfillment and receives a commission for certain orders.
Traditional Advertising
To date, the Company has engaged in limited advertising utilizing
traditional media. However, the Company believes there is an opportunity to
promote its online stores through a proactive advertising program which will
target customers through national media outlets such as magazines, newspapers,
and radio and television broadcasts.
Customer Service and Support
The Company believes its ability to establish and maintain long-term
relationships with its customers and encourage repeat visits and purchases
depends, in part, on the strength of its customer support and service. Customer
support and service personnel are responsible for handling general customer
inquiries, answering customer questions about the ordering process and
investigating the status of orders, shipments and payments. The Company has
automated certain of the tools used by its customer support and service staff
including tracking screens that enable its support staff to track a transaction
by any of a variety of information sources. At any point in the purchasing
process, customers can access the Company's support staff by fax or email by
following prompts located throughout the software.net store, or by calling the
Company's toll-free telephone line. Customers who are reluctant to enter their
credit card numbers through the Web site are also invited to utilize the
toll-free line for purchases. The Company currently employs a staff of full-time
customer support and service personnel and also outsources its first level of
customer support and services through a leading provider of customer support
services.
A substantial portion of the Company's Software sales is made to the U.S.
government and corporate purchasers and the Company maintains specialized
support staffs for these departments. In addition to providing standard support
services, the Company's government and corporate support staffs target
particular government and corporate customers for specific new product releases
and version enhancements. The Company intends to continue to expand its sales
and marketing efforts with respect to both government and corporate purchasers.
See "Risk Factors -- Customer Concentration; Risks Associated with Reliance on
United States Government Contracts."
TECHNOLOGY
The Company uses complex proprietary and commercially licensed technology
to make both the customer experience and the management reporting process as
seamless and simple as possible. To that end, the Company has developed
technologies and systems to support scaleable, flexible and seamless online
reselling in a secure and easy to use manner. By using a combination of
proprietary solutions and commercially available licensed technologies, the
Company has deployed systems for online content dissemination, online
transaction processing, customer service, market analysis and electronic data
interchange. The Company has integrated these proprietary and commercially
available systems into a unified Software sales and reporting system. Research
and development expenses were $388,000, $431,000, $1.1 million and $602,000 in
1995, 1996, 1997 and the first quarter of 1998, respectively.
Scaleability and Flexibility. The architecture of the Company's hardware
and software is built upon a distributed transaction-processing model which
allows the processing load to be distributed among multiple parallel servers.
This architecture allows the Company to scale by either adding new servers or
increasing the capacity of existing servers. The Company's hardware and software
configuration is designed to scale to support growth while maintaining user
performance
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and minimizing the cost per transaction. In the rapidly changing Internet
environment, the ability to update this system in order to stay current with new
technologies is important. The system's template technology and modular database
design allow the addition or replacement of software components, page layout
templates and search and retrieval engines with minimal effort and disruption.
This architecture also enables low-cost, rapid deployment of additional,
co-branded Web sites that integrate with the software.net store.
Seamlessness. The Company's multiple hardware and software systems
integrate seamlessly to manage real time transactions with limited human
intervention. Orders for downloadable Software are automatically processed to
completion. Orders for products that must be shipped are automatically routed
electronically to one of the Company's distributors. The transaction is
completed and the customer's credit card charged after shipment of the product
has been confirmed. Orders requiring human intervention are automatically routed
for processing by customer service representatives.
Components of Company Technology
The Company uses commercially available software as well as its own
internally developed proprietary software. The Company has a policy of limiting
the number of hardware and software vendors whose products are used in
production systems in order to facilitate integration, maintenance, performance
and upgrades.
Store Engine Architecture. The Company's hardware and software systems are
based upon a distributed transaction-processing model that allows applications
and data to be distributed among multiple parallel servers. Many of the software
components, and the pages of the Company's Web site, are developed in a manner
that enables the separation of the page look and feel from the individual data
elements and their associated database lookups. This separation permits frequent
changes to product pricing information, reduces Software updates for Web site
changes, and minimizes the engineering required to maintain a growing amount of
items and content. The Company utilizes proprietary technology that also enables
Web sites with different formats to integrate the software.net store elements
such as search, vendor and product pages. This technology allows the Company to
maintain several Web storefronts over a single order processing and customer
service system.
Enterprise Download Manager. For the large enterprise environment, the
Company has developed technology to aid in the distribution of both large
Software products (in terms of number of bytes) as well as large numbers of
Software products. This technology comprises server software, which maintains a
cache of downloaded Software at key locations behind a customer's firewall and
an enhanced version of the Sm@rtCert technology licensed on a non-exclusive
basis from CyberSource which the Company offers as an integrated service
(collectively, the "Enterprise Download Manager"). By distributing caches of
Software (many of which would normally be considered too large to download) to
key locations within an enterprise, a large enterprise can ensure that the
current release of Software is available to staff with minimal management
intervention. By providing a dedicated server with Enterprise Download Manager
to manage and receive the download, typical problems of failed download and lost
connections can be overcome. By using a local cache, the Enterprise Download
Manager satisfies the majority of requests for Software updates internally with
a resultant significant reduction in network traffic. This technology is used to
deliver products electronically together with marketing and promotional
information. Enterprise Download Manager tracks the transmission of Software via
ESD. If the transmission is interrupted for any reason, Enterprise Download
Manager re-initiates the transmission and completes the interrupted download
without the need to restart the entire download. See "Business -- Relationship
with CyberSource Corporation" and "Certain Transactions."
Back Office Processing. The real time nature of fulfilling downloaded
Software orders adds significant complexity to the design of the Company's back
office system. Typical transaction
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processing systems assume that a physical process must take place to deliver the
product. The time required for physical delivery obviates the need to process
orders in real time (as well as the customer's expectation of real time
processing). In a Web-based sale of Software to be delivered by ESD, the
customer expects to be able to start downloading within seconds of confirming
the transaction. This need for almost instant initiation of delivery impacts the
design and operation of the Company's entire back office system. Every element
of a sale must be fully automated, as the time needed for human intervention is
not available.
The Company believes that its sophisticated back office transaction
processing system, which successfully processes, manages and fulfills Software
orders for ESD with limited human intervention in real time, is a significant
competitive advantage. The system incorporates commercially available database
components purchased from leading vendors, proprietary software products
developed by the Company, and Internet commerce services supplied by
CyberSource. This system accepts orders captured by the store engine and
processes them according to pre-coded rules. Each order is validated, screened
for possible fraud and its payment method authorized. Once an order is approved,
it is fulfilled either by electronically messaging the Company's distributor for
physical delivery or by allowing the customer to download the product via ESD.
The entire history of any order or customer is accessible to customer service
representatives online via a Web-based interface. All actions needed to manage
an order may be performed from within this interface. All actions of customer
service representatives are logged with the identity of the representative, the
action and a time stamp. See "Business -- Relationship with CyberSource
Corporation."
Data Warehouse. The Company utilizes a database management system to
index, retrieve and manipulate product information, content, product catalogs,
orders and transactions, and customer information. This system allows for rapid
searching, sorting, viewing and distribution of a large volume of content. The
Company deploys a data warehouse that enables it to access detailed transaction
and customer interaction data and perform proprietary market analysis. The data
warehouse provides a unified platform for the store engine and back office
systems. This data warehouse system incorporates commercially available hardware
and software combined with proprietary software of the Company in a
configuration developed by the Company. Any reduction in performance, disruption
in the Internet access or discontinuation of services provided by CyberSource
could have a material adverse effect on the Company's business, operating
results and financial condition. There can be no assurance that the Company's
transaction-processing systems and network infrastructure will be able to
accommodate increases in traffic in the future, or that the Company will, in
general, be able to accurately project the rate or timing of such increases or
upgrade its systems and infrastructure to accommodate future traffic levels on
its online sites. In addition, there can be no assurance that the Company will
be able to either effectively upgrade and expand its transaction-processing
systems or to successfully integrate any newly developed or purchased modules
with its existing systems in a timely manner. There can be no assurance that the
Company will successfully utilize new technologies or adapt its online sites,
proprietary technology and transaction-processing systems to customer
requirements or emerging industry standards.
Substantially all of the Company's hardware associated with its development
and management system are located at a single facility leased by the Company in
San Jose, California. The Company contracts with a third party for facilities to
host the Company's production, computer and communications hardware systems and
for mission critical Internet connections, and these systems are located at a
single location in Santa Clara, California. The Company's systems and operations
are vulnerable to damage or interruption from fire, flood, power loss,
telecommunications failure, break-ins, earthquake and similar events. The
Company currently does not have a formal disaster recovery plan and does not
carry sufficient business interruption insurance to compensate it for losses
that may occur. The occurrence of any of the foregoing could have a
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material adverse effect on the Company's business financial conditions and
results of operations. See "Risk Factors -- Risks of System Failure, Single
Site."
SECURITY
Customer Reassurance. A critical issue for the success of online retailing
is maintaining the integrity of information, particularly the security of
information such as credit card numbers. The Company believes that its existing
security systems are at least as secure as those used for traditional
transactions (i.e., in-store or mail order purchases) and that it has a
comprehensive security strategy. The Company's system automatically monitors
each purchase and confirms each order by email to the customer within minutes
after the order is placed and advises customers by email shortly after physical
orders are shipped.
Fault Tolerance and Scaleable Internet Access. The Company's systems are
designed for automatic transfer to "hot" spare systems in the event of failure
and are equipped with fully automated reporting tools. These tools provide
automated trouble notification and detailed event logging. The Company maintains
a minimum of two of each critical production system. In the case of distributed
systems such as Web servers, as many as nine systems may be active. A load
distribution system monitors traffic to each server. Should a system fail to
respond to a request, the automated distribution system will redistribute
traffic among the remaining machines with no loss of user functionality. Both
the Company's firewall and the load distribution system are backed by standby
systems that monitor the health of the live machine, and automatically take over
in the event of a failure. After correcting the problem these automated systems
then notify technical staff by pager so the failed system may be replaced or
repaired.
The Company contracts with a Web site provider that specializes in
providing scaleable business solutions to high volume Internet sites for mission
critical Internet connectivity. The Company has contracted with the provider to
deliver a secure platform for server hosting with uninterruptible power supply
and back-up generators, fire suppression, raised floors, HVAC, separate cooling
zones, seismically braced racks, 24x7 operations and high levels of physical
security. The Company's systems are connected to a high speed Internet
connection with multiple, redundant interconnects to key backbone locations.
Notwithstanding these precautions, there can be no assurance that either
the security mechanisms of the Company's Internet provider, the Company or the
Company's other suppliers will prevent security breaches or service breakdowns.
Despite the implementation of network security measures by the Company, its
servers may be vulnerable to computer viruses, physical or electronic break-ins
and similar disruptions, which could lead to interruptions, delays, loss of data
or the inability to accept and fulfill customer orders and have a material
adverse effect on the Company's finances, financial condition and results of
operations.
RELATIONSHIP WITH CYBERSOURCE CORPORATION
In December 1997, in order to focus on its core business of selling
Software over the Internet, the Company spun-off its Internet commerce services
business (the "Spin-off") to a new Delaware Corporation which now operates under
the name CyberSource Corporation ("CyberSource").
In connection with the Spin-off, the Company and CyberSource have entered
into certain agreements for the purpose of defining the ongoing relationship
between the two companies. Five out of six of the Company's directors are also
directors of CyberSource and certain other members of the Company's management
team joined CyberSource as executive officers. Accordingly, these agreements may
not be deemed the result of arm's length negotiations.
Pursuant to the terms of a Conveyance Agreement between the Company and
CyberSource dated December 31, 1997, the Company transferred to CyberSource the
technology (including
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rights to patent applications, trademarks and other intellectual property rights
of the Company relating thereto), contracts and licenses with third parties and
certain tangible assets relating to or utilized by the Company in connection
with credit card processing, fraud screening, export control, territory
management and electronic fulfillment notification. In addition, the Company's
employees who were engaged in the Company's internet commerce services business
were transferred to CyberSource after the Spin-off.
In addition, pursuant to the terms of an Inter-Company Cross License
Agreement entered into in April 1998, and amended in May 1998, between the
Company and CyberSource (the "Cross License Agreement"), the Company granted to
CyberSource a non-exclusive, worldwide, perpetual, irrevocable royalty-free
license to internally use the Company's Cache Manager technology and to use and
sublicense the Company's customer database for certain limited purposes in
connection with fraud verification and detection. Under the Cross License
Agreement, CyberSource granted the Company a worldwide, perpetual, irrevocable
royalty-free license to internally use CyberSource's Sm@rtCert technology with
the right to modify such technology for purposes of embedding such technology
into the Company's Cache Manager (either alone or in combination with other
software) for subsequent sublicense, for use by enterprises and government
agencies. The Cross License Agreement further provides that the parties shall
have joint ownership of certain utility tools and allocates between the Company
and CyberSource ownership of certain inventions made by each party on or before
June 30, 1998 and the ownership of certain improvements, enhancements and
modifications by the parties to the Sm@rtCert and Cache Manager technologies
made through 1999. Each party has agreed to indemnify the other against any
third party claims regarding the use of the licensed technology by such licensee
that results in a claim against the licensor, except to the extent that such
claim is based upon a claim that the licensed technology infringes upon any
third party's intellectual property rights. CyberSource and the Company also
entered into an Internet Commerce Services Agreement (the "Services Agreement"),
pursuant to which CyberSource has agreed to provide certain services including
credit card processing, fraud screening, export control, territory management
and electronic fulfillment, in a "back office" capacity. This Agreement expires
on December 31, 1998 and automatically renews for an additional one year term,
unless otherwise terminated by either party. Pursuant to the terms of the
Services Agreement, the Company has agreed to indemnify CyberSource for an
amount not to exceed $100,000 against any claim based upon an allegation that
the Software distributed by the Company infringes upon any third party's
intellectual property rights. CyberSource has agreed to indemnify the Company
for an amount not to exceed $100,000 against any claim based upon an allegation
that the services, or the use of any software provided by CyberSource in
connection with the services, provided by CyberSource to the Company infringes
any third party's intellectual property rights.
Any discontinuation of the services provided to the Company by CyberSource
under the Services Agreement, or termination of the Cross License Agreement, or
any reduction in performance that requires the Company to replace such services
or internally develop or license such technology from a third party, would be
disruptive to the Company's business, financial condition and results of
operations. CyberSource provides the services it provides to the Company under
the Services Agreement to other customers, including competitors of the Company.
In addition, certain former members of the Company's management hold executive
management positions with CyberSource, including William S. McKiernan, the
Chairman of the Company's Board of Directors, who serves as President and Chief
Executive Officer of CyberSource. Currently, five of the Company's six members
of the Company's Board of Directors serve on the CyberSource Board of Directors.
Nothing in the Company's agreements with CyberSource prohibits CyberSource from
competing directly with the Company or acquiring or being acquired by a third
party which competes with the Company, any of which could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Risk Factors -- Management of Potential Growth; New Management
Team; Limited Senior Management Resources," "-- Risks
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Associated with Dependence on CyberSource Corporation; Relationship with
CyberSource Corporation" and "Certain Transactions."
On March 18, 1998, the Company borrowed $400,000 from CyberSource to assist
with short term liquidity needs. This loan is memorialized in a promissory note
issued by the Company to CyberSource, which provides for repayment in a lump sum
on or before September 18, 1998 and bears interest at a rate of 5.32% per annum
compounded semi-annually. The terms of this loan arrangement were not the result
of arm's length negotiation between the Company and CyberSource.
COMPETITION
The online commerce market is new, rapidly evolving and intensely
competitive, and the Company expects competition to intensify in the future.
Barriers to entry are minimal, and current and new competitors can launch new
Web sites at a relatively low cost. In addition, the Software reselling industry
is intensely competitive. The Company currently competes primarily with
traditional Software resellers, other online Software resellers and other
vendors. In the online market, the Company competes with online Software sellers
and vendors that maintain commercial Web sites, including CompUSA, CNET,
Cyberian Outpost and Egghead.com, and a growing number of Software publishers
that sell their Software products directly online. The Company also anticipates
that it may in the near future compete with other Software publishers, including
Microsoft, that plan to sell their products directly to customers online and
with indirect competitors that specialize in online commerce or derive a
substantial portion of their revenues from online commerce, including AOL,
Netscape, Amazon.com and Yahoo!. These entities may themselves offer, or others
may offer through such entities, Software products. In addition, entities
experienced in mail-order and/or direct marketing of computer products
(including cataloguers such as Micro Warehouse and manufacturers such as Dell
Computer and Gateway), major Software product distributors such as Ingram Micro,
or Tech Data and other major retailers of products, such as OfficeMax, Staples
and Office Depot, have established, or may establish in the near future,
commercial Web sites offering Software products. Competitive pressures created
by any one of these current or future competitors, or by the Company's
competitors collectively, could have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company believes that the principal competitive factors in its market
are brand recognition, selection, convenience, price, speed and accessibility,
customer service, quality of site content, and reliability and speed of
fulfillment. In addition to the foregoing, the large enterprise market focuses
on compatibility of products, administration and reporting, single source
supply, security and cost-effective deployment. Many of the Company's current
and potential competitors have longer operating histories, larger customer
bases, greater brand recognition and significantly greater financial, marketing
and other resources than the Company. In addition, larger, well-established and
well-financed entities may acquire, invest in or form joint ventures with online
competitors as the use of the Internet and other online services increases.
Certain of the Company's actual or potential competitors, such as Ingram Micro
and Tech Data, may be able to secure merchandise from vendors on more favorable
terms, devote greater resources to marketing and promotional campaigns, adopt
more aggressive pricing or inventory availability policies and devote
substantially more resources to Web site and systems development than the
Company. Certain of the Company's competitors such as Software Spectrum, GTSI
and Corporate Software & Technology have greater experience in selling Software
to the large enterprise market. In addition, new technologies and expansion of
existing technologies, such as price comparison programs that select specific
titles from a variety of Web sites, may direct customers to online Software
resellers that compete with the Company and may increase competitive pressures
on the Company. Increased competition may result in reduced operating margins,
as well as a loss of both market share and brand recognition. Further, as a
strategic response to changes in the competitive environment, the Company may
from time to time make certain pricing, service or marketing
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decisions or acquisitions that could have a material adverse effect on its
business, financial condition and results of operations. In addition, companies
that control access to Internet transactions through network access or Web
browsers could promote the Company's competitors or charge the Company a
substantial fee for inclusion in their product or service offerings. There can
be no assurance that the Company will be able to compete successfully against
current and future competitors, and any inability to do so could have a material
adverse effect on the Company's business, operating results and financial
condition. See "Risk Factors -- Competition."
LEGAL PROCEEDINGS
From time to time, the Company may be involved in litigation relating to
claims arising out of its ordinary course of business. The Company presently is
not subject to any material legal proceedings.
INTELLECTUAL PROPERTY
The Company regards its copyrights, service marks, trademarks, trade dress,
trade secrets and similar intellectual property as critical to its success, and
relies on trademark and copyright law, trade secret protection and
confidentiality and/or license agreements with its employees, customers,
partners and others to protect its proprietary rights. The Company pursues the
registration of its trademarks and service marks in the U.S., and has applied
for the registration of certain of its trademarks and service marks. The Company
applied for Federal registration of the service mark "SOFTWARE.NET" on August
24, 1994, and there can be no assurances that a Federal registration of the
service mark will issue in respect of SOFTWARE.NET. Effective trademark, service
mark, copyright and trade secret protection may not be available in every
country in which the Company's products and services are made available online.
The Company has licensed in the past, and expects that it may license in the
future, certain of its proprietary rights, such as trademarks or copyrighted
material, to third parties. While the Company attempts to ensure that the
quality of its brand is maintained by such licensees, there can be no assurance
that such licensees will not take actions that might materially adversely affect
the value of the Company's proprietary rights or reputation, which could have a
material adverse effect on the Company's business, financial condition and
results of operations. There can be no assurance that the steps taken by the
Company to protect its proprietary rights will be adequate or that third parties
will not infringe or misappropriate the Company's trade secrets, copyrights,
trademarks, trade dress and similar proprietary rights. In addition, there can
be no assurance that others will not independently develop substantially
equivalent intellectual property. A failure by the Company to protect its
intellectual property in a meaningful manner could have a material adverse
effect on the Company's business, financial condition and results of operations.
In addition, litigation may be necessary in the future to enforce the Company's
intellectual property rights, to protect the Company's trade secrets or to
determine the validity and scope of the proprietary rights of others. Such
litigation could result in substantial costs and diversion of management and
technical resources, either of which could have a material adverse effect on the
Company's business, financial condition and results of operations.
In addition, there can be no assurance that other parties will not assert
infringement claims against the Company. From time to time, the Company has
received, and may receive in the future, notice of claims of infringement of
other parties' proprietary rights. There can be no assurance that such claims
will not be asserted or prosecuted against the Company in the future or that any
past or future assertions or prosecutions will not materially adversely affect
the Company's business, financial condition and results of operations. Any such
claims, with or without merit, could be time-consuming, result in costly
litigation and diversion of technical and management personnel, cause product
shipment delays or require the Company to develop non-infringing technology or
enter into royalty or licensing agreements. Such royalty or licensing
agreements, if required, may not be available on terms acceptable to the
Company, or at all. In the event of a successful claim of product infringement
against the Company and the failure or inability of the Company to develop
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non-infringing technology or license the infringed or similar technology on a
timely basis, the Company's business, financial condition and results of
operations could be materially adversely affected. See "Risk
Factors -- Uncertain Protection of Intellectual Property."
EMPLOYEES
As of May 15, 1998, the Company employed 78 employees. The Company also
employs independent contractors and other temporary employees. None of the
Company's employees is represented by a labor union, and the Company considers
its employee relations to be good. Competition for qualified personnel in the
Company's industry is intense, particularly among software development and other
technical staff. The Company believes that its future success will depend in
part on its continued ability to attract, hire and retain qualified personnel.
See "Risk Factors -- Management of Potential Growth; New Management Team;
Limited Senior Management Resources" and "-- Dependence on Key Personnel; Need
for Additional Personnel."
FACILITIES
At present, the Company's principal administrative, engineering, marketing
and customer service facilities total approximately 9,000 square feet and are
located in San Jose, California under a lease that expires in September 2002. As
soon as is practicable, the Company intends to sublet this current facility to a
third party for the remainder of the term of such lease. There can be no
assurance that the Company will be able to sublet this facility on commercially
acceptable terms or at all. The Company intends to enter into a sublease in May
1998 for approximately 75,197 square feet of office space located in Sunnyvale,
California (the "Sublease"). The Company intends that this location will serve
as the Company's principal administrative, engineering, marketing and customer
service facility. Although the terms of the Sublease have not been finalized,
the Company anticipates that the Sublease term will commence as of July 1, 1998,
and will end sixty-two (62) months thereafter, unless sooner terminated. The
Company further anticipates that under the terms of the Sublease the Company
will be obligated to make payments totaling approximately $1,010,000 prior to
occupancy and commencement of the Sublease term and monthly payments of
approximately $153,000 over the term of the Sublease. The Company anticipates
that it will not have an option to renew or extend the term of this Sublease.
There can be no assurance that the final terms of the Sublease will not require
the Company to make greater rental payments or subject the Company to less
favorable payment terms.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information regarding the executive
officers and directors of the Company as of May 15, 1998.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH COMPANY
---- --- ---------------------
<S> <C> <C>
William S. McKiernan..................... 41 Chairman of the Board of Directors
Mark L. Breier........................... 38 President, Chief Executive Officer and
Director
John P. Pettitt.......................... 35 Executive Vice President and Chief
Technology Officer
James R. Lussier......................... 41 Vice President, Business Operations
Michael J. Praisner...................... 51 Vice President, Finance & Administration
and Chief Financial Officer
Alan C. DeClerck......................... 43 Vice President, Sales
Brian J. Sroub........................... 39 Vice President, Marketing
Bert Kolde(1)(2)......................... 44 Director
Linda Fayne Levinson(1)(2)............... 56 Director
Steven P. Novak(1)(2).................... 50 Director
Richard Scudellari(1)(2)................. 41 Secretary and Director
</TABLE>
- ---------------
(1) Member of Audit Committee
(2) Member of Compensation Committee
WILLIAM S. MCKIERNAN is a co-founder of the Company and has served as
Chairman of the Board of Directors of the Company since March 1998. Since the
Company's inception in 1994 to March 1998, Mr. McKiernan served as President and
Chief Executive Officer of the Company. Mr. McKiernan also currently serves as a
director and Chief Executive Officer of CyberSource Corporation. From 1992 to
1994, Mr. McKiernan held a number of positions at McAfee Associates, Inc. (now
known as Network Associates), including President and Chief Operating Officer,
the positions he held during its initial public offering in October 1992. Prior
to joining McAfee Associates in 1992, Mr. McKiernan was Vice President of
Princeton Venture Research, Inc., an investment banking and venture consulting
firm from 1990 to 1992. Mr. McKiernan has also held management positions with
IBM/ROLM and Price Waterhouse. Mr. McKiernan received his M.B.A. from the
Harvard University Graduate School of Business.
MARK L. BREIER joined the Company in March 1998, as a director, President
and Chief Executive Officer. From January 1997 until he joined the Company, Mr.
Breier served as Vice President of Marketing of Amazon.com, Inc. From April 1995
to January 1997, Mr. Breier served as Vice President of Marketing of Cinnabon
World Famous Cinnamon Rolls. Mr. Breier was involved in product management and
introduction at Dreyer's Grand Ice Cream from 1990 to April 1995, at Kraft
Foods, Inc., a multinational consumer products company, from April 1986 to
October 1988, and at Parker Brothers, a worldwide manufacturer of toys and
games, from August 1985 to March 1986. Mr. Breier received his B.A. in Economics
from Stanford University and his M.B.A. from the Stanford University Graduate
School of Business.
JOHN P. PETTITT is a co-founder of the Company and has served as Executive
Vice President and Chief Technology Officer since its inception in 1994. From
1992 to 1994, Mr. Pettitt consulted on a number of Internet and Intranet
projects including a national medical imaging network. From 1986 to 1992, Mr.
Pettitt served as Group Vice President and Technical Director of Specialix PLC,
a leading supplier of communications controllers for UNIX systems. While at
Specialix, Mr. Pettitt
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received the 1992 British Design Award for designing a new distributed, fault
tolerant data switch. Mr. Pettitt also co-founded the United Kingdom Internet
Consortium.
MICHAEL J. PRAISNER joined the Company as Vice President of Finance and
Administration and Chief Financial Officer in April 1998. From 1995 to February
1998, Mr. Praisner served as Vice President, Finance and Administration, Chief
Financial Officer and Secretary of Silicon Storage Technology, Inc., a supplier
of flash memory devices. From 1994 to 1995, he served as Vice President, Finance
and Chief Financial Officer of MicroModule Systems, Inc., a manufacturer of
multichip modules for computer and telecommunications applications. From 1992 to
1993, he served as Vice President, Finance and Chief Financial Officer of
Electronics for Imaging, Inc., a manufacturer of color desktop publishing
computer systems. During part of 1991, he served as Vice President, Finance and
Chief Financial Officer of Digital Link Corp., a computer communications
equipment company. From 1989 to 1991, he served as Corporate Controller of
Applied Materials Inc., a manufacturer of semiconductor wafer fabrication
equipment. Mr. Praisner received his B.A. in Liberal Arts and his M.B.A. from
Southern Methodist University and is a Certified Public Accountant.
JAMES R. LUSSIER joined the Company in April 1998 as Vice President,
Business Operations. From September 1992 to April 1998, Mr. Lussier served as an
Associate Partner of Andersen Consulting where Mr. Lussier was responsible for
the Electronics and High Technology Strategy Practice Group and was a member of
the Commerce Core Team. Mr. Lussier received a B.S. in Finance from the Wharton
School, University of Pennsylvania, an M.A. in Sociology, with an emphasis in
Statistics, from the University of California at Berkeley and an M.B.A. from the
Stanford University Graduate School of Business.
ALAN C. DECLERCK joined the Company in April 1998 as Vice President, Sales.
From August 1995 until he joined the Company, Mr. DeClerck served as
International Director, ISVs & Integrators, for Sun Microsystems Computer
Corporation. From January 1989 until August 1995, Mr. DeClerck served other
roles at Sun Microsystems, including Director, Corporate Business Development,
Director of Marketing and Business Development at FirstPerson, a Sun
Microsystems subsidiary that developed the initial Java technology, and various
sales and sales management roles. Mr. DeClerck was involved in marketing and
sales roles from 1980 until 1989 at Network Equipment Technologies, Industrial
Networking, Inc. and General Motors Corporation. Mr. DeClerck received his A.B.
in International Relations from Brown University, his M. Phil. in International
Relations from Oxford University and his M.B.A. from Stanford University
Graduate School of Business.
BRIAN J. SROUB joined the Company in April 1998 as Vice President,
Marketing. From June 1995 to April 1998, Mr. Sroub served as the Vice President,
Marketing of Hearst New Media & Technology, a worldwide media company. From
November 1993 to May 1995, Mr. Sroub served as the Vice President, Sales &
Marketing of Sony Electronics. Prior to October 1993, Mr. Sroub co-founded Home
Environmental Products, a start-up horticultural corporation, and was a Brand
Manager at Procter & Gamble Company. Mr. Sroub received a B.A. in Economics &
Communications from Boston College, an M.A. in Economics from Boston College and
an M.B.A. from the Stanford University Graduate School of Business.
BERT KOLDE, a director of the Company since July 1996, serves as a
director, Vice President, Treasurer and Secretary of Vulcan Ventures Inc., Vice
Chairman of the Portland Trail Blazers, Seattle Seahawks, Oregon Arena
Corporation and First and Goal Corporation, and as President of the Paul G.
Allen Virtual Education Foundation and the Paul G. Allen Forest Protection
Foundation. Mr. Kolde co-founded Asymetrix Learning Systems, Inc. in 1985, and
serves as Chairman of its Board of Directors. Mr. Kolde also serves as a
director of MetaCreations Corporation, Precision Systems, Inc. and CyberSource
Corporation. Mr. Kolde received his B.A. in Business Administration from
Washington State University and his M.B.A. from the University of Washington.
LINDA FAYNE LEVINSON, a director of the Company since September 1997, has
served as a principal of Global Retail Partners, L.P. since April 1997. From
1994 to 1997, she served as
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President of Fayne Levinson Associates, an independent general management
consulting firm that advised major corporations and start-up entrepreneurial
ventures. In 1993, Ms. Levinson was an executive with Creative Artists Agency,
Inc. From 1989 to 1992, Ms. Levinson was a partner of Wings Partners, Inc., a
merchant banking firm and was actively involved in taking Northwest Airlines
private. From 1984 to 1987, Ms. Levinson was a Senior Vice President of American
Express Travel Related Services, Inc. Prior to that, Ms. Levinson was a partner
at McKinsey & Co. Ms. Levinson presently serves as a Director of Administaff,
Inc., Genentech, Inc., Jacobs Engineering Group, Inc. and NCR Corporation as
well as several privately-held companies including CyberSource Corporation. Ms.
Levinson received her A.B. from Barnard College in Russian Studies, her M.A.
from Harvard in Russian Literature and her M.B.A. from New York University.
STEVEN P. NOVAK, a director of the Company since January 1995, is a
Managing Director and Director of Research of C.E. Unterberg, Towbin. From
February 1993 to January 1998, Mr. Novak served as Co-founder, President, and
Chief Investment Officer of C.E. Unterberg, Towbin Advisors, a registered
investment advisor. Mr. Novak also serves as a director of several privately
held companies including CyberSource Corporation. Mr. Novak's prior affiliations
include among others Forstmann-Leff Associates, Sanford C. Bernstein & Company,
Inc., and Harris Bankcorp. Mr. Novak received his B.S. from Purdue University
and his M.B.A. from the Harvard University Graduate School of Business.
RICHARD SCUDELLARI has served as a director and Secretary of the Company
since its inception in 1994. Mr. Scudellari has been a partner at Jackson Tufts
Cole & Black, LLP, since 1990. Mr. Scudellari serves as a director of several
privately held companies, including CyberSource Corporation. Mr. Scudellari
received his B.S. and J.D. from Boston College.
BOARD COMPOSITION
The Company currently has authorized six directors. Each director is
elected for a period of one year and serves until his or her successor is duly
elected and qualified. The Company's executive officers are appointed by, and
serve at the discretion of, the Board of Directors. Each of the Company's
officers and directors, excluding non-employee directors and Mr. McKiernan who
serves as Chief Executive Officer of CyberSource, devotes substantially full
time to the affairs of the Company. The Company's non-employee directors devote
such time to the affairs of the Company as is necessary to discharge their
duties. There are no family relationships among any of the directors, officers
or key employees of the Company. Five of the six members of the Company's Board
of Directors also serve as directors of CyberSource. See "Risk
Factors -- Management of Potential Growth; New Management Team; Limited Senior
Management Resources" and "Certain Transactions."
BOARD COMMITTEES
The Audit Committee reviews, acts on and reports to the Board of Directors
with respect to various auditing and accounting matters, including the selection
of the Company's independent accountants, the scope of the annual audits, fees
to be paid to the independent accountants, the performance of the Company's
independent accountants and the accounting practices of the Company.
The Compensation Committee recommends and establishes salaries, incentives
and other forms of compensation for officers and other employees of the Company
and administers the incentive compensation and benefit plans of the Company.
DIRECTOR COMPENSATION
Directors of the Company do not receive cash compensation for their
services as directors or members of committees of the Board of Directors, but
are reimbursed for their reasonable expenses incurred in attending meetings of
the Board of Directors. In April 1995, the Company
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granted to Messrs. Novak and Scudellari a nonqualified stock option to purchase
20,000 shares of Common Stock and 40,000 shares of Common Stock, respectively,
at an exercise price of $0.008 per share. In January 1996, the Company granted
each of Messrs. Novak and Scudellari a nonqualified stock option to purchase
20,000 shares at an exercise price of $0.033 per share. In January 1997, the
Company granted each of Messrs. Novak, Scudellari and Kolde an option to
purchase 10,000 shares of Common Stock at an exercise price of $0.1125 per
share. In January 1998, the Company granted Ms. Levinson and each of Messrs.
Novak, Scudellari and Kolde, an option to purchase 10,000 shares of Common Stock
at an exercise price of $0.50 per share. In March 1998, the Company granted Mr.
Breier an option to purchase 1,000,000 shares of Common Stock at an exercise
price of $2.60 per share. Until April 4, 1998, under the terms of the Company's
1995 Stock Option Plan, each non-employee director of the Company received
options to purchase 10,000 shares of Common Stock upon initial election or
appointment to the Board of Directors and thereafter options to purchase 10,000
shares of Common Stock annually on January 1 of each year; following April 4,
1998, the Company's 1998 Stock Option Plan provides for identical grants. See
"Certain Transactions" and "Management -- Stock Option Plans."
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Certificate of Incorporation limits the liability of
directors to the full extent permitted by Delaware law. Delaware law provides
that a corporation's certificate of incorporation may contain a provision
eliminating or limiting the personal liability of directors for monetary damages
for breach of their fiduciary duties as directors, except for liability (i) for
any breach of their duty of loyalty to the corporation or its stockholders, (ii)
for acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) for unlawful payments of dividends or
unlawful stock repurchases or redemptions as provided in Section 174 of the
Delaware General Corporation Law (the "DGCL"), or (iv) for any transaction from
which the director derived an improper personal benefit. The Company's Bylaws
provide that the Company may indemnify its directors and officers, employees and
agents to the fullest extent permitted by law. The Company believes that
indemnification under its Bylaws covers at least negligence and gross negligence
on the part of indemnified parties.
The Company has entered into agreements to indemnify its directors and
executive officers. These agreements, among other things, indemnify the
Company's directors and officers for certain expenses (including attorneys'
fees), judgments, fines and settlement amounts incurred by such persons in any
action or proceeding, including any action by or in the right of the Company,
arising out of such person's services as a director or officer of the Company,
any subsidiary of the Company or any other company or enterprise to which the
person provides services at the request of the Company. The Company believes
that these provisions and agreements are necessary to attract and retain
qualified directors and officers.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent of the Company where indemnification will
be required or permitted. The Company is not aware of any threatened litigation
or proceeding that might result in a claim for such indemnification.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the Compensation Committee (effective upon the
consummation of this offering) is an officer or employee of the Company with the
exception of Richard Scudellari who is the Secretary of the Company. Five of the
six members of the Company's Board of Directors also serve as members of the
Board of Directors of CyberSource. Vulcan Ventures Inc., a holder of Series B,
C, and D Preferred Stock, maintains a limited partner interest in Global Retail
Partners L.P., a holder of Series C and D Preferred Stock. Other than this
relationship and the CyberSource board memberships, no interlocking relationship
exists between the Company's
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<PAGE> 53
Board of Directors or Compensation Committee and the board of directors or
compensation committee of any other company, nor has such an interlocking
relationship existed in the past.
EXECUTIVE COMPENSATION
The following table sets forth certain estimated compensation awarded or
paid by the Company during the fiscal year ended December 31, 1997 ("Last Fiscal
Year") to its President and Chief Executive Officer and its Executive Vice
President and Chief Technology Officer (together, the "Named Executives") and
certain individuals hired subsequent to the conclusion of the last fiscal year.
In March 1998, Mr. McKiernan resigned from the position of President and Chief
Executive Officer of the Company and commenced service as the Chairman of the
Company's Board of Directors, in which capacity he presently earns a salary of
$100,000 per annum.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------------------- ------------
AWARDS
------------
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION(1) SALARY($) BONUS($) COMPENSATION($) OPTIONS(#) COMPENSATION($)
- ------------------------------ --------- -------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
William S. McKiernan......... 165,000 -- -- -- --
Chairman of the Board
John P. Pettitt.............. 130,000 100 -- -- --
Executive Vice President
and Chief Technology
Officer
</TABLE>
- ---------------
(1) Mark L. Breier, the President, Chief Executive Officer and a director of the
Company, was hired in March 1998. Mr. Breier's annualized salary for the
1998 fiscal year is $200,000. In addition, Mr. Breier will receive a bonus
of $50,000 and relocation allowance payments totalling approximately $70,000
during the 1998 fiscal year. Mr. Breier also received an option to acquire
1,000,000 shares of Common Stock, subject to vesting over four years, unless
earlier accelerated.
OPTION GRANTS
No Named Executive received stock option grants in the fiscal year ended
December 31, 1997.
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table sets forth information concerning the year-end number
and value of unexercised options with respect to each of the Named Executives.
No options and no stock appreciation rights were exercised by the Named
Executives in fiscal year 1997, and no stock appreciation rights were
outstanding at the end of that year.
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNDERLYING UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
DECEMBER 31, 1997 DECEMBER 31, 1997
---------------------- ------------------------
VESTED UNVESTED VESTED UNVESTED
-------- --------- -------- ------------
<S> <C> <C> <C> <C>
William S. McKiernan............ -0- -0- N/A N/A
John P. Pettitt................. 1,250,000 -0- $619,750(2) -0-
</TABLE>
- ---------------
(1) Mark L. Breier received an option to acquire 1,000,000 shares during 1998.
None of such options are vested.
(2) Based on fair market value of the Company's Common Stock at fiscal year-end
(December 31, 1997), as determined by the Company's Board of Directors less
exercise price payable for such shares.
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<PAGE> 54
STOCK OPTION PLANS
The Company's Board of Directors and stockholders adopted the 1995 Stock
Option Plan (the "1995 Plan") in January 1995, and have reserved an aggregate of
3,000,000 shares of Common Stock for grants of stock options under such plan. In
addition, in April 1998 the Company's Board of Directors and stockholders
adopted the 1998 Stock Option Plan (the "1998 Plan" and collectively, with the
1995 Plan, the "Plans") and reserved an aggregate of 2,000,000 shares of Common
Stock for grants of stock options under such plan. The purpose of each Plan is
to enhance the long-term stockholder value of the Company by offering
opportunities to employees, directors, officers, consultants, agents, advisors
and independent contractors of the Company to promote and participate in the
Company's growth and success, and to encourage them to remain in the service of
the Company and acquire and maintain stock ownership in the Company.
As of May 1, 1998, options to purchase 3,729,055 shares of Common Stock
were outstanding under the Plans with exercise prices ranging from $0.004 to
$7.00 per share. As of May 1, 1998, options to purchase 6,445 shares were
available for grant and options for 90,000 shares had been exercised under the
1995 Plan. As of May 1, under the 1998 Plan, options to purchase 1,174,500
shares were available for grant and no shares had been exercised. As of the date
of this Prospectus, options to purchase approximately 299,445 shares of Common
Stock were held by employees of CyberSource. See "Certain Transactions."
The Plans may be administered by the Company's Board of Directors or a
committee appointed by the Board (the "Administrator").
1998 Plan. The Administrator has the authority to select individuals who
are to receive options under the 1998 Plan and to specify the terms and
conditions of options granted (including whether or not such options are
incentive or nonstatutory stock options), the vesting provisions, the option
term and the exercise price. The 1998 Plan provides for the granting to
employees, including officers and employee directors of the Company, of
incentive stock options within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended, and for the granting to employees and
consultants (including nonemployee directors) of nonstatutory stock options. In
addition, as described below, the 1998 Plan provides for automatic annual grants
of nonstatutory stock options to nonemployee directors.
The exercise price of incentive stock options granted under the 1998 Plan
shall equal the fair market value of the Company's Common Stock on the date of
grant (except in the case of grants to any person holding more than 10% of the
total combined voting power of all classes of the Company's, or any parent's or
subsidiary's, outstanding capital stock (a "Ten Percent Holder"), in which case
the exercise price shall equal 110% of the fair market value on the date of
grant). The exercise price of nonstatutory stock options shall be not less than
85% of the fair market value on the date of grant. Payment for shares upon
exercise of an option may be made in cash or other consideration, including a
promissory note, as approved by the Administrator. No individual may be granted
options under the 1998 Plan in any one fiscal year which in the aggregate would
permit him or her to purchase more than 1,000,000 shares of Common Stock, except
that a newly-hired optionee may receive a one-time grant of an option to
purchase up to an additional 500,000 shares of Common Stock.
Generally, options granted under the 1998 Plan (other than those issued to
non-employee directors as described below) vest at a rate of 25% of the shares
underlying the option after one year and the remaining shares vest monthly in
equal portions over the following 36 months, such that all shares are vested
after four years. Unless otherwise provided by the Administrator, an option
granted under the 1998 Plan generally expires ten years from the date of grant
(five years in the case of an incentive stock option granted to a Ten Percent
Holder) or, if earlier, 30 days after the optionee's termination of employment
or service with the Company or an affiliate of the Company for any reason other
than termination for death or disability, one year after termination for death
or total and permanent disability and six months in the case of other types of
disability.
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<PAGE> 55
Options granted under the 1998 Plan are not generally transferable by the
optionee except by will or the laws of descent and distribution and generally
are exercisable during the lifetime of the optionee only by such optionee.
In the event of (i) the merger or consolidation as a result of which the
holders of voting securities of the Company prior to the transaction hold shares
representing less than 51% of the voting securities of the Company after giving
effect to the transaction (other than a merger or consolidation with a
wholly-owned subsidiary or where there is no substantial change in the
stockholders of the Company and the options granted under the 1998 Plan are
assumed by the successor corporation), or (ii) the sale of all or substantially
all of the Company's assets, options outstanding under the 1998 Plan will be
assumed or substituted by the successor corporation or the successor corporation
shall provide substantially similar consideration to optionees as is provided to
the stockholders. In the event the successor corporation refuses to assume or
substitute outstanding options as provided above, or in the event of a
dissolution or liquidation of the Company, outstanding options shall expire on a
date specified in a written notice sent by the Compensation Committee to all
optionees (which date shall be at least 20 days after the date of such notice).
The 1998 Plan also provides for automatic grants to non-employee directors.
Each non-employee director, upon initial election or appointment to the Board of
Directors, is entitled to receive options to purchase 10,000 shares of Common
Stock, provided that such election or appointment does not occur within the last
quarter of a given year. Thereafter, each non-employee director is entitled to
receive options to purchase 10,000 shares of Common Stock annually on January 1
of each year, provided he or she is a non-employee director on the date of grant
and has continuously been an active member of the Board of Directors for the
year prior to the grant date. Options granted to non-employee directors pursuant
to the automatic grant provisions of the 1998 Plan are nonqualified stock
options with an exercise price equal to the fair market value of the Company's
Common Stock as of the date of grant and fully vest nine months after the date
of grant. Grants to non-employee directors are subject to the general
requirements of the 1998 Plan.
1995 Plan. The terms of options which may be issued under the 1995 Plan are
generally the same as those which may be issued under the 1998 Plan, except that
the 1995 Plan imposes a maximum number of shares which may be subject to options
issued to any individual of 1,000,000 shares. In addition, under the 1995 Plan,
in the event of a merger or consolidation of the Company in which the Company is
not a surviving corporation or a sale of all or substantially all of the
Company's assets, options outstanding under the 1995 Plan will be assumed or
substituted by the successor corporation or, in the event the successor
corporation refuses to assume or substitute the options or in the event of
dissolution or liquidation of the Company, outstanding options shall expire on a
date specified in a written notice sent by the Compensation Committee to all
optionees (which date shall be at least 20 days after the date of such notice).
Like the 1998 Plan, the 1995 Plan also provided for automatic annual grants
of nonstatutory stock options to nonemployee directors. As of the time the 1998
Plan was adopted, such grants ceased and were replaced by the automatic grants
provided for in the 1998 Plan.
Stock options previously granted under the 1995 Plan to the executives and
directors are described above under "Executive Compensation." The number of
shares of Common Stock that may be subject to options granted in the future to
executive officers and other officers, key employees and directors of the
Company under the 1998 Plan is not determinable at this time.
401(K) RETIREMENT PLAN
Effective January 1997, the Company established a 401(k) defined
contribution retirement plan (the "Retirement Plan") covering all
salaried/full-time employees with greater than one months' service. The
Retirement Plan provides for voluntary employee contributions from 1% to 15% of
annual compensation, subject to a maximum limit allowed by Internal Revenue
Service guidelines ($10,000 for 1998). The Company may contribute such amounts
to the accounts of participants in the Retirement Plan as determined by the
Board of Directors. However, to date, the Company has not made any contribution
to the Retirement Plan.
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<PAGE> 56
CERTAIN TRANSACTIONS
STOCK AND WARRANT ISSUANCES
Since January 1, 1995, the Company has issued shares of Common Stock to
certain insiders and shares of Preferred Stock in private placement transactions
each as set forth below.
In January 1995 and February 1996, the Company issued shares of Series A
Preferred Stock (the "Series A Financing") in private placements to certain
investors. Of such shares of Series A Preferred Stock, 500,000 shares were
issued to C.E. Unterberg Towbin Capital Partners I, L.P. (formerly Unterberg
Harris Capital Partners I, L.P., "Unterberg Partners I") at a purchase price of
$0.40 per share and 253,131 shares were issued to Unterberg Partners I at a
purchase price of $0.91 per share ($0.33 and $0.76 per share, respectively, as
adjusted for the Spin-off). An aggregate of 753,131 shares of Series A Preferred
Stock held by Unterberg Partners I will convert into 1,506,262 shares of Common
Stock upon consummation of this offering. In connection with the Series A
Financing, the holders of Series A Preferred Stock were given the right to
designate one director of the Company (the "Series A Director"). Steven P.
Novak, the Series A Director, is a Managing Director of C.E. Unterberg, Towbin
("Unterberg"), an affiliate of the general partner of Unterberg Partners I. Mr.
Novak disclaims beneficial ownership of the shares of Series A Preferred Stock
issued to Unterberg Partners I, except for his proportional interest therein.
The holders of certain of such shares of Series A Preferred Stock are entitled
to certain registration rights with respect to the Common Stock issuable upon
conversion thereof. See "Description of Capital Stock -- Registration Rights."
In July 1996, the Company issued shares of Series B Preferred Stock (the
"Series B Financing") in a private placement to certain investors, including
925,926 shares to Vulcan Ventures Inc. ("Vulcan"), at a purchase price of $2.70
per share ($2.25 as adjusted for the Spin-off). In connection with the Series B
Financing, the holders of Series B Preferred Stock were given the right to
designate one director of the Company (the "Series B Director"). Bert E. Kolde,
the Series B Director, serves as a director, Vice President, Treasurer and
Secretary of Vulcan, as well as President of the Paul G. Allen Virtual Education
Foundation and the Paul G. Allen Forest Protection Foundation, and as a director
of several other companies controlled by Mr. Allen, who maintains a controlling
interest of Vulcan. Mr. Kolde disclaims beneficial ownership of the shares of
Series B Preferred Stock issued to Vulcan, except for his proportional interest
therein, if any. All of the outstanding shares of Series B Preferred Stock will
convert on a two-for-one basis into an aggregate of 4,074,076 shares of Common
Stock upon the consummation of this offering. The holders of certain of such
shares of Series B Preferred Stock are entitled to certain registration rights
with respect to the Common Stock issuable upon conversion thereof. See
"Description of Capital Stock -- Registration Rights."
In September and December 1997, the Company issued shares of Series C
Preferred Stock (the "Series C Financing") in private placements to certain
investors at a purchase price of $2.04 per share ($1.70 as adjusted for the
Spin-off), including issuances to the following entities in the number of shares
specified thereafter: (i) Global Retail Partners and its affiliates (1,470,588)
(each an affiliate of Donaldson, Lufkin & Jenrette Securities Corporation
("DLJ") and collectively "GRP"); (ii) UT Capital Partners International, LDC
(formerly UH Capital Partners International, LDC) (59,914); UT Technology
Partners, LDC (formerly UH Technology Partners, LDC) (185,184); Unterberg Harris
Private Equity Partners, LP (201,961); Unterberg Harris Private Equity Partners,
CV (43,137) (collectively, the "Unterberg Affiliates"); and (iii) Vulcan
(716,666). In connection with the Series C Financing, the holders of Series C
Preferred Stock were given the right to designate one director of the Company
(the "Series C Director"). Linda Fayne Levinson, the Series C Director, is a
principal of Global Retail Partners, L.P., an affiliate of DLJ. Messrs. Novak
and Kolde and Ms. Levinson disclaim beneficial ownership of the shares of Series
C Preferred Stock issued to the Unterberg Affiliates, Vulcan and GRP,
respectively, except for any proportional interest held therein, if any. All of
the outstanding shares of Series C Preferred Stock will convert into an
aggregate of 3,000,000 shares of Common Stock upon consummation of this
offering. The holders of certain of such shares of Series C Preferred Stock are
entitled to
55
<PAGE> 57
certain registration rights with respect to the Common Stock issuable upon
conversion thereof. See "Description of Capital Stock -- Registration Rights."
In March and April 1998, the Company issued shares of Series D Preferred
Stock (the "Series D Financing") in private placements to certain investors at a
purchase price of $2.60 per share, including issuances to the following entities
in the number of shares specified thereafter: GRP (458,106); certain of the
Unterberg Affiliates (229,052); and Vulcan (458,106), which shares in the
aggregate will convert into 1,145,264 shares of Common Stock upon the
consummation of this offering. Messrs. Novak and Kolde and Ms. Levinson, each a
director of the Company, disclaim beneficial ownership of the shares of Series D
Preferred Stock issued to the Unterberg Affiliates, Vulcan and GRP,
respectively, except for any proportional interest held therein, if any. All of
the outstanding shares of Series D Preferred Stock will convert into an
aggregate of 1,153,846 shares of Common Stock upon consummation of this
offering. The holders of certain of such shares of Series D Preferred Stock are
entitled to certain registration rights with respect to the Common Stock
issuable upon conversion thereof. See "Description of Capital
Stock -- Registration Rights."
In March and April of 1998, and concurrently with the sale of Series D
Preferred Stock, each of the holders of Series C Preferred and Series D
Preferred (collectively, the "Series C/D Holders") and the Company entered into
the Shareholders' Agreement (the "Shareholders' Agreement"), whereby the parties
agreed to the following: (A) the Series C/D Holders agreed to vote for the
person selected by GRP as the director designated by the holders of the Series C
and Series D Preferred Stock, and (B) the Company agreed to not permit the
transfer of any of the Series C or Series D Preferred Stock (or Common Stock
issuable upon conversion thereof) covered by the Shareholders' Agreement on its
books or issue a new certificate representing any such shares until the person
to whom such shares are to be transferred has executed a written agreement
substantially in the form of the Shareholders' Agreement and has agreed to be
bound by the terms thereof. This Shareholders' Agreement superseded the Series C
Shareholders' Agreement dated as of September 26, 1997, pursuant to which (A)
certain holders of Series C Preferred Stock agreed to vote for the person
selected by GRP as the director designated by the holders of the Series C
Preferred Stock, and (B) Vulcan agreed not to elect to redeem its shares of
Series B Preferred Stock until the holders of Series C Preferred Stock have the
right to seek redemption of their Series C Preferred Stock pursuant to the
Company's Certificate of Incorporation. The Shareholders' Agreement will
terminate upon the consummation of this offering.
In March 1998, the Company entered into an agreement with AOL pursuant to
which, subject to certain limited exceptions, AOL agreed to buy shares of the
Company's Common (the "AOL Shares") Stock at a price per share equal to the
initial public offering price (less the Underwriters' discount) for an aggregate
purchase price of $2,000,000 (the "Common Stock and Warrants Subscription
Agreement"). Based on an assumed initial public offering price of $8.00 per
share and assuming an underwriting discount of $0.56 per share, AOL will
purchase 268,817 shares of Common Stock immediately prior to the consummation of
this offering. Concurrent with the purchase of the shares of Common Stock by AOL
immediately prior to the consummation of this offering, the Company will issue
to AOL a Warrant for a number of shares of Common Stock equal to 1.5 times the
number of shares of Common Stock purchased by AOL in the aforementioned
investment at a per share exercise price equal to the initial public offering
price (less the underwriting discount) which will vest in increments of 1/36th
per month commencing March 1, 1998. Based on an assumed offering price of $8.00
per share, the AOL Warrant will enable AOL to purchase 403,225 shares of Common
Stock at an exercise price of $7.44 per share (assuming an underwriting discount
of $0.56 per share). AOL also received certain registration rights pursuant to a
registration rights agreement entered into concurrently with the Common Stock
and Warrants Subscription Agreement. See "Description of Capital
Stock -- Registration Rights."
In March 1998, the Company also issued a Warrant to AOL to purchase 369,578
shares of the Company's Series D Preferred Stock at a price of $2.60 per share
vesting in increments of 1/36th per month commencing March 1, 1998, provided
however, that this Warrant is not exercisable until after August 31, 1999,
except in the event of a change of control of the Company
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<PAGE> 58
(as defined therein). This Warrant will terminate in accordance with its terms
immediately prior to the consummation of this offering.
OPTION GRANTS AND AGREEMENTS WITH EXECUTIVE OFFICERS AND DIRECTORS
In March 1995, the Company granted options to purchase 1,000,000 shares of
Common Stock to John P. Pettitt, the Company's Executive Vice President and
Chief Technology Officer, in consideration of services provided to the Company
by Mr. Pettitt. Mr. Pettitt's options have an exercise price of $0.004, as
adjusted for the Spin-off), and are fully vested. Mr. Pettitt's option rights
expire upon the earlier to occur of the date Mr. Pettitt ceases to be employed
by the Company or December 31, 2000. Upon termination of Mr. Pettitt's
employment for any reason except death or disability, the options must be
exercised within 30 days of the termination date or such options will be
forfeited. In the event of termination due to death or disability, Mr. Pettitt's
options shall be forfeited unless exercised within six months of the termination
date. In the event of certain corporate reorganizations or other specific
corporate transactions affecting the Common Stock of the Company, proportional
adjustments may be made to the number of shares available for Mr. Pettitt's
grant and to the number of shares and price awards made prior to the event. Mr.
Pettitt's grants are intended as non-qualified stock options. In April 1995, the
Company granted options to purchase 250,000 shares of Common Stock to Mr.
Pettitt under the 1995 Stock Option Plan. These options have an exercise price
of $0.004 per share and are fully vested. As of the date of this Prospectus, Mr.
Pettitt had vested options to purchase 1,250,000 shares of Common Stock, 250,000
of which were issued under the 1995 Stock Option Plan and are subject to the
general requirements of such Plan.
In December 1997, Richard Scudellari, a director and Secretary of the
Company and a partner of Jackson Tufts Cole & Black, LLP, the Company's counsel,
exercised options granted under the 1995 Stock Option Plan to purchase 70,000
shares of the Company's Common Stock for an aggregate purchase price of $1,950.
In January 1998, Mr. Scudellari was granted an option to purchase 10,000 shares
of the Company's Common Stock at an exercise price of $0.50 per share.
Under the terms of an oral agreement between the Company and William S.
McKiernan, the Chairman of the Company's Board of Directors, the Company repaid,
in two installments in December 1997 and January 1998, an aggregate of $105,000
for unpaid salary that had been accrued by the Company on Mr. McKiernan's behalf
for services provided by Mr. McKiernan to the Company from the date of the
Company's inception through December 1997.
On March 30, 1998 the Company granted an option to purchase 1,000,000
shares of Common Stock to Mark L. Breier, its President and Chief Executive
Officer, under the 1995 Stock Option Plan. This option has an exercise price of
$2.60 per share and is governed generally by the terms of the 1995 Stock Option
Plan, with certain limited exceptions. In the event that: (i) the Company is
sold or is party to a merger with another company resulting in the Company's
stockholders immediately prior to such transaction owning less than 50% of the
successor company's voting capital stock immediately following such transaction;
or (ii) Mr. Breier resigns due to (A) a material reduction in title or
responsibilities, or (B) the Company requires Mr. Breier's ongoing and regular
duties to be performed at a location more than 60 miles from the Company's
current headquarters (each, an "Accelerating Event") occurring prior to
September 30, 1999, a number of shares equal to the number exercisable one year
after the Accelerating Event will be immediately exercisable. In the event of an
Accelerating Event occurring after September 30, 1999, a number of shares equal
to the sum of the number of shares exercisable and one-half of the shares not
exercisable as of the Accelerating Event will be immediately exercisable. In the
event that Mr. Breier is terminated prior to March 30, 1999 for any reason,
125,000 shares will be immediately exercisable.
In March, 1998, Steven P. Novak, a director of the Company and a Managing
Director of C.E. Unterberg, Towbin, exercised options under the Company's 1995
Stock Option Plan to purchase 20,000 shares of the Company's Common Stock for an
aggregate purchase price of $200. In
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<PAGE> 59
addition, Mr. Novak received an option to purchase 20,000 of the Company's
Common Stock at an exercise price of $0.0333 per share in January 1996; an
option to purchase 10,000 shares in January 1997 at an exercise price of $0.1125
per share; and an option to purchase 10,000 shares in January 1998 at an
exercise price of $0.50 per share.
In April 1998, the Company granted an option to purchase 200,000 shares of
Common Stock to Michael J. Praisner, its Vice President, Finance &
Administration and Chief Financial Officer under the 1998 Stock Option Plan.
These options have an exercise price of $4.36 per share and are governed
generally by the terms of the 1998 Stock Option Plan.
In April 1998 Alan C. DeClerck, the Company's Vice President, Sales, was
granted an option to purchase 180,000 shares of Common Stock under the 1998
Stock Option Plan. These option have an exercise price of $4.96 per share and
are governed generally by the terms of the 1998 Stock Option Plan.
In April 1998, the Company granted Brian J. Sroub, the Company's Vice
President, Marketing, an option to purchase 180,000 shares of Common Stock at an
exercise price of $5.44 per share.
In April 1998, the Company granted James R. Lussier, the Company's Vice
President, Business Operations, an option to purchase 180,000 shares of Common
Stock at an exercise price of $5.50 per share. The Company has agreed to provide
Mr. Lussier with six months advance notice of termination, if such termination
occurs on or before April 27, 1999.
For additional information regarding options granted to the Company's
directors, see "Management -- Director Compensation."
RELATIONSHIP WITH CYBERSOURCE CORPORATION
In December 1997, in order to focus on its core business of selling
Software over the Internet, the Company spun-off (the "Spin-off") its internet
commerce services business to a new Delaware corporation which operates under
the name CyberSource Corporation ("CyberSource"). In connection with the
Spin-off, capital stock of CyberSource was issued to the stockholders of the
Company such that, following consummation of the Spin-off and the transactions
contemplated thereby, each stockholder of the Company was the holder of shares
of capital stock of CyberSource in equal number and ownership proportion and
with the same rights as such stockholder had as a stockholder of the Company. On
the date of the Spin-off, employees of the Company maintained their outstanding
options to purchase Common Stock of the Company and were granted additional
stock options in CyberSource based on the extent to which the employees original
options were vested. Employees of CyberSource immediately following the Spin-off
maintained their outstanding vested stock options in the Company and were
granted additional stock options in CyberSource. The exercise prices of the
original and additional option grants were adjusted to reflect the allocation of
the current fair market per share price between the Company's and CyberSource's
Common Stock, respectively, at the time of the Spin-off. Options held by the
CyberSource employees that had not vested as of the date of the Spin-off were
canceled.
The Company and CyberSource have entered into certain agreements for the
purpose of defining the ongoing relationship between the two companies. Five out
of six of the Company's directors are also directors of CyberSource and certain
other members of the Company's management team joined CyberSource as executive
officers. Accordingly, these agreements are not the result of arm's length
negotiations between independent parties. The following discussion of the
agreements between the Company and CyberSource are qualified in their entirety
by reference to the agreements, which have been filed as exhibits hereto.
Pursuant to the terms of a Conveyance Agreement dated December 31, 1997,
the Company transferred to CyberSource the technology (including rights to all
patent applications, trademarks and other intellectual property rights of the
Company relating thereto), contracts and licenses with third parties and certain
tangible assets relating to or utilized by the Company in connection with credit
card processing, fraud screening, export control, territory management and
electronic fulfillment services. In
58
<PAGE> 60
addition, those of the Company's employees engaged in the Company's internet
commerce services business were transferred to CyberSource in connection with
the Spin-off.
In connection with such transfer, the Company and CyberSource entered into
an Inter-Company Cross-License Agreement (the "Cross License Agreement") in
April 1998, which was amended in May 1998, pursuant to which the Company granted
to CyberSource a non-exclusive, worldwide, perpetual, irrevocable, royalty-free
license to internally use the Company's Cache Manager technology and to use and
sublicense the Company's customer database for certain limited purposes in
connection with fraud detection and verification. Under the Cross License
Agreement, CyberSource granted the Company a worldwide, perpetual, irrevocable,
royalty-free license to internally use CyberSource's Sm@rtCert technology with
the right to modify such technology for purposes of embedding such technology
into the Company's Cache Manager technology (either alone or in combination with
other software) for subsequent sublicense, for use by enterprises and
governmental agencies, subject to certain limitations. The Cross License
Agreement further provides that the parties shall have joint ownership of
certain utility tools made by the parties and allocates between the Company and
CyberSource the ownership of improvements, enhancements and modifications made
by the parties to the Sm@rtCert and Cache Manager Technology during 1999. The
Cross License Agreement also allocates between the Company and CyberSource the
ownership of certain inventions made by each party on or before June 30, 1998.
Each party has agreed to indemnify the other against any third party claims
regarding the use of the licensed technology by such licensee that results in a
claim against the licensor, except to the extent that such claim is based upon a
claim that the licensed technology infringes upon any third party's intellectual
property rights.
CyberSource and the Company also entered into an Internet Commerce Services
Agreement, pursuant to which CyberSource has agreed to provide certain services
including credit card processing, fraud screening, export control, territory
management and electronic fulfillment, in a "back office" capacity. This
Agreement expires on December 31, 1998 and automatically renews for an
additional one year term, unless otherwise terminated by either party. Pursuant
to the terms of the Services Agreement, the Company has agreed to indemnify
CyberSource for an amount not to exceed $100,000 against any claim based upon an
allegation that the Software distributed by the Company infringes upon any third
party's intellectual property rights. CyberSource has agreed to indemnify the
Company for an amount not to exceed $100,000 against any claim based upon an
allegation that the services, or the use of any software provided by CyberSource
in connection with the services, provided by CyberSource to the Company
infringes any third party's intellectual property rights. See "Risk
Factors -- Risks Associated with Dependence on CyberSource Corporation;
Relationship with CyberSource Corporation" and "Business -- Relationship with
CyberSource Corporation."
In connection with the Spin-off, the Board of Directors of the Company and
the stockholders of the Company approved loans in amounts equal to the adverse
incremental income tax incurred by any stockholder as a result of the Spin-off
and the transactions contemplated thereby. In April 1998, the Company loaned
$270,000 to William S. McKiernan, the sole stockholder incurring such adverse
tax consequences, so as to offset Mr. McKiernan's incremental 1997 income tax.
The loan to Mr. McKiernan is secured by 129,808 shares of Common Stock held by
Mr. McKiernan and will be due and payable no later than 18 months from the
consummation of this offering.
On March 18, 1998, the Company borrowed $400,000 from CyberSource to assist
with short term liquidity needs. This loan is memorialized in a promissory note
issued by the Company to CyberSource, which provides for repayment in a lump sum
on or before September 18, 1998 and bears interest at a rate of 5.32% compounded
semi-annually. The terms of this loan arrangement are not the result of arm's
length negotiation between the Company and CyberSource.
The Company has entered into indemnification agreements with each of its
executive officers and directors. See "Management -- Limitation of Liability and
Indemnification Matters."
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<PAGE> 61
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's outstanding Common Stock as of May 15, 1998, and as
adjusted to reflect the sale of the Common Stock offered hereby for (i) each of
the Named Executives of the Company, (ii) each director of the Company, (iii)
each person or entity known by the Company to beneficially own more than 5% of
the Common Stock, and (iv) all of the Company's directors and executive officers
as a group. Except as otherwise indicated, the Company believes that the
beneficial owners of the Common Stock listed below, based on information
furnished by such owners, have sole voting and investment power with respect to
such shares.
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES
OUTSTANDING(1)
NUMBER OF SHARES --------------------
BENEFICIALLY PRIOR TO AFTER
NAMED EXECUTIVE OFFICERS AND DIRECTORS OWNED(1) OFFERING OFFERING
-------------------------------------- ---------------- -------- --------
<S> <C> <C> <C>
William S. McKiernan(2)............................... 8,996,154 42.3% 33.9%
John P. Pettitt(3).................................... 1,250,000 5.5 4.5
Vulcan Ventures Inc.(4)............................... 3,036,624 14.3 11.4
110 110th Avenue NE,
Suite 550
Bellevue, Washington 98004
Entities affiliated with C. E. Unterberg, Towbin(5)... 2,275,510 10.7 8.6
Swiss Bank Tower
10 East 50th Street,
22nd Floor
New York, New York 10002
Global Retail Partners, L.P. and its affiliates(6).... 1,928,694 9.1 7.3
2121 Avenue of the Stars
Los Angeles, California 90067
Bert Kolde(7)......................................... 3,036,624 14.3 11.4
Linda Fayne Levinson(8)............................... 1,928,694 9.1 7.3
Steven P. Novak(9).................................... 2,275,510 10.7 8.6
Richard Scudellari(10)................................ 70,000 * *
WA&H Investments...................................... 1,153,321 5.4 4.3
First Bank Place
601 Second Ave. South,
31st Floor
Minneapolis, MN 55402
All Directors and Executive Officers as a Group (11
Persons)(11):......................................... 17,556,982 77.8 63.0
</TABLE>
- ---------------
* Represents beneficial ownership of less than 1% of the Company's
outstanding equity.
(1) Number of shares beneficially owned is determined based on: (i) 21,288,962
shares outstanding as of May 15, 1998; (ii) 26,557,779 shares outstanding
after this offering which assumes no exercise of the Underwriters' over-
allotment option and includes 268,817 shares of Common Stock to be issued
to AOL immediately prior to the consummation of this offering (assuming an
initial public offering price of $8.00 per share and an underwriting
discount of $0.56 per share). Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission. The
number of shares beneficially owned by a person includes shares of Common
Stock subject to options held by that person that are currently
exercisable or exercisable within 60 days of May 15, 1998. Such shares
issuable pursuant to such options are deemed outstanding for computing the
percentage ownership of the person holding such options but not deemed
outstanding for the purposes of computing the percentage ownership of each
other person. Accordingly, executive officers of the Company Mark L.
Breier, Michael J. Praisner, Alan C. DeClerck, Brian J. Sroub and James R.
Lussier, holders of options to purchase 1,000,000, 200,000, 180,000,
180,000 and 180,000 shares of Common Stock, respectively, none of which
are exercisable within 60 days of May 15, 1998, are not listed in this
table. To the Company's knowledge, the persons named in this table have
sole voting and investment power with respect to all shares of Common
Stock shown as owned by them, subject to community property laws where
applicable and except as indicated in the other footnotes to this table.
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<PAGE> 62
Unless otherwise indicated, the address of each of the individuals named
above is: c/o software.net Corporation, 3031 Tisch Way, Ste. 900, San
Jose, California 95128.
(2) Includes 8,938,464 shares held by Mr. McKiernan and 57,690 shares held by
members of Mr. McKiernan's immediate family. Mr. McKiernan disclaims
beneficial ownership of the shares held by his immediate family.
(3) Represents 1,250,000 shares issuable upon exercise of options immediately
exercisable.
(4) Represents 3,026,624 shares held by Vulcan Ventures Inc. ("Vulcan") and
options to purchase 10,000 shares of Common Stock, exercisable
immediately, held by Bert Kolde, a Director of the Company and a director,
Vice President, Secretary and Treasurer of Vulcan. Mr. Kolde disclaims
beneficial ownership of the shares owned by Vulcan, except for his
proportional interest therein; if any.
(5) Includes 59,914 shares held by UT Capital Partners International, LDC
(formerly U.H Capital Partners International, LDC), 368,426 shares held by
UT Technology Partners, LDC (formerly UH Technology Partners, LDC);
1,506,262 shares held by C. E. Unterberg Towbin Capital Partners I, L.P.
(formerly Unterberg Harris Capital Partners I, L.P.); 239,708 shares held
by Unterberg Harris Private Equity Partners, L.P. and 51,200 shares held
by Unterberg Harris Private Equity Partners, CV (collectively, the
"Unterberg Affiliates") and 20,000 shares of Common Stock, and options to
purchase 30,000 shares of Common Stock that are exercisable within 60 days
of April 20, 1998, held by Steven P. Novak, a Managing Director of
Unterberg. Mr. Novak disclaims beneficial ownership of all shares owned by
the Unterberg Affiliates.
(6) Represents 1,928,694 shares held by Global Retail Partners, L.P. and its
affiliates (collectively, "GRP"), each an affiliate of Donaldson, Lufkin &
Jenrette Securities Corporation ("DLJ").
(7) Represents options to purchase 10,000 shares of Common Stock held by Bert
Kolde, a Director of the Company and a director, the Vice President,
Secretary and Treasurer of Vulcan, all of which are exercisable
immediately, and 3,026,624 shares held by Vulcan. Mr. Kolde disclaims
beneficial ownership of the shares owned by Vulcan, except for his
proportional interest therein, if any.
(8) Represents 1,928,694 shares of Common Stock held, in the aggregate, by
GRP. Linda Fayne Levinson, the Series C Director, is a principal of Global
Retail Partners, L.P. Ms. Levinson disclaims beneficial ownership of all
shares owned by GRP, except for any proportional interest held therein.
(9) Represents 20,000 shares of Common Stock and options to purchase 30,000
shares of Common Stock held by Mr. Novak, all of which are exercisable
immediately, and 2,225,510 shares held, in the aggregate, by the Unterberg
Affiliates. Mr. Novak, a Director of the Company, is a Managing Director
of Unterberg. Mr. Novak disclaims beneficial ownership of all shares owned
by the Unterberg Affiliates.
(10) Represents 70,000 shares of Common Stock held by Mr. Scudellari.
(11) Includes options to purchase 1,290,000 shares of Common Stock that vest
within 60 days of May 15, 1998 held by all directors and executive
officers of the Company.
61
<PAGE> 63
DESCRIPTION OF CAPITAL STOCK
Upon the completion of this offering, the authorized capital stock of the
Company will consist of 50,000,000 shares of Common Stock, $0.001 par value per
share, and 15,000,000 shares of Preferred Stock, $0.001 par value per share, of
which 6,823,596 shall be undesignated.
COMMON STOCK
As of May 15, 1998, there were 9,090,000 shares of Common Stock outstanding
held of record by 15 stockholders. There will be 26,557,779 shares of Common
Stock outstanding (assuming no exercise of the Underwriters' over-allotment
option and no exercise of outstanding options) after giving effect to the sale
of Common Stock offered to the public hereby. Subject to preferences that may be
applicable to any outstanding shares of Preferred Stock, the holders of Common
Stock are entitled to receive ratably such dividends, if any, as may be declared
by the Board of Directors out of funds legally available for the payment of
dividends. See "Dividend Policy." In the event of liquidation, dissolution or
winding up of the Company, the holders of Common Stock are entitled to share
ratably in all assets remaining after payment of liabilities and liquidation
preferences of any outstanding shares of Preferred Stock. Holders of Common
Stock have no preemptive rights or other subscription rights to convert their
Common Stock into any other securities. There are no redemption or sinking fund
provisions applicable to the Common Stock. All outstanding shares of Common
Stock and the shares of Common Stock to be issued upon completion of this
offering will be fully paid and nonassessable.
PREFERRED STOCK
Upon the closing of this offering, all outstanding shares of Preferred
Stock will be converted into 12,198,962 shares of Common Stock and automatically
retired. Thereafter, pursuant to the Company's Certificate of Incorporation, the
Board of Directors will have the authority, without further action by the
stockholders, to issue up to 6,823,596 shares of Preferred Stock in one or more
series and to fix the designations, powers, preferences, privileges and
relative, participating, optional or special rights and the qualifications,
limitations or restrictions thereof, including dividend rights, conversion
rights, voting rights, terms of redemption and liquidation preferences, any or
all of which may be greater than the rights of the Common Stock. The Board of
Directors, without stockholder approval, can issue Preferred Stock with voting,
conversion or other rights that could adversely affect the voting power and
other rights of the holders of Common Stock. Preferred Stock could thus be
issued quickly with terms calculated to delay or prevent a change in control of
the Company or make removal of management more difficult. Additionally, the
issuance of Preferred Stock may have the effect of decreasing the market price
of the Common Stock, and may adversely affect the voting and other rights of the
holders of Common Stock. The Company has no plans to issue any Preferred Stock.
WARRANTS
In March 1998, the Company entered into the Common Stock and Warrants
Subscription Agreement with AOL pursuant to which, subject to certain limited
exceptions, AOL agreed to buy shares of Common Stock at a price per share equal
to the initial public offering price (less the Underwriters' discount) for an
aggregate purchase price of $2,000,000. Based on an assumed initial public
offering price of $8.00 per share less the underwriting discount of $0.56 per
share, AOL will purchase 268,817 shares of Common Stock immediately prior to the
consummation of this offering. Concurrent with the purchase of the shares of
Common Stock by AOL immediately prior to the consummation of this offering, the
Company will issue to AOL a Warrant for a number of shares of Common Stock equal
to 1.5 times the number of shares of Common Stock purchased by AOL in the
aforementioned investment (the "AOL Warrant Shares") at a per share exercise
price equal to the initial public offering price (less the Underwriters'
discount) which will vest in increments of 1/36th per month commencing March 1,
1998. Based on an assumed offering price
62
<PAGE> 64
of $8.00 per share, immediately prior to the consummation of the offering, the
Company will issue to AOL a warrant for 403,225 shares of Common Stock at an
exercise price of $7.44 per share (assuming an underwriting discount of $0.56
per share).
In March 1998, the Company also issued a warrant to AOL (the "AOL Warrant")
to purchase 369,578 shares of the Company's Series D Preferred Stock at a price
of $2.60 per share vesting in increments of 1/36th per month commencing March 1,
1998; provided, however, that the AOL Warrant is not exercisable until after
August 31, 1999, except in the event of a change of control of the Company. The
AOL Warrant will terminate in accordance with its terms immediately prior to the
consummation of this offering.
AOL also received certain registration rights with respect to the foregoing
shares of Common Stock, Warrant and the AOL Warrant Shares.
REGISTRATION RIGHTS
Pursuant to agreements among the Company and the holders of an aggregate of
8,176,404 shares of Preferred Stock which will automatically convert in the
aggregate to 12,198,962 shares of Common Stock upon consummation of this
offering and the holders of 9,000,000 shares of Common Stock (the "Registration
Rights Holders"), the Registration Rights Holders are entitled to certain rights
with respect to the registration of such shares under the Securities Act. If the
Company proposes to register any of its securities under the Security Act,
either for its own account or for the account of other security holders, the
Registration Rights Holders are entitled to notice of such registration and to
include shares of Common Stock in such registration at the Company's expense
(subject to an underwriter's cutback). The Registration Rights Holders are
entitled to certain demand registration rights pursuant to which they may
require the Company to file a registration statement under the Securities Act at
the Company's expense with respect to their shares of Common Stock, and the
Company is required to use its commercially reasonable efforts to effect such
registration (a "Requested Registration"). All of these registration rights are
subject to certain conditions and limitations, among them the right of the
underwriters of an offering to limit the number of shares included in such
registration and the right of the Company not to effect a Requested Registration
in certain specific situations. The Company is required to bear all registration
expenses (other than underwriting discounts and commissions and fees, and
certain fees and disbursements of counsel of the Registration Rights Holders,
subject to certain limitations) and has agreed to indemnify the Registration
Rights Holders against, and provide contribution with respect to, certain
liabilities under the Securities Act in connection with such registration.
Pursuant to a registration rights agreement with AOL, the Company has
granted AOL certain registration rights with respect to the AOL Shares and AOL
Warrant Shares, including incidental registration rights if the Company files a
registration statement covering any of its securities under the Securities Act
(with the exception of an offering pursuant to a registration statement on Forms
S-1, S-8 or S-4). These registration rights include the right to require the
Company, subject to certain limitations, to register the AOL Shares and the AOL
Warrant Shares for resale by filing a shelf registration statement at any time
180 days following the effective date of the Company's registration statement
covering its initial public offering and to continuously maintain the
effectiveness of such registration statement for at least 90 days. The Company
is required to bear registration expenses (other than underwriting discounts and
commissions and fees) up to a specified limited and thereafter to bear its pro
rata share of such costs to the extent that the Company is selling shares in
such offering. The Company has also agreed to indemnify AOL against, and provide
contribution with respect to, certain liabilities under the Securities Act in
connection with incidental and demand registrations. AOL has agreed that it
shall not, to the extent requested by the Company and its underwriters and
subject to certain limitations, sell or otherwise dispose or transfer any
securities of the Company for a period of 180 days following the effective date
of the first registration statement of the Company filed under the Securities
Act.
63
<PAGE> 65
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF CERTIFICATE OF INCORPORATION
As noted above, the Company's Board of Directors, without stockholder
approval, has the authority under the Company's Certificate of Incorporation to
issue Preferred Stock with rights superior to the rights of the holders of
Common Stock. As a result, Preferred Stock could be issued quickly and easily,
could adversely affect the rights of holders of Common Stock and could be issued
with terms calculated to delay or prevent a change in control of the Company or
make removal of management more difficult.
Section 203 of the Delaware General Corporation Law ("DGCL") contains
certain provisions that may make more difficult the acquisition of control of
the Company by means of a tender offer, open market purchase, a proxy fight or
otherwise. These provisions are designed to encourage persons seeking to acquire
control of the Company to negotiate with the Board of Directors. However, these
provisions could have the effect of discouraging a prospective acquiror from
making a tender offer or otherwise attempting to obtain control of the Company.
To the extent that these provisions discourage takeover attempts, they could
deprive stockholders of opportunities to realize takeover premiums for their
shares or could depress the market price of the Common Stock.
Section 203 of the DGCL prohibits certain "business combination"
transactions between a publicly held Delaware corporation, such as the Company
after this offering, and any "interested stockholder" for a period of three
years after the date on which the latter became an interested stockholder,
unless (i) prior to that date either the proposed business combination or the
proposed acquisition of stock resulting in its becoming an interested
stockholder is approved by the board of directors of the corporation, (ii) in
the same transaction in which it becomes an interested stockholder, the
interested stockholder acquires at least 85% of those shares of the voting stock
of the corporation which are not held by the directors, officers or certain
employee stock plans or (iii) the business combination with the interested
stockholder is approved by the Board of Directors and also approved at a
stockholders' meeting by the affirmative vote of the holders of at least two
thirds of the outstanding shares of the corporation's voting stock other than
shares held by the interested stockholder.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is BankBoston, N.A.
The transfer agent's address is 150 Royall Street, Canton, Massachusetts 02021
and telephone number is (781) 575-2000.
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<PAGE> 66
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for the Common
Stock. No prediction can be made as to the effect, if any, that market sales of
shares or the availability of shares for sale will have on the market price of
the Common Stock prevailing from time to time. The Company is unable to estimate
the number of shares that may be sold in the public market pursuant to Rule 144,
since this will depend on the market price of the Common Stock, the personal
circumstances of the sellers and other factors. Nevertheless, sales of
significant amounts of the Common Stock of the Company in the public market
could adversely affect the market price of the Common Stock and could impair the
Company's ability to raise capital through an offering of its equity securities.
Upon completion of this offering, the Company will have outstanding
26,557,779 shares of Common Stock. All of the 5,000,000 shares offered hereby
(plus any shares issued upon exercise of the Underwriters' over-allotment
option) will be freely tradable in the public market without restriction under
the Securities Act, unless such shares are purchased by "Affiliates" of the
Company, as that term is defined in Rule 144 under the Securities Act.
The remaining 21,557,779 shares of Common Stock outstanding upon completion
of this offering will be "restricted securities," as that term is defined in
Rule 144 ("Restricted Shares") (which amount includes 268,817 shares of Common
Stock to be issued to AOL immediately prior to the consummation of this offering
assuming an initial public offering price of $8.00 per share and an underwriting
discount of $0.56 per share). The Restricted Shares were issued and sold by the
Company in private transactions in reliance upon exemptions from registration
under the Securities Act. Restricted Shares may be sold in the public market
only if they are registered or if they qualify for an exemption from
registration under Rules 144, 144(k) or 701 promulgated under the Securities
Act, which are summarized below.
Pursuant to certain "Lock-up Agreements," AOL as well as all the executive
officers, directors, stockholders and employees of the Company have agreed not
to offer, sell, contract to sell, grant any option to purchase or otherwise
dispose of any such shares for a period of 180 days from the date of this
Prospectus without the prior written consent of Deutsche Morgan Grenfell Inc.
("DMG").
Beginning 180 days after the date of this Prospectus, upon expiration of
the Lock-up Agreements, approximately 4,687,202 of the Restricted Shares will be
eligible for sale without restriction under Rule 144(k) and 15,448,114 of the
Restricted Shares will be eligible for sale subject to compliance with the
volume and other restrictions of Rule 144. The remaining 1,422,663 Restricted
Shares will become eligible for sale at various times within a period of one
year from the expiration of the Lock-up Agreements, subject in some cases to the
volume and other restrictions of Rule 144.
In general, under Rule 144, beginning approximately 90 days after the
effective date of the Registration Statement of which this Prospectus is a part,
a stockholder, including an Affiliate, who has beneficially owned his or her
restricted securities (as that term is defined in Rule 144) for at least one
year from the later of the date such securities were acquired from the Company
or (if applicable) the date they were acquired from an Affiliate, is entitled to
sell, within any three-month period, a number of such shares that does not
exceed the greater of 1% of the then outstanding shares of Common Stock
(approximately 265,578 shares immediately after this offering) or the average
weekly trading volume in the Common Stock during the four calendar weeks
preceding the date on which notice of such sale was filed under Rule 144,
provided certain requirements concerning availability of public information,
manner of sale and notice of sale are satisfied. In addition, under Rule 144(k),
a person who is not deemed to have been an Affiliate of the Company 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 (including the holding period of any
prior owner
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<PAGE> 67
except an Affiliate) is entitled to sell the shares immediately without
compliance with the foregoing requirements of Rule 144.
Securities issued in reliance on Rule 701 (such as shares of Common Stock
that may be acquired pursuant to the exercise of certain options granted prior
to this offering) are also restricted securities and, beginning 90 days after
the date of this Prospectus, may be sold by stockholders other than Affiliates
of the Company subject only to the manner of sale provisions of Rule 144 and by
an Affiliate under Rule 144 without compliance with its one-year holding period
requirement. Presently 90,000 shares of Common Stock issued pursuant to the
exercise of options granted in reliance on Rule 701 are outstanding and held by
Affiliates. Therefore, these shares are not subject to the one-year holding
period requirement of Rule 144 and may be sold following the expiration of the
lock-up agreements subject only to the volume restrictions of Rule 144. As of
the date of this Prospectus, the holders of options exercisable into
approximately 3,731,055 shares of Common Stock will be eligible to sell their
shares upon the expiration of transfer restrictions specified in the Plans 180
days after the date of this Prospectus, subject in certain cases to vesting of
such options.
The Company intends to file after the effective date of this offering a
Registration Statement on Form S-8 to register approximately 3,000,000 shares of
Common Stock reserved for issuance under the 1995 Stock Option Plan, 2,000,000
shares of Common Stock reserved for issuance under the 1998 Stock Option Plan
and 1,000,000 shares reserved for issuance outside such plans. Such Registration
Statement will become effective automatically upon filing. Shares issued under
the foregoing option plans and the option grant outside the plans, after the
filing of a Registration Statement on Form S-8, may be sold in the open market,
subject, in the case of certain holders, to the Rule 144 limitations applicable
to Affiliates, the above-referenced lock-up agreements and vesting restrictions
imposed by the Company.
In addition, following this offering, the holders of 9,268,817 shares of
outstanding Common Stock will, under certain circumstances, have rights to
require the company to register their shares for future sale. See "Description
of Capital Stock -- Registration Rights."
In addition to the 5,000,000 shares of Common Stock offered hereby, 268,817
shares (assuming an initial public offering price of $8.00 per share and an
underwriting discount of $0.56 per share) will be sold to AOL, which has agreed
to purchase such shares from the Company at the initial public offering price
less the Underwriters' discounts. Upon completion of this offering, the Company
will also issue a warrant to AOL for the future purchase of up to 403,225
additional shares of Common Stock at an exercise price of $7.44 per share
(assuming an initial public offering price of $8.00 per share and an
underwriting discount of $0.56 per share). See "Description of Capital
Stock -- Warrants."
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<PAGE> 68
UNDERWRITING
The Underwriters named below, for whom Deutsche Morgan Grenfell Inc.,
Donaldson, Lufkin & Jenrette Securities Corporation, Merrill Lynch, Pierce,
Fenner & Smith Incorporated and C. E. Unterberg, Towbin are acting as
representatives (the "Representatives"), have severally agreed, subject to the
terms and conditions contained in the Underwriting Agreement (the form of which
will be filed as an exhibit to the Company's Registration Statement, of which
this Prospectus is a part), to purchase from the Company the respective number
of shares of Common Stock indicated below opposite their respective names. The
Underwriters are committed to purchase all of the shares, if they purchase any.
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
------------ ----------------
<S> <C>
Deutsche Morgan Grenfell Inc...............................
Donaldson, Lufkin & Jenrette Securities Corporation........
Merrill Lynch, Pierce, Fenner & Smith
Incorporated..................................
C. E. Unterberg, Towbin....................................
---------
Total............................................ 5,000,000
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters thereunder are subject to approval of certain legal matters by
counsel and to various other conditions.
The Representatives have advised the Company that the Underwriters
initially propose to offer the Common Stock to the public on the terms set forth
on the cover page of this Prospectus. The Underwriters may allow selected
dealers (who may include the Underwriters) a concession of not more than
$ per share below the initial public offering price. The selected dealers
may re-allow a concession of not more than $ per share to certain other
dealers. After the initial public offering, the price and concessions and
re-allowances to dealers and other selling terms may be changed by the
Representatives. The Common Stock is offered subject to receipt and acceptance
by the Underwriters, and to certain other conditions, including the right to
reject orders in whole or in part. The Underwriters do not intend to sell any of
the shares of Common Stock offered hereby to accounts for which they exercise
discretionary authority.
The Company has granted an option to the Underwriters to purchase up to a
maximum of 750,000 additional shares of Common Stock to cover over-allotments,
if any, at the initial public offering price, less the Underwriters' discount
set forth on the cover page of this Prospectus. Such option may be exercised at
any time until 30 days after the date of the Underwriting Agreement. To the
extent the Underwriters exercise this option, each of the Underwriters will be
committed, subject to certain conditions, to purchase such additional shares in
approximately the same proportion as set forth in the above table. The
Underwriters may purchase such shares only to cover over-allotments made in
connection with this offering.
The officers and directors who are stockholders of the Company, other
existing stockholders of the Company and existing option holders have agreed,
subject to certain exceptions, that they will not, without the prior written
consent of DMG, offer, sell or otherwise dispose of any shares of Common Stock,
options or warrants to acquire shares of Common Stock or securities exchangeable
for or convertible into shares of Common Stock owned by them during the 180-day
period following the date of the final Prospectus. The Company has agreed that
it will not, without the prior written consent of DMG, offer, sell or otherwise
dispose of any shares of Common Stock, options or warrants to acquire shares of
Common Stock or securities exchangeable for or convertible into shares of Common
Stock during the 180-day period following the date of the final Prospectus,
except that the Company may issue shares upon the exercise of options granted
prior to the date hereof, and may grant additional options, provided that,
without the prior written consent of DMG such additional options shall not be
exercisable during such period.
67
<PAGE> 69
The Underwriting Agreement provides that the Company will indemnify the
several Underwriters against certain liabilities, including civil liabilities
under the Securities Act, as amended, or will contribute to payments the
Underwriters may be required to make in respect thereof.
Prior to this offering, there has been no public market for the Common
Stock. The initial public offering price will be determined by negotiation
between the Company and the Representatives. The principal factors to be
considered in determining the public offering price include the information set
forth in this Prospectus and otherwise available to the Representatives; the
history and the prospects for the industry in which the Company will compete;
the ability of the Company's management; the prospects for future earnings of
the Company; the present state of the Company's development and its current
financial condition; the general condition of the securities markets at the time
of this offering; and the recent market prices of, and the demand for,
publicly-traded common stock of generally comparable companies. Each of the
Representatives has informed the Company that it currently intends to make a
market in the shares subsequent to the effectiveness of this offering, but there
can be no assurance that the Representatives will take any action to make a
market in any securities of the Company.
The Underwriters have reserved for sale, at the initial public offering
price, up to 7% of the Common Stock offered hereby (including shares of Common
Stock subject to the Underwriters' over-allotment option) for certain
individuals who have expressed an interest in purchasing such shares of Common
Stock in the offering. The number of shares available for sale to the general
public will be reduced to the extent such persons purchase such reserved shares.
Any reserved shares not so purchased will be offered by the Underwriters to the
general public on the same basis as other shares offered hereby.
Certain persons participating in this offering may over-allot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the Common Stock at levels above those which otherwise might prevail in the open
market, including by entering stabilizing bids, effecting syndicate covering
transactions or imposing penalty bids. A stabilizing bid means the placing of
any bid or effecting of any purchase for the purpose of pegging, fixing or
maintaining the price of the Common Stock. A syndicate-covering transaction
means the placing of any bid on behalf of the underwriting syndicate or the
effecting of any purchase to reduce a short position created in connection with
this offering. A penalty bid means an arrangement that permits the Underwriters
to reclaim a selling concession from a syndicate member in connection with this
offering when shares of Common Stock sold by the syndicate member are purchased
in syndicate-covering transactions. Such transactions may be effected on the
Nasdaq Stock Market, in the over-the-counter market or otherwise. Such
stabilizing, if commenced, may be discontinued at any time.
The Company entered into a credit agreement (the "Credit Agreement") with
Deutsche Bank AG ("Deutsche Bank") in May 1998. Deutsche Bank is the parent
corporation of DMG, one of the Representatives. Pursuant to the Credit
Agreement, in May 1998, Deutsche Bank issued a standby letter of credit for the
benefit of the Company in the amount of approximately $600,000 (the "Credit
Facility") and loaned the Company approximately an additional $4,200,000 (the
"Loan"). The Loan bears interest at a rate equal to the higher of (i) the daily
Federal Funds Rate plus 0.5% per annum or (ii) Deutsche Bank's daily prime
lending rate (the "Base Rate"), plus 3.0%. Interest is payable quarterly, in
arrears, during the term of the Credit Agreement. The Company is also required
to pay a standby letter of credit fee equal to a percentage of the face amount
of the Credit Facility equal to the Base Rate plus 3.0% less the LIBOR rate for
a three-month loan. In conjunction with the Credit Agreement the Company is
required to pay Deutsche Bank (i) an upfront fee of $120,000, and (ii) a credit
line fee equal to 7.50% of the amount by which the Company's gross revenues
during the term of the Credit Agreement exceed certain agreed upon thresholds,
subject to maximum payments of $337,500 in the aggregate. All amounts borrowed
under the Credit Agreement are due on November 16, 1998. In connection with the
Credit Agreement, Deutsche Bank has received a first priority lien on all of the
Company's assets, including intellectual property. Pursuant to the terms of the
Credit Agreement, the Company is subject to certain financial and non-
68
<PAGE> 70
financial covenants. The Company intends, upon expiration of the Credit
Agreement, to convert the amounts outstanding under the Credit Facility and the
Loan into a new credit facility in approximately the same or a greater principal
amount; however, there can be no assurances that the amounts outstanding under
the Credit Facility and the Loan will be able to be converted into a new credit
facility upon commercially acceptable terms, if at all. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity."
Affiliates of C. E. Unterberg, Towbin are stockholders of the Company, and
Steven P. Novak, the Series A Director and stockholder of the Company, is a
Managing Director of C. E. Unterberg, Towbin. Global Retail Partners, L.P. and
its affiliates, each an affiliate of Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJ") are stockholders of the Company, and Linda Fayne Levinson,
the Series C Director, is a principal of Global Retail Partners, L.P., an
affiliate of DLJ and a stockholder of the Company. See "Management," "Certain
Transactions" and "Principal Stockholders."
This offering is being conducted in accordance with Rule 2720 ("Rule 2720")
of the National Association of Security Dealers, Inc. (the "NASD") which
provides that, among other things, when an NASD member firm participates in the
offering of equity securities of a company with whom such member has a "conflict
of interest" (as defined in Rule 2720), the initial public offering price can be
no higher than that recommended by a "qualified independent underwriter" (as
defined in Rule 2720) (a "QIU"). Certain underwriters in this offering may be
deemed to have such a conflict of interest with the Company due to the fact that
certain entities and individuals affiliated with such underwriters own shares of
the Company's Common Stock as described above. Deutsche Morgan Grenfell plans to
serve as the QIU in the offering and will recommend a price in compliance with
the requirements of Rule 2720. DMG, in its capacity as QIU, will receive no
additional compensation as such in connection with this offering.
LEGAL MATTERS
Certain legal matters will be passed on for the Company by its counsel,
Jackson Tufts Cole & Black, LLP, San Jose, California. As of April 15, 1998,
Richard Scudellari, a partner in that firm and a director of the Company, owned
70,000 shares of Company's Common Stock and held options to purchase 10,000
shares of the Company's Common Stock. See "Principal Stockholders" and "Certain
Transactions." Certain legal matters will be passed on for the Underwriters by
Venture Law Group, A Professional Corporation, Menlo Park, California.
EXPERTS
The Consolidated Financial Statements of software.net at December 31, 1996
and 1997, and for each of the three years in the period ended December 31, 1997,
appearing in this Prospectus and the Registration Statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement, of
which this Prospectus constitutes a part, under the Securities Act with respect
to the shares of Common Stock offered hereby. This Prospectus omits certain
information contained in the Registration Statement, and reference is made to
the Registration Statement and the exhibits thereto for further information with
respect to the Company and the Common Stock offered hereby. Statements contained
herein concerning the provisions of any documents are not necessarily complete,
and in each instance reference is made to the copy of such document filed as an
exhibit to the Registration Statement. Each such statement is qualified in its
entirety by such reference. The Registration Statement,
69
<PAGE> 71
including exhibits filed therewith, may be inspected without charge at the
public reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional
offices of the Commission located at 7 World Trade Center, Suite 1300, New York,
New York 10048 and Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511. Copies of such materials may be obtained
from the Public Reference Section of the Commission, Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The
Commission maintains a Web site (http://www.sec.gov) that contains reports,
proxy and information statements and other information regarding registrants,
such as the Company, that file electronically with the Commission. Information
concerning the Company is also available for inspection at the offices of the
Nasdaq National Market, Reports Section, 1735 K Street, N.W., Washington, D.C.
20006.
Statements contained in this Prospectus as to the contents of any contract
or other document to which reference is made are summaries of the material terms
of such contracts or documents, and in each instance reference is made to the
copy of such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference.
The Company intends to furnish its stockholders with annual reports
containing financial statements audited by independent accountants and with
quarterly reports containing updated summary financial information for each of
the first three quarters of each fiscal year.
70
<PAGE> 72
SOFTWARE.NET CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Redeemable Convertible Preferred
Stock and Stockholders' Equity (Net Capital Deficiency)... F-5
Consolidated Statements of Cash Flows....................... F-8
Notes to Consolidated Financial Statements.................. F-9
</TABLE>
F-1
<PAGE> 73
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
software.net Corporation
We have audited the accompanying consolidated balance sheets of
software.net Corporation as of December 31, 1996 and 1997, and the related
consolidated statements of operations, redeemable convertible preferred stock
and stockholders' equity (net capital deficiency), and cash flows for each of
the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits 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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of software.net
Corporation at December 31, 1996 and 1997, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
San Jose, California
March 25, 1998
F-2
<PAGE> 74
SOFTWARE.NET CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY AT
------------------ MARCH 31, MARCH 31,
1996 1997 1998 1998
------- -------- --------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents................... $ 3,737 $ 2,571 $ 2,232
Accounts receivable, net of allowances of
$65, $275, and $400 at December 31, 1996
and 1997, and March 31, 1998............. 431 1,181 1,785
Prepaid expenses and other current assets... 76 516 932
Cost of deferred revenue.................... 819 4,938 2,510
Net current assets of discontinued
operations............................... 80 -- --
------- -------- --------
Total current assets................ 5,143 9,206 7,459
Property and equipment, net................... 66 380 504
Net noncurrent assets of discontinued
operations.................................. 482 -- --
Intangible assets............................. -- -- 425
------- -------- --------
Total assets........................ $ 5,691 $ 9,586 $ 8,388
======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
(NET CAPITAL DEFICIENCY)
Current liabilities:
Note payable to related party............... $ -- $ -- $ 400
Accounts payable............................ 536 2,256 2,092
Other accrued liabilities................... 97 270 818
Current obligations under capital leases.... -- 18 17
Deferred revenue............................ 967 5,569 3,214
------- -------- --------
Total current liabilities........... 1,600 8,113 6,541
Note payable to a shareholder and director.... 105 60 --
Noncurrent obligations under capital leases... -- 39 33
Commitments
Redeemable convertible preferred stock, no par
value, issuable in series:
Authorized shares -- 10,000,000
Issued and outstanding shares --
4,022,558 in 1996, 7,022,558 in 1997,
7,899,938 in 1998, and none pro forma
(liquidation preference of $10,428 and
$12,709 at December 31, 1997 and March
31, 1998, respectively)................ 6,395 12,565 15,257 $ --
Stockholders' equity (net capital deficiency):
Common stock, no par value:
Authorized shares -- 30,000,000
Issued and outstanding shares --
9,000,000 in 1996, 9,070,000 in 1997,
9,090,000 in 1998, and 21,012,496 pro
forma.................................. 45 47 47 15,304
Accumulated deficit......................... (2,454) (11,238) (13,490) (13,490)
------- -------- -------- --------
Total stockholders' equity (net
capital deficiency)............... (2,409) (11,191) (13,443) $ 1,814
------- -------- -------- ========
Total liabilities and stockholders'
equity (net capital deficiency)... $ 5,691 $ 9,586 $ 8,388
======= ======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE> 75
SOFTWARE.NET CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
---------------------------- ------------------
1995 1996 1997 1997 1998
------ ------- ------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues....................... $1,003 $ 5,858 $16,806 $3,158 $ 6,192
Cost of revenues................... 623 5,137 14,873 2,783 5,254
------ ------- ------- ------ -------
Gross profit....................... 380 721 1,933 375 938
Operating expenses:
Research and development......... 388 431 1,060 155 602
Sales and marketing.............. 407 704 1,696 265 1,953
General and administrative....... 103 450 1,087 164 635
------ ------- ------- ------ -------
Total operating
expenses............... 898 1,585 3,843 584 3,190
------ ------- ------- ------ -------
Loss from operations............... (518) (864) (1,910) (209) (2,252)
Interest income.................... 7 96 173 40 27
Interest expense................... -- (11) (6) -- (2)
------ ------- ------- ------ -------
Loss from continuing operations.... (511) (779) (1,743) (169) (2,227)
Loss from discontinued operations.. -- (736) (3,616) (583) --
------ ------- ------- ------ -------
Net loss........................... $ (511) $(1,515) $(5,359) $ (752) $(2,227)
====== ======= ======= ====== =======
Pro forma basic and diluted net
loss per share from continuing
operations....................... $ (0.10) $ (0.11)
Pro forma basic and diluted net
loss per share from discontinued
operations....................... (0.20) --
------- -------
Pro forma basic and diluted net
loss per share................... $ (0.30) $ (0.11)
======= =======
Shares used in computing pro forma
basic and diluted net loss per
share............................ 17,828 20,252
======= =======
</TABLE>
See accompanying notes.
F-4
<PAGE> 76
SOFTWARE.NET CORPORATION
CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
-------------------------------------------------
REDEEMABLE TOTAL
CONVERTIBLE STOCKHOLDERS'
PREFERRED STOCK COMMON STOCK EQUITY
------------------- ------------------ ACCUMULATED (NET CAPITAL
SHARES AMOUNT SHARES AMOUNT DEFICIT DEFICIENCY)
--------- ------- --------- ------ ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1994..................... -- $ -- 9,000,000 $45 $ (226) $ (181)
Issuance of Series A
redeemable convertible
preferred stock at
$0.40 per share, net of
issuance costs of $25.. 1,312,500 500 -- -- -- --
Issuance of Series A
redeemable convertible
preferred stock at
$0.40 per share in
exchange for
professional services
received............... 125,000 50 -- -- -- --
Accretion of premium on
redemption of
redeemable convertible
preferred stock in
excess of purchase
price.................. -- 101 -- -- (101) (101)
Net loss................. -- -- -- -- (511) (511)
--------- ------- --------- --- -------- --------
Balance at December 31,
1995..................... 1,437,500 651 9,000,000 45 (838) (793)
Issuance of Series A
redeemable convertible
preferred stock at
$0.91 per share........ 164,835 150 -- -- -- --
Issuance of Series A
redeemable convertible
preferred stock at
$0.91 per share for the
conversion of notes
payable and accrued
interest and for
services received...... 383,185 349 -- -- -- --
Issuance of Series B
redeemable convertible
preferred stock at
$2.70 per share, net of
issuance costs of
$356................... 2,037,038 5,144 -- -- -- --
</TABLE>
F-5
<PAGE> 77
<TABLE>
<CAPTION>
STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
-------------------------------------------------
REDEEMABLE TOTAL
CONVERTIBLE STOCKHOLDERS'
PREFERRED STOCK COMMON STOCK EQUITY
------------------- ------------------ ACCUMULATED (NET CAPITAL
SHARES AMOUNT SHARES AMOUNT DEFICIT DEFICIENCY)
--------- ------- --------- ------ ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Accretion of premium on
redemption of
redeemable convertible
preferred stock in
excess of purchase
price.................. -- 101 -- -- (101) (101)
Net loss................. -- -- -- -- (1,515) (1,515)
--------- ------- --------- --- -------- --------
Balance at December 31,
1996..................... 4,022,558 6,395 9,000,000 45 (2,454) (2,409)
Issuance of Series C
redeemable convertible
preferred stock at
$2.04 per share, net of
issuance costs of $51.. 3,000,000 6,069 -- -- -- --
Issuance of common stock
upon exercise of
options under employee
stock option plan at
$0.03 per share........ -- -- 70,000 2 -- 2
Accretion of premium on
redemption of
redeemable convertible
preferred stock in
excess of purchase
price.................. -- 101 -- -- (101) (101)
Spin-off of CyberSource
to software.net
preferred and common
stockholders on
December 31, 1997...... -- -- -- -- (3,324) (3,324)
Net loss................. -- -- -- -- (5,359) (5,359)
--------- ------- --------- --- -------- --------
Balance at December 31,
1997..................... 7,022,558 12,565 9,070,000 47 (11,238) (11,191)
Issuance of common stock
upon exercise of
options under employee
stock option plan at
$0.01 per share
(unaudited)............ -- -- 20,000 -- -- --
Issuance of Series D
redeemable convertible
preferred stock at
$2.60 per share, net of
issuance costs of $50
(unaudited)............ 877,380 2,231
Issuance of warrant to
purchase 369,578 shares
of Series D redeemable
convertible preferred
stock (unaudited)...... -- 436 -- -- -- --
</TABLE>
F-6
<PAGE> 78
<TABLE>
<CAPTION>
STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
-------------------------------------------------
REDEEMABLE TOTAL
CONVERTIBLE STOCKHOLDERS'
PREFERRED STOCK COMMON STOCK EQUITY
------------------- ------------------ ACCUMULATED (NET CAPITAL
SHARES AMOUNT SHARES AMOUNT DEFICIT DEFICIENCY)
--------- ------- --------- ------ ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Accretion of premium on
redemption of
redeemable convertible
preferred stock in
excess of purchase
price (unaudited)...... -- 25 -- -- (25) (25)
Net loss (unaudited)..... -- -- (2,227) (2,227)
--------- ------- --------- --- -------- --------
Balance at March 31, 1998
(unaudited).............. 7,899,938 $15,257 9,090,000 $47 $(13,490) $(13,443)
========= ======= ========= === ======== ========
</TABLE>
See accompanying notes.
F-7
<PAGE> 79
SOFTWARE.NET CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------- -----------------
1995 1996 1997 1997 1998
----- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss............................................ $(511) $(1,515) $(5,359) $ (752) $(2,227)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization..................... 14 19 79 12 51
Services received and accrued interest in exchange
for Series A redeemable convertible preferred
stock........................................... 50 49 -- -- --
Net loss of discontinued operations............... -- 736 3,616 583 --
Changes in assets and liabilities:
Accounts receivable............................... (217) (202) (750) (394) (604)
Prepaid expenses and other current assets......... (26) (50) (440) (55) (415)
Cost of deferred revenue.......................... -- (819) (4,120) 136 2,428
Accounts payable.................................. 150 345 1,720 349 (164)
Other accrued liabilities......................... 54 (28) 172 (57) 548
Deferred revenue.................................. -- 967 4,602 (161) (2,355)
Cash provided by (used for) discontinued
operations...................................... -- (6) 181 108 --
----- ------- ------- ------- -------
Net cash used in operating activities............... (486) (504) (299) (231) (2,738)
INVESTING ACTIVITIES
Purchases of property and equipment................. (71) (16) (333) (60) (165)
Cash used for discontinued operations............... -- (1,292) (4,611) (702) --
----- ------- ------- ------- -------
Net cash used in investing activities............. (71) (1,308) (4,944) (762) (165)
FINANCING ACTIVITIES
Proceeds from issuance of notes payable............. 300 -- -- -- 400
Repayment of note payable to related party.......... -- -- (45) -- (60)
Repayment of capital leases......................... -- -- (3) -- (7)
Proceeds from sale of redeemable convertible
preferred stock................................... 500 5,294 6,069 -- 2,231
Proceeds from exercise of stock options............. -- -- 2 -- --
Cash used for discontinued operations............... -- -- (1,946) -- --
----- ------- ------- ------- -------
Net cash provided by financing activities........... 800 5,294 4,077 -- 2,564
----- ------- ------- ------- -------
Net increase (decrease) in cash and cash
equivalents....................................... 243 3,482 (1,166) (993) (339)
Cash and cash equivalents at beginning of period.... 12 255 3,737 3,737 2,571
----- ------- ------- ------- -------
Cash and cash equivalents at end of period.......... $ 255 $ 3,737 $ 2,571 $ 2,744 $ 2,232
===== ======= ======= ======= =======
SUPPLEMENTAL SCHEDULES OF CASH FLOW INFORMATION
Interest paid....................................... $ -- $ -- $ 6 $ -- $ 2
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING
ACTIVITIES
Fixed assets acquired under capital leases.......... $ -- $ -- $ 60 $ -- $ --
Issuance of Series A redeemable preferred stock upon
conversion of notes payable....................... $ -- $ 300 $ -- $ -- $ --
Issuance of warrant to purchase Series D redeemable
convertible preferred stock....................... $ -- $ -- $ -- $ -- $ 436
</TABLE>
See accompanying notes.
F-8
<PAGE> 80
SOFTWARE.NET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1998 AND RELATING TO
THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Organization
software.net Corporation (formerly CyberSource Corporation) (the "Company")
was incorporated in the state of California on August 12, 1994. The Company is
engaged in the resale of commercial off-the-shelf software ("Software") via the
Internet. On December 31, 1997, the Company distributed capital stock of its
wholly owned subsidiary, CyberSource Corporation ("CyberSource"), in the form of
a dividend to all existing stockholders of the Company. The accompanying
consolidated financial statements have been prepared to reflect CyberSource as a
discontinued operation (see Note 2).
Interim Financial Statements
In the opinion of management, the unaudited interim consolidated financial
statements at March 31, 1998 and for the three months ended March 31, 1997 and
1998 include all adjustments, consisting only of normal recurring accruals,
necessary to present fairly the Company's financial position at March 31, 1998,
and results of operations and cash flows for the three months ended March 31,
1997 and 1998. Results for the three months ended March 31, 1998 are not
necessarily indicative of the results to be expected for the entire year.
Use of Estimates in the Preparation of Financial Statements
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 the
disclosure of contingent assets and liabilities at the date of the financial
statements as well as the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
The Company's revenues are primarily derived from sales of Software to
customers using credit cards, to corporate customers that are invoiced directly
under credit terms, to various U.S. government agencies pursuant to contractual
arrangements and, to a lesser extent, amounts received from Software publishers
for advertising and promotion. Revenue from the sale of Software, net of
estimated returns, is recognized upon either shipment of the physical product or
delivery of electronic product. Revenue from the sale of Software under
contracts with the U.S. government require continuing service, support and
performance by the Company, and accordingly, the related revenues and costs are
deferred and recognized over the period the service, support, and performance
are provided. Revenues derived from Software publishers for advertising and
promotion are recognized as the services are provided. Costs of deferred revenue
relate to Software licenses purchased from Software publishers for U.S.
government agencies.
Research and Development
Research and development expenditures are generally charged to operations
as incurred. Statement of Financial Accounting Standards No. 86, "Accounting for
the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed,"
requires the capitalization of certain software development costs subsequent to
the establishment of technological feasibility. In the Company's case,
capitalization would begin upon completion of a working model as the Company
F-9
<PAGE> 81
SOFTWARE.NET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND RELATING TO
THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
does not prepare detailed program designs as part of the development process.
Through December 31, 1997 and March 31, 1998, there were no significant
capitalizable software development costs incurred and, as a result, all such
costs have been expensed as incurred.
Advertising Expense
The cost of advertising is recorded as an expense when incurred.
Advertising costs for the years ended December 31, 1995, 1996, and 1997 and the
three months ended March 31, 1998, were approximately $50,000, $98,000,
$178,000, and $62,000, respectively.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original
maturity from the date of purchase of three months or less to be cash
equivalents. As of December 31, 1996 and 1997 and March 31, 1998, cash
equivalents consist primarily of investments in money market accounts and cost
approximates fair market value. The Company places its cash and cash equivalents
in high-quality U.S. financial institutions and, to date, has not experienced
losses on any of its investments.
Concentration of Credit Risk and Other Risks
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash equivalents and accounts
receivables. The Company operates in one business segment and sells Software and
advertising to consumers, various companies across several industries and
certain U.S. government agencies. The Company generally does not require
collateral. The Company maintains allowances for credit losses, and such losses
have been within management's expectations. For the year ended December 31, 1997
and for the three months ended March 31, 1998, U.S. government agencies,
principally the Defense Logistics Agency, accounted for 33% and 43% of revenues,
respectively. There were no customers accounting for greater than 10% of
revenues in 1995 and 1996.
The Company's contracts with the U.S. government are subject to annual
review and renewal by the applicable government entity, and may be terminated,
without cause, at any time.
The Company's success depends in large part on electronic software delivery
("ESD") as a method of selling Software over the Internet. If ESD does not
achieve widespread market acceptance, the Company's results of operations will
be materially adversely affected. In addition, there can be no assurance that
the Company will overcome the substantial existing and future technical
challenges associated with ESD reliably and consistently on a long-term basis.
Property and Equipment
Property and equipment are stated at cost and are depreciated on a
straight-line basis over estimated useful lives of three years. Leasehold
improvements are amortized on a straight-line basis over the shorter of the
lease term or the estimated useful lives.
F-10
<PAGE> 82
SOFTWARE.NET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND RELATING TO
THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------- MARCH 31,
1996 1997 1998
---- ----- ---------
<S> <C> <C> <C>
Computer equipment and software............................. $98 $ 257 $ 347
Furniture and fixtures...................................... -- 122 154
Office equipment............................................ -- 70 107
Leasehold improvements...................................... -- 29 35
--- ----- -----
98 478 643
Less accumulated depreciation and amortization.............. (32) (98) (139)
--- ----- -----
$66 $ 380 $ 504
=== ===== =====
</TABLE>
Accounting for Stock-Based Compensation
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB Opinion No. 25), and related
interpretations in accounting for its employee stock options because, as
discussed in Note 7, the alternative fair value accounting provided for under
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (FAS 123), requires use of option valuation models that were not
developed for use in valuing employee stock options. Under APB Opinion No. 25,
when the exercise price of the Company's employee stock options equals the
market price of the underlying stock on the date of grant, no compensation
expense is recognized. See proforma disclosures of applying FAS 123 included in
Note 7.
Net Loss Per Share
Net loss per share is presented under Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" (FAS 128). FAS 128 replaced the
calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of options, warrants, and convertible
securities. Diluted earnings per share is very similar to the previously
reported fully diluted earnings per share. Earnings per share amounts for all
periods have been presented to conform to FAS 128 requirements. Potentially
dilutive securities have been excluded from the computation as their effect is
antidilutive.
Proforma Net Loss Per Share and Unaudited Proforma Stockholders' Equity
Proforma net loss per share has been computed as described above and also
gives effect, under Securities and Exchange Commission guidance, to the
conversion of redeemable convertible preferred shares not included above that
will automatically convert upon completion of the Company's initial offering
(using the if-converted method). If the offering contemplated by this Prospectus
is consummated, all of the redeemable convertible preferred stock outstanding as
of March 31, 1998 will automatically be converted into an aggregate of
11,922,496 shares of common stock, based on the shares of redeemable convertible
preferred stock outstanding at March 31, 1998. Unaudited pro forma stockholders'
equity at March 31, 1998, as adjusted for the conversion of redeemable
convertible preferred stock, is disclosed on the balance sheet.
F-11
<PAGE> 83
SOFTWARE.NET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND RELATING TO
THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
Historical and pro forma basic and diluted net loss per share is as follows
(in thousands, except per share amount):
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
-------------------------- -----------------
1995 1996 1997 1997 1998
------ ------- ------- ------ --------
<S> <C> <C> <C> <C> <C>
Historical:
Net loss applicable to common stockholders:
Net loss.......................................... $ (511) $(1,515) $(5,359) $ (752) $ (2,227)
Accretion of premium on redemption of redeemable
convertible preferred stock in excess of
purchase price.................................. (101) (101) (101) (25) (25)
------ ------- ------- ------ --------
Net loss applicable to common stockholders........ $ (612) $(1,616) $(5,460) $ (777) $ (2,252)
====== ======= ======= ====== ========
Weighted average shares of common stock
outstanding used in computing basic and diluted
net per loss share.............................. 9,000 9,000 9,000 9,000 9,080
====== ======= ======= ====== ========
Basic and diluted net loss per share.............. $(0.07) $ (0.18) $ (0.61) $(0.09) $ (0.25)
====== ======= ======= ====== ========
Proforma:
Net loss.......................................... $ (511) $(1,515) $(5,359) $ (752) $ (2,227)
====== ======= ======= ====== ========
Shares used in computing basic and diluted net
loss per share (from above)..................... 9,000 9,080
Adjusted to reflect the effect of the assumed
conversion of redeemable convertible preferred
stock from the date of issuance................. 8,828 11,172
------- --------
Weighted average shares used in computing pro
forma basic and diluted net loss per share...... 17,828 20,252
======= ========
Pro forma basic and diluted net loss per share.... $ (0.30) $ (0.11)
======= ========
</TABLE>
If the Company had reported net income, diluted earnings per share would
have included the shares used in the computation of pro forma net loss per share
as well as an additional approximately 959,000, 1,577,000, 1,879,000, 1,787,000,
and 2,046,000 common equivalent shares related to the outstanding options and
warrants not included above (determined using the treasury stock method at the
estimated fair value) for the years ended December 31, 1995, 1996 and 1997 and
for the three months ended March 31, 1997 and 1998, respectively.
Income Taxes
Income taxes are calculated under the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (FAS 109). Under FAS
109, the liability method is used in accounting for income taxes, which includes
the effects of temporary differences between financial and taxable amounts of
assets and liabilities.
Comprehensive Income
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (FAS
130). FAS 130 establishes standards for the reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements and is effective for fiscal years beginning after December
15, 1997. The Company adopted FAS 130 in the three months ended March 31, 1998.
F-12
<PAGE> 84
SOFTWARE.NET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND RELATING TO
THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
There was no impact to the Company as a result of the adoption of FAS 130, as
there is no difference between the Company's net loss reported and the
comprehensive net loss under FAS 130 for the periods presented.
Segment Information
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (FAS 131). FAS 131 will change the way
companies report selected segment information in annual financial statements and
requires companies to report selected segment information in interim financial
reports to shareholders. FAS 131 is effective for the Company's fiscal year
ended December 31, 1998. The Company has not reached a conclusion as to the
appropriate segments, if any, it will be required to report to comply under FAS
131.
Software Revenue Recognition
In May 1997, the Financial Accounting Standards Board approved the American
Institute of Certified Public Accountants Statement of Position, "Software
Revenue Recognition" (SOP 97-2). SOP 97-2 provides revised and expanded guidance
on software revenue recognition and applies to all entities that earn revenue
from licensing, selling, or otherwise marketing computer software. SOP 97-2 is
effective for transactions entered into in fiscal years beginning after December
15, 1997. The application of SOP 97-2 has not had a material impact on its
results of operations.
2. DISCONTINUED OPERATIONS
On December 31, 1997, the Company and its stockholders approved a transfer
of assets and liabilities to its wholly owned subsidiary, CyberSource, and the
distribution of CyberSource capital stock, (the "Spin-off"), in the form of a
dividend to the Company's existing stockholders, on a pro rata basis such that
the stockholders of CyberSource were the same as the stockholders of the Company
at the time of the distribution. Revenues of CyberSource were none, $170,000,
$1,128,000 and $96,000 for the years ended December 31, 1995, 1996, and 1997 and
for the three months ended March 31, 1997, respectively. The results of
operation of the discontinued business have been presented as a loss from
discontinued operations.
The components of net assets at December 31, 1996 and at the time of the
Spin-off on December 31, 1997 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
<S> <C> <C>
Assets:
Cash and cash equivalents........................... $ -- $2,000
Accounts receivable................................. 150 606
Prepaid expenses and other assets................... 71 118
Property and equipment.............................. 482 1,152
Less liabilities:
Accounts payable and accrued liabilities............ 141 397
Deferred revenue and other.......................... -- 155
---- ------
Net assets............................................... $562 $3,324
==== ======
</TABLE>
F-13
<PAGE> 85
SOFTWARE.NET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND RELATING TO
THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
3. MARKETING AGREEMENTS
During 1997 and during the quarter ended March 31, 1998, the Company
entered into marketing agreements with America Online, Inc. ("AOL"), Excite,
Inc. ("Excite") and Netscape Communications Corporation ("Netscape").
The AOL Agreement is for a term of 42 months, unless earlier terminated,
and provides for a marketing relationship between AOL and the Company. Pursuant
to this agreement, the Company will be the exclusive provider of electronically
delivered Software on AOL's Web site to AOL customers through links to the
Company's Web site from various AOL Web pages. During the term, AOL is obligated
to deliver a cumulative number of Impressions (as defined in the agreement),
with various cumulative targets throughout the duration of the agreement term.
If AOL does not provide certain cumulative targeted Impressions, AOL will be
required to refund a portion of the fees paid by the Company under this
agreement (or under some circumstances, as outlined in this agreement, AOL will
have the option to extend the term and deliver the Impressions by the end of
that extended term). Upon conclusion of the initial 42 month term, AOL will have
the right to renew the agreement for two successive one year terms.
The Excite agreement is for a term of 36 months pursuant to which the
Company will be the exclusive Software reseller on certain screens within
certain channels of Excite's Web site.
The Netscape agreement is for a term of 24 months pursuant to which the
Company created and manages an online Software store accessible through
Netscape's Internet site.
These marketing agreements provide for payments totalling $7,863,000 in
1998, $8,338,000 in 1999, $8,963,000 in 2000 and $536,000 in 2001. The Company
has paid $1,000,000 of the payments due in 1998 as of March 31, 1998.
Under these agreements, once the Company has generated a certain cumulative
net gross margin from Software sales, the Company will pay specified percentages
of the gross transaction margins from all subsequent software sales transactions
and a percentage of certain advertising revenues.
The amounts paid under these agreements are being amortized to sales and
marketing expenses on a straight-line basis over the applicable contract terms.
The Company has expensed $104,000 and $563,000 related to these agreements in
1997 and the quarter ended March 31, 1998, respectively.
The Company also entered into a Common Stock and Warrants Subscription
Agreement which provides for the sale of $2,000,000 of common stock to AOL on or
immediately prior to the closing of an initial public offering ("IPO") at the
price paid by the Underwriters in the IPO. The agreement also provides for the
issuance of a warrant to purchase the Company's stock. This warrant will expire
upon the IPO. This warrant is for the purchase of 369,578 shares of Series D
preferred stock at an exercise price of $2.60 per share vesting in increments of
1/36 per month commencing March 1, 1998, provided, however that the warrant is
not exercisable until after August 31, 1999, if it does not expire prior to this
in connection with an IPO. In the event the Company initiates an IPO and as a
result the Series D warrant expires, the Company is obligated to deliver a new
warrant (the "IPO Warrant"). The Company is only required to issue this warrant,
however, if AOL purchases the $2,000,000 worth of common stock discussed above
at the time of the IPO.
F-14
<PAGE> 86
SOFTWARE.NET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND RELATING TO
THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
The IPO Warrant will be for the purchase of 1.5 times the number of shares
of common stock purchased by AOL pursuant to the Stock Agreement at an exercise
price per share equal to the IPO price less the underwriter discount. The IPO
warrant will vest in increments of 1/36 per month commencing March 1, 1998.
The Company has determined the value of the Series D warrant to be
approximately $436,000 and has recorded this amount as additional purchase price
for the marketing rights under the marketing agreement. The value of the warrant
is being amortized on a consistent basis with the marketing rights as described
above.
4. LONG-TERM DEBT
In 1994, the Company issued a non-interest bearing note payable of $105,000
in exchange for costs incurred by and cash received from a founder of the
Company. The note payable has been repaid by the Company as of March 31, 1998.
In September 1995, the Company issued notes payable of $300,000. In
February 1996, the $300,000 of principal and $11,000 of accrued interest were
converted into 341,426 shares of Series A preferred stock at a price of $0.91
per share.
5. LEASE COMMITMENTS
Operating Leases
The Company leases its primary facilities and certain equipment under
noncancelable operating leases expiring at various dates through 2002. Rental
expense was approximately $23,000, $101,000, $266,000, and $84,000 for the years
ended December 31, 1995, 1996, and 1997 and for the three months ended March 31,
1998, respectively.
Future minimum lease payments under noncancelable operating leases are as
follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------
<S> <C>
1998........................................................ $ 344
1999........................................................ 298
2000........................................................ 279
2001........................................................ 279
2002........................................................ 240
------
Total minimum lease payments................................ $1,440
======
</TABLE>
Capital Leases
The Company also leases certain equipment under noncancelable lease
agreements that are accounted for as capital leases. Equipment under capital
lease arrangements, included in property and equipment, aggregated approximately
$60,000 at December 31, 1997 and March 31, 1998, respectively. Related
accumulated amortization was approximately $3,000 and $8,000 at December 31,
1997 and March 31, 1998, respectively. Amortization expense related to assets
under capital leases is included with depreciation expense.
F-15
<PAGE> 87
SOFTWARE.NET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND RELATING TO
THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
Future minimum lease payments under noncancelable capital leases are as
follows: (in thousands)
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
1998........................................................ $24
1999........................................................ 24
2000........................................................ 20
---
Total minimum payments...................................... 68
Less amount representing interest........................... 11
---
57
Less current portion........................................ 18
---
$39
===
</TABLE>
6. REDEEMABLE CONVERTIBLE PREFERRED STOCK
Redeemable convertible preferred stock at December 31, 1996 and 1997 and
March 31, 1998 is as follows by series:
<TABLE>
<CAPTION>
SHARES ISSUED AND OUTSTANDING
---------------------------------
DECEMBER 31,
DESIGNATED --------------------- MARCH 31,
SHARES 1996 1997 1998
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
A............................ 1,985,520 1,985,520 1,985,520 1,985,520
B............................ 2,500,000 2,037,038 2,037,038 2,037,038
C............................ 3,000,000 -- 3,000,000 3,000,000
D............................ 1,523,424 -- -- 877,380
--------- --------- --------- ---------
Total preferred stock........ 9,008,944 4,022,558 7,022,558 7,899,938
========= ========= ========= =========
</TABLE>
On April 3, 1998, the Company sold an additional 276,466 shares of Series D
redeemable convertible preferred stock at $2.60 per share.
Holders of Series A, B, C, and D redeemable convertible preferred stock are
entitled to receive annual noncumulative dividends at the rate of $0.040,
$0.2268, $0.1714, and $0.26 per share, respectively, plus, with respect to the
Series B, C and D redeemable convertible preferred stock, cumulative dividends
at a rate of $0.01323, $0.009996 and $0.0152 per share, per month, respectively,
when and if declared by the Board of Directors, payable in preference to common
stock dividends. There have been no dividends declared or payable by the Company
at December 31, 1997 or March 31, 1998.
Each share of preferred stock is convertible at any time at the option of
the holder into shares of common stock at the then effective conversion price.
Each outstanding share of Series A, B, C, and D redeemable convertible preferred
stock is convertible into 2.00, 2.00, 1.00, and 1.00 shares of common stock,
respectively, and is subject to adjustment as specified in the Articles of
Incorporation. The preferred stock will automatically convert into common stock
immediately prior to the consummation of a firm commitment underwritten public
offering under the Securities Act of 1933 in which the sale price to the public
is not less than $3.43 per share, in which the aggregate
F-16
<PAGE> 88
SOFTWARE.NET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND RELATING TO
THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
offering price to the public is not less than $15,000,000, or at such time as
the Company receives the consent of not less than two-thirds of the holders of
the preferred stock.
Each preferred share has voting rights equal to the number of common shares
into which it is convertible. Upon liquidation, the holders of the Series A, B,
C, and D redeemable convertible preferred stock are entitled to receive $0.336,
$2.268, $1.7136, and $2.60 per share, respectively, plus any declared but unpaid
dividends, before any distribution may be made to the holders of common shares.
At any time on or after January 5, 2000, the holders of a majority of the
then outstanding shares of Series A preferred stock may request the redemption
of all outstanding shares of Series A preferred stock. The Company shall redeem
such shares at a price per share of $0.63, plus accrued dividends, if any, for
Series A preferred stock. At any time on or after the sixth anniversary of the
Series B original issue date, the holders of at least two-thirds of the then
outstanding shares of Series B, C and D preferred stock may request the
redemption of all of the outstanding shares of Series B, C and D preferred
stock. The Company shall redeem such shares at a price per share of $2.268,
$1.7136 and $2.60, respectively, plus accrued dividends, if any.
7. STOCKHOLDERS' EQUITY
Common Shares
The Company is authorized to issue 30,000,000 shares of common stock.
Holders of common stock are entitled to one vote per share on all matters to be
voted upon by the stockholders of the Company. Subject to the preferences that
may be applicable to any outstanding shares of preferred stock, the holders of
common stock are entitled to receive ratably such dividends, if any, that may be
declared by the Board of Directors.
The Company has reserved shares of common stock for future issuance as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ ----------
<S> <C> <C>
1995 Stock Option Plan (the Plan):
Options outstanding.................................. 1,016,455 2,686,055
Options available for future grants.................. 913,545 223,945
Options outside of the Plan............................ 1,000,000 1,000,000
Redeemable convertible preferred stock................. 11,045,116 11,922,496
Outstanding warrants................................... -- 369,578
========== ==========
13,975,116 16,202,074
========== ==========
</TABLE>
1995 Stock Option Plan
The Company's 1995 Stock Option Plan (the "Plan") was adopted by the
Company on January 5, 1995. There are 3,000,000 shares of common stock
authorized for issuance under the Plan. The Plan provides for the issuance of
common stock and granting of options to employees, officers, directors,
consultants, independent contractors, and advisors of the Company. The exercise
price of a nonqualifying stock option and an incentive stock option shall not be
less than 85% and 100%, respectively, of the fair value of the underlying shares
on the date of grant. Options granted under the Plan generally vest over four
years at the rate of 25% one year from the grant date and ratably every month
thereafter.
F-17
<PAGE> 89
SOFTWARE.NET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND RELATING TO
THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
In conjunction with the Spin-off of CyberSource on December 31, 1997,
employees of the Company maintained their outstanding options to purchase common
shares of the Company and were granted additional stock options in CyberSource
based on the extent that the employees original options were vested. Employees
of CyberSource immediately following the Spin-off maintained their outstanding
vested stock options in the Company (although these stock options will now be
treated as nonqualified stock options subsequent to the Spin-off) and were
granted additional incentive stock options in CyberSource. The exercise prices
of the original and additional option grants were adjusted to reflect the
allocation of the current fair market value per share price between the
Company's and CyberSource's common stock based on an independent valuation of
the respective fair market value of such shares of common stock. Options to
purchase common shares of the Company held by the CyberSource employees that had
not vested as of the date of the Spin-off were canceled. The following table
summarizes option activity for the period from January 5, 1995 (date of adoption
of the Plan) to December 31, 1995, the years ended December 31, 1996 and 1997,
and the three months ended March 31, 1998, and has been adjusted to
retroactively reflect the change in exercise prices of options to purchase
common shares of the Company. The adjustments and Spin-off of options were
accounted for and in compliance with the guidelines in Emerging Issues Task
Force Issue No. 90-9.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-----------------------
WEIGHTED
AVERAGE
EXERCISE
SHARES NUMBER PRICE PER
AVAILABLE OF SHARES SHARE
---------- --------- ----------
<S> <C> <C> <C>
Shares reserved................................... 1,300,000 --
Options granted................................... (530,000) 530,000 $0.010
---------- ---------
Balance at December 31, 1995........................ 770,000 530,000 $0.010
Additional shares reserved........................ 700,000 -- $ --
Options granted................................... (618,500) 618,500 $0.052
---------- ---------
Balance at December 31, 1996........................ 851,500 1,148,500 $0.033
Options granted................................... (750,700) 750,700 $0.156
Options exercised................................. -- (70,000) $0.031
Options canceled.................................. 110,000 (110,000) $0.135
Cancellation of unvested options held by
CyberSource employees.......................... 702,745 (702,745) $0.097
---------- ---------
Balance at December 31, 1997........................ 913,545 1,016,455 $0.068
Additional shares reserved (unaudited)............ 1,000,000 -- --
Options granted (unaudited)....................... (1,689,600) 1,689,600 $2.253
Options exercised (unaudited)..................... (20,000) $0.008
---------- ---------
Balance at March 31, 1998 (unaudited)............... 223,945 2,686,055 $1.442
========== =========
</TABLE>
F-18
<PAGE> 90
SOFTWARE.NET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND RELATING TO
THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
The following table summarizes information about options outstanding at
December 31, 1997:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED NUMBER OF
OPTIONS AVERAGE OPTIONS
OUTSTANDING WEIGHTED REMAINING EXERCISABLE WEIGHTED
AT AVERAGE CONTRACTUAL AT AVERAGE
EXERCISE DECEMBER 31, EXERCISE LIFE DECEMBER 31, EXERCISE
PRICE 1997 PRICE (YEARS) 1997 PRICE
-------- ------------ -------- ----------- ------------ --------
<S> <C> <C> <C> <C> <C>
$0.004 -- $0.038 669,375 $0.02 7.44 611,667 $0.02
$0.113 233,050 $0.11 9.29 54,781 $0.11
$0.170 79,530 $0.17 9.84 -- $ --
$0.50 34,500 $0.50 9.95 -- $ --
--------- -------
1,016,455 $0.068 666,448 $0.03
========= =======
</TABLE>
At December 31, 1995 and 1996, 194,686 and 573,498 options were exercisable
at a weighted average exercise price of $0.01 and $0.03, respectively.
Options Outside of the 1995 Stock Option Plan
On January 5, 1995, the Company granted options outside of the Plan to its
Chief Technical Officer to purchase 1,000,000 shares of common stock of the
Company at an exercise price of $0.004 per share. None of the options have been
exercised as of March 31, 1998. The remaining contractual life of the options is
approximately four years as of December 31, 1997. The options vested over
approximately fifteen months from the grant date at the rate of 25% one month
from the grant date and ratably every month thereafter. As of December 31, 1997
and March 31, 1998, all options were exercisable.
Stock-Based Compensation
Pro forma information regarding net loss is required by FAS 123, which also
requires that the information be determined as if the Company has accounted for
its employee stock options granted during the period from January 5, 1995 (date
of adoption of the Plan) through December 31, 1995 (1995) and the years ended
December 31, 1996 and 1997 under the fair value method of FAS 123. The fair
value for these options was estimated at the date of grant using the minimum
value method with the following weighted average assumptions: a risk-free
interest rate of 6.3%, 5.6%, and 6.1% for 1995, 1996, and 1997, respectively, no
dividend yield or volatility factors of the expected market price of the
Company's common stock, and a weighted average expected life of the option of
four years.
The option valuation models were developed for use in estimating the fair
value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions, including the expected life of the option. Because the
Company's employee stock options have characteristics significantly different
from those of traded options and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
Had compensation cost for the Company's stock-based compensation plans been
determined using the fair value at the grant dates for awards under those plans
calculated using the minimum
F-19
<PAGE> 91
SOFTWARE.NET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND RELATING TO
THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
value method of FAS 123, the Company's net loss and pro forma basic and diluted
net loss per share would have been increased to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
1995 1996 1997
----- ------- -------
<S> <C> <C> <C>
Pro forma net loss (in thousands).................. $(511) $(1,515) $(5,364)
Pro forma basic and diluted net loss per share..... ($ 0.30)
</TABLE>
The weighted average fair value of options granted, which is the value
assigned to the options under FAS 123, was $0.01, $0.04 and $0.04 for options
granted during 1995, 1996, and 1997, respectively.
The pro forma impact of options on the net loss for the years ended
December 31, 1995, 1996, and 1997 is not representative of the effects on net
income (loss) for future years, as future years will include the effects of
options vesting as well as the impact of multiple years of stock option grants.
The effect of FAS 123 will not be fully reflected until 1998.
8. RELATED PARTY TRANSACTIONS
Pursuant to the terms of an agreement entered into in connection with the
Spin-off of CyberSource, the Company uses services supplied to the Company by
CyberSource on a non-exclusive basis. These services relate to credit card
processing, fraud screening, export control, sales tax computation, electronic
licensing, hosting of electronic downloads and fulfillment notification. Any
discontinuation of such services, or any reduction in performance that requires
the Company to replace such services, would be disruptive to the Company's
business. The Company also received a non-exclusive license to certain
CyberSource Technology. Under the services agreement, the Company is obligated
to compensate CyberSource on a basis of services used per order or transaction.
The Company recorded expenses of approximately $170,000 related to such services
in the quarter ended March 31, 1998.
During the years ended December 31, 1995, 1996, and 1997 and the three
months ended March 31, 1998, legal fees incurred were approximately $24,000,
$112,000, $304,000, and $133,333, respectively, relating to a law firm in which
a current director of the Company is a partner. As of December 31, 1996 and 1997
and March 31, 1998, amounts owed to the law firm were approximately $27,000,
$89,000, and $133,333, respectively.
On March 18, 1998, the Company borrowed $400,000 from CyberSource. This
loan is memorialized in a promissory note issued by the Company to CyberSource,
which provides for repayment in a lump sum on or before September 18, 1998 and
bears interest at a rate of 5.32% compounded semi-annually.
9. LITIGATION
In August 1995, the Company was named as a defendant in a lawsuit for
patent infringement alleging infringement of a patent by selling and
distributing Software over the Internet. The lawsuit was settled in 1997 for an
immaterial amount.
From time to time, the Company may be involved in litigation relating to
claims arising out of its ordinary course of business. The Company believes that
there are no claims or actions pending or threatened against the Company, the
ultimate disposition of which would have a material impact on the Company's
financial position or results of operations.
F-20
<PAGE> 92
SOFTWARE.NET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND RELATING TO
THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
10. INCOME TAXES
No provision for income taxes has been recorded due to operating losses
with no current tax benefit.
As of December 31, 1997, the Company had federal and state net operating
loss carryforwards of approximately $7,200,000. The Company also had federal
research and development tax credit carryforwards of approximately $26,000. The
net operating losses and credit card carryforwards will expire at various dates
beginning in 2009 through 2012, if not utilized. The net operating loss
carryforwards differ from the accumulated deficit primarily as a result of the
accounting for the Spin-off of CyberSource to the Company's preferred and common
stockholders on December 31, 1997.
Utilization of the net operating losses and credits may be subject to a
substantial annual limitation due to the ownership change limitations provided
by the Internal Revenue Code of 1986, as amended, and similar state provisions.
The annual limitation may result in the expiration of net operating losses and
credits before utilization.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1997
--------- ----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards....................... $ 816,000 $2,952,000
Research credit carryforwards.......................... 17,000 43,000
Reserves and accruals.................................. 109,000 151,000
--------- ----------
Total deferred tax assets...................... 942,000 3,146,000
Valuation allowance...................................... (942,000) (3,146,000)
--------- ----------
Net deferred tax assets.................................. $ -- $ --
========= ==========
</TABLE>
Under Statement of Financial Accounting Standards No. 109, (FAS 109),
deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse. Based upon the weight of available evidence, which
includes the Company's historical operating performance, the reported net losses
in 1995, 1996, and 1997, and the uncertainties regarding future results of
operations of the Company, the Company has provided a full valuation allowance
against its net deferred tax assets as it is more likely than not that the
deferred tax assets will not be realized. The valuation allowance increased by
$571,000 during 1996 and increased by $2,204,000 during 1997.
F-21
<PAGE> 93
SOFTWARE.NET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND RELATING TO
THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
11. SUBSEQUENT EVENTS (UNAUDITED)
On April 4, 1998, the Company's Board of Directors and stockholders adopted
the 1998 Stock Option Plan and reserved an aggregate of 2,000,000 shares of
Common Stock for grants of stock options under such plan.
In April 1998, the Company granted options to purchase 1,035,000 shares of
common stock at a weighted average exercise price of $4.94. The Company expects
to record the estimated difference between the exercise price of the options and
the deemed fair value of approximately $700,000 over the vesting period of the
options.
The Company entered into a credit agreement (the "Credit Agreement") with
Deutsche Bank AG ("Deutsch Bank")in May 1998. Pursuant to the Credit Agreement,
on May 21, 1998, Deutsche Bank issued a standby letter of credit to the Company
in the amount of approximately $600,000 (the "Credit Facility") and loaned the
Company approximately an additional $4,200,000 (the "Loan"). The Loan bears
interest at a rate equal to the higher of (i) the daily Federal Funds Rate plus
0.5% per annum or (ii) Deutsche Bank daily prime lending rate ("Base Rate"),
plus 3.0%, per annum. Interest is payable quarterly, in arrears, during the term
of the Credit Agreement. The Company is also required to pay a standby letter of
credit fee equal to a percentage of the face amount of the Credit Facility equal
to the Base Rate plus 3% less the LIBOR rate for a three-month loan. In
conjunction with the Credit Agreement, the Company is required to pay to
Deutsche Bank (i) an upfront fee of $120,000 and (ii) a credit line fee equal to
7.50% of the amount by which the Company's gross revenues during the term of the
Credit Agreement exceed certain agreed upon thresholds, subject to maximum
payments of $337,500 in the aggregate. All amounts borrowed under the Credit
Agreement are due on November 16, 1998. In connection with the Credit Agreement,
Deutsche Bank will receive a first priority lien on all of the Company's assets,
including intellectual property. Pursuant to the terms of the Credit Agreement,
the Company is subject to certain financial and non-financial covenants.
F-22
<PAGE> 94
DESCRIPTION OF GRAPHICS
The graphic will depict the Company's Web Site, its customer value
proposition and its relationships with it key marketing partners, AOL, Netscape
and Excite.
<PAGE> 95
NO DEALER, SALESPERSON OR ANY OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR A SOLICITATION OF ANY OFFER TO BUY, THE COMMON STOCK IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH AN
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE HEREOF.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
The Company........................... 4
Risk Factors.......................... 5
Use of Proceeds....................... 19
Dividend Policy....................... 19
Capitalization........................ 20
Dilution.............................. 21
Selected Consolidated Financial
Data................................ 22
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 23
Business.............................. 32
Management............................ 48
Certain Transactions.................. 55
Principal Stockholders................ 60
Description of Capital Stock.......... 62
Shares Eligible for Future Sale....... 65
Underwriting.......................... 67
Legal Matters......................... 69
Experts............................... 69
Additional Information................ 69
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
UNTIL , 1998, (25 DAYS FROM THE DATE OF THIS
PROSPECTUS) ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
- ---------------------------------------------------------
LOGO
5,000,000 SHARES
COMMON STOCK
DEUTSCHE MORGAN GRENFELL
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MERRILL LYNCH & CO.
C.E. UNTERBERG, TOWBIN
PROSPECTUS
, 1998
<PAGE> 96
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than the
underwriting discount, payable by the registrant in connection with the sale of
the Common Stock being registered hereby. All amounts shown are estimates,
except the Securities and Exchange Commission registration fee, the NASD filing
fee and the Nasdaq National Market listing fee:
<TABLE>
<S> <C>
Securities and Exchange Commission filing fee............... $ 15,340
NASD filing fee............................................. 5,500
Nasdaq National Market listing fee.......................... 1,000
Blue Sky fees and expenses.................................. 5,000
Printing and engraving expenses............................. 150,000
Legal fees and expenses..................................... 250,000
Accounting fees and expenses................................ 200,000
Transfer Agent and Registrar fees........................... 25,000
Miscellaneous............................................... 98,160
--------
Total............................................. $750,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law (the "DGCL") provides
that a corporation may indemnify directors and officers, as well as other
employees and individuals, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement in connection with specified
actions, suits or proceedings, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation -- a
"derivative action"), if they acted in good faith and in a manner they
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 their conduct was unlawful. A similar standard is
applicable in the case of derivative actions, except that indemnification only
extends to expenses (including attorneys' fees) incurred in connection with the
defense or settlement of such actions, and the statute requires court approval
before there can be any indemnification where the person seeking indemnification
has been found liable to the corporation. The statute provides that it is not
exclusive of other indemnification that may be granted by a corporation's
charter, bylaws, disinterested director vote, stockholder vote, agreement or
otherwise.
Article 6 of the registrant's Bylaws (Exhibit 3.2 hereto) permits
indemnification to the full extent permitted under Delaware law as it now exists
or may hereafter be amended. Subject to any restrictions imposed by Delaware
law, the Bylaws permit an unconditional right to indemnification for all
expense, liability and loss (including attorneys' fees, judgment, fines, ERISA
excise taxes or penalties and amounts paid in settlement) actually and
reasonably incurred or suffered by any person in connection with any actual or
threatened action, suit or proceeding, whether civil, criminal, administrative
or investigative (including, to the extent permitted by law, any derivative
action) by reason of the fact that such person is or was serving as a director
or officer of the registrant or that, being or having been a director or officer
of the registrant, such person is or was serving at the request of the
registrant as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, including service with
respect to an employee benefit plan. The Bylaws also provide that the registrant
may, by action of its Board of Directors, provide indemnification to its
employees and agents with the same scope and effect as the foregoing
indemnification of directors and officers.
II-1
<PAGE> 97
Section 102(b)(7) of the DGCL permits a corporation to provide in its
certificate of incorporation that a director of the corporation shall not be
personally liable to the corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability for (i) any
breach of the director's duty of loyalty to the corporation or its stockholders,
(ii) acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) payments of unlawful dividends or unlawful
stock repurchases or redemptions, or (iv) any transaction from which the
director derived an improper personal benefit.
Article IX of the registrant's Certificate of Incorporation (Exhibit 3.1
hereto) provides that to the full extent that the DGCL, as it now exists or may
hereafter be amended, permits the limitation or elimination of the liability of
directors, a director of the registrant shall not be liable to the registrant or
its stockholders for monetary damages for breach of fiduciary duty as a
director. Any amendment to or repeal of such Article IX shall not adversely
affect any right or protection of a director of the registrant for or with
respect to any acts or omissions of such director occurring prior to such
amendment or repeal.
The registrant has entered into certain indemnification agreements with its
officers and directors, the form of which is attached as Exhibit 11.1 to this
Registration Statement and incorporated herein by reference. The indemnification
agreements provide the registrant's officers and directors with further
indemnification to the maximum extent permitted by the DGCL. Reference is made
to the Underwriting Agreement (Exhibit 1.1 hereto), in which the Underwriters
have agreed to indemnify the officers and directors of the registrant against
certain liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since January 1995, the registrant has issued and sold unregistered
securities as follows:
(1) On January 9, 1995, the registrant issued an aggregate of 1,437,500
shares of Series A Preferred Stock which are convertible into 2,875,000 shares
of Common Stock, to ten investors for a consideration of $0.40 per share of
Series A Preferred Stock ($0.33 per share as adjusted for the Spin-off), or an
aggregate of $575,000. The purchasers consisted of one investor that is
presently related to a director who purchased 500,000 shares and nine
unaffiliated investors who purchased 937,500 shares.
(2) On February 27, 1996, the registrant issued an aggregate of 548,020
shares of Series A Preferred Stock which are convertible into 1,096,040 shares
of Common Stock, to three investors for a consideration of $0.91 per share of
Series A Preferred Stock ($0.76 per share as adjusted for the Spin-off), or an
aggregate of $498,697. The purchasers consisted of one investor that is
presently related to a director who purchased 253,131 shares and two
unaffiliated investors who purchased 294,889 shares. Each of the purchasers had
previously purchased Series A Preferred Stock in January, 1995.
(3) On July 24, 1996, the registrant issued an aggregate of 2,037,038
shares of Series B Preferred Stock which are convertible into 4,074,076 shares
of Common Stock, to eleven investors for a consideration of $2.70 per share of
Series B Preferred Stock ($2.25 per share as adjusted for the Spin-off), or an
aggregate of approximately $5,500,000. The purchasers consisted of one investor
that is presently related to a director who purchased 925,926 shares and ten
unaffiliated investors who purchased 1,111,112 shares.
(4) On September 26, 1997, September 30, 1997 and December 5, 1997, the
registrant issued an aggregate of 3,000,000 shares of Series C Preferred Stock
which are convertible into 3,000,000 shares of Common Stock, to 19 investors for
a consideration of $2.04 per share of Series C Preferred Stock ($1.70 per share
as adjusted for the Spin-off), or an aggregate of approximately $6,120,000. The
purchasers consisted of eleven investors that are presently related to certain
directors who purchased 2,677,450 shares and eight unaffiliated investors who
purchased 322,550 shares.
II-2
<PAGE> 98
(5) On March 18, 1997, and April 3, 1998, the registrant issued an
aggregate of 1,153,846 shares of Series D Preferred Stock which are convertible
into 1,153,846 shares of Common Stock to eleven investors for a consideration of
$2.60 per share, or an aggregate of approximately $3,000,000. The purchasers
consisted of ten investors that are presently related to certain directors who
purchased 1,145,264 shares and one unaffiliated investor who purchased 8,582
shares.
(6) In March 1998, the Company entered in an agreement with AOL pursuant to
which, subject to certain limited exception, AOL agreed to buy shares of the
Company's Common Stock at a price per share equal to the initial public offering
price (less Underwriters' discount) for an aggregate purchase price of
$2,000,000. Based on an initial public offering price of $8.00 per share, AOL
will purchase 268,817 shares of Common Stock immediately prior to the
consummation of this offering. Concurrent with the purchase of the shares of
Common Stock by AOL, the Company will issue to AOL a Warrant for an amount of
Common Stock equal to 1.5 times the number of shares purchased by AOL in the
aforementioned investment at a per share exercise price equal to the initial
public offering price (less Underwriters' discount) which will vest in
increments of 1/36th per month commencing March 1, 1998. Based on an offering
price of $8.00 per share and an underwriting discount of $0.56 per share, the
Company will issue to AOL a Warrant for 403,225 shares of Common Stock
immediately prior to the consummation of this offering.
(7) In March 1998, the registrant also issued to AOL a Warrant to purchase
369,578 shares of the registrant's Series D Preferred Stock at a price of $2.60
per share vesting in increments of 1/36th per month commencing March 1, 1998;
provided, however, that the Warrant is not exercisable until after August 31,
1999, except in the event of a change of control (as defined therein). This
Warrant will terminate in accordance with its terms immediately prior to the
consummation of this offering.
Each of the foregoing purchases and sales were exempt from registration
under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to
Section 4(2) thereof on the basis that the transactions did not involve public
offerings.
(8) From January 5, 1995 through the date of May 15, 1998, the registrant
granted stock options to purchase 4,631,800 shares of Common Stock, with
exercise prices ranging from $0.0042 to $7.00 per share, to employees,
consultants, and directors pursuant to its 1995 and 1998 Stock Option Plans. Of
these options, options for 812,745 have been canceled without being exercised,
options for 90,000 shares have been exercised and options for 3,729,055 shares
remain outstanding. From January 5, 1995 through the date of the Prospectus, the
registrant also granted stock options outside of any plan to purchase 1,000,000
shares of the registrant's Common Stock, with an exercise price of $0.004 per
share. Of these options, none have been canceled, none have been exercised and
1,000,000 remain outstanding.
The sales and issuances of these securities were exempt from registration
under the Securities Act pursuant to either Rule 701 promulgated thereunder on
the basis that these options were offered and sold either pursuant to a written
compensatory benefit plan or pursuant to a written contract relating to
consideration, as provided by Rule 701, or pursuant to Section 4(2) thereof on
the basis that the transactions did not involve a public offering.
II-3
<PAGE> 99
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S> <C>
1.1 -- Form of Underwriting Agreement.
3.1 -- Form of Certificate of Incorporation of the Registrant.
3.2 -- Form of Bylaws of the Registrant.
*4.1 -- Specimen of Certificate for Common Stock.
*5.1 -- Opinion of Jackson Tufts Cole & Black, LLP.
**9.1 -- Shareholders Agreement dated March 18, 1998, by and between
the Registrant and each of the holders of the Registrant's
Series C and Series D Preferred Stock.
*10.1 -- Form of Indemnification Agreement.
**10.2 -- 1995 Stock Option Plan, as amended.
**10.3 -- 1998 Stock Option Plan.
**10.4 -- Stock Option Agreement dated as of March 31, 1995, by and
between the Registrant and John Pettitt.
**10.5 -- Series A Preferred Stock Purchase Agreement, as amended.
**10.6 -- Series B Preferred Stock Purchase Agreement.
**10.7 -- Series C Preferred Stock Purchase Agreement.
**10.8 -- Series D Preferred Stock Purchase Agreement.
**10.9 -- Common Stock and Warrants Subscription Agreement dated as of
March 18, 1998, by and between the Registrant and America
Online, Inc.
**10.10 -- Conveyance Agreement dated as of December 31, 1997, by and
between the Registrant and Internet Commerce Services
Corporation (now known as CyberSource Corporation).
+10.11 -- Interactive Marketing Agreement dated as of March 1, 1998,
by and between the Registrant and America Online, Inc.
+10.12 -- Sponsorship Agreement dated as of March 30, 1998, by and
between the Registrant and Excite, Inc.
+10.13 -- Co-Marketing Services Agreement dated as of June 23, 1997,
by and between the Registrant and Netscape Communications
Corporation.
10.14 -- Trademark License Agreement dated as of June 23, 1997, by
and between the Registrant and Netscape Communications
Corporation.
+10.15 -- Government Integrator Agreement (#3622) dated as of May 5,
1995, by and between the Registrant and Microsoft
Corporation.
10.16 Offer letter to Mark Breier.
10.17 Credit Agreement dated as of May 21, 1998 among the
Registrant, Deutsche Bank AG, New York Branch, as Agent and
the other financial institutions party hereto.
**10.18 -- Agreement dated as of July 3, 1996, by and between the
Registrant and the United States Department of Defense,
Defense Mapping Agency
(#N00140-96-C-2410).
**10.19 -- Agreement dated as of June 12, 1997, by and between the
Registrant and the United States Department of Defense,
Defense Logistics Agency
(#N00140-97-D-1756).
+10.20 -- Inter-Company Cross License Agreement dated as of April 23,
1998, by and between the Registrant and Internet Commerce
Services (now known as CyberSource Corporation), as amended
on May 19, 1998.
**10.21 -- Promissory Note dated as of April 15, 1998, by and between
the Registrant and William S. McKiernan.
**10.22 -- Pledge Agreement as of April 15, 1998, by and between the
Registrant and William S. McKiernan.
10.23 -- Internet Services and Products Agreement dated as of April
29, 1996, by and between the Registrant and Exodus
Communications, Inc.
+10.24 -- Internet Commerce Services Agreement dated as of April 23,
1998, by and between the Registrant and CyberSource
Corporation, as amended on May 19, 1998.
</TABLE>
II-4
<PAGE> 100
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S> <C>
10.25 -- Office Building Lease dated as of July 8, 1997, as amended,
by and between the Registrant and PGP-South Bay Office
Towers, Inc.
10.26 Agreement dated as of December 19, 1995, by and between the
Registrant and the United States Department of Defense, DFAS
(#N00140-96-G-D115).
10.27 Call Center Agreement dated as of October 17, 1997, by and
between the Registrant and LOGISTIX.
*10.28 -- Letter Agreement for Resale and Electronic Distribution
dated as of October 13, 1995, by and between the Registrant
and Microsoft Corporation.
*10.29 -- IBM Assistance Agreement dated as of October 13, 1995, by
and between the Registrant and IBM Corporation.
23.1 -- Consent of Ernst & Young LLP, Independent Auditors.
23.2 -- Consent of Jackson Tufts Cole & Black, LLP (included in
Exhibit 5.1).
**24.1 -- Power(s) of Attorney (see page II-7).
27.1 -- Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
** Previously filed.
+ Confidential Treatment Requested.
(b) Financial Statement Schedules
II. VALUATION AND QUALIFYING ACCOUNTS
SOFTWARE.NET CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND DEDUCTION/ END OF
DESCRIPTION OF PERIOD EXPENSES WRITEOFF PERIOD
----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Year ended December 31, 1995
Accounts receivable allowances................. $ -- $ -- $ -- $ --
Year ended December 31, 1996
Accounts receivable allowances................. $ -- $ 77 $(12) $ 65
Year ended December 31, 1997
Accounts receivable allowances................. $ 65 $240 $(30) $275
</TABLE>
All schedules omitted are inapplicable or the requested information is
shown in the financial statements of the registrant or related notes thereto.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 14, 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 of
II-5
<PAGE> 101
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 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-6
<PAGE> 102
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Second Amendment to Registration Statement to be signed on
its behalf by the undersigned, hereunto duly authorized in San Jose, California,
on May 26, 1998.
software.net Corporation
By: /s/ WILLIAM S. MCKIERNAN
------------------------------------
William S. McKiernan
Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, this Second
Amendment to Registration Statement has been signed by the following persons in
the capacities indicated on the 26th day of May, 1998.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
Principal Executive Officer:
By: /s/ WILLIAM S. MCKIERNAN* Chairman of the Board May 27, 1998
-------------------------------------------------
William S. McKiernan
Principal Financial Officer and Principal Accounting Officer:
By: /s/ MICHAEL J. PRAISNER Vice President, Finance & May 27, 1998
------------------------------------------------- Administration and Chief
Michael J. Praisner Financial Officer
Additional Directors:
By: /s/ MARK L. BREIER* President, Chief Executive May 27, 1998
------------------------------------------------- Officer and Director
Mark L. Breier
By: /s/ LINDA FAYNE LEVINSON* Director May 27, 1998
-------------------------------------------------
Linda Fayne Levinson
By: /s/ HUBERT E. KOLDE* Director May 27, 1998
-------------------------------------------------
Hubert E. Kolde
By: /s/ STEVEN P. NOVAK* Director May 27, 1998
-------------------------------------------------
Steven P. Novak
By: /s/ RICHARD SCUDELLARI* Director May 27, 1998
-------------------------------------------------
Richard Scudellari
By: /s/ MICHAEL J. PRAISNER
-------------------------------------------------
Michael J. Praiser
Attorney-in-Fact
</TABLE>
II-7
<PAGE> 103
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S> <C>
1.1 -- Form of Underwriting Agreement.
3.1 -- Form of Certificate of Incorporation of the Registrant.
3.2 -- Form of Bylaws of the Registrant.
*4.1 -- Specimen of Certificate for Common Stock.
*5.1 -- Opinion of Jackson Tufts Cole & Black, LLP.
**9.1 -- Shareholders Agreement dated March 18, 1998, by and between
the Registrant and each of the holders of the Registrant's
Series C and Series D Preferred Stock.
*10.1 -- Form of Indemnification Agreement.
**10.2 -- 1995 Stock Option Plan, as amended.
**10.3 -- 1998 Stock Option Plan.
**10.4 -- Stock Option Agreement dated as of March 31, 1995, by and
between the Registrant and John Pettitt.
**10.5 -- Series A Preferred Stock Purchase Agreement, as amended.
**10.6 -- Series B Preferred Stock Purchase Agreement.
**10.7 -- Series C Preferred Stock Purchase Agreement.
**10.8 -- Series D Preferred Stock Purchase Agreement.
**10.9 -- Common Stock and Warrants Subscription Agreement dated as of
March 18, 1998, by and between the Registrant and America
Online, Inc.
**10.10 -- Conveyance Agreement dated as of December 31, 1997, by and
between the Registrant and Internet Commerce Services
Corporation (now known as CyberSource Corporation).
+10.11 -- Interactive Marketing Agreement dated as of March 1, 1998,
by and between the Registrant and America Online, Inc.
+10.12 -- Sponsorship Agreement dated as of March 30, 1998, by and
between the Registrant and Excite, Inc.
+10.13 -- Co-Marketing Services Agreement dated as of June 23, 1997,
by and between the Registrant and Netscape Communications
Corporation.
10.14 -- Trademark License Agreement dated as of June 23, 1997, by
and between the Registrant and Netscape Communications
Corporation.
+10.15 -- Government Integrator Agreement (#3622) dated as of May 5,
1995, by and between the Registrant and Microsoft
Corporation.
10.16 Offer letter to Mark Breier.
10.17 Credit Agreement dated as of May 21, 1998 among the
Registrant, Deutsche Bank AG, New York Branch, as Agent and
the other financial institutions party hereto.
**10.18 -- Agreement dated as of July 3, 1996, by and between the
Registrant and the United States Department of Defense,
Defense Mapping Agency
(#N00140-96-C-2410).
**10.19 -- Agreement dated as of June 12, 1997, by and between the
Registrant and the United States Department of Defense,
Defense Logistics Agency
(#N00140-97-D-1756).
+10.20 -- Inter-Company Cross License Agreement dated as of April 23,
1998, by and between the Registrant and Internet Commerce
Services (now known as CyberSource Corporation), as amended
on May 19, 1998.
**10.21 -- Promissory Note dated as of April 15, 1998, by and between
the Registrant and William S. McKiernan.
**10.22 -- Pledge Agreement as of April 15, 1998, by and between the
Registrant and William S. McKiernan.
10.23 -- Internet Services and Products Agreement dated as of April
29, 1996, by and between the Registrant and Exodus
Communications, Inc.
</TABLE>
<PAGE> 104
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S> <C>
+10.24 -- Internet Commerce Services Agreement dated as of April 23,
1998, by and between the Registrant and CyberSource
Corporation, as amended on May 19, 1998.
10.25 -- Office Building Lease dated as of July 8, 1997, as amended,
by and between the Registrant and PGP-South Bay Office
Towers, Inc.
10.26 Agreement dated as of December 19, 1995, by and between the
Registrant and the United States Department of Defense, DFAS
(#N00140-96-G-D115).
10.27 Call Center Agreement dated as of October 17, 1997, by and
between the Registrant and LOGISTIX.
*10.28 -- Letter Agreement for Resale and Electronic Distribution
dated as of October 13, 1995, by and between the Registrant
and Microsoft Corporation.
*10.29 -- IBM Assistance Agreement dated as of October 13, 1995, by
and between the Registrant and IBM Corporation.
23.1 -- Consent of Ernst & Young LLP, Independent Auditors.
23.2 -- Consent of Jackson Tufts Cole & Black, LLP (included in
Exhibit 5.1).
**24.1 -- Power(s) of Attorney (see page II-7).
27.1 -- Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
** Previously filed.
+ Confidential Treatment Requested.
<PAGE> 1
EXHIBIT 1.1
DEUTSCHE MORGAN GRENFELL INC.
EQUITY CAPITAL MARKETS
DATED _________, 1998
SOFTWARE.NET CORPORATION
5,000,000 SHARES
COMMON STOCK
- --------------------------------------------------------------------------------
UNDERWRITING
AGREEMENT
- --------------------------------------------------------------------------------
<PAGE> 2
SUBJECT TO NEGOTIATION.
SOFTWARE.NET CORPORATION
5,000,000 SHARES
PLUS AN OPTION TO PURCHASE FROM SOFTWARE.NET CORPORATION
UP TO 750,000 ADDITIONAL SHARES TO COVER OVER-ALLOTMENTS
COMMON STOCK
UNDERWRITING AGREEMENT
____________, 1998
DEUTSCHE MORGAN GRENFELL INC.
DONALDSON LUFKIN & JENRETTE SECURITIES CORPORATION
MERRILL LYNCH & CO.
C. E. UNTERBERG, TOWBIN
As Representatives of the several Underwriters
c/o Deutsche Morgan Grenfell Inc.
31 West 52nd Street
New York, New York 10019
Dear Sirs:
software.net Corporation, a Delaware corporation (the "Company"),
hereby confirms its agreement with the several underwriters named in Schedule 1
hereto (the "Underwriters"), for whom you have been duly authorized to act as
representatives (the one or more firms acting in such capacities, the
"Representatives"), as set forth below. If you are the only Underwriters, all
references herein to the Representatives shall be deemed to be references to the
Underwriters.
Section 1. Underwriting. Subject to the terms and conditions contained herein:
(a) The Company proposes to issue and sell 5,000,000 shares of common
stock, par value $0.001 per share (the "Common Stock"), of the Company ("the
Firm Shares") to the several Underwriters. The Company also proposes to issue
and sell to the several Underwriters not more than 750,000 additional shares of
Common Stock (the "Option Shares" and, together with the Firm Shares, the
"Shares") if requested by the Representatives as provided in Section 2(b)
hereof.
<PAGE> 3
(b) Upon your authorization of the release of the Firm Shares, the
Underwriters propose to make a public offering (the "Offering") of the Firm
Shares upon the terms set forth in the Prospectus (as defined below) as soon
after the Registration Statement (as defined below) and this Agreement have
become effective as in the Representatives' sole judgment is advisable. As used
in this Agreement, the term "Original Registration Statement" means the
registration statement (File No. 333-51121) initially filed with the Securities
and Exchange Commission (the "Commission") relating to the Shares, as amended at
the time when it was or is declared effective, including all financial schedules
and exhibits thereto and including any information omitted therefrom pursuant to
Rule 430A under the Securities Act of 1933, as amended (the "Securities Act"),
and included in the Prospectus; the term "Rule 462(b) Registration Statement"
means any registration statement filed with the Commission pursuant to Rule
462(b) under the Securities Act (including the Registration Statement and any
Preliminary Prospectus (as defined below) or Prospectus incorporated therein at
the time such Registration Statement becomes effective); the term "Registration
Statement" includes both the Original Registration Statement and any Rule 462(b)
Registration Statement; the term "Preliminary Prospectus" means each prospectus
subject to completion filed with the Original Registration Statement or any
amendment thereto (including the prospectus subject to completion, if any,
included in the Original Registration Statement or any amendment thereto at the
time it was or is declared effective); the term "Prospectus" means:
(i) if the Company relies on Rule 434 under the Securities Act, the
Term Sheet (as defined below) relating to the Shares that is first
filed pursuant to Rule 424(b)(7) under the Securities Act, together
with the Preliminary Prospectus identified therein that such Term
Sheet supplements;
(ii) if the Company does not rely on Rule 434 under the Securities
Act, the prospectus first filed with the Commission pursuant to Rule
424(b) under the Securities Act;
(iii) if the Company does not rely on Rule 434 under the Securities
Act and if no prospectus is required to be filed pursuant to Rule
424(b) under the Securities Act, the prospectus included in the
Registration Statement; or
(iv) for purposes of the representations and warranties in Section 5
hereof, if the prospectus is not in existence, the most recent
Preliminary Prospectus;
and the term "Term Sheet" means any term sheet that satisfies the requirements
of Rule 434 under the Securities Act. Any reference herein to the "date" of a
Prospectus that includes a Term Sheet shall mean the date of such Term Sheet.
-2-
<PAGE> 4
Section 2. Purchase and Closing.
(a) On the basis of the representations, warranties, agreements and
covenants herein contained and subject to the terms and conditions herein set
forth, the Company agrees to issue and sell to each of the Underwriters, and
each of the Underwriters, severally and not jointly, agrees to purchase from the
Company, at a purchase price of $___ per Share (the "Purchase Price"), the
number of Firm Shares set forth opposite the name of such Underwriter in
Schedule 1 hereto. Firm Shares shall be registered by _________ in the name of
the nominee of the Depository Trust Company ("DTC"), Cede & Co. ("Cede & Co."),
and credited to the accounts of such of its participants as the Representatives
shall request, upon notice to the Company at least 48 hours prior to the First
Closing Date (as defined below), with any transfer taxes payable in connection
with the transfer of the Firm Shares to the Underwriters duly paid, against
payment by or on behalf of the Underwriters to the account of the Company of the
aggregate Purchase Price therefor by wire transfer in immediately available
funds. The Company will make the certificate or certificates for the Firm Shares
available for checking and packaging by the Representatives at the offices in
New York, New York of the Company's transfer agent or registrar or of the
Representatives at least 24 hours prior to the First Closing Date. Delivery or
registry of and payment for the Firm Shares shall be made at the offices of
Venture Law Group, A Professional Corporation, 2800 Sand Hill Road, Menlo Park,
CA 94025 at 9:30 A.M., New York City time, on _________, 1998 on the fourth full
business day following the date of this Agreement, or at such other place, time
or date as the Representatives and the Company may agree upon. Such time and
date of delivery against payment are herein referred to as the "First Closing
Date", and the implementation of all the actions described in this Section 2(a)
is herein referred to as the "First Closing".
(b) For the purpose of covering any over-allotments in connection with
the distribution and sale of the Firm Shares as contemplated by the Prospectus,
the Company hereby grants to the several Underwriters an option to purchase,
severally and not jointly, the Option Shares. The purchase price to be paid for
any Option Shares shall be the same as the Purchase Price for the Firm Shares
set forth above in paragraph (a) of this Section 2 plus, if the purchase and
sale of any Option Shares takes place after the First Closing Date and after the
Firm Shares are trading "ex-dividend", an amount equal to the dividends payable
on such Option Shares. The option granted hereby may be exercised as to all or
any part of the Option Shares from time to time within thirty days after the
date of the Prospectus (or, if such 30th day shall be a Saturday or Sunday or a
holiday, on the next business day thereafter when the New York Stock Exchange
and the Nasdaq Stock Market's National Market (the "Nasdaq National Market") is
open for trading). The Underwriters shall not be under any obligation to
purchase any of the Option Shares prior to the exercise of such option. The
Representatives may from time to time exercise the option granted hereby by
giving notice in writing or by telephone (confirmed in writing) to the Company
setting forth the aggregate number of Option Shares as to which the several
Underwriters are then exercising the option and the date and time for delivery
or registry of and payment for such Option Shares. Any such date of delivery or
registry shall be determined by the Representatives but shall not be earlier
than two business days or later than five business days after such exercise of
the option and, in any event, shall not be earlier than the First Closing Date.
The time and date set forth in such notice, or such other time or date as the
-3-
<PAGE> 5
Representatives and the Company may agree upon or as the Representatives may
determine pursuant to Section 2(a) hereof, is herein called an "Option Closing
Date" with respect to such Option Shares, and the implementation of all the
actions described in this Section 2(b) is herein referred to as the "Option
Closing". As used in this Agreement, the term "Closing Date" means either the
First Closing Date or any Option Closing Date, as applicable, and the term
"Closing" means either the First Closing or any Option Closing, as applicable.
If the option is exercised as to all or any portion of the Option Shares, then
either one or more certificates in definitive form for such Option Shares shall
be delivered or, if such Option Shares are to be held through DTC, such Option
Shares shall be registered and credited, on the related Option Closing Date in
the same manner, and upon the same terms and conditions, set forth in paragraph
(a) of this Section 2, except that reference therein to the Firm Shares and the
First Closing Date shall be deemed, for purposes of this paragraph (b), to refer
to such Option Shares and Option Closing Date, respectively. Upon exercise of
the option as provided herein, the Company shall become obligated to sell to
each of the several Underwriters, and, on the basis of the representations,
warranties, agreements and covenants herein contained and subject to the terms
and conditions herein set forth, each of the Underwriters (severally and not
jointly) shall become obligated to purchase from the Company, the same
percentage of the total number of the Option Shares as to which the several
Underwriters are then exercising the option as such Underwriter is obligated to
purchase of the aggregate number of Firm Shares, as adjusted by the
Representatives in such manner as they deem advisable to avoid fractional
shares.
(c) The Company hereby acknowledges that the payment of monies
pursuant to Section 2(a) hereof (a "Payment") by or on behalf of the
Underwriters of the aggregate Purchase Price for any Shares does not constitute
closing of a purchase and sale of the Shares. Only execution and delivery, by
facsimile or otherwise, of a receipt for Shares by the Underwriters indicates
completion of the closing of a purchase of the Shares from the Company.
Furthermore, in the event that the Underwriters make a Payment to the Company
prior to the completion of the closing of a purchase of Shares, the Company
hereby acknowledges that until the Underwriters execute and deliver such receipt
for the Shares the Company will not be entitled to the Payment and shall return
the Payment to the Underwriters as soon as practicable (by wire transfer of
same-day funds) upon demand. In the event that the closing of a purchase of
Shares is not completed and the Payment is not returned by the Company to the
Underwriters on the same day the Payment was received by the Company, the
Company agrees to pay to the Underwriters in respect of each day the Payment is
not returned by it, in same-day funds, interest on the amount of such Payment in
an amount representing the Underwriters' cost of financing as reasonably
determined by the Representatives.
(d) It is understood that any of you, individually and not as one of
the Representatives, may (but shall not be obligated to) make Payment on behalf
of any Underwriter or Underwriters for any of the Shares to be purchased by such
Underwriter or Underwriters. No such Payment shall relieve such Underwriter or
Underwriters from any of its or their obligations hereunder.
-4-
<PAGE> 6
Section 3. Covenants of the Company. The Company covenants and agrees with the
several Underwriters that:
(a) The Company will:
(i) use its best efforts to cause the Registration Statement, if
not effective at the time of execution of this Agreement, and any
amendments thereto to become effective as promptly as possible. If
required, the Company will file the Prospectus or any Term Sheet
that constitutes a part thereof and any amendment or supplement
thereto with the Commission in the manner and within the time
period required by Rules 434 and 424(b) under the Securities Act.
During any time when a prospectus relating to the Shares is
required to be delivered under the Securities Act, the Company (x)
will comply with all requirements imposed upon it by the
Securities Act and the rules and regulations of the Commission
thereunder to the extent necessary to permit the continuance of
sales of or dealings in the Shares in accordance with the
provisions hereof and of the Prospectus, as then amended or
supplemented, and (y) will not file with the Commission the
Prospectus, Term Sheet, any amendment or supplement to such
Prospectus or Term Sheet, any amendment to the Registration
Statement (including the amendment referred to in the second
sentence of Section 5(a)(i)) or any Rule 462(b) Registration
Statement unless the Representatives previously have been advised
of, and furnished with a copy within a reasonable period of time
prior to, the proposed filing and the Representatives shall have
given their consent to such filing. The Company will prepare and
file with the Commission, in accordance with the rules and
regulations of the Commission, promptly upon request by the
Representatives or counsel for the Underwriters, any amendments to
the Registration Statement or amendments or supplements to the
Prospectus that may be necessary or advisable in connection with
the distribution of the Shares by the several Underwriters. The
Company will advise the Representatives, promptly after receiving
notice thereof, of the time when the Registration Statement or any
amendment thereto has been filed or declared effective or the
Prospectus or Term Sheet or any amendment or supplement thereto
has been filed and will provide evidence satisfactory to the
Representatives of each such filing or effectiveness.
(ii) without charge, provide (x) to the Representatives and to
counsel for the Underwriters, an executed and a conformed copy of
the Original Registration Statement and each amendment thereto or
any Rule 462(b) Registration Statement (in each case including
exhibits thereto), (y) to each other Underwriter, a conformed copy
of the Original Registration Statement and each amendment thereto
or any Rule 462(b) Registration Statement (in each case without
exhibits thereto), and (z) so long as a prospectus relating to the
Shares is required to be delivered under the
-5-
<PAGE> 7
Securities Act, as many copies of each Preliminary Prospectus or
the Prospectus or any amendment or supplement thereto as the
Representatives may reasonably request. Without limiting the
application of clause (z) of the preceding sentence, the Company,
not later than (I) 9:00 A.M., New York City time, on the business
day following the date of determination of the public offering
price, if such determination occurred at or prior to 12:00 noon,
New York City time, on such date or (II) 6:00 P.M., New York City
time, on the business day following the date of determination of
the public offering price, if such determination occurred after
12:00 noon, New York City time, on such date, will deliver to the
Underwriters, without charge, as many copies of the Prospectus and
any amendment or supplement thereto as the Representatives may
reasonably request for purposes of confirming orders that are
expected to settle on the First Closing Date. The Company will
provide or cause to be provided to each of the Representatives,
and to each Underwriter that so requests in writing, a copy of
each report on Form SR filed by the Company as required by Rule
463 under the Securities Act.
(iii) advise the Representatives, promptly after receiving notice
or obtaining knowledge thereof, of (w) the issuance by the
Commission of any stop order suspending the effectiveness of the
Original Registration Statement or any amendment thereto or any
Rule 462(b) Registration Statement or any order preventing or
suspending the use of any Preliminary Prospectus or the Prospectus
or any amendment or supplement thereto, (x) the suspension of the
qualification of the Shares for offering or sale in any
jurisdiction, (y) the institution, threatening or contemplation of
any proceeding for any purpose identified in the preceding clause
(w) or (x), or (z) any request made by the Commission for amending
the Original Registration Statement or any Rule 462(b)
Registration Statement, for amending or supplementing the
Prospectus or for additional information. The Company will use its
best efforts to prevent the issuance of any such stop order and,
if any such stop order is issued, to obtain the withdrawal thereof
as promptly as possible.
(b) The Company will arrange for the qualification of the Shares for
offering and sale in each jurisdiction as the Representatives shall designate
including, but not limited to, pursuant to applicable state securities ("Blue
Sky") laws of certain states of the United States of America or other U.S.
jurisdictions, and the Company shall maintain such qualifications in effect for
so long as may be necessary in order to complete the placement of the Shares;
provided, however, that the Company shall not be obliged to file any general
consent to service of process or to qualify as a foreign corporation or as a
securities dealer in any jurisdiction or to subject itself to taxation in
respect of doing business in any jurisdiction in which it is not otherwise so
subject.
-6-
<PAGE> 8
(c) If, at any time prior to the final date when a prospectus relating
to the Shares is required to be delivered under the Securities Act, any event
occurs as a result of which the Prospectus, as then amended or supplemented,
would include 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, or if for any
other reason it shall be necessary at any time to amend the Registration
Statement or amend or supplement the Prospectus to comply with the Securities
Act or the rules or regulations of the Commission thereunder or applicable law,
the Company will promptly notify the Representatives thereof and will promptly,
at its own expense, but subject to the second sentence of Section 3(a)(i)
hereof: (x) prepare and file with the Commission an amendment to the
Registration Statement or amendment or supplement to the Prospectus which will
correct such statement or omission or effect such compliance; and (y) supply any
amended Registration Statement or amended or supplemented Prospectus to the
Underwriters in such quantities as the Underwriters may reasonably request.
(d) The Company will make generally available to the Company's
securityholders and to the Representatives as soon as practicable an earnings
statement that satisfies the provisions of Section 11(a) of the Securities Act,
including Rule 158 thereunder.
(e) The Company will apply the net proceeds from the sale of the
Shares as set forth under "Use of Proceeds" in the Prospectus.
(f) Except as described in the Prospectus, the Company will not, and
will not allow any subsidiary to, publicly announce any intention to, and will
not itself, and will not allow any subsidiary to, without the prior written
consent of the Representatives, on behalf of the Underwriters, (i) offer,
pledge, sell, offer to sell, contract to sell, sell any option or contract to
purchase, purchase any option to sell, grant any option, right or warrant to
purchase, or otherwise transfer or dispose of, directly or indirectly, or
release any optionee from any existing contractual lockup obligations
(including, but not limited to, the restrictions imposed pursuant to the
Company's 1995 Stock Option Plan or 1998 Stock Option Plan or any corresponding
agreement governing a grant thereunder) any shares of Common Stock or any
securities convertible into, or exercisable or exchangeable for, Common Stock,
or (ii) enter into any swap or other agreement that transfers, in whole or in
part, any of the economic consequences of ownership of the shares of Common
Stock or securities convertible into, or exercisable or exchangeable for, shares
of Common Stock (whether any such transaction described in clause (i) or (ii)
above is to be settled by delivery of shares of Common Stock or such other
securities, in cash or otherwise), for a period beginning from the date hereof
and continuing to and including the date 180 days after the date hereof, except
pursuant to this Agreement and other than with respect to (x) shares of Common
Stock to be issued upon the exercise of warrants to purchase shares of Common
Stock, or upon conversion or exchange of securities convertible or exchangeable
into shares of Common Stock, in each case, which are outstanding on the date
hereof and disclosed in the Prospectus, and (y) shares of Common Stock (or any
securities convertible into or exchangeable for shares of Common Stock) issued
pursuant to any employee benefit plans, qualified stock option plans or other
employee compensation plans which are disclosed in the Prospectus.
(g) Neither the Company nor any of its affiliates, nor any person
acting on behalf of any of them will, directly or indirectly, (i) take any
action designed to cause or to result
-7-
<PAGE> 9
in, or that has constituted or which might reasonably be expected to constitute,
the stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Shares or (ii) (x) sell, bid for, purchase,
or pay anyone any compensation for soliciting purchases of, the Shares or (y)
pay or agree to pay to any person any compensation for soliciting another to
purchase any other securities of the Company.
(h) The Company will obtain the agreements described in Section 7(f)
hereof prior to the First Closing Date.
(i) If at any time during the 25-day period after the Registration
Statement becomes effective or during the period prior to any Closing Date, any
rumor, publication or event relating to or affecting the Company shall occur as
a result of which in the Representatives' sole judgment the market price of the
Shares has been or is likely to be materially affected (regardless of whether
such rumor, publication or event necessitates a supplement to or amendment of
the Prospectus), the Company will, after notice from the Representatives
advising the Company to the effect set forth above, forthwith prepare, consult
with the Representatives concerning the substance of, and disseminate a press
release or other public statement reasonably satisfactory to the
Representatives, responding to or commenting on such rumor, publication or
event.
(j) If the Company elects to rely on Rule 462(b), the Company shall
both file the Rule 462(b) Registration Statement with the Commission in
compliance with Rule 462(b) and pay the applicable fees in accordance with Rule
111 promulgated under the Securities Act by the earlier of (i) 10:00 P.M. New
York City time on the date of this Agreement and (ii) the time confirmations are
sent or given, as specified by Rule 462(b)(2) under the Securities Act.
(k) The Company will cause the Shares to be duly included for
quotation on the Nasdaq National Market prior to the First Closing Date. The
Company will use its best efforts to ensure that the Shares remain included for
quotation on the Nasdaq National Market for a period of two years following the
First Closing Date.
Section 4. Expenses. The Company shall bear and pay all costs and
expenses incurred incident to the performance of its obligations under this
Agreement, whether or not the transactions contemplated herein are consummated
or this Agreement is terminated pursuant to Section 9 hereof, including: (i)
fees and expenses of preparation, issuance and delivery of this Agreement to the
Underwriters; (ii) the fees and expenses of its counsel, accountants and any
other experts or advisors retained by the Company; (ii) fees and expenses
incurred in connection with the registration of the Shares under the Securities
Act and the preparation and filing of the Registration Statement, the Prospectus
and all amendments and supplements thereto; (iii) the printing and distribution
of the Prospectus and any Preliminary Prospectus and the printing and production
of all other documents connected with the Offering (including this Agreement and
any other related agreements); (iv) expenses related to the qualification of the
Shares under the state securities or Blue Sky laws, including filing fees and
the fees and disbursements of
-8-
<PAGE> 10
counsel for the Underwriters in connection therewith and in connection with the
preparation of any Blue Sky memoranda; (v) the filing fees and expenses, if any,
incurred with respect to any filing with the National Association of Securities
Dealers, Inc., including the fees and disbursements of counsel for the
Underwriters in connection therewith; (vi) fees and expenses of an independent
underwriter; (vii) all expenses arising from the quoting of the Shares on the
Nasdaq National Market; (viii) all arrangements relating to the preparation,
issuance and delivery to the Underwriters of any certificates evidencing the
Shares, including transfer agent's and registrar's fees; (ix) the costs and
expenses of the "roadshow" and any other meetings with prospective investors in
the Shares (other than as shall have been specifically approved by the
Representatives to be paid for by the Underwriters); and (x) the costs and
expenses of advertising relating to the Offering (other than as shall have been
specifically approved by the Representatives to be paid for by the
Underwriters).
Section 5. Representations And Warranties.
(a) As a condition of the obligation of the Underwriters to underwrite
and pay for the Shares, the Company represents and warrants to, and agrees with,
each of the several Underwriters as follows:
Registration Statement and Prospectus
(i) The Original Registration Statement, including the Preliminary
Prospectus, has been filed by the Company with the Commission under
the Securities Act, and one or more amendments to such Registration
Statement may have been so filed. After the execution of this
Agreement, the Company will file with the Commission either (x) if
such Registration Statement, as it may have been amended, has been
declared by the Commission to be effective under the Securities Act,
either (I) if the Company relies on Rule 434 under the Securities Act,
a Term Sheet relating to the Shares that shall identify the
Preliminary Prospectus that it supplements containing such information
as is required or permitted by Rules 434, 430A and 424(b) under the
Securities Act or (II) if the Company does not rely on Rule 434 under
the Securities Act, a prospectus in the form most recently included in
an amendment to such Registration Statement (or, if no such amendment
shall have been filed, in such Registration Statement), with such
changes or insertions as are required by Rule 430A under the
Securities Act or permitted by Rule 424(b) under the Securities Act,
and in the case of either clause (I) or (II) of this sentence, as have
been provided to and approved by the Representatives prior to the
execution of this Agreement, or (y) if such Registration Statement, as
it may have been amended, has not been declared by the Commission to
be effective under the Securities Act, an amendment to such
Registration Statement, including a form of prospectus, a copy of
which amendment has been furnished to and approved by the
Representatives prior to the execution of this Agreement. The Company
may also file a Rule 462(b) Registration Statement with the Commission
for the purpose of registering certain additional Shares, which
registration shall be effective upon filing with the Commission.
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<PAGE> 11
(ii) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus. When any Preliminary
Prospectus was filed with the Commission, it (x) contained all
statements required to be stated therein in accordance with, and
complied in all material respects with the requirements of, the
Securities Act and the rules and regulations of the Commission
thereunder and (y) did not include 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. When the Registration Statement or any
amendment thereto was or is declared effective, it (I) contained or
will contain all statements required to be stated therein in
accordance with, and complied or will comply in all material respects
with the requirements of, the Securities Act and the rules and
regulations of the Commission thereunder and (II) did not or will not
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading. When the Prospectus or any Term
Sheet that is a part thereof or any amendment or supplement to the
Prospectus is filed with the Commission pursuant to Rule 424(b) (or,
if the Prospectus or such amendment or supplement is not required to
be so filed, when the Registration Statement or the amendment thereto
containing the Prospectus or such amendment or supplement to the
Prospectus was or is declared effective) and on the Closing Date, the
Prospectus, as amended or supplemented at any such time, (A) contained
or will contain all statements required to be stated therein in
accordance with, and complied or will comply in all material respects
with the requirements of, the Securities Act and the rules and
regulations of the Commission thereunder and (B) did not or will not
include 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. The foregoing provisions of this paragraph (ii) do not
apply to statements or omissions made in any Preliminary Prospectus,
the Registration Statement or any amendment thereto or the Prospectus
or any amendment or supplement thereto in reliance upon and in
conformity with written information furnished to the Company by any
Underwriter through the Representatives specifically for use therein.
(iii) If the Company has elected to rely on Rule 462(b) and the
Rule 462(b) Registration Statement is not effective, (x) the Company
will file a Rule 462(b) Registration Statement in compliance with, and
that is effective upon filing pursuant to, Rule 462(b) and (y) the
Company has given irrevocable instructions for transmission of the
applicable filing fee in connection with the filing of the Rule 462(b)
Registration Statement, in compliance with Rule 111 under the
Securities Act, or the Commission has received payment of such filing
fee.
(iv) If the Company has elected to rely on Rule 434 under the
Securities Act, the Prospectus is not "materially different", as such
term is used in Rule 434, from the prospectus included in the
Registration Statement at the time
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<PAGE> 12
of its effectiveness or an effective post-effective amendment thereto
(including such information that is permitted to be omitted pursuant
to Rule 430A under the Securities Act);
(v) The Company has not distributed and, prior to the later of (x)
any Closing Date and (y) the completion of the distribution of the
Shares, will not distribute any offering material in connection with
the Offering other than the Registration Statement or any amendment
thereto, any Preliminary Prospectus or the Prospectus or any amendment
or supplement thereto.
(vi) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus (x) the Company
and its subsidiaries, taken as a whole, have not incurred any material
liability or obligation, direct or contingent, nor entered into any
material transaction not in the ordinary course of business; (y) the
Company has not purchased any of its outstanding capital stock, nor
declared, paid or otherwise made any dividend or distribution of any
kind on its capital stock; and (z) there has not been any material
change in the capital stock, short-term or long-term debt of the
Company and its subsidiaries, taken as a whole, except in each case as
described in or contemplated by the Prospectus.
The Shares
(vii) The Company has an authorized, issued and outstanding
capitalization as set forth in the Prospectus. All of the issued
shares of capital stock of the Company have been duly authorized and
validly issued and are fully paid and nonassessable, have been issued
in compliance with all applicable federal and state securities laws
and were not issued in violation of or subject to any preemptive
rights or other rights to subscribe for or purchase such securities.
The Shares have been duly authorized by all necessary corporate action
of the Company and, after payment therefor in accordance herewith,
will be validly issued, fully paid and nonassessable at the Closing
Date. No holders of outstanding shares of capital stock of the Company
are entitled as such to any preemptive or other rights to subscribe
for any of the Shares, and no holder of securities of the Company has
any right which has not been fully exercised or waived to require the
Company to register the offer or sale of any securities owned by such
holder under the Securities Act in the Offering contemplated by this
Agreement.
(viii) Except as disclosed in the Prospectus, there are no
outstanding (x) securities or obligations of the Company or any of its
subsidiaries convertible into or exchangeable for any capital stock of
the Company or any such subsidiary, (y) warrants, rights or options to
subscribe for or purchase from the Company or any such subsidiary any
such capital stock or any such convertible or exchangeable securities
or obligations, or (z) obligations of the Company or any
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<PAGE> 13
such subsidiary to issue any shares of capital stock, any such
convertible or exchangeable securities or obligations, or any such
warrants, rights or options.
(ix) Except for the shares of capital stock of each of the
subsidiaries owned by the Company and such subsidiaries, neither the
Company nor any such subsidiary owns any shares of stock or any other
equity securities of any corporation or has any equity interest in any
firm, partnership, association or other entity, except as described in
or contemplated by the Prospectus.
Listing
(x) All of the Shares have been duly authorized and accepted for
quotation on the Nasdaq National Market, subject to official notice of
issuance.
Market manipulation
(xi) Neither the Company nor any of its affiliates, nor any person
acting on behalf of any of them has, directly or indirectly, (x) taken
any action designed to cause or to result in, or that has constituted
or which might reasonably be expected to constitute, the stabilization
or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Shares, or (y) since the filing
of the Original Registration Statement (I) sold, bid for, purchased,
or paid anyone any compensation for soliciting purchases of, the
Shares or (II) paid or agreed to pay to any person any compensation
for soliciting another to purchase any other securities of the
Company.
Corporate power and authority
(xii) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the law of its
jurisdiction of incorporation with full power and authority to own,
lease and operate its properties and assets and conduct its business
as described in the Prospectus, is duly qualified to transact business
and is in good standing in each jurisdiction in which its ownership,
leasing or operation of its properties or assets or the conduct of its
business requires such qualification, except where the failure to be
so qualified does not amount to a material liability or disability to
the Company and its subsidiaries, taken as a whole, and has full power
and authority to execute and perform its obligations under this
Agreement; each subsidiary of the Company is a corporation duly
incorporated and validly existing as a corporation in good standing
under the laws of its jurisdiction of incorporation and is duly
qualified to transact business and is in good standing in each
jurisdiction in which its ownership, leasing or operation of its
properties or assets or the conduct of its business requires such
qualification, except where the failure to be so qualified does not
amount to a material liability or disability to the Company and its
subsidiaries, taken as a whole, and each has full power and authority
to own, lease and operate its properties and assets and conduct its
business as described in the
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<PAGE> 14
Registration Statement and the Prospectus; all of the issued and
outstanding shares of capital stock of each of the Company's
subsidiaries have been duly authorized and are fully paid and
nonassessable and are owned beneficially by the Company free and clear
of any security interests, liens, encumbrances, equities or claims
except as disclosed in the Prospectus.
(xiii) The execution and delivery of this Agreement and the
issuance and sale of the Shares have been duly authorized by all
necessary corporate action of the Company, and this Agreement has been
duly executed and delivered by the Company and is the valid and
binding agreement of the Company, enforceable against the Company in
accordance with its terms, except as such enforceability may be
limited by principles of public policy and subject to the laws of
general application relating to bankruptcy, involvency and relief of
debtors and rules of law governing specific performance, injunctive
relief or other equitable remedies.
(xiv) The issuance, offering and sale of the Shares to the
Underwriters by the Company pursuant to this Agreement, the compliance
by the Company with the other provisions of this Agreement and the
consummation of the other transactions herein contemplated do not (x)
require the consent, approval, authorization, registration or
qualification of or with any governmental authority, except such as
have been obtained or made or such as may be required by the state
securities or Blue Sky laws of the various states of the United States
of America or other U.S. jurisdictions in connection with the offer
and sale of the Shares by the Underwriters, or (y) conflict with or
result in a breach or violation of any of the terms and provisions of,
or constitute a default under, any indenture, mortgage, deed of trust,
lease or other agreement or instrument to which the Company or any of
its subsidiaries is a party or by which the Company or any of its
subsidiaries or any of their respective properties are bound, or the
charter documents or by-laws of the Company or any of its
subsidiaries, or any statute or any judgment, decree, order, rule or
regulation of any court or other governmental authority or any
arbitrator applicable to the Company or any of its subsidiaries except
as such enforceability may be limited by principles of public policy
and subject to the laws of general applications relating to
bankruptcy, insolvency and relief of debtors and rules of law
governing specific performance, injunctive relief or other equitable
remedies.
(xv) The Company is not, and will conduct its operations in a
manner so that it continues not to be, an "investment company" and,
after giving effect to the Offering and the application of the
proceeds therefrom, will not be an "investment company", as such term
is defined in the Investment Company Act of 1940, as amended (the
"1940 Act").
Title, licenses and consents
(xvi) The Company and each of its subsidiaries have good and
marketable title in fee simple to all items of real property and
marketable title to all personal property owned by each of them, in
each case free and clear of any security interests, liens,
encumbrances, equities, claims and other defects, except
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<PAGE> 15
such as do not materially and adversely affect the value of such
property and do not interfere with the use made or proposed to be made
of such property by the Company or such subsidiary, and any real
property and buildings held under lease by the Company or any such
subsidiary are held under valid, subsisting and enforceable leases,
with such exceptions as are not material and do not interfere with the
use made or proposed to be made of such property and buildings by the
Company or such subsidiary, in each case except as described in or
contemplated by the Prospectus.
(xvii) The Company and its subsidiaries own or possess, or can
acquire on reasonable terms, all material patents, patent
applications, trademarks, service marks, trade names, licenses,
know-how, copyrights, trade secrets and proprietary or other
confidential information necessary to operate the business now
operated by them, and neither the Company nor any such subsidiary has
received any notice of infringement of or conflict with asserted
rights of any third party with respect to any of the foregoing which,
singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would have a materially adverse effect on or
constitute a materially adverse change in, or constitute a development
involving a prospective materially adverse effect on or change in, the
condition (financial or otherwise), earnings, properties, business
affairs or business prospects, stockholders' equity, net worth or
results of operations of the Company or any of its subsidiaries, taken
as a whole, except as described in or contemplated by the Prospectus.
(xviii) The Company and its subsidiaries possess all consents,
licenses, certificates, authorizations and permits issued by the
appropriate federal, state or foreign regulatory authorities necessary
to conduct their respective businesses, and neither the Company nor
any such subsidiary has received any notice of proceedings relating to
the revocation or modification of any such certificate, authorization
or permit which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would have a materially
adverse effect on or constitute a materially adverse change in, or
constitute a development involving a prospective materially adverse
effect on or change in, the condition (financial or otherwise),
earnings, properties, business affairs or business prospects, net
worth or results of operations of the Company or any of its
subsidiaries, taken as a whole, except as described in or contemplated
by the Prospectus.
Financial statements
(xix) Ernst & Young LLP, who have certified certain financial
statements of the Company and its consolidated subsidiaries and
delivered their report with respect to the audited consolidated
financial statements and schedules included in the Registration
Statement and the Prospectus, are independent public
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<PAGE> 16
accountants as required by the Securities Act and the applicable rules
and regulations thereunder.
(xx) The consolidated financial statements and schedules of the
Company and its consolidated subsidiaries included in the Registration
Statement and the Prospectus were prepared in accordance with
generally accepted accounting principles ("GAAP") consistently applied
throughout the periods involved, in all material respects, and they
present fairly the financial condition of the Company as at the dates
at which they were prepared and the results of operations of the
Company in respect of the periods for which they were prepared.
Internal Accounting Controls
(xxi) The Company and each of its subsidiaries maintain a system
of internal accounting controls sufficient to provide reasonable
assurance that (w) transactions are executed in accordance with
management's general or specific authorizations; (x) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with GAAP and to maintain asset accountability; (y) access
to assets is permitted only in accordance with management's general or
specific authorization; and (z) the recorded accountability for assets
is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
Litigation
(xxii) No legal or governmental proceedings are pending or, to the
Company's knowledge, threatened to which the Company or any of its
subsidiaries is a party or to which the property of the Company or any
of its subsidiaries is subject that are required to be described in
the Registration Statement or the Prospectus and are not described
therein; and no statutes, regulations, contracts or other documents
that are required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration Statement
that are not described therein or filed as required.
Dividends and Distributions
(xxiii) No subsidiary of the Company is currently prohibited,
directly or indirectly, from paying any dividends to the Company,
making any other distribution on such subsidiary's capital stock,
repaying to the Company any loans or advances to such subsidiary from
the Company or transferring any of such subsidiary's property or
assets to the Company or any other subsidiary of the Company, and the
Company is not currently prohibited, directly or indirectly, from
paying any dividends or making any other distribution on its capital
stock, in each case except as described in or contemplated by the
Prospectus.
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<PAGE> 17
Taxes
(xxiv) The Company has filed all foreign, federal, state and local
tax returns that are required to be filed or has requested extensions
thereof (except in any case in which the failure so to file would not
have a materially adverse effect on the Company and its subsidiaries,
taken as a whole) and has paid all taxes required to be paid by it and
any other assessment, fine or penalty levied against it, to the extent
that any of the foregoing is due and payable, except for any such
assessment, fine or penalty that is currently being contested in good
faith or as described in or contemplated by the Prospectus.
Insurance
(xxv) The Company and each of its subsidiaries are insured by
insurers of recognized financial responsibility against such losses
and risks and in such amounts as are prudent and customary in the
businesses in which they are engaged; neither the Company nor any such
subsidiary has been refused any insurance coverage sought or applied
for; and neither the Company nor any such subsidiary has any reason to
believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar
coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the
condition (financial or otherwise), earnings, properties, business
affairs or business prospects, net worth or results of operations of
the Company or any of its subsidiaries, taken as a whole, except as
described in or contemplated by the Prospectus.
Pension and Labor
(xxvi) The Company is in compliance in all material respects with
all presently applicable provisions of the Employee Retirement Income
Security Act of 1974, as amended, including the regulations and
published interpretations thereunder ("ERISA"); no "reportable event"
(as defined in ERISA) has occurred with respect to any "pension plan"
(as defined in ERISA) for which the Company would have any liability;
the Company has not incurred and does not expect to incur liability
under (i) Title IV of ERISA with respect to termination of, or
withdrawal from, any "pension plan" or (ii) Sections 412 or 4971 of
the Internal Revenue Code of 1986, as amended, including the
regulations and published interpretations thereunder (the "Code"); and
each "pension plan" for which the Company would have any liability
that is intended to be qualified under Section 401(a) of the Code is
so qualified in all material respects and nothing has occurred,
whether by action or by failure to act, which would cause the loss of
such qualification.
(xxvii) No labor dispute with the employees of the Company or any
of its subsidiaries exists or, to the Company's knowledge, is
threatened or imminent that could have a materially adverse
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<PAGE> 18
effect on or constitute a materially adverse change in, or constitute
a development involving a prospective materially adverse effect on or
change in, the condition (financial or otherwise), properties,
management, earnings, business affairs or business prospects, net
worth or results of operations of the Company or any of its
subsidiaries, taken as a whole, except as described in or contemplated
by the Prospectus.
Environmental
(xxviii) Neither the Company nor any of its subsidiaries is in
violation of any federal or state law or regulation relating to
occupational safety and health or to the storage, handling or
transportation of hazardous or toxic materials and the Company and its
subsidiaries have received all permits, licenses or other approvals
required of them under applicable federal and state occupational
safety and health and environmental laws and regulations to conduct
their respective businesses, and the Company and each such subsidiary
is in compliance with all terms and conditions of any such permit,
license or approval, except any such violation of law or regulation,
failure to receive required permits, licenses or other approvals or
failure to comply with the terms and conditions of such permits,
licenses or approvals which would not, singly or in the aggregate,
have a materially adverse effect on or constitute a materially adverse
change in, or constitute a development involving a prospective
materially adverse effect on or change in, the condition (financial or
otherwise), earnings, properties, business affairs or business
prospects, net worth or results of operations of the Company or any of
its subsidiaries, taken as a whole, except as described in or
contemplated by the Prospectus.
Other Agreements
(xxix) No default exists, and no event has occurred which, with
notice or lapse of time or both, would constitute a default in the due
performance and observance of any term, covenant or condition of any
indenture, mortgage, deed of trust, lease or other agreement or
instrument to which the Company or any of its subsidiaries is a party
or by which the Company or any of its subsidiaries or any of their
respective properties is bound.
Absence of Materially Adverse Change
(xxx) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus, neither the
Company nor any of its subsidiaries has sustained any material loss or
interference with their respective businesses or properties from fire,
flood, hurricane, accident or other calamity, whether or not covered
by insurance, or from any labor dispute or any legal or governmental
proceeding, and, to the Company's knowledge, there has been no
materially adverse change (including, without limitation, a change in
management or control), or development involving a prospective
materially adverse change, in the condition (financial or otherwise),
management, earnings,
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<PAGE> 19
property, business affairs or business prospects, stockholders'
equity, net worth or results of operations of the Company or any of
its subsidiaries, taken as a whole, other than as described in or
contemplated by the Prospectus (exclusive of any amendments or
supplements thereto).
(xxxi) No receiver or liquidator (or similar person) has been
appointed in respect of the Company or any subsidiary of the Company or in
respect of any part of the assets of the Company or any subsidiary of the
Company; no resolution, order of any court, regulatory body, governmental body
or otherwise, or petition or application for an order, has been passed, made or
presented for the winding up of the Company or any subsidiary of the Company or
for the protection of the Company or any such subsidiary from its creditors; and
the Company has not, and no subsidiary of the Company has, stopped or suspended
payments of its debts, become unable to pay its debts or otherwise become
insolvent.
(b) The above representations and warranties shall be deemed to be
repeated at each Closing, and all references therein to the Shares and the
Closing Date shall be deemed to refer to the Firm Shares or the Option Shares
and the First Closing Date or the applicable Option Closing Date, each as
applicable.
Section 6. Indemnity.
(a) The Company agrees to indemnify and hold harmless each Underwriter
and each person, if any, who controls any Underwriter within the meaning of
Section 15 of the Securities Act or Section 20 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), against any and all losses, claims,
damages or liabilities, joint or several, to which such Underwriter or such
controlling person may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon:
(i) any untrue statement or alleged untrue statement made by the
Company in Section 5 hereof,
(ii) any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement or any
amendment thereto, any Preliminary Prospectus or the Prospectus or
any amendment or supplement thereto, or
(iii) the omission or alleged omission to state in the
Registration Statement or any amendment thereto, any Preliminary
Prospectus or the Prospectus or any amendment or supplement
thereto a material fact required to be stated therein or necessary
to make the statements therein not misleading,
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<PAGE> 20
and will reimburse, as incurred, each Underwriter and each such controlling
person for any legal or other costs or expenses reasonably incurred by such
Underwriter or such controlling person in connection with investigating,
defending against or appearing as a third-party witness in connection with any
such loss, claim, damage, liability or action; 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 any untrue statement
or alleged untrue statement or omission or alleged omission made in the
Registration Statement or any amendment thereto, any Preliminary Prospectus, the
Prospectus or any amendment or supplement thereto in reliance upon and in
conformity with written information furnished to the Company by such Underwriter
through the Representatives specifically for use therein. The indemnity provided
for in this Section 6 shall be in addition to any liability which the Company
may otherwise have. The Company will not, without the prior written consent of
the Representatives, settle or compromise or consent to the entry of any
judgment in any pending or threatened claim, action, suit or proceeding in
respect of which indemnification may be sought hereunder (whether or not any
such Representatives or any person who controls any such Representatives is a
party to such claim, action, suit or proceeding), unless such settlement,
compromise or consent includes an unconditional release of all of the
Underwriters and such controlling persons from all liability arising out of such
claim, action, suit or proceeding.
(b) Each Underwriter, severally and not jointly, will indemnify and
hold harmless the Company, each of its directors, each of its officers who
signed the Registration Statement and each person, if any, who controls the
Company within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange 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 Securities Act or otherwise, insofar as such losses, claims, damages
or liabilities (or actions 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 or any amendment thereto, any
Preliminary Prospectus or the Prospectus or any amendment or supplement thereto
or (ii) the omission or the alleged omission to state in the Registration
Statement or any amendment thereto, any Preliminary Prospectus or the Prospectus
or any amendment or supplement thereto a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was made in reliance upon and
in conformity with written information furnished to the Company by such
Underwriter through the Representatives specifically for use therein, and,
subject to the limitation set forth immediately preceding this clause, will
reimburse, as incurred, any legal or other expenses reasonably incurred by the
Company or any such director, officer or controlling person in connection with
investigating, defending against or appearing as a third-party witness in
connection with any such loss, claim, damage, liability or any action in respect
thereof. The remedies provided for in this Section 6 are not exclusive and shall
not limit any rights or remedies which may otherwise be available to any
indemnified party at law or in equity.
(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 paragraph (a) or (b) of this Section 6, such person (for
purposes of this paragraph (c), the
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<PAGE> 21
"indemnified party") shall, promptly after receipt by such party of notice of
the commencement of such action, notify the person against whom such indemnity
may be sought (for purposes of this paragraph (c), the "indemnifying party"),
but the omission so to notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party otherwise than under
this Section 6. In case any such action is brought against any indemnified
party, and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein and, to the extent
that it may wish, jointly with any other indemnifying party similarly notified,
to assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party; provided, however, that if the defendants in any such action
include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be one or more
legal defenses available to it and/or other indemnified parties which are
different from or additional to those available to the indemnifying party, the
indemnifying party shall not have the right to direct the defense of such action
on behalf of such indemnified party or parties and such indemnified party or
parties shall have the right to select separate counsel to defend such action on
behalf of such indemnified party or parties. After notice from the indemnifying
party to such indemnified party of its election so to assume the defense of any
such action and approval by such indemnified party of counsel appointed to
defend such action, the indemnifying party will not be liable to such
indemnified party under this Section 6 for any legal or other expenses, other
than reasonable costs of investigation, subsequently incurred by such
indemnified party in connection with the defense thereof, unless (i) the
indemnified party shall have employed separate counsel in accordance with the
proviso to the next preceding sentence (it being understood, however, that in
connection with such action the indemnifying party shall not be liable for the
expenses of more than one separate counsel (in addition to local counsel) in any
one action or separate but substantially similar actions in the same
jurisdiction arising out of the same general allegations or circumstances,
designated in writing by the Representatives in the case of paragraph (a) of
this Section 6, representing the indemnified parties under such paragraph (a)
who are parties to such action or actions), or (ii) the indemnifying party does
not promptly retain counsel reasonably satisfactory to the indemnified party, or
(iii) the indemnifying party has authorized the employment of counsel for the
indemnified party at the expense of the indemnifying party. All fees and
expenses reimbursed pursuant to this paragraph (c) shall be reimbursed as they
are incurred. After such notice from the indemnifying party to such indemnified
party, the indemnifying party will not be liable for the costs and expenses of
any settlement of such action effected by such indemnified party without the
consent of the indemnifying party.
(d) In circumstances in which the indemnity agreement provided for in
the preceding paragraphs of this Section 6 is unavailable or insufficient, for
any reason, to hold harmless an indemnified party in respect of any losses,
claims, damages or liabilities (or actions in respect thereof), each
indemnifying party, in order to provide for just and equitable contribution,
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages or liabilities (or actions in respect
thereof) in such proportion as is appropriate to reflect (i) the relative
benefits received by the indemnifying party or parties on the one hand and the
indemnified party on the other from the Offering or (ii) if the allocation
provided by the foregoing clause (i) is not permitted by applicable law, not
only such relative benefits but also the relative fault of the indemnifying
party or parties on the one hand and the
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<PAGE> 22
indemnified party on the other in connection with the statements or omissions or
alleged statements or omissions that resulted in such losses, claims, damages or
liabilities (or actions in respect thereof), as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand and the Underwriters on the other shall be deemed to be in the same
proportion as the total proceeds from the Offering (before deducting expenses)
received by the Company bear to the total underwriting discounts and commissions
received by the Underwriters. The relative fault of the parties 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 or the
Underwriters, the parties' relative intents, knowledge, access to information
and opportunity to correct or prevent such statement or omission, and any other
equitable considerations appropriate in the circumstances. The Company and the
Underwriters agree that it would not be equitable if the amount of such
contribution were determined by pro rata or per capita allocation (even if the
Underwriters were treated as one entity for such purpose) or by any other method
of allocation that does not take into account the equitable considerations
referred to above in this paragraph (d). Notwithstanding any other provision of
this paragraph (d), no Underwriter shall be obligated to make contributions
hereunder that in the aggregate exceed the total public offering price of the
Shares purchased by such Underwriter under this Agreement, less the aggregate
amount of any damages that such Underwriter has otherwise been required to pay
in respect of the same or any substantially similar claim, and no person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations to
contribute hereunder are several in proportion to their respective underwriting
obligations and not joint, and contributions among Underwriters shall be
governed by the provisions of the Deutsche Morgan Grenfell Inc. Master Agreement
Among Underwriters. For purposes of this paragraph (d), each person, if any, who
controls an Underwriter within the meaning of Section 15 of the Securities Act
or Section 20 of the Exchange Act shall have the same rights to contribution as
such Underwriter, and each director of the Company, each officer of the Company
who signed the Registration Statement and each person, if any, who controls the
Company within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act, shall have the same rights to contribution as the Company.
Section 7. Conditions Precedent. The obligations of the several Underwriters to
purchase and pay for the Shares shall be subject, in the Representatives' sole
discretion, to the accuracy of the representations and warranties of the Company
contained herein as of the date hereof and as of each Closing Date, as if made
on and as of each Closing Date, to the accuracy of the statements of the
Company's officers made pursuant to the provisions hereof, to the performance by
the Company of its covenants and agreements hereunder and to the following
additional conditions:
(a) (i) If the Original Registration Statement or any amendment
thereto filed prior to the First Closing Date has not been declared effective as
of the time of execution hereof, the Original Registration Statement or such
amendment shall have been declared effective not later than 6:00 P.M. New York
City time on the date of determination of the public offering price, if such
determination occurred at or prior to 4:30 P.M. New York City time on such date,
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<PAGE> 23
or 12:00 Noon New York City time on the business day following the day on which
the public offering price was determined, if such determination occurred after
4:30 P.M. New York City time on such date, and (ii) if the Company has elected
to rely upon Rule 462(b), the Rule 462(b) Registration Statement shall have been
declared effective not later than the time confirmations are sent or given as
specified by Rule 462(b)(2), or such later time and date as shall have been
consented to by the Representatives; if required, the Prospectus or any Term
Sheet that constitutes a part thereof and any amendment or supplement thereto
shall have been filed with the Commission in the manner and within the time
period required by Rules 434 and 424(b) under the Securities Act; no stop order
suspending the effectiveness of the Registration Statement or any amendment
thereto shall have been issued, and no proceedings for that purpose shall have
been instituted or threatened or, to the knowledge of the Company or the
Representatives, shall be contemplated by the Commission; and the Company shall
have complied with any request of the Commission for additional information (to
be included in the Registration Statement or the Prospectus or otherwise).
(b) The Representatives shall have received a legal opinion from
Jackson, Tufts, Cole & Black, LLP, counsel for the Company, dated the Closing
Date, to the effect that:
(i) the Registration Statement is effective under the Securities
Act; any required filing of the Prospectus, or any Term Sheet that
constitutes a part thereof, pursuant to Rules 434 and 424(b) has
been made in the manner and within the time period required by
Rules 434 and 424(b); and no stop order suspending the
effectiveness of the Registration Statement or any amendment
thereto has been issued and, to the best knowledge of such
counsel, no proceedings for that purpose are pending or threatened
by the Commission;
(ii) the Original Registration Statement and each amendment
thereto, any Rule 462(b) Registration Statement and the Prospectus
(in each case, other than the financial statements and other
financial information contained therein, as to which such counsel
need express no opinion) comply as to form in all material
respects with the applicable requirements of the Securities Act
and the rules and regulations of the Commission thereunder;
(iii) such counsel has no reason to believe that (in each case,
other than the financial statements and other financial
information contained therein, as to which such counsel need
express no opinion) (x) the Registration Statement, as of its
effective date, contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading or (y)
the Prospectus, as of its date or the date of such opinion,
included or includes any untrue statement of a material fact or
omitted or omits 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.
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<PAGE> 24
(iv) if the Company elects to rely on Rule 434 under the
Securities Act, the Prospectus is not "materially different", as
such term is used in Rule 434, from the prospectus included in the
Registration Statement at the time of its effectiveness or an
effective post-effective amendment thereto (including such
information that is permitted to be omitted pursuant to Rule 430A
under the Securities Act);
(v) the Company has an authorized, issued and outstanding
capitalization as set forth in the Prospectus; all of the issued
shares of capital stock of the Company have been duly authorized
and validly issued and are fully paid and nonassessable, have been
issued in compliance with all applicable federal and state
securities laws and were not issued in violation of or subject to
any preemptive rights or other rights to subscribe for or purchase
securities; the Shares have been duly authorized by all necessary
corporate action of the Company and, when issued and delivered to
and paid for by the Underwriters pursuant to this Agreement, will
be validly issued, fully paid and nonassessable; no holders of
outstanding shares of capital stock of the Company are entitled as
such to any preemptive or other rights to subscribe for any of the
Shares; and no holder of securities of the Company has any right
which has not been fully exercised or waived to require the
Company to register the offer or sale of any securities owned by
such holder under the Securities Act in the Offering contemplated
by this Agreement;
(vi) all of the Shares have been duly authorized and accepted for
quotation on the Nasdaq National Market, subject to official
notice of issuance;
(vii) the Company and each of its subsidiaries have been duly
organized and are validly existing as corporations in good
standing under the laws of their respective jurisdictions of
incorporation and are duly qualified to transact business as
foreign corporations and are in good standing under the laws of
all other jurisdictions where the ownership, leasing or operation
of their respective properties or assets or the conduct of their
respective businesses requires such qualification, except where
the failure to be so qualified does not amount to a material
liability or disability to the Company and its subsidiaries, taken
as a whole; the Company and each of its subsidiaries have full
power and authority to own, lease and operate their respective
properties and assets and conduct their respective businesses as
described in the Registration Statement and the Prospectus, and
the Company has corporate power to enter into this Agreement and
to carry out all the terms and provisions hereof to be carried out
by it; all of the issued and outstanding shares of capital stock
of each of the Company's subsidiaries have been duly authorized
and validly issued, are fully paid and nonassessable and are owned
beneficially by the
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<PAGE> 25
Company free and clear of any perfected security interests or, to
the best knowledge of such counsel, any other security interests,
liens, encumbrances, equities or claims;
(viii) the statements set forth under the heading "Description of
Capital Stock" in the Prospectus, insofar as such statements
purport to summarize certain provisions of the capital stock of
the Company, provide a fair summary of such provisions; and the
statements set forth under the headings in the Prospectus, insofar
as such statements constitute a summary of the legal matters,
documents or proceedings referred to therein, have been reviewed
by such counsel and fairly present the information called for with
respect to such legal matters, documents and proceedings in all
material respects as required by the Securities Act and the rules
and regulations thereunder;
(ix) the execution and delivery of this Agreement have been duly
authorized by all necessary corporate action of the Company and
this Agreement has been duly executed and delivered by the
Company;
(x) the issuance, offering and sale of the Shares to the
Underwriters by the Company pursuant to this Agreement, the
compliance by the Company with the other provisions of this
Agreement and the consummation of the other transactions herein
contemplated do not (x) require the consent, approval,
authorization, registration or qualification of or with any
governmental authority, except such as have been obtained or made
(and specified in such opinion) or such as may be required by the
securities or Blue Sky laws of the various states of the United
States of America and other U.S. jurisdictions in connection with
the offer and sale of the Shares by the Underwriters, or (y)
conflict with or result in a breach or violation of any of the
terms and provisions of, or constitute a default under, any
indenture, mortgage, deed of trust, lease or other agreement or
instrument, known to such counsel, to which the Company or any of
its subsidiaries is a party or by which the Company or any of its
subsidiaries or any of their respective properties are bound, or
the charter documents or by-laws of the Company or any of its
subsidiaries, or any statute or any judgment, decree, order, rule
or regulation of any court or other governmental authority or any
arbitrator known to such counsel and applicable to the Company or
its subsidiaries;
(xi) the Company is not an "investment company" and, after giving
effect to the Offering and the application of the proceeds
therefrom, will not be an "investment company", as such term is
defined in the 1940 Act; and
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<PAGE> 26
(xii) such counsel does not know of any legal or governmental
proceedings pending or threatened to which the Company or any of
its subsidiaries is a party or to which the property of the
Company or any of its subsidiaries is subject that are required to
be described in the Registration Statement or the Prospectus and
are not described therein or any statutes, regulations, contracts
or other documents that are required to be described in the
Registration Statement or the Prospectus or to be filed as
exhibits to the Registration Statement that are not described
therein or filed as required.
In rendering any such opinion, such counsel may rely, as to matters of
fact, to the extent such counsel deems proper, on certificates of responsible
officers of the Company and public officials and, as to matters involving the
application of laws of any jurisdiction other than the State of Delaware or the
United States, to the extent satisfactory in form and scope to counsel for the
Underwriters, upon the opinion of local counsel. The foregoing opinion shall
also state that the Underwriters are justified in relying upon such opinion of
local counsel, and copies of such opinion shall be delivered to the
Representatives and counsel for the Underwriters.
References to the Registration Statement and the Prospectus in this
paragraph (b) shall include any amendment or supplement thereto at the date of
such opinion. The opinions of issuer's counsel described herein shall be
rendered to the Underwriters at the request of the Company and shall so state
therein.
(c) The Representatives shall have received a legal opinion from
Venture Law Group, counsel for the Underwriters, dated the Closing Date,
covering the issuance and sale of the Shares, the Registration Statement and the
Prospectus, and such other related matters as the Representatives may reasonably
require, and the Company shall have furnished to such counsel such documents as
they may reasonably request for the purpose of enabling them to pass upon such
matters.
(d) The Representatives shall have received from Ernst & Young LLP a
letter or letters dated, respectively, the date hereof and the Closing Date, in
form and substance satisfactory to the Representatives, to the effect that:
(i) they are independent accountants with respect to the Company
and its consolidated subsidiaries within the meaning of the
Securities Act and the applicable rules and regulations
thereunder;
(ii) in their opinion, the audited consolidated financial
statements and schedules examined by them and included in the
Registration Statement and the Prospectus comply in form in all
material respects with the applicable accounting requirements of
the Securities Act and the related published rules and
regulations;
(iii) on the basis of their review in accordance with standards
established by the American Institute of Certified Public
Accountants of
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<PAGE> 27
any interim unaudited consolidated condensed financial statements
of the Company and its consolidated subsidiaries or unaudited
consolidated financial statements of the Company and its
consolidated subsidiaries included in the Registration Statement
and the Prospectus, carrying out certain specified procedures
(which do not constitute an examination made in accordance with
generally accepted auditing standards) that would not necessarily
reveal matters of significance with respect to the comments set
forth in this paragraph (iii), a reading of the minute books of
the shareholders, the board of directors and any committees
thereof of the Company and each of its consolidated subsidiaries,
and inquiries of certain officials of the Company and its
consolidated subsidiaries who have responsibility for financial
and accounting matters, nothing came to their attention that
caused them to believe that:
(x) the unaudited consolidated condensed financial statements
of the Company and its consolidated subsidiaries included in
the Registration Statement and the Prospectus do not comply
in form in all material respects with the applicable
accounting requirements of the Securities Act and the related
published rules and regulations thereunder or are not in
conformity with GAAP applied on a basis substantially
consistent with that of the audited consolidated financial
statements included in the Registration Statement and the
Prospectus;
(y) for the latest month for which the Company has closed its
books prior to the date of such letter, there were any
changes in the capital stock or long-term debt of the Company
and its consolidated subsidiaries or any decreases in net
current assets or stockholders' equity of the Company and its
consolidated subsidiaries, in each case compared with amounts
shown on the March 31, 1998 consolidated balance sheet
included in the Registration Statement and the Prospectus, or
for the period from April 1, 1998 to such specified date and
as of such specified date there was any decrease, as compared
with the corresponding period in the preceding three (3)
months, in net revenues of the Company and its consolidated
subsidiaries or any changes in the capital stock or long-term
debt of the Company as compared with amounts shown on the
March 31, 1998 consolidated balance sheet, except in all
instances for changes, decreases or increases set forth in
such letter.
(iv) they have carried out certain specified procedures, not
constituting an audit, with respect to certain amounts,
percentages and financial information that are derived from the
general accounting records of the Company and its consolidated
subsidiaries and are included in the
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<PAGE> 28
Registration Statement and the Prospectus under the following
headings: "Prospectus Summary"; "The Company"; "Risk Factors --
Limited Operating History; History of Net Operating Losses;
Accumulated Deficit," "--Customer Concentration; Risks Associated
with Reliance on United States Government Contracts"; "Dividend
Policy"; "Capitalization"; "Dilution"; "Selected Consolidated
Financial Data"; "Management's Discussion and Analysis of
Financial Condition and Results of Operations";
"Business--Overview", "Products," "Employees";
"Management--Directors' Compensation," "Summary Compensation
Table," "Option Grants," "Option Exercises and Fiscal Year End
Values," "Stock Option Plans"; "Certain Transactions";
"Description of Capital Stock", and have compared such amounts,
percentages and financial information with such records of the
Company and its consolidated subsidiaries and with information
derived from such records and have found them to be in agreement,
excluding any questions of legal interpretation.
In the event that the letters referred to above set forth any such
changes, decreases or increases, it shall be a further condition to the
obligations of the Underwriters that (I) such letters shall be accompanied by a
written explanation of the Company as to the significance thereof, unless the
Representatives deem such explanation unnecessary, and (II) such changes,
decreases or increases do not, in the sole judgment of the Representatives, make
it impractical or inadvisable to proceed with the purchase and delivery of the
Shares as contemplated by the Registration Statement, as amended as of the date
hereof. References to the Registration Statement and the Prospectus in this
paragraph (d) with respect to either letter referred to above shall include any
amendment or supplement thereto at the date of such letter.
(e) The Company shall have furnished or caused to be furnished to the
Underwriters at the Closing a certificate of its Chairman of the Board, its
President or its Chief Executive Officer and its Chief Financial Officer
satisfactory to the Underwriters to the effect that:
(i) the representations and warranties of the Company in this
Agreement are true and correct as if made on and as of the Closing
Date; the Registration Statement, as amended as of the Closing
Date, does not include any untrue statement of a material fact or
omit to state any material fact necessary to make the statements
therein not misleading, and the Prospectus, as amended or
supplemented as of the Closing Date, does not include 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; and
the Company has performed all covenants and agreements and
satisfied all conditions on its part to be performed or satisfied
at or prior to the Closing Date;
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<PAGE> 29
(ii) no stop order suspending the effectiveness of the
Registration Statement or any amendment thereto has been issued,
and no proceedings for that purpose have been instituted or
threatened or, to the best of the Company's knowledge, are
contemplated by the Commission; and
(iii) subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus, neither
the Company nor any of its subsidiaries has sustained any material
loss or interference with their respective businesses or
properties from fire, flood, hurricane, accident or other
calamity, whether or not covered by insurance, or from any labor
dispute or any legal or governmental proceeding, and to his
knowledge there has not been any materially adverse change
(including, without limitation, a change in management or
control), or development involving a prospective materially
adverse change, in the condition (financial or otherwise),
management, earnings, properties, business affairs or business
prospects, stockholders' equity, net worth or results of
operations of the Company or any of its subsidiaries, except in
each case as described in or contemplated by the Prospectus
(exclusive of any amendment or supplement thereto).
(f) The Representatives shall have received from each person who is a
director or officer of the Company or who owns more than 1% of the outstanding
shares of Common Stock an agreement dated on or before the date of this
Agreement to the effect that such person will not publicly announce any
intention to and will not, without the prior written consent of the
Representatives on behalf of the Underwriters, (i) offer, pledge, sell, offer to
sell, contract to sell, sell any option or contract to purchase, purchase any
option to sell, grant any option right or warrant to purchase, or otherwise
transfer or dispose of, directly or indirectly, any of the shares of Common
Stock or any securities convertible into, or exercisable or exchangeable for,
Common Stock, or (ii) enter into any swap or other agreement that transfers, in
whole or in part, any of the economic consequences of ownership of the shares of
Common Stock or any securities convertible into, or exercisable or exchangeable
for, shares of Common Stock (whether any such transaction described in clause
(i) or (ii) above is to be settled by delivery of shares of Common Stock or such
other securities, in cash or otherwise), in each case, beneficially owned
(within the meaning of Rule 13d-3 under the Exchange Act) or otherwise
controlled by such person on the date hereof or hereafter acquired, for a period
beginning from the date hereof and continuing to and including the date 180 days
after the date hereof; provided, however, that such person may, without the
prior written consent of the Representatives on behalf of the Underwriters,
transfer shares of Common Stock or such other securities to members of such
person's immediate family or to trusts for the benefit of members of such
person's immediate family or in connection with bona fide gifts, provided that
any transferee agrees to the transfer restrictions described above.
(g) Prior to the commencement of the Offering, the Company shall have
made an application for the quotation of the Shares on the Nasdaq National
Market and the Shares shall
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<PAGE> 30
have been included for trading on the Nasdaq National Market, subject to
official notice of issuance.
(h) Subsequent to the execution and delivery of this Agreement and
prior to the Closing Date, there shall not have occurred any downgrading, nor
shall any notice have been given of any intended or potential downgrading or of
any review for a possible change that does not indicate the direction of the
possible change, in the rating accorded any of the Company's securities by any
"nationally recognized statistical rating organization", as such term is defined
for purposes of Rule 436(g)(2) under the Securities Act.
(i) On or before the Closing Date, the Representatives and counsel for
the Underwriters shall have received such further certificates, documents or
other information as they may have reasonably requested from the Company.
All opinions, certificates, letters and documents delivered pursuant
to this Agreement will comply with the provisions hereof only if they are
satisfactory in all material respects to the Representatives and counsel for the
Underwriters. The Company shall furnish to the Representatives such conformed
copies of such opinions, certificates, letters and documents in such quantities
as the Representatives and counsel for the Underwriters shall reasonably
request.
The respective obligations of the several Underwriters to purchase and
pay for any Shares shall be subject, in their discretion, to each of the
foregoing conditions to purchase the Shares, except that all references therein
to the Shares and the Closing Date shall be deemed to refer to the Firm Shares
or the Option Shares and the First Closing Date or the related Option Closing
Date, each as applicable.
Section 8. Default of Underwriters. If, at the First Closing, any one or more of
the Underwriters shall fail or refuse to purchase Shares that it has or they
have agreed to purchase hereunder on such date, and the aggregate number of
Shares which such defaulting Underwriter or Underwriters agreed but failed or
refused to purchase is ten percent or less of the aggregate number of the Shares
to be purchased on such date, the other Underwriters may make arrangements
satisfactory to the Representatives for the purchase of such Shares by other
persons (who may include one or more of the non-defaulting Underwriters,
including the Representatives), but if no such arrangements are made by the
First Closing Date, the other Underwriters shall be obligated severally in the
proportions that the number of Firm Shares set forth opposite their respective
names in Schedule 1 hereto bears to the aggregate number of Firm Shares set
forth opposite the names of all such non-defaulting Underwriters, or in such
other proportions as the Representatives may specify, to purchase the Shares
which such defaulting Underwriter or Underwriters agreed but failed or refused
to purchase on such date. If, at the First Closing, any Underwriter or
Underwriters shall fail or refuse to purchase Firm Shares and the aggregate
number of Firm Shares with respect to which such default occurs is more than ten
per cent of the aggregate number of Firm Shares to be purchased, and
arrangements satisfactory to the Representatives and the Company for the
purchase of such Firm Shares are not made within 36 hours after such default,
this Agreement shall terminate without liability on the part of any
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<PAGE> 31
non-defaulting Underwriter or the Company. In any such case either the
Representatives or the Company shall have the right to postpone the Closing, but
in no event for longer than seven days, in order that the required changes, if
any, in the Registration Statement and in the Prospectus or in any other
documents or arrangements may be effected. If, at any Option Closing, any
Underwriter or Underwriters shall fail or refuse to purchase Option Shares, the
non-defaulting Underwriters shall have the option to (i) terminate their
obligation hereunder to purchase Option Shares or (ii) purchase not less than
the number of Option Shares that such non-defaulting Underwriters would have
been obligated to purchase in the absence of such default. As used in this
Agreement, the term "Underwriter" includes any person substituted for an
Underwriter under this Section 8. Any action taken under this Section 8 shall
not relieve any defaulting Underwriter from liability in respect of any default
of such Underwriter under this Agreement.
Section 9. Termination. This Agreement shall be subject to termination in the
sole discretion of the Representatives by notice to the Company given prior to
any Closing Date in the event that the Company shall have failed, refused or
been unable to perform all obligations and satisfy all conditions on its part to
be performed or satisfied hereunder at or prior thereto or, if at or prior to
any Closing Date, (a) trading in securities generally on the New York Stock
Exchange or the Nasdaq National Market shall have been suspended or materially
limited or minimum or maximum prices shall have been established by or on, as
the case may be, the Commission or the New York Stock Exchange or the Nasdaq
National Market; (b) trading of any securities of the Company shall have been
suspended on any exchange or in any over-the-counter market; (c) a general
moratorium on commercial banking activities shall have been declared by either
Federal or Delaware authorities; (d) there shall have occurred (i) an outbreak
or escalation of hostilities between the United States and any foreign power,
(ii) an outbreak or escalation of any other insurrection or armed conflict
involving the United States, or (iii) any other calamity or crisis or materially
adverse change in general economic, political or financial conditions having an
effect on the U.S. financial markets that, in the sole judgment of the
Representatives, makes it impractical or inadvisable to proceed with the public
offering or the delivery of the Shares as contemplated by the Registration
Statement, as amended as of the date hereof; or (e) the Company or any of its
subsidiaries shall have, in the sole judgment of the Representatives, sustained
any material loss or interference with their respective businesses or properties
from fire, flood, hurricane, accident or other calamity, whether or not covered
by insurance, or from any labor dispute or any legal or governmental proceeding,
or there shall have been any materially adverse change (including, without
limitation, a change in management or control), or constitute a development
involving a prospective materially adverse change, in the condition (financial
or otherwise), management, earnings, properties, business affairs or business
prospects, stockholders' equity, net worth or results of operations of the
Company or any of its subsidiaries, except in each case as described in or
contemplated by the Prospectus (exclusive of any amendment or supplement
thereto). Termination of this Agreement pursuant to this Section 9 shall be
without liability of any party to any other party except for the liability of
the Company in relation to expenses as provided in Sections 4 and 10 hereof, the
indemnity provided in Section 6 hereof and any liability arising before or in
relation to such termination.
Section 10. Reimbursement of Expenses. If the sale of the Shares provided for
herein is not consummated because any condition to the obligations of the
Underwriters set forth in Section 7
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<PAGE> 32
hereof is not satisfied or because of any termination pursuant to Section 9
hereof (other than by reason of a default by any of the Underwriters), the
Company shall reimburse the Underwriters, severally upon demand, for all
out-of-pocket expenses (including fees and disbursements of counsel) that shall
have been incurred by them in connection with the proposed purchase and sale of
the Shares.
Section 11. Information Supplied by Underwriters. The statements set forth in
[the last paragraph on the front cover page and under the heading "Underwriting"
in any Preliminary Prospectus or the Prospectus] (to the extent such statements
relate to the Underwriters) constitute the only information furnished by any
Underwriter through the Representatives to the Company for the purposes of
Section 5(a)(ii) and Section 6 hereof. The Underwriters confirm that such
statements (to such extent) are correct.
Section 12. Notices. In all dealings hereunder, you shall act on behalf of each
of the Underwriters, and the parties hereto shall be entitled to act and rely
upon any statement, request, notice or agreement on behalf of any Underwriter
made or given by the Representatives. Any notice or notification in any form to
be given under this Agreement may be delivered in person or sent by telex,
facsimile or telephone (subject in the case of a communication by telephone to
confirmation by telex or facsimile) addressed to:
in the case of the Company:
software.net Corporation
3031 Tisch Way, Suite 900
San Jose, California 95128
Facsimile: (408) 241-8258
Attention: Chief Executive Officer
in the case of the Underwriters:
Deutsche Morgan Grenfell Inc.
31 West 52nd Street
New York, New York 10019
Facsimile: (408) 241-8258
Attention: Thomas Curtis, Esq.
Any such notice shall take effect, in the case of delivery, at the time of
delivery and, in the case of telex or facsimile, at the time of dispatch.
Section 13. Miscellaneous.
(a) Time shall be of the essence of this Agreement.
(b) The headings herein are inserted for convenience of reference only
and are not intended to be part of, or to affect, the meaning or interpretation
of this Agreement.
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<PAGE> 33
(c) For purposes of this Agreement, (a) "business day" means any day
on which the New York Stock Exchange is open for trading, and (b) "subsidiary"
has the meaning set forth in Rule 405 under the Securities Act.
(d) This Agreement may be executed in any number of counterparts, all
of which, taken together, shall constitute one and the same Agreement and any
party may enter into this Agreement by executing a counterpart.
(e) This Agreement shall inure to the benefit of and shall be binding
upon the several Underwriters, the Company and their respective successors and
legal representatives, and nothing expressed or mentioned in this Agreement is
intended or shall be construed to give any other person any legal or equitable
right, remedy or claim under or in respect of this Agreement, or any provisions
herein contained, this Agreement and all conditions and provisions hereof being
intended to be and being for the sole and exclusive benefit of such persons and
for the benefit of no other person, except that (i) the indemnities of the
Company contained in Section 6 hereof shall also be for the benefit of any
person or persons who control any Underwriter within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act and (ii) the indemnities
of the Underwriters contained in Section 6 hereof shall also be for the benefit
of the directors of the Company, the officers of the Company who have signed the
Registration Statement and any person or persons who control the Company within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act. No purchaser of Shares from any Underwriter shall be deemed a successor
because of such purchase.
(f) The respective representations, warranties, agreements, covenants,
indemnities and other statements of the Company, its officers and the several
Underwriters set forth in this Agreement or made by or on behalf of them,
respectively, pursuant to this Agreement shall remain in full force and effect,
regardless of (i) any investigation made by or on behalf of the Company, any of
its officers or directors, any Underwriter or any controlling person referred to
in Section 6 hereof and (ii) delivery of and payment for the Shares. The
respective agreements, covenants, indemnities and other statements set forth in
Sections 4, 6 and 10 hereof shall remain in full force and effect, regardless of
any termination or cancellation of this Agreement.
Section 14. Severability. It is the desire and intent of the parties that the
provisions of this Agreement be enforced to the fullest extent permissible under
the law and public policies applied in each jurisdiction in which enforcement is
sought. Accordingly, in the event that any provision of this Agreement would be
held in any jurisdiction to be invalid, prohibited or unenforceable for any
reason, such provision, as to such jurisdiction, shall be ineffective, without
invalidating the remaining provisions of this Agreement or affecting the
validity or enforceability of such provision in any other jurisdiction.
Section 15. Governing Law. The validity and interpretation of this Agreement,
and the terms and conditions set forth herein, shall be governed by and
construed in accordance with the laws of the State of New York, without giving
effect to any provisions relating to conflicts of laws.
-32-
<PAGE> 34
If the foregoing is in accordance with your understanding, please sign
and return to us six (6) counterparts hereof, and upon the acceptance hereof by
you, on behalf of each of the Underwriters, this letter and such acceptance
hereof shall constitute a binding agreement among each of the Underwriters and
the Company. It is understood that your acceptance of this letter on behalf of
each of the Underwriters is pursuant to the authority set forth in the Deutsche
Morgan Grenfell Inc. Master Agreement Among Underwriters, the form of which
shall be submitted to the Company for examination upon request, but without
warranty on your part as to the authority of the signers thereof.
Very truly yours,
software.net Corporation
By____________________________________
Name:
Title:
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
DEUTSCHE MORGAN GRENFELL INC.
MERRILL LYNCH & CO.
DONALDSON LUFKIN & JENRETTE SECURITIES CORPORATION
C.E. UNTERBERG, TOWBIN
By: DEUTSCHE MORGAN GRENFELL INC.
By____________________________________
Name:
Title:
For itself and on behalf of the Representatives.
-33-
<PAGE> 35
SUBJECT TO NEGOTIATION.
SCHEDULE 1
The Underwriters
<TABLE>
<CAPTION>
Underwriter Underwriting commitment
<S> <C>
Deutsche Morgan Grenfell Inc..................................
Donaldson Lufkin & Jenrette Securities Corp...................
Merrill Lynch & Co. ..........................................
C. E. Unterberg, Towbin ...................................... ____________________
Total......................................................... 5,000,000
</TABLE>
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF
SOFTWARE.NET CORPORATION
ARTICLE I.
The name of this Corporation is software.net Corporation (hereafter
the "Corporation").
ARTICLE II.
The address of the Corporation's registered office in the State of
Delaware is Corporation Service Company, 1013 Centre Road, City of Wilmington,
County of New Castle, State of Delaware 19805. The name of its registered agent
at such address is Corporation Service Company.
ARTICLE III.
The nature of the business or purposes to be conducted or promoted by
the Corporation is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of Delaware and
to possess and exercise all of the powers and privileges granted by such law.
ARTICLE IV.
This Corporation is authorized to issue two classes of shares of
stock, designated "Common Stock" and "Preferred Stock". The total number of
shares that this Corporation is authorized to issue is sixty-five million
(65,000,000) shares. The number of shares of Common Stock authorized is fifty
million (50,000,000) shares, $0.001 par value per share. The number of shares of
Preferred Stock authorized is fifteen million (15,000,000) shares, $0.001 par
value per share. The holders of Common Stock shall be entitled to one vote for
each share in all matters required or permitted to be voted on by stockholders
of the Corporation.
The shares of Preferred Stock authorized by this Amended and Restated
Certificate of Incorporation may be issued from time to time in one or more
series. For any wholly unissued series of Preferred Stock, subject to compliance
with Section 6 of this Article IV, the Board of Directors is hereby authorized
to fix and alter the dividend rights, dividend rates, conversion rights, voting
rights, rights and terms of redemption (including sinking fund provisions),
redemption prices, and liquidation preferences, the number of shares
constituting any such series and the designation thereof, or any of them.
For any series of Preferred Stock having issued and outstanding
shares, the Board of Directors is hereby authorized to increase or decrease the
number of shares of such series when the number of shares of such series was
originally fixed by the Board of Directors, but such increase or decrease shall
be subject to the limitations and restrictions stated in the resolution of the
Board of Directors originally fixing the number of shares of such series. If the
number of shares of any series is so decreased, then the shares constituting
such decrease shall resume the status that they had prior to the adoption of the
resolution originally fixing the number of shares
- 1 -
<PAGE> 2
of such series. In no event may the number of shares of any series be decreased
to a number that is less than the number of shares of such series then
outstanding.
SECTION 1. DESIGNATION AND DEFINITIONS:
(a) "Board of Directors" shall mean the Board of Directors of this
Corporation.
(b) The "Common Shares" shall mean shares of the Common Stock.
(c) "Common Stock" shall mean this Corporation's common stock.
(d) The "Corporation" shall mean software.net Corporation.
(e) There shall be four series of Preferred Stock, designated and
known as Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock and Series D Preferred Stock. The number of shares constituting the Series
A Preferred Stock (the "Series A Preferred") shall be 1,985,520 shares. The
number of shares constituting the Series B Preferred Stock (the "Series B
Preferred") shall be 2,037,038 shares. The number of shares constituting the
Series C Preferred Stock (the "Series C Preferred") shall be 3,000,000 shares.
The number of shares constituting the Series D Preferred Stock (the "Series D
Preferred") shall be 1,523,424 shares. Subject to compliance with Section 6 of
this Article IV, the Board of Directors may issue the remaining undesignated
Preferred Stock in one or more series as permitted by this Amended and Restated
Certificate of Incorporation. The Series A Preferred, Series B Preferred, Series
C Preferred and Series D Preferred are referred to herein from time to time
collectively as the "Preferred Stock."
SECTION 2. DIVIDENDS.
(a) The holders of outstanding Series A Preferred shall be entitled
to receive in any fiscal year, when, as and if declared by the Board of
Directors, out of any assets at the time legally available therefor, dividends
at the rate of $0.04 per share of Series A Preferred per annum (the "Series A
Dividend"), which shall be payable pari passu with the Series B Dividend (as
defined in subsection (b) below), the Series C Dividend (as defined in
subsection (c) below), and the Series D Dividend (as defined in subsection (d)
below) before any dividend or distribution (other than pursuant to Section 5) is
paid on Common Stock. The Series A Dividend may be payable annually or otherwise
as the Board of Directors may from time to time determine provided that the
Series B Dividend, Series C Dividend, and Series D Dividend are also paid at
such time.
(b) The holders of outstanding Series B Preferred shall be entitled
to receive in any fiscal year, when, as and if declared by the Board of
Directors, out of any assets at the time legally available therefor, dividends
at the rate of the sum of (i) $0.2268 per share of Series B Preferred per annum
(the "Noncumulative Series B Dividend"), plus (ii) for each month since the
Series B Original Issue Date (as defined in Section 4(d)), $0.01323 (as adjusted
for any stock dividends, combinations or splits with respect to such shares) per
share of Series B Preferred (the "Cumulative Series B Dividend" and together
with the Noncumulative Series B Dividend, the "Series B Dividend"), which shall
be payable pari passu with the Series A Dividend, Series C
- 2 -
<PAGE> 3
Dividend and Series D Dividend before any dividend or distribution (other than
pursuant to Section 5) is paid on Common Stock. The Series B Dividend may be
payable annually or otherwise as the Board of Directors may from time to time
determine provided that the Series A Dividend, Series C Dividend and Series D
Dividend are also paid at such time. Any amounts paid with respect to the Series
B Dividend in any fiscal year shall be applied first to the Noncumulative Series
B Dividend due for that fiscal year, second to any Cumulative Series B Dividends
due for any previous fiscal year or period, and third to the most recently
accumulated Cumulative Series B Dividend.
(c) The holders of outstanding Series C Preferred shall be entitled
to receive in any fiscal year, when, as and if declared by the Board of
Directors, out of any assets at the time legally available therefor, dividends
at the rate of the sum of (i) $0.17136 per share of Series C Preferred per annum
(the "Noncumulative Series C Dividend"), plus (ii) for each month since the
Series C Original Issue Date (as defined in Section 4(d)), $0.009996 (as
adjusted for any stock dividends, combinations or splits with respect to such
shares) per share of Series C Preferred (the "Cumulative Series C Dividend" and
together with the Noncumulative Series C Dividend, the "Series C Dividend"),
which shall be payable pari passu with the Series A Dividend, Series B Dividend
and Series D Dividend before any dividend or distribution (other than pursuant
to Section 5) is paid on Common Stock. The Series C Dividend may be payable
annually or otherwise as the Board of Directors may from time to time determine
provided that the Series A Dividend, Series B Dividend and Series D Dividend are
also paid at such time. Any amounts paid with respect to the Series C Dividend
in any fiscal year shall be applied first to the Noncumulative Series C Dividend
due for that fiscal year, second to any Cumulative Series C Dividend due for any
previous fiscal year or period, and third to the most recently accumulated
Cumulative Series C Dividend.
(d) The holders of outstanding Series D Preferred shall be entitled
to receive in any fiscal year, when, as and if declared by the Board of
Directors, out of any assets at the time legally available therefor, dividends
at the rate of the sum of (i) $0.26 per share of Series D Preferred per annum
(the "Noncumulative Series D Dividend"), plus (ii) for each month since the
Series D Original Issue Date (as defined in Section 4(d)), $0.0152 (as adjusted
for any stock dividends, combinations or splits with respect to such shares) per
share of Series D Preferred (the "Cumulative Series D Dividend" and together
with the Noncumulative Series D Dividend, the "Series D Dividend"), which shall
be payable pari passu with the Series A Dividend, Series B Dividend and Series C
Dividend before any dividend or distribution (other than pursuant to Section 5)
is paid on Common Stock. The Series D Dividend may be payable annually or
otherwise as the Board of Directors may from time to time determine provided
that the Series A Dividend, Series B Dividend and Series C Dividend are also
paid at such time. Any amounts paid with respect to the Series D Dividend in any
fiscal year shall be applied first to the Noncumulative Series D Dividend due
for that fiscal year, second to any Cumulative Series D Dividend due for any
previous fiscal year or period, and third to the most recently accumulated
Cumulative Series D Dividend.
(e) Dividends or distributions (other than dividends payable solely
in shares of Common Stock or distributions pursuant to Section 5) of up to
$0.17136 per share may be declared and paid upon shares of Common Stock in any
fiscal year of the Corporation only if the Series A Dividend, Series B Dividend,
Series C Dividend and Series D Dividend has been
- 3 -
<PAGE> 4
declared and paid in such year. After dividends or distributions of $0.17136 per
share have been declared and paid on the Common Stock in any fiscal year, all
further dividends and distributions during such fiscal year shall be distributed
among the holders of the Common Stock, the Series A Preferred, Series B
Preferred, Series C Preferred and Series D Preferred in proportion to the shares
of Common Stock then held by them and the shares of Common Stock which they then
have the right to acquire upon conversion of the shares of Series A Preferred,
Series B Preferred, Series C Preferred, or Series D Preferred as the case may
be, then held by them.
(f) The right to the Series A Dividend, Noncumulative Series B
Dividend, Noncumulative Series C Dividend, and Noncumulative Series D Dividend
shall not be cumulative and no right shall accrue to holders of shares of Series
A Preferred, Series B Preferred, Series C Preferred or Series D Preferred by
reason of the fact that such dividends on said shares are not declared in any
prior year, nor shall any undeclared or unpaid dividend bear or accrue interest.
The Cumulative Series B Dividend, Cumulative Series C Dividend and Cumulative
Series D Dividend shall be cumulative, whether or not earned or declared, on a
daily basis from the Series B Original Issue Date, Series C Original Issue Date
and Series D Original Issue Date, respectively, provided that such Cumulative
Series B Dividend, Cumulative Series C Dividend and Cumulative Series D Dividend
shall be payable as dividends only as declared by the Board of Directors (but
will be paid upon liquidation, dissolution or winding up of the Corporation
under Section 5 below or upon redemption under Section 9 below regardless of
whether declared by the Board of Directors); provided further that no portion of
the Noncumulative Series B Dividend, Noncumulative Series C Dividend or
Noncumulative Series D Dividend shall be applied to or against the Cumulative
Series B Dividend, Cumulative Series C Dividend or Cumulative Series D Dividend,
respectively.
(g) Each holder of Preferred Stock shall be deemed to have consented,
for purposes of Sections 160 and 170-174 of the General Corporation Law of the
State of Delaware, to distributions made by this Corporation in connection with
the repurchase of shares of Common Stock issued to or held by employees of, or
consultants to, this Corporation upon termination of their employment or
services pursuant to agreements providing for such repurchase.
SECTION 3. VOTING.
(a) Each holder of Preferred Stock shall be entitled to the number of
votes equal to the number of shares of Common Stock into which such holder's
shares of Preferred Stock could be converted on the record date for the vote or
consent of stockholders and shall have voting rights and powers equal to the
voting rights and powers of the Common Stock. The holder of each share of
Preferred Stock shall be entitled to notice of any stockholders ' meeting in
accordance with the Bylaws of the Corporation and shall vote with holders of the
Common Stock upon any matter submitted to a vote of stockholders, except with
respect to (i) those matters required by law to be submitted to a class or
series vote and (ii) the election of directors (in respect of which the rights
of the holders of Preferred Stock are set forth in Sections 3(b) and 3(c)
hereof). Fractional votes by the holders of Preferred Stock shall not, however,
be permitted and any fractional voting rights resulting from the above formula
(after aggregating all shares into which shares of Preferred Stock held by each
holder could be converted) shall be rounded to the nearest whole number.
- 4 -
<PAGE> 5
(b) The number of directors shall be set as provided in the Bylaws of
the Corporation. So long as any shares of Series A Preferred remain outstanding,
the holders of the Series A Preferred outstanding, voting together as a class,
shall be entitled to elect one (1) director. So long as any shares of Series B
Preferred remain outstanding, the holders of the Series B Preferred outstanding,
voting together as a class, shall be entitled to elect one (1) director. So long
as any shares of Series C Preferred and Series D Preferred remain outstanding,
the holders of the Series C Preferred and Series D Preferred outstanding, voting
together as a class, shall be entitled to elect one (1) director. The holders of
Common Stock voting together as a class, shall be entitled to elect three (3)
directors.
(c) In the case of any vacancy in the office of a director occurring
among the directors elected by the holders of Series A Preferred, Series B
Preferred, Series C Preferred and Series D Preferred or Common Stock pursuant to
Section 3(b) hereof, the remaining director or directors so elected by the
holders of the Series A Preferred, Series B Preferred, Series C Preferred and
Series D Preferred, or Common Stock as the case may be, may, by affirmative vote
thereof (or the remaining director so elected if there is but one, or if there
is no such director remaining, by the vote of the shares of the applicable class
or series) elect a successor or successors to hold the office for the unexpired
term of the director or directors whose place or places shall be vacant. Any
director who shall have been elected by the holders of the Series A Preferred,
Series B Preferred, Series C Preferred and Series D Preferred, or Common Stock
or any director so elected as provided in the preceding sentence hereof, may be
removed during the aforesaid term of office only by the vote of the Series A
Preferred, Series B Preferred, Series C Preferred and Series D Preferred, or
Common Stock, as the case may be, provided that the shares voted against removal
would not be sufficient to elect the director with cumulative voting.
(d) Sections 3 (b) and 3 (c) above shall be void and of no effect
thereafter upon the occurrence of any of the following events:
(i) the consummation of the Corporation's Initial Registered
Public Offering (as defined in Section 4(b)(i) hereof); and
(ii) upon the distribution to the stockholders pursuant to
Section 5 of the net proceeds of the sale of all or substantially all
the assets of the Corporation.
SECTION 4. PREFERRED STOCK CONVERSION.
The holders of Preferred Stock shall have conversion rights as follows
(the "Conversion Rights");
(a) Right to Convert. Each share of Series A Preferred shall be
convertible, at the option of the holder thereof, at any time after the date of
issuance of such share at the office of the Corporation or any transfer agent
for such stock, into such number of fully paid and nonassessable shares of
Common Stock as is determined by dividing $0.336 by the Series A Conversion
Price, determined as hereinafter provided, in effect on the date the certificate
is surrendered for conversion. The price at which shares of Common Stock shall
be deliverable upon conversion of shares of the Series A Preferred (the "Series
A Conversion Price") shall initially be $0.168 per share of Common Stock. Such
initial Series A Conversion Price shall be adjusted as hereinafter provided.
Each share of Series B Preferred shall be convertible, at the
- 5 -
<PAGE> 6
option of the holder thereof, at any time after the date of issuance of such
share at the office of the Corporation or any transfer agent for such stock,
into such number of fully paid and nonassessable shares of Common Stock as is
determined by dividing $2.268 by the Series B Conversion Price, determined as
hereinafter provided, in effect on the date the certificate is surrendered for
conversion. The price at which shares of Common Stock shall be deliverable upon
conversion of shares of the Series B Preferred (the "Series B Conversion Price")
shall initially be $1.134 of Common Stock. Such initial Series B Conversion
Price shall be adjusted as hereinafter provided. Each share of Series C
Preferred shall be convertible, at the option of the holder thereof, at any time
after the date of issuance of such share at the office of the Corporation or any
transfer agent for such stock, into such number of fully paid and nonassessable
shares of Common Stock as is determined by dividing $1.7136 by the Series C
Conversion Price, determined as hereinafter provided, in effect on the date the
certificate is surrendered for conversion. The price at which shares of Common
Stock shall be deliverable upon conversion of shares of the Series C Preferred
(the "Series C Conversion Price") shall initially be $1.7136 per share of Common
Stock. Such initial Series C Conversion Price shall be adjusted as hereinafter
provided. Each share of Series D Preferred shall be convertible, at the option
of the holder thereof, at any time after the date of issuance of such share at
the office of the Corporation or any transfer agent for such stock, into such
number of fully paid and nonassessable shares of Common Stock as is determined
by dividing $2.60 by the Series D Conversion Price, determined as hereinafter
provided, in effect on the date the certificate is surrendered for conversion.
The price at which shares of Common Stock shall be deliverable upon conversion
of shares of the Series D Preferred (the "Series D Conversion Price") shall
initially be $2.60 per share of Common Stock. Such initial Series D Conversion
Price shall be adjusted as hereinafter provided.
(b) Automatic Conversion.
(i) Each share of Series A Preferred shall automatically be
converted without any action on the part of the Corporation or the
holders of Series A Preferred Stock into such number of fully paid and
nonassessable shares of Common Stock as is determined by dividing $0.336
by the Series A Conversion Price, determined as hereinafter provided, in
effect on the date of the occurrence of the earliest to occur of the
following events:
(A) immediately prior to the consummation of the
Corporation's initial firm-commitment underwritten public offering of
common stock under the Securities Act of 1933, as amended (the
"Securities Act"), provided that such offering is made at $3.4272 per
share (after adjustments for any stock splits or stock dividends) and
results in $15,000,000 or more in gross proceeds to the Corporation (the
"Initial Registered Public Offering"); or
(B) upon the receipt by the Corporation of the written
consent to or request for such conversion from holders of at least
two-thirds of the Series A Preferred then outstanding.
(ii) Each share of Series B Preferred shall automatically be
converted, without any action on the part of the Corporation or the
holders of Series B Preferred
- 6 -
<PAGE> 7
Stock, into such number of fully paid and nonassessable shares of Common
Stock as is determined by dividing $2.268 by the Series B Conversion
Price, determined as hereinafter provided, in effect on the date of the
occurrence of the earliest to occur of the following events:
(A) immediately prior to the consummation of the Initial
Registered Public Offering; or
(B) upon the receipt by the Corporation of the written
consent to or request for such conversion from holders of at least
two-thirds of the Series B Preferred then outstanding.
(iii) Each share of Series C Preferred shall automatically be
converted, without any action on the part of the Corporation or the
holders of Series C Preferred Stock, into such number of fully paid and
nonassessable shares of Common Stock as is determined by dividing
$1.7136 by the Series C Conversion Price, determined as hereinafter
provided, in effect on the date of the occurrence of the earliest to
occur of the following events:
(A) immediately prior to the consummation of the Initial
Registered Public Offering; or
(B) upon the receipt by the Corporation of the written
consent to or request for such conversion from holders of at least
two-thirds of the Series C Preferred then outstanding.
(iv) Each share of Series D Preferred shall automatically be
converted, without any action on the part of the Corporation or the
holders of Series D Preferred Stock, into such number of fully paid and
nonassessable shares of Common Stock as is determined by dividing $2.60
by the Series D Conversion Price, determined as hereinafter provided, in
effect on the date of the occurrence of the earliest to occur of the
following events:
(A) immediately prior to the consummation of the Initial
Registered Public Offering; or
(B) upon the receipt by the Corporation of the written
consent to or request for such conversion from holders of at least
two-thirds of the Series D Preferred then outstanding.
(c) Mechanics of Conversion.
(i) Before any holder of Preferred Stock shall be entitled to
convert the same into shares of Common Stock, such holder shall
surrender the certificate or certificates therefor, duly endorsed, at
the office of the Corporation or of any transfer agent for such stock,
and shall give written notice to the Corporation at such office that
such holder elects to convert the same and shall state therein the name
or names in which such holder wishes the certificate or certificates for
shares of Common Stock to be issued.
- 7 -
<PAGE> 8
The Corporation shall, as soon as practicable thereafter, issue and
deliver at such office to such holder of Preferred Stock, a certificate
or certificates for the number of shares of Common Stock to which such
holder shall be entitled as aforesaid. Such conversion shall be deemed
to have been made immediately prior to the close of business on the date
of surrender of the shares of Preferred Stock to be converted, and the
person or persons entitled to receive the shares of Common Stock
issuable upon such conversion shall be treated for all purposes as the
record holder or holders of such shares of Common Stock on such date.
(ii) If a voluntary conversion is in connection with an
underwritten offering of securities pursuant to the Securities Act, the
conversion may, at the option of any holder tendering shares of
Preferred Stock for conversion, be conditioned upon the closing with the
underwriters of the sale of securities pursuant to such offering, in
which event the person(s) entitled to receive the Common Stock upon
conversion of the Preferred Stock shall not be deemed to have converted
such Preferred Stock until immediately prior to the closing of such sale
of securities.
(d) Adjustments to Series A Conversion Price, Series B Conversion
Price, Series C Conversion Price and Series D Conversion Price for Certain
Diluting Issues.
(i) Special Definitions. For purposes of this Section 4(d), the
following definitions apply:
(A) "Options" shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire either Common Stock or
Convertible Securities (defined below).
(B) "Series B Original Issue Date" shall mean the first
date of issuance of a share of Series B Preferred Stock.
(C) "Series C Original Issue Date" shall mean the first
date of issuance of a share of Series C Preferred Stock.
(D) "Series D Original Issue Date" shall mean March 17,
1998.
(E) "Convertible Securities" shall mean any evidences of
indebtedness, shares (other than Common Stock, Series A Preferred,
Series B Preferred, Series C Preferred and Series D Preferred) or other
securities convertible into or exchangeable for Common Stock.
(F) "Additional Shares of Common Stock" shall mean all
shares of Common Stock issued (or, pursuant to Section 4(d)(iii), deemed
to be issued) by the Corporation after the Series D Original Issue Date,
other than shares of Common Stock issued or issuable as follows:
(1) upon conversion of shares of Series A
Preferred, Series B Preferred, Series C Preferred or Series D Preferred;
- 8 -
<PAGE> 9
(2) up to 4,000,000 shares, subject to adjustment
for all stock splits, stock dividends, subdivisions and combinations of
shares of Common Stock issued (or, pursuant to Section 4(d)(iii), deemed
to be issued) to employees, officers, directors and consultants of the
Corporation pursuant to the Corporation's stock option, purchase or
similar plans in effect on the Series D Original Issue Date or shares
issued pursuant to stock options otherwise issued to employees,
officers, directors or consultants of the Corporation as approved by the
Corporation's Board of Directors;
(3) (or pursuant to Section 4(d)(iii), deemed to be
issued) to employees, officers, directors and consultants of the
Corporation after such shares have been reacquired (upon the termination
or expiration of Options or otherwise) from such persons upon the
termination of their relationship with the Corporation; provided that
such reacquired and reissued shares are not issued (or pursuant to
Section 4(d)(iii), deemed to be issued) for consideration which is less
than the consideration per share for which the shares previously issued
were reacquired or at which the shares deemed to be issued (pursuant to
Section 4(d)(iii)) and reacquired (upon the termination or expiration of
Options or otherwise) were deemed to be issued;
(4) as a dividend or distribution on the Preferred
Stock;
(5) pursuant to Section 4(e) for the purpose of
adjusting the Series A Conversion Price, Series B Conversion Price, the
Series C Conversion Price or Series D Conversion Price; or
(6) pursuant to warrants or other securities issued
in connection with any commercial loan, commercial lease obtained or
equipment leasing transaction or nonfinancing commercial transaction
undertaken by the Corporation with a non-affiliated third party and
approved by the director elected by the holders of the Series A
Preferred, the director elected by the holders of the Series B
Preferred, and the director elected by the holders of the Series C
Preferred and the Series D Preferred.
(ii) No Adjustment of Conversion Price. Any provision herein to
the contrary notwithstanding, no adjustment in the Series A Conversion
Price, Series B Conversion Price, the Series C Conversion Price or the
Series D Conversion Price shall be made in respect of the issuance of
Additional Shares of Common Stock unless the consideration per share
(determined pursuant to Section 4(d)(v) hereof) for an Additional Share
of Common Stock issued or deemed to be issued by the Corporation is less
than the Series A Conversion Price, Series B Conversion Price, the
Series C Conversion Price, or the Series D Conversion Price,
respectively, in effect on the date of, and immediately prior to, such
issuance.
(iii) Deemed Issuance of Additional Shares of Common Stock. In
the event the Corporation at any time or from time to time after the
Series D Original Issue Date shall issue any Options or Convertible
Securities or shall fix a record date for the determination of holders
of any class of securities then entitled to receive any such Options or
Convertible Securities, then the maximum number of shares (as set forth
in the instrument relating thereto without regard to any provisions
contained therein designed to protect against dilution) of Common Stock
issuable upon the exercise of such Options or,
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<PAGE> 10
in the case of Convertible Securities and Options therefor, the
conversion or exchange of such Convertible Securities, shall be deemed
to be Additional Shares of Common Stock issued as of the time of such
issue or, in case such a record date shall have been fixed, as of the
close of business on such record date, provided that in any such case in
which Additional Shares of Common Stock are deemed to be issued:
(A) no further adjustments in the Series A Conversion
Price, Series B Conversion Price, the Series C Conversion Price or the
Series D Conversion Price, as the case may be, shall be made upon the
subsequent issue of Convertible Securities or shares of Common Stock
upon the exercise of such Options or conversion or exchange of such
Convertible Securities;
(B) if such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise, for any increase
or decrease in the consideration payable to the Corporation, or decrease
or increase in the number of shares of Common Stock issuable, upon the
exercise, conversion or exchange thereof, the Series A Conversion Price,
Series B Conversion Price, the Series C Conversion Price or the Series D
Conversion Price, as the case may be, computed upon the original issue
thereof (or upon the occurrence of a record date with respect thereto),
and any subsequent adjustments based thereon, shall, upon any such
increase or decrease becoming effective, be recomputed to reflect such
increase or decrease insofar as it affects such Options or the rights of
conversion or exchange under such Convertible Securities (provided,
however, that no such adjustment of the Series A Conversion Price,
Series B Conversion Price, the Series C Conversion Price or the Series D
Conversion Price, as the case may be, shall affect the Common Stock
previously issued upon conversion of the Series A Preferred, Series B
Preferred, Series C Preferred or Series D Preferred, as the case may
be);
(C) upon the expiration of any such Options or any rights
of conversion or exchange under such Convertible Securities which shall
not have been exercised, the Series A Conversion Price, Series B
Conversion Price, the Series C Conversion Price or the Series D
Conversion Price, as the case may be, computed upon the original issue
thereof (or upon the occurrence of a record date with respect thereto),
and any subsequent adjustments based thereon, shall, upon such
expiration, be recomputed as if:
(1) in the case of Convertible Securities or
Options for Common Stock, the only Additional Shares of Common Stock
issued were the shares of Common Stock, if any, actually issued upon the
exercise of such Options or the conversion or exchange of such
Convertible Securities and the consideration received therefor was the
consideration actually received by the Corporation for the issue of all
such Options, whether or not exercised, plus the consideration actually
received by the Corporation upon such exercise, or for the issue of all
such Convertible Securities which were actually converted or exchanged,
plus the additional consideration, if any, actually received by the
Corporation upon such conversion or exchange, and
(2) in the case of Options for Convertible
Securities, only the Convertible Securities, if any, actually issued
upon the exercise thereof were
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<PAGE> 11
issued at the time of issue of such Options, and the consideration
received by the Corporation for the Additional Shares of Common Stock
deemed to have been then issued was the consideration actually received
by the Corporation for the issue of all such Options, whether or not
exercised, plus the consideration deemed to have been received by the
Corporation (determined pursuant to Section 4(d)(v)) upon the issue of
the Convertible Securities with respect to which such Options were
actually exercised;
(D) no readjustment pursuant to clause (B) or (C) above
shall have the effect of increasing the Series A Conversion Price,
Series B Conversion Price, the Series C Conversion Price or the Series D
Conversion Price, as the case may be, to an amount which exceeds the
lower of (1) the Series A Conversion Price or the Series B Conversion
Price or Series C Conversion Price or the Series D Conversion Price, as
the case may be, on the original adjustment date, or (2) the Series A
Conversion Price, Series B Conversion Price, the Series C Conversion
Price or the Series D Conversion Price, as the case may be, that would
have resulted from any issuance of Additional Shares of Common Stock
between the original adjustment date and such readjustment date;
(E) in the case of any Options which expire by their terms
not more than 30 days after the date of issue thereof, no adjustment of
the Series A Conversion Price, Series B Conversion Price, the Series C
Conversion Price or the Series D Conversion Price shall be made until
the expiration or exercise of all such Options, whereupon such
adjustment shall be made in the same manner provided in clause (C)
above.
(iv) Adjustment of Conversion Price Upon Issuance of Additional
Shares of Common Stock. In the event this Corporation, at any time after
the Series D Original Issue Date, shall issue Additional Shares of
Common Stock (including Additional Shares of Common Stock deemed to be
issued pursuant to Section 4(d)(iii)), without consideration or for a
consideration per share less than the Series A Conversion Price in
effect on such date of and immediately prior to such issuance, then and
in such event, the Series A Conversion Price shall be reduced,
concurrently with such issue, to a price (calculated to the nearest
cent) determined by multiplying such Series A Conversion Price by a
fraction, the numerator of which shall be the number of shares of Series
A Preferred actually issued and outstanding immediately prior to such
issue plus the number of shares of Common Stock which the aggregate
consideration received by the Corporation for the total number of
Additional Shares of Common Stock so issued would purchase at such
Series A Conversion Price in effect immediately prior to such issuance,
and the denominator of which shall be the number of shares of Series A
Preferred actually issued and outstanding immediately prior to such
issue plus the number of such Additional Shares of Common Stock so
issued. In the event this Corporation, at any time after the Series D
Original Issue Date, shall issue Additional Shares of Common Stock
(including Additional Shares of Common Stock deemed to be issued
pursuant to Section 4(d)(iii)), without consideration or for a
consideration per share less than the Series B Conversion Price in
effect on such date of and immediately prior to such issuance, then and
in such event, the Series B Conversion Price shall be reduced,
concurrently with such issue, to a price (calculated to the nearest
cent) determined by multiplying such Series B Conversion Price by a
fraction, the numerator of which shall be the number of shares of
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<PAGE> 12
Series B Preferred actually issued and outstanding immediately prior to
such issue plus the number of shares of Common Stock which the aggregate
consideration received by the Corporation for the total number of
Additional Shares of Common Stock so issued would purchase at such
Series B Conversion Price in effect immediately prior to such issuance,
and the denominator of which shall be the number of shares of Series B
Preferred actually issued and outstanding immediately prior to such
issue plus the number of such Additional Shares of Common Stock so
issued. In the event this Corporation, at any time after the Series D
Original Issue Date, shall issue Additional Shares of Common Stock
(including Additional Shares of Common Stock deemed to be issued
pursuant to Section 4(d)(iii)), without consideration or for a
consideration per share less than the Series C Conversion Price in
effect on such date of and immediately prior to such issuance, then and
in such event, the Series C Conversion Price shall be reduced,
concurrently with such issue, to a price (calculated to the nearest
cent) determined by multiplying such Series C Conversion Price by a
fraction, the numerator of which shall be the number of shares of Series
C Preferred actually issued and outstanding immediately prior to such
issue plus the number of shares of Common Stock which the aggregate
consideration received by the Corporation for the total number of
Additional Shares of Common Stock so issued would purchase at such
Series C Conversion Price in effect immediately prior to such issuance,
and the denominator of which shall be the number of shares of Series C
Preferred actually issued and outstanding immediately prior to such
issue plus the number of such Additional Shares of Common Stock so
issued. In the event this Corporation, at any time after the Series D
Original Issue Date, shall issue Additional Shares of Common Stock
(including Additional Shares of Common Stock deemed to be issued
pursuant to Section 4(d)(iii)), without consideration or for a
consideration per share less than the Series D Conversion Price in
effect on such date of and immediately prior to such issuance, then and
in such event, the Series D Conversion Price shall be reduced,
concurrently with such issue, to a price (calculated to the nearest
cent) determined by multiplying such Series D Conversion Price by a
fraction, the numerator of which shall be the number of shares of Series
D Preferred actually issued and outstanding immediately prior to such
issue plus the number of shares of Common Stock which the aggregate
consideration received by the Corporation for the total number of
Additional Shares of Common Stock so issued would purchase at such
Series D Conversion Price in effect immediately prior to such issuance,
and the denominator of which shall be the number of shares of Series D
Preferred actually issued and outstanding immediately prior to such
issue plus the number of such Additional Shares of Common Stock so
issued.
(v) Determination of Consideration. For purposes of this Section
4(d), the consideration received by the Corporation for the issue of any
Additional Shares of Common Stock shall be computed as follows:
(A) Cash and Property. Such consideration shall:
(1) insofar as it consists of cash, be computed at
the aggregate amount of cash received by the Corporation excluding
amounts paid or payable for accrued interest or accrued dividends;
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<PAGE> 13
(2) insofar as it consists of property other than
cash, be computed at the fair value thereof at the time of such issue,
as determined in good faith by the Board of Directors; and
(3) in the event Additional Shares of Common Stock
are issued together with other shares or securities or other assets of
the Corporation for consideration which covers both, be the proportion
of such consideration so received, computed as provided in clauses (1)
and (2) above, as determined in good faith by the Board of Directors.
(B) Options and Convertible Securities. The consideration
per share received by the Corporation for Additional Shares of Common
Stock deemed to have been issued pursuant to Section 4(d)(iii), relating
to Options and Convertible Securities shall be determined by dividing:
(1) the total amount, if any, received or
receivable by the Corporation as consideration for the issue of such
Options or Convertible Securities, plus the minimum aggregate amount of
additional consideration (as set forth in the instruments relating
thereto, without regard to any provision contained therein designed to
protect against dilution) payable to the Corporation upon the exercise
of such Options or the conversion or exchange of such Convertible
Securities, or in the case of Options for Convertible Securities, the
exercise of such Options for Convertible Securities and the conversion
or exchange of such Convertible Securities by
(2) the maximum number of shares of Common Stock
(as set forth in the instruments relating thereto, without regard to any
provision contained therein designed to protect against dilution)
issuable upon the exercise of such Options or conversion or exchange of
such Convertible Securities.
(e) Adjustments for Stock Dividends, Subdivisions, or Split-ups of
Common Stock. If the number of shares of Common Stock outstanding at any time
after the Series D Original Issue Date is increased by a stock dividend payable
in shares of Common Stock or by a subdivision or split-up of shares of Common
Stock, then, effective at the close of business upon the record date fixed for
the determination of holders of Common Stock entitled to receive such stock
dividend, subdivision or split-up, the Series A Conversion Price, the Series B
Conversion Price, the Series C Conversion Price and the Series D Conversion
Price shall be appropriately decreased so that the number of shares of Common
Stock issuable on conversion of each share of Series A Preferred, Series B
Preferred, Series C Preferred and Series D Preferred shall be increased in
proportion to such increase of outstanding shares of Common Stock.
(f) Adjustments for Combinations of Common Stock. If the number of
shares of Common Stock outstanding at any time after the Series D Original Issue
Date is decreased by a combination of the outstanding shares of Common Stock,
then, effective at the close of business upon the record date of such
combination, the Series A Conversion Price, the Series B Conversion Price, the
Series C Conversion Price and the Series D Conversion Price shall be
appropriately increased so that the number of shares of Common Stock issuable on
conversion of each share of Series A Preferred, Series B Preferred, Series C
Preferred and Series D Preferred shall be decreased in proportion to such
decrease in outstanding shares of Common Stock.
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<PAGE> 14
(g) Adjustments for Other Distributions. In the event the Corporation
at any time or from time to time makes, or fixes a record date for the
determination of holders of Common Stock entitled to receive any distribution
payable in securities of the Corporation other than shares of Common Stock, then
and in each such event provision shall be made so that the holders of Preferred
Stock shall receive upon conversion thereof, in addition to the number of shares
of Common Stock receivable thereupon, the amount of securities of the
Corporation which they would have received had their Preferred Stock been
converted into Common Stock on the date of such event and had they thereafter,
during the period from the date of such event to and including the date of
conversion, retained such securities receivable by them as aforesaid during such
period, subject to all other adjustments called for during such period under
this Section 4(g) with respect to the rights of the holders of the Preferred
Stock.
(h) Adjustments for Reorganizations, Reclassifications, etc. If the
Common Stock issuable upon conversion of the Preferred Stock shall be changed
into the same or a different number of shares of any other class or classes of
stock or other securities or property, whether by reclassification, a merger or
consolidation of this Corporation with or into any other corporation or
corporations, or a sale of all or substantially all of the assets of this
Corporation (but only if the stockholders of this Corporation hold more than 50%
of the outstanding voting equity securities of the surviving corporation in such
merger, consolidation or sale of assets reorganization), or otherwise (other
than a subdivision or combination of shares provided for above or a merger or
other transaction referred to in Section 5(f) below), the Series A Conversion
Price, Series B Conversion Price, the Series C Conversion Price and the Series D
Conversion Price then in effect, concurrently with the effectiveness of such
reorganization or reclassification, shall be proportionately adjusted such that
the Series A Preferred, Series B Preferred, Series C Preferred and Series D
Preferred shall be convertible into, in lieu of the number of shares of Common
Stock which the holders would otherwise have been entitled to receive, a number
of shares of such other class or classes of stock or securities or other
property equivalent to the number of shares of Common Stock that would have been
subject to receipt by the holders upon conversion of the Preferred Stock
immediately before such event; and, in any such case, appropriate adjustment (as
determined by the Board of Directors) shall be made in the application of the
provisions herein set forth with respect to the rights and interests thereafter
of the holders of the Preferred Stock, to the end that the provisions set forth
herein (including provisions with respect to changes in and other adjustments of
the Series A Conversion Price, the Series B Conversion Price, the Series C
Conversion Price and the Series D Conversion Price) shall thereafter be
applicable, as nearly as may be reasonable, in relation to any shares of stock
or other property thereafter deliverable upon the conversion of the Preferred
Stock.
(i) No Impairment. The Corporation will not, except by a properly
approved amendment of its Certificate of Incorporation, through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 4 and in the taking of all
such action as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of the Preferred Stock against impairment.
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<PAGE> 15
(j) Certificates as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Series A Conversion Price, the Series B
Conversion Price, the Series C Conversion Price or the Series D Conversion Price
pursuant to this Section 4, the Corporation at its expense shall promptly
compute such adjustment or readjustment in accordance with the terms hereof and
prepare and furnish to each holder of Series A Preferred, Series B Preferred,
Series C Preferred or Series D Preferred, as applicable, a certificate executed
by the Corporation's President or Chief Financial Officer setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon the written
request at any time of any holder of Preferred Stock, furnish or cause to be
furnished to such holder a like certificate setting forth (1) such adjustments
and readjustments, (2) the Series A Conversion Price, the Series B Conversion
Price, the Series C Conversion Price or the Series D Conversion Price, as
applicable, at the time in effect, and (3) the number of shares of Common Stock
and the amount, if any, of other property which at the time would be received
upon the conversion of the Preferred Stock.
(k) Notices of Record Date. In the event that the Corporation shall
propose at any time: (a) to declare any special dividend or distribution upon
its Common Stock, whether in cash, property, stock or other securities, whether
or not out of earnings or earned surplus; (b) to offer for subscription pro rata
to the holders of any class or 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 its Common Stock outstanding involving a change in the
Common Stock; or (d) to merge or consolidate with or into any other corporation
(other than a mere reincorporation transaction), or sell, lease or convey all or
substantially all of its assets, or to liquidate, dissolve or wind up; then, in
connection with each such event, the Corporation shall send to the holders of
Preferred Stock:
(i) at least twenty (20) days' prior written notice of the date
on which a record shall be taken for such dividend, distribution or
subscription rights (and specifying the date on which the holders of
Common Stock shall be entitled thereto) or for determining rights to
vote, if any, in respect of the matters referred to in (c) and (d)
above; and
(ii) in the case of the matters referred to in (c) and (d)
above, at least twenty (20) days' prior written notice of the date when
the same shall take place (and specifying the date on which the holders
of Common Stock shall be entitled to exchange their Common Stock for
securities or other property deliverable upon the occurrence of such
event).
(l) Issue Taxes. The Corporation shall pay any and all issue and
other taxes that may be payable in respect of any issue or delivery of shares of
Common Stock on conversion of the Preferred Stock pursuant hereto; provided,
however, that the Corporation shall not be obligated to pay any transfer taxes
resulting from any transfer requested by any holder in connection with any such
conversion.
(m) Reservation of Stock Issuable Upon Conversion. The Corporation
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of the Preferred Stock, such
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<PAGE> 16
number of its shares of Common Stock as shall from time to time be sufficient to
effect the conversion of all outstanding shares of the Preferred Stock; and if
at any time the number of authorized but unissued shares of Common Stock shall
not be sufficient to effect the conversion of all then outstanding shares of the
Preferred Stock, the Corporation will take such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purpose, including, without limitation, engaging in its best efforts to obtain
the requisite stockholder approval of any necessary amendment to the Certificate
of Incorporation.
(n) Fractional Shares. No fractional share shall be issued upon the
conversion of any share or shares of Preferred Stock. All shares of Common Stock
(including fractions thereof) issuable upon conversion of more than one share of
Preferred Stock by a holder thereof shall be aggregated for purposes of
determining whether the conversion would result in the issuance of any
fractional share. If, after the aforementioned aggregation, the conversion would
result in the issuance of a fraction of a share of Common Stock, the Corporation
shall, in lieu of issuing any fractional share, pay the holder otherwise
entitled to such fraction a sum in cash equal to the fair market value of such
fraction on the date of conversion (as determined in good faith by the Board of
Directors).
(o) Notices. Any notice required by the provisions of this Section 4
to be given to the holders of shares of Preferred Stock shall be deemed given if
deposited in the United States mail, postage prepaid, and addressed to each
holder of record at his or its address appearing on the books of the
Corporation.
SECTION 5. LIQUIDATION PREFERENCES.
(a) In the event of any liquidation, dissolution or winding up of the
Corporation whether voluntary or involuntary the holders of the Series A
Preferred shall be entitled to receive, prior and in preference to any
distribution of any of the assets or surplus funds of the Corporation to the
holders of the Series B Preferred, Series C Preferred, Series D Preferred or
Common Stock or any other shares of this corporation other than Series A
Preferred by reason of their ownership thereof, the amount of $0.336 (as
adjusted for any stock dividends, combinations or splits with respect to such
shares), plus all declared or accrued but unpaid, dividends on such share, for
each share of Series A Preferred then held by them. If upon the occurrence of
such event, the assets and funds thus distributed among the holders of the
Series A Preferred shall be insufficient to permit the payment to such holders
of the full aforesaid preferential amount, then the entire assets and funds of
the Corporation legally available for distribution shall be distributed ratably
among the holders of the Series A Preferred in proportion to the preferential
amount each such holder is otherwise entitled to receive.
(b) After the payment to the holders of the Series A Preferred of the
amounts set forth in Section 5(a) above, the holders of the Series B Preferred,
Series C Preferred and Series D Preferred shall be entitled to receive,
respectively, prior and in preference to any distribution of any of the assets
or surplus funds of the Corporation to the holders of the Common Stock or any
other shares of this corporation other than Series B Preferred, Series C
Preferred and Series D Preferred by reason of their ownership thereof, the
amount equal to the sum of (i) $2.268 per share for the holders of Series B
Preferred, $1.7136 per share for the
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<PAGE> 17
holders of Series C Preferred (as adjusted for any stock dividends, combinations
or splits with respect to such shares) and $2.60 for the holders of Series D
Preferred (as adjusted for any stock dividends, combinations or splits with
respect to such shares); plus (ii) all declared or accrued but unpaid dividends
and all unpaid Cumulative Series B Dividends, with respect to Series B
Preferred, Cumulative Series C Dividends, with respect to Series C Preferred,
and Cumulative Series D Dividends, with respect to Series D Preferred, on such
shares. If upon the occurrence of such event, the assets and funds thus
distributed among the holders of the Series B Preferred, Series C Preferred and
Series D Preferred shall be insufficient to permit the payment to such holders
of the full aforesaid preferential amount, then the entire assets and funds of
the Corporation legally available for distribution after the payment to the
holders of the Series A Preferred of the amounts set forth in Section 5 (a)
above shall be distributed ratably among the holders of the Series B Preferred,
Series C Preferred and Series D Preferred in proportion to the preferential
amount each such holder is otherwise entitled to receive.
(c) In the event of any liquidation or winding up of the Corporation
(as defined below), where the available assets and funds of the Corporation upon
such liquidation or winding up exceed $33.6 Million (a "Qualifying
Liquidation"), after the payment to the holders of the Series A Preferred,
Series B Preferred, Series C Preferred and Series D Preferred of the amounts set
forth in Sections 5(a) and 5(b) respectively, the holders of the Common Stock
shall be entitled to receive, prior and in preference to any distribution of any
of the assets or surplus funds of the Corporation to the holders of the other
capital stock of the Corporation by reason of their ownership thereof, an
aggregate distribution equal to $10,662,707.73 with each holder of Common Stock
participating on a pro rata basis based on the number of shares of Common Stock
they own. If upon the occurrence of such event, the assets and funds thus
distributed among the holders of the Common Stock shall be insufficient to
permit the payment to such holders of the full aforesaid amount, then all assets
and funds of the Corporation legally available for distribution after the
payment to the holders of the Series A Preferred, Series B Preferred, Series C
Preferred and Series D Preferred of the amounts set forth above in Sections 5(a)
and 5(b), respectively, shall be distributed ratably among the holders of the
Common Stock in proportion to the amount each such holder is otherwise entitled
to receive.
(d) In the event of a liquidation or winding up other than a
Qualifying Liquidation, after the payment to the holders of the Series A
Preferred, Series B Preferred, Series C Preferred and Series D Preferred of the
amounts set forth above in Sections 5(a) and 5(b), respectively, the holders of
the Common Stock shall be entitled to receive, prior and in preference to any
distribution of any of the assets or surplus funds of the Corporation to the
holders of the other capital stock of the Corporation by reason of their
ownership thereof, an aggregate distribution equal to $5,521,907.73 with each
holder of Common Stock participating on a pro rata basis based on the number of
shares of Common Stock they own. If upon the occurrence of such event, the
assets and funds thus distributed among the holders of the Common Stock shall be
insufficient to permit the payment to such holders of the full aforesaid amount,
then all assets and funds of the Corporation legally available for distribution
after the payment to the holders of the Series A Preferred, Series B Preferred,
Series C Preferred and Series D Preferred of the amounts set forth above in
Sections 5(a) and 5(b) respectively, shall be distributed ratably among the
holders of the Common Stock in proportion to the preferential amount each such
holder is otherwise entitled to receive.
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<PAGE> 18
(e) After payments to (i) the holders of the Series A Preferred of
the amounts set forth in Section 5(a) above, and (ii) the holders of the Series
B Preferred, Series C Preferred and Series D Preferred set forth in Section 5(b)
above, and (iii) the holders of the Common Stock of the amounts set forth in
Section 5(c) or 5(d) above, as the case may be, the entire remaining assets and
funds of the Corporation legally available for distribution, if any, shall be
distributed among the holders of the Common Stock, the Series A Preferred,
Series B Preferred, Series C Preferred and Series D Preferred in proportion to
the shares of Common Stock then held by them and the shares of Common Stock
which they then have the right to acquire upon conversion of the shares of
Series A Preferred, Series B Preferred, Series C Preferred or Series D Preferred
then held by them.
(f) A merger of the Corporation with or into any other corporation or
corporations (other than a mere reincorporation transaction), a sale of all or
substantially all of the assets of the Corporation or a transaction or series of
related transactions (other than a public offering of the Corporation's
securities) in which the Corporation issues shares representing more than 50% of
the voting power of the Corporation immediately after giving effect to such
transaction, shall be treated as a liquidation, dissolution or winding up for
purposes of this Section 5; provided however, if holders of a majority of the
issued and outstanding shares of Series A Preferred, Series B Preferred, Series
C Preferred or Series D Preferred, respectively, elect to waive such treatment
with respect to any transaction, such transaction shall not be treated as a
liquidation, dissolution or winding up for purposes of this Section 5 with
respect to the Series A Preferred, Series B Preferred, Series C Preferred or
Series D Preferred, as the case may be. In making distributions to the holders
of Series A Preferred, Series B Preferred, Series C Preferred, Series D
Preferred and Common Stock upon any such event, the amount of securities or
other non-cash assets will be distributed pro rata based on the amounts to be
distributed to the holders of Series A Preferred, the Series B Preferred, Series
C Preferred, Series D Preferred and Common Stock. Any securities to be delivered
to the holders of Series A Preferred, Series B Preferred, Series C Preferred,
Series D Preferred and Common Stock pursuant to such event shall be valued as
follows:
(i) Securities not subject to investment letter or other similar
restrictions on free marketability:
(A) If traded on a securities exchange or reported on a
national inter dealer quotation system, the value shall be deemed to be
the average of the closing prices of the securities on such exchange
over the 30 day period ending three (3) days prior to the closing;
(B) If actively traded over the counter and not reported
on a national inter dealer quotation system, the value shall be deemed
to be the average of the closing bid prices over the 30 day period
ending three (3) days prior to the closing; and
(C) If there is no active public market, the value shall
be the fair market value thereof, as determined in good faith by the
Board of Directors.
(ii) The method of valuation of securities subject
to investment letter or other restrictions on free marketability shall
be to make an appropriate discount from
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<PAGE> 19
the market value determined as above in (i)(A), (B) or (C) to reflect
the approximate fair market value thereof, as determined in good faith
by the Board of Directors.
(g) In the event of a transaction (or series of related transactions)
to be treated as a liquidation pursuant to this Section 5, the Corporation shall
give each holder of record of Preferred Stock written notice of such impending
transaction not later than twenty (20) days prior to the stockholders' meeting
called to approve such transaction, or twenty (20) days prior to the closing of
such transaction, whichever is earlier, and shall also notify such holders in
writing of the final approval of such transaction. The first of such notices
shall describe the material terms and conditions of the impending transaction
and the provisions of this Section 5, and the Corporation shall thereafter give
such holders prompt notice of any material changes. The transaction shall in no
event take place sooner than twenty (20) days after the Corporation has given
the first notice provided for herein or sooner than ten (10) days after the
Corporation has given notice of any material changes provided for herein;
provided, however, that such periods may be shortened upon the written consent
of the holders of a majority of the shares of Preferred Stock, voting together
as one class for this purpose.
SECTION 6. PROTECTIVE PROVISIONS.
(a) In addition to any other rights provided by law, so long as any
share of Series A Preferred shall be outstanding, the Corporation shall not,
without first obtaining the affirmative vote or written consent of the holders
of the majority of the outstanding shares of Series A Preferred voting
separately as a separate class:
(i) Take any action which alters or changes any of
the rights, privileges or preferences of the Series A Preferred,
including without limitation (A) increasing or decreasing the aggregate
number of authorized shares of such series other than an increase
incident to a stock split, (B) effecting an exchange, reclassification
or cancellation of all or part of the shares of such series, other than
a stock split, and (C) effecting an exchange, or creating a right of
exchange, of all or part of the shares of another class into the shares
of such class;
(ii) Take any action which creates any new class or
series of shares having any right, preference, priority or power
superior to or on a parity with any such right, preference, priority or
power of the Series A Preferred; or
(iii) Except as provided elsewhere in this Amended
and Restated Certificate of Incorporation or the Corporation's Bylaws as
in effect on the Series B Original Issue Date, redeem, purchase or
otherwise acquire any of the Preferred Stock or Common Stock; provided,
however, that this restriction shall not apply to the repurchase of
shares of Common Stock in accordance with Sections 160 and 170-174 of
the General Corporation Laws of the State of Delaware from employees,
officers, directors, consultants or other persons performing services
for the Corporation, provided that such repurchase does not impair the
redemption rights of the holders of Series A Preferred, Series B
Preferred, Series C Preferred and Series D Preferred set forth in
Section 9 hereof.
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<PAGE> 20
(b) In addition to any other rights provided by law, so long as any
share of Series B Preferred shall be outstanding, the Corporation shall not,
without first obtaining the affirmative vote or written consent of the holders
of the majority of the outstanding shares of Series B Preferred voting
separately as a separate class:
(i) Take any action which alters or changes any of
the rights, privileges or preferences of the Series B Preferred,
including without limitation (A) increasing or decreasing the aggregate
number of authorized shares of such series other than an increase
incident to a stock split, (B) effecting an exchange, reclassification
or cancellation of all or part of the shares of such series, other than
a stock split, and (C) effecting an exchange, or creating a right of
exchange, of all or part of the shares of another class into the shares
of such class;
(ii) Take any action which creates any new class or
series of shares having any right, preference, priority or power
superior to or on a parity with any such right, preference, priority or
power of the Series B Preferred;
(iii) Except as provided elsewhere in this Amended
and Restated Certificate of Incorporation or the Corporation's Bylaws as
in effect on the Series B Original Issue Date, redeem, purchase or
otherwise acquire any of the Preferred Stock or Common Stock; provided,
however, that this restriction shall not apply to the repurchase of
shares of Common Stock in accordance with Sections 160 and 170-174 of
the General Corporation Law of the State of Delaware from employees,
officers, directors, consultants or other persons performing services
for the Corporation upon termination of their employment or services
pursuant to agreements providing for such repurchase, provided that such
repurchase does not impair the redemption rights of the holders of
Series A Preferred, Series B Preferred, Series C Preferred or Series D
Preferred set forth in Section 9 hereof; or
(iv) Issue any shares of Series B Preferred at any
time following the thirtieth day following the Series B Original Issue
Date.
(c) In addition to any other rights provided by law, so long as any
share of Series C Preferred shall be outstanding, the Corporation shall not,
without first obtaining the affirmative vote or written consent of the holders
of the majority of the outstanding shares of Series C Preferred voting
separately as a separate class:
(i) Take any action which alters or changes any of
the rights, privileges or preferences of the Series C Preferred so as to
materially and adversely affect such shares, including without
limitation (A) increasing or decreasing the aggregate number of
authorized shares of Series C Preferred other than an increase incident
to a stock split, (B) effecting an exchange, reclassification or
cancellation of all or part of the shares of such series, other than a
stock split, and (C) effecting an exchange, or creating a right of
exchange, of all or part of the shares of another class into the shares
of such class;
(ii) Take any action which creates or issues any
class or series of shares having any right, preference, priority or
power superior to or on a parity with any such right, preference,
priority or power of the Series C Preferred;
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<PAGE> 21
(iii) Except as provided elsewhere in this Amended
and Restated Certificate of Incorporation or the Corporation's Bylaws as
in effect on the Series C Original Issue Date, redeem, purchase or
otherwise acquire any of the Preferred Stock or Common Stock; provided,
however, that this restriction shall not apply to the repurchase of
shares of Common Stock in accordance with Sections 160 and 170-174 of
the General Corporation Law of the State of Delaware from employees,
officers, directors, consultants or other persons performing services
for the Corporation upon termination of their employment or services
pursuant to agreements providing for such repurchase, provided that such
repurchase does not impair the redemption rights of the holders of
Series A Preferred, Series B Preferred, Series C Preferred or Series D
Preferred set forth in Section 9 hereof; or
(iv) Pay or declare dividends on the Preferred
Stock or Common Stock; provided, however, that this restriction shall
not apply to the repurchase of shares of Common Stock in accordance with
Sections 160 and 170-174 of the General Corporation Law of the State of
Delaware from employees, officers, directors, consultants or other
persons performing services for the Corporation upon termination of
their employment or services pursuant to agreements providing for such
repurchase, provided that such repurchase does not impair the redemption
rights of the holders of Series A Preferred, Series B Preferred, Series
C Preferred or Series D Preferred set forth in Section 9 hereof; or
(v) Change the number of directors.
(d) In addition to any other rights provided by law, so long as any
share of Series D Preferred shall be outstanding, the Corporation shall not,
without first obtaining the affirmative vote or written consent of the holders
of the majority of the outstanding shares of Series D Preferred voting
separately as a separate class:
(i) Take any action which alters or changes any of the rights,
privileges or preferences of the Series D Preferred so as to materially
and adversely affect such shares, including without limitation (A)
increasing or decreasing the aggregate number of authorized shares of
Series D Preferred other than an increase incident to a stock split, (B)
effecting an exchange, reclassification or cancellation of all or part
of the shares of such series, other than a stock split, and (C)
effecting an exchange, or creating a right of exchange, of all or part
of the shares of another class into the shares of such class;
(ii) Take any action which creates or issues any class or series
of shares having any right, preference, priority or power superior to or
on a parity with any such right, preference, priority or power of the
Series D Preferred;
(iii) Except as provided elsewhere in this Amended and Restated
Certificate of Incorporation or the Corporation's Bylaws as in effect on
the Series D Original Issue Date, redeem, purchase or otherwise acquire
any of the Preferred Stock or Common Stock; provided, however, that this
restriction shall not apply to the repurchase of shares of Common Stock
in accordance with Sections 160 and 170-171 of the General Corporation
Law of the State of Delaware from employees, officers, directors,
consultants or other persons performing services for the Corporation
upon termination of
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<PAGE> 22
their employment or services pursuant to agreements providing for such
repurchase, provided that such repurchase does not impair the redemption
rights of the holders of Series A Preferred, Series B Preferred, Series
C Preferred or Series D Preferred set forth in Section 9 hereof; or
(iv) Pay or declare dividends on the Preferred Stock or Common
Stock; provided, however, that this restriction shall not apply to the
repurchase of shares of Common Stock in accordance with Sections 160 and
170-174 of the General Corporation Law of the State of Delaware from
employees, officers, directors, consultants or other persons performing
services for the Corporation upon termination of their employment or
services pursuant to agreements providing for such repurchase, provided
that such repurchase does not impair the redemption rights of the
holders of Series A Preferred, Series B Preferred, Series C Preferred or
Series D Preferred set forth in Section 9 hereof; or
(v) Change the number of directors.
SECTION 7. NO REISSUANCE OF PREFERRED STOCK.
(a) No share or shares of Series A Preferred acquired by the
Corporation by reason of purchase, conversion or otherwise shall be reissued,
and all such shares shall be canceled, retired and eliminated from the shares
which the Corporation shall be authorized to issue. The Corporation may, from
time to time, take such appropriate corporate action as may be necessary to
reduce the authorized number of shares of the Series A Preferred.
(b) No share or shares of Series B Preferred acquired by the
Corporation by reason of purchase, conversion or otherwise shall be reissued,
and all such shares shall be canceled, retired and eliminated from the shares
which the Corporation shall be authorized to issue. The Corporation may, from
time to time, take such appropriate corporate action as may be necessary to
reduce the authorized number of shares of the Series B Preferred.
(c) No share or shares of Series C Preferred acquired by the
Corporation by reason of purchase, conversion or otherwise shall be reissued,
and all such shares shall be canceled, retired and eliminated from the shares
which the Corporation shall be authorized to issue. The Corporation may, from
time to time, take such appropriate corporate action as may be necessary to
reduce the authorized number of shares of the Series C Preferred.
(d) No share or shares of Series D Preferred acquired by the
Corporation by reason of purchase, conversion or otherwise shall be reissued,
and all such shares shall be canceled, retired and eliminated from the shares
which the Corporation shall be authorized to issue. The Corporation may, from
time to time, take such appropriate corporate action as may be necessary to
reduce the authorized number of shares of the Series D Preferred.
SECTION 8. RIGHT OF FIRST REFUSAL.
(a) Except as set forth in Section 8(d) below, if, at any time after
the Series D Original Issue Date, the Corporation shall propose to sell to any
persons in a transaction not registered under the Securities Act any Equity
Securities (as hereinafter defined), it shall give the
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<PAGE> 23
holders of the Preferred Stock the right to purchase all such Equity Securities
and each holder may purchase his or its pro rata share (which proportion is to
be determined by dividing the number of shares of Common Stock issued or
issuable upon conversion of the Preferred Stock held by such holder of Preferred
Stock by all of the Corporation's Common Stock then outstanding or issuable upon
exercise of warrants or options or conversion of Preferred Stock) of such
privately offered Equity Securities on the same terms and conditions as the
Corporation is offering such Equity Securities to such other persons. Prior to
any sale or issuance by the Corporation of any Equity Securities subject to this
right of first offer, the Corporation shall notify the holders of the Preferred
Stock, in writing, of its intention to sell and issue such Equity Securities,
setting forth the terms under which it proposes to make such sale. Within ten
(10) business days after receipt of such notice, the holders of the Preferred
Stock shall notify the Corporation as to whether they desire to purchase any or
all of their pro rata share of such Equity Securities for the price and on the
general terms specified in the notice. In the event any holder of Preferred
Stock elects not to purchase such holder's pro rata share of such Equity
Securities, the remaining holders of Preferred Stock shall have the right to
purchase their pro rata share of such available shares on the terms described
above. Within five (5) business days following receipt of such notice, the
remaining holders of the Preferred Stock shall notify the Corporation of the
number of such Equity Securities it chooses to purchase. (In the event that such
shares are over subscribed, each holder of Preferred Stock shall be entitled to
purchase on a pro-rata basis.) All such notifications by the holders of the
Preferred Stock to the Corporation shall be irrevocable, binding commitments to
purchase such Equity Securities.
(b) If, following the expiration of the notice periods set forth
above, the holders of the Preferred Stock have not notified the Corporation that
they desire to purchase all of the Equity Securities described in such notice
upon the terms and conditions set forth in such notice, the Corporation may,
during a period of one hundred twenty (120) days following the end of such
fifteen (15) business day period, sell and issue such Equity Securities which
the holders of Preferred Stock have not elected to purchase at a price and upon
terms and conditions no more favorable to such investors than those set forth in
such notice.
(c) If the holders of the Preferred Stock elect to purchase all of
the Equity Securities offered by the Corporation, the holders of the Preferred
Stock shall pay for them by check against delivery of the securities at the
executive offices of the Corporation at the time of the scheduled closing
therefor. The Corporation shall take all such action (except registration under
the Securities Act or the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) as may be reasonably required by any regulatory authority in
connection with the exercise by the holders of the Preferred Stock of the right
to purchase Equity Securities as set forth herein.
(d) The right of first refusal contained in (a), above, shall not
apply to (i) securities offered to the public in an underwritten offering
pursuant to a registration statement filed under the Securities Act, (ii)
securities issued pursuant to the acquisition of another company by the
Corporation by merger, purchase of substantially all of the assets, or other
reorganization, (iii) up to 4,000,000 shares of the Common Stock (or related
options) subject to adjustment for all stock splits, stock dividends,
subdivisions and combinations of shares of Common Stock issued (or pursuant to
Section 4(d)(iii), deemed to be issued) to employees, officers, consultants or
directors of the Corporation pursuant to the Corporation's stock option,
purchase or similar plans in effect on the Series D Original Issue Date or
shares issued pursuant
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<PAGE> 24
to stock options otherwise issued to employees, officers,
directors or consultants of the Corporation as approved by the Board of
Directors, (iv) shares issued in connection with any stock split, stock dividend
or recapitalization by the Corporation, (v) shares issued upon conversion of
Preferred Stock or upon the exercise of any Convertible Security, option or
warrant which was itself an Equity Security, or (vi) any shares of Common Stock
issued pursuant to warrants or other securities issued in connection with any
commercial loan, commercial lease obtained or equipment leasing transaction or
nonfinancing commercial transaction undertaken by the Corporation with a
non-affiliated third party and approved by the director elected by the holders
of the Series A Preferred, the director elected by the holders of the Series B
Preferred and the director elected by the holders of the Series C Preferred and
the Series D Preferred.
(e) The term "Equity Securities" shall mean any security having
voting rights in the election of the Board of Directors not contingent upon
default and any security convertible into or exchangeable for the foregoing.
(f) The rights set forth in this Section 8 shall terminate
immediately prior to the closing of the Corporation's Initial Registered Public
Offering.
SECTION 9. REDEMPTION.
(a) At any time after January 5, 2000 at the election of holders of a
majority of the then outstanding shares of Series A Preferred, the Corporation
shall promptly, if it may lawfully do so, from any source of funds legally
available therefor, redeem all, but not less than all, of the Series A Preferred
by paying in cash therefor a sum equal to $0.63 for each share of Series A
Preferred (as adjusted for any stock dividends, combinations or splits with
respect to such shares)(the "Series A Redemption Price").
(b) The Corporation shall give each holder of Series A Preferred
notice of the date fixed for redemption ("Series A Redemption Date"). On or
after the Series A Redemption Date, the Series A Redemption Price of shares
shall be payable to the order of the person whose name appears on such
certificate or certificates as the owner thereof and each surrendered
certificate shall be canceled. From and after the Series A Redemption Date,
unless there shall have been a default in payment of the Series A Redemption
Price, all rights of the holders of such shares as holders of Series A Preferred
of the Corporation (except the right to receive the applicable Series A
Redemption Price without interest upon surrender of their certificate or
certificates) shall cease with respect to such shares, and such shares shall not
thereafter be transferred on the books of the Corporation or be deemed to be
outstanding for any purpose whatsoever.
(c) At any time after the sixth anniversary of the Series B Original
Issue Date, at the election of holders of a majority of the then outstanding
shares of Series B Preferred, the Corporation shall commencing not less than
ninety (90) days after the receipt by the Corporation of such election in the
manner set forth in subsection (d) below, if it may lawfully do so, from any
source of funds legally available therefor, redeem all, but not less than all,
of the Series B Preferred by paying in cash therefor a sum equal to the sum of
(i) $2.268 per share (as adjusted for any stock dividends, combinations or
splits with respect to such shares), plus (ii) all declared or accrued but
unpaid dividends and all unpaid Cumulative Series B Dividends on such shares
(the "Series B Redemption Price").
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<PAGE> 25
(d) The Series B Redemption Price shall be payable in three (3)
annual installments commencing ninety (90) days after the receipt by the
Corporation of such election. The Corporation shall give each holder of Series B
Preferred notice of the dates fixed for redemption ("Series B Redemption
Dates"). On or after each Series B Redemption Date, the Series B Redemption
Price of shares shall be payable to the order of the person whose name appears
on such certificate or certificates as the owner thereof and each surrendered
certificate shall be canceled. From and after the initial Series B Redemption
Date, unless there shall have been a default in payment of the Series B
Redemption Price, all rights of the holders of such shares as holders of Series
B Preferred of the Corporation (except the right to receive the applicable
Series B Redemption Price without interest upon surrender of their certificate
or certificates) shall cease with respect to such shares, and such shares shall
not thereafter be transferred on the books of the corporation or be deemed to be
outstanding for any purpose whatsoever.
(e) At any time after the sixth anniversary of the Series B Original
Issue Date, at the election of holders of at least two-thirds (2/3) of the then
outstanding shares of Series C Preferred, the Corporation shall commencing not
less than ninety (90) days after the receipt by the Corporation of such election
in the manner set forth in subsection (f) below, if it may lawfully do so, from
any source of funds legally available therefor, redeem all, but not less than
all, of the Series C Preferred by paying in cash therefor a sum equal to the sum
of (i) $1.7136 per share (as adjusted for any stock dividends, combinations or
splits with respect to such shares), plus (ii) all declared or accrued but
unpaid dividends and all unpaid Cumulative Series C Dividends on such shares
(the "Series C Redemption Price").
(f) The Series C Redemption Price shall be payable in three (3)
annual installments commencing ninety (90) days after the receipt by the
Corporation of such election. The Corporation shall give each holder of Series C
Preferred notice of the dates fixed for redemption ("Series C Redemption
Dates"). On or after each Series C Redemption Date, the Series C Redemption
Price of shares shall be payable to the order of the person whose name appears
on such certificate or certificates as the owner thereof and each surrendered
certificate shall be canceled. From and after the initial Series C Redemption
Date, unless there shall have been a default in payment of the Series C
Redemption Price, all rights of the holders of such shares as holders of Series
C Preferred of the Corporation (except the right to receive the applicable
Series C Redemption Price without interest upon surrender of their certificate
or certificates) shall cease with respect to such shares, and such shares shall
not thereafter be transferred on the books of the corporation or be deemed to be
outstanding for any purpose whatsoever.
(g) At any time after the sixth anniversary of the Series B Original
Issue Date, at the election of holders of at least two-thirds (2/3) of the then
outstanding shares of Series D Preferred, the Corporation shall commencing not
less than ninety (90) days after the receipt by the Corporation of such election
in the manner set forth in subsection (h) below, if it may lawfully do so, from
any source of funds legally available therefor, redeem all, but not less than
all, of the Series D Preferred by paying in cash therefor a sum equal to the sum
of (i) $2.60 per share (as adjusted for any stock dividends, combinations or
splits with respect to such shares), plus (ii) all declared or accrued but
unpaid dividends and all unpaid Cumulative Series D Dividends on such shares
(the "Series D Redemption Price").
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<PAGE> 26
(h) The Series D Redemption Price shall be payable in three (3)
annual installments commencing ninety (90) days after the receipt by the
Corporation of such election. The Corporation shall give each holder of Series D
Preferred notice of the dates fixed for redemption ("Series D Redemption
Dates"). On or after each Series D Redemption Date, the Series D Redemption
Price of shares shall be payable to the order of the person whose name appears
on such certificate or certificates as the owner thereof and each surrendered
certificate shall be canceled. From and after the initial Series D Redemption
Date, unless there shall have been a default in payment of the Series D
Redemption Price, all rights of the holders of such shares as holders of Series
D Preferred of the Corporation (except the right to receive the applicable
Series D Redemption Price without interest upon surrender of their certificate
or certificates) shall cease with respect to such shares, and such shares shall
not thereafter be transferred on the books of the corporation or be deemed to be
outstanding for any purpose whatsoever.
ARTICLE V.
The Corporation is to have perpetual existence.
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.
The election of directors need not be by written ballot unless the
Bylaws of the Corporation shall so provide.
ARTICLE VIII.
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any statutory provision) outside the State of Delaware at such place
or places as may be designated from time to time by the Board of Directors or in
the Bylaws of the Corporation.
ARTICLE IX.
No director shall be personally liable to the Corporation or its
stockholders for monetary damages for any breach of fiduciary duty by such
director as a director. Notwithstanding the foregoing sentence, a director shall
be liable to the extent provided by applicable law (i) for breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) pursuant to Section 174 of the Delaware General
Corporation Law or (iv) for any transaction from which the director derived an
improper personal benefit. If the Delaware General Corporation Law is amended to
authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the Delaware
General Corporation Law, as so amended. No amendment to or repeal of this
Article shall apply to or have any effect on
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<PAGE> 27
the liability or alleged liability of any director of the Corporation for or
with respect to any acts or omissions of such director occurring prior to such
amendment.
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<PAGE> 1
EXHIBIT 3.2
ARTICLE 1.
CORPORATE OFFICES
1.1. Registered Office.
The registered office of the corporation shall be fixed in the
Certificate of Incorporation of the corporation.
1.2. Other Offices.
The Board of Directors may at any time establish branch or subordinate
offices at any place or places where the corporation is qualified to do
business.
ARTICLE 2.
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 Meeting.
(a) The annual meeting of stockholders shall be held each year on a date
and at a time designated by the Board of Directors. However, if such day falls
on a legal holiday, then the meeting shall be held at the same time and place on
the next succeeding full business day. At the meeting, directors shall be
elected, and any other proper business may be transacted.
(b) At an annual meeting of the stockholders, only such business shall
be conducted as shall have been properly brought before the meeting. To be
properly brought before an annual meeting, business must be: (i) specified in
the notice of meeting (or any supplement thereto) given by or at the direction
of the Board of Directors, (ii) otherwise properly brought before the meeting by
or at the direction of the Board of Directors, or (iii) otherwise properly
brought before the meeting by a stockholder. For business to be properly brought
before an annual meeting by a stockholder, the stockholder must have given
timely notice thereof in writing to the Secretary of the corporation. To be
timely, a stockholder's notice must be delivered to or mailed and received at
the principal executive offices of the corporation not less than one hundred
twenty (120) calendar days in advance of the estimated mailing date for the
proxy statement relating to the corporation's next annual meeting as specified
in the corporation's proxy statement released to stockholders in connection with
the previous year's annual meeting of stockholders; provided, however, that in
the event that no annual meeting was held in the previous year or the date of
the annual meeting has been changed by more than thirty (30) days from the date
contemplated at the time of the previous year's proxy statement, notice by the
stockholder to be timely must be so received a reasonable time before the
solicitation is made. A stockholder's
<PAGE> 2
notice to the Secretary shall set forth as to each matter the stockholder
proposes to bring before the annual meeting: (i) a brief description of the
business desired to be brought before the annual meeting and the reasons for
conducting such business at the annual meeting; (ii) the name and address, as
they appear on the corporation's books, of the stockholder proposing such
business; (iii) the class and number of shares of the corporation which are
beneficially owned by the stockholder, (iv) any material interest of the
stockholder in such business and (v) any other information that is required to
be provided by the stockholder pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (the "1934 Act"), in his capacity as a
proponent to a stockholder proposal. Notwithstanding the foregoing, in order to
include information with respect to a stockholder proposal in the proxy
statement and form of proxy for a stockholder's meeting, stockholders must
provide notice as required by the regulations promulgated under the 1934 Act.
Notwithstanding anything in these bylaws to the contrary, no business shall be
conducted at any annual meeting except in accordance with the procedures set
forth in this paragraph (b). The chairman of the annual meeting shall, if the
facts warrant, determine and declare at the meeting that business was not
properly brought before the meeting and in accordance with the provisions of
this paragraph (b), and, if he should so determine, he shall so declare at the
meeting that any such business not properly brought before the meeting shall not
be transacted.
(c) Only persons who are nominated in accordance with the procedures set
forth in this paragraph (c) shall be eligible for election as Directors, subject
to the Certificate of Incorporation of this corporation. Nominations of persons
for election to the Board of Directors of the corporation may be made at a
meeting of stockholders by or at the direction of the Board of Directors or by
any stockholder of the corporation entitled to vote in the election of Directors
at the meeting who complies with the notice procedures set forth in this
paragraph (c). Such nominations, other than those made by or at the direction of
the Board of Directors, shall be made pursuant to timely notice in writing to
the Secretary of the corporation in accordance with the provisions of paragraph
(b) of this Section 2.2. Such stockholder's notice shall set forth (i) as to
each person, if any, whom the stockholder proposes to nominate for election or
re-election as a Director (A) the name, age, business address and residence
address of such person, (B) the principal occupation or employment of such
person, (C) the class and number of shares of the corporation which are
beneficially owned by such person, (D) a description of all arrangements or
understandings between the stockholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nominations are to
be made by the stockholder, and (E) any other information relating to such
person that is required to be disclosed in solicitations of proxies for
elections of Directors, or is otherwise required, in each case pursuant to
Regulation 14A under the 1934 Act (including without limitation such person's
written consent to being named in the proxy statement, if any, as a nominee and
to serving as a Director if elected); and (ii) as to such stockholder giving
notice, the information required to be provided pursuant to paragraph (b) of
this Section 2.2. At the request of the Board of Directors, any person nominated
by a stockholder for election as a Director shall furnish to the Secretary of
the corporation that information required to be set forth in the stockholder's
notice of nomination which pertains to the nominee. No person shall be eligible
for election as a Director of the corporation unless nominated in accordance
with the procedures set forth in this paragraph (c). The chairman of the meeting
shall, if the facts warrants, determine and declare at the meeting
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<PAGE> 3
that a nomination was not made in accordance with the procedures prescribed by
these bylaws, and if he should so determine, he shall so declare at the meeting,
and the defective nomination shall be disregarded.
2.3. Special Meeting.
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 in the absence of the
chairman of the board by the chief executive officer, or by one or more
shareholders holding shares in the aggregate entitled to cast not less than ten
percent (10%) of the votes at that meeting, but such special meetings may not be
called by any other person or persons.
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 telecopy or other
facsimile transmission to the chairman of the board, the president, chief
executive officer, or the secretary of the corporation. No business may be
transacted at such special meeting otherwise than specified in such notice. The
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, 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.
Except as set forth in Section 2.3, all notices of meetings of
stockholders 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. The notice shall specify the place, date, and hour of the
meeting and (i) in the case of a special meeting, the general nature of the
business to be transacted (no business other than that specified in the notice
may be transacted) or (ii) in the case of the annual meeting, those matters
which the Board of Directors, at the time of giving the notice, intends to
present for action by the stockholders (but any proper matter may be presented
at the meeting for such action). The notice of any meeting at which directors
are to be elected shall include the name of any nominee or nominees who, at the
time of the notice, the board intends to present for election.
2.5. Manner of Giving Notice; Affidavit of Notice.
Written notice of any meeting of stockholders shall be given either
personally or by mail or by telecopy or other written communication. Notices not
personally delivered shall be sent charges prepaid and shall be addressed to the
stockholder at the address of that stockholder appearing on the books of the
corporation or given by the stockholder to the corporation for the purpose of
notice. If no such address appears on the corporation's books, notice shall be
deemed
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to have been given if sent to that stockholder by mail or telecopy or other
written communication to the corporation's principal executive office, or if
published at least once in a newspaper of general circulation in the county
where that office is located. Notice shall be deemed to have been given at the
time when delivered personally or deposited in the mail or sent by telecopy or
other means of written communication.
If any notice addressed to a stockholder at the address of that
stockholder appearing on the books of the corporation is returned to the
corporation by the United States Postal Service marked to indicate that the
United States Postal Service is unable to deliver the notice to the stockholder
at that address, then all future notices or reports shall be deemed to have been
duly given without further mailing if the same shall be available to the
stockholder on written demand of the stockholder at the principal executive
office of the corporation for a period of one (1) year from the date of the
giving of the notice.
An affidavit of the mailing or other means of giving any notice of any
stockholders' meeting, executed by the secretary, assistant secretary or any
transfer agent of the corporation giving the notice, shall be prima facie
evidence of the giving of such notice.
2.6. Quorum.
The presence in person or by proxy of the holders of a majority of the
shares entitled to vote thereat constitutes a quorum for the transaction of
business at all meetings of stockholders. The stockholders present at a duly
called or held meeting at which a quorum is present may continue to do business
until adjournment, notwithstanding the withdrawal of enough stockholders to
leave less than a quorum, if any action taken (other than adjournment) is
approved by at least a majority of the shares required to constitute a quorum.
2.7. Adjourned Meeting; Notice.
Any stockholders' meeting, annual or special, whether or not a quorum is
present, may be adjourned from time to time by the vote of the majority of the
shares represented at that meeting, either in person or by proxy. In the absence
of a quorum, no other business may be transacted at that meeting except as
provided in Section 2.6 of these bylaws. When any meeting of stockholders,
either annual or special, is adjourned to another time or place, notice need not
be given of the adjourned meeting if the time and place are announced at the
meeting at which the adjournment is taken. However, if a new record date for the
adjourned meeting is fixed or if the adjournment is for more than thirty (30)
days from the date set for the original meeting, then notice of the adjourned
meeting shall be given. Notice of any such adjourned meeting shall be given to
each stockholder of record entitled to vote at the adjourned meeting in
accordance with the provisions of Sections 2.4 and 2.5 of these bylaws. At any
adjourned meeting the corporation may transact any business which might have
been transacted at the original meeting.
2.8. Voting.
The stockholders entitled to vote at any meeting of stockholders shall
be determined in accordance with the provisions of Section 2.11 of these bylaws,
subject to the provisions of
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Sections 217 and 218 of the General Corporation Law of Delaware (relating to
voting rights of fiduciaries, pledgors and joint owners, and to voting trusts
and other voting agreements).
Except as may be otherwise provided in the Certificate of Incorporation,
each outstanding share, regardless of class, shall be entitled to one vote on
each matter submitted to a vote of the stockholders. Any stockholder entitled to
vote on any matter may vote part of the shares in favor of the proposal and
refrain from voting the remaining shares or, except when the matter is the
election of directors, may vote them against the proposal; but, if the
stockholder fails to specify the number of shares which the stockholder is
voting affirmatively, it will be conclusively presumed that the stockholder's
approving vote is with respect to all shares which the stockholder is entitled
to vote.
If a quorum is present, the affirmative vote of the majority of the
shares represented and voting at a duly held meeting (which shares voting
affirmatively also constitute at least a majority of the required quorum) shall
be the act of the stockholders, unless the vote of a greater number or a vote by
classes is required by law or by the Certificate of Incorporation.
2.9. Validation of Meetings; Waiver of Notice; Consent.
The transactions of any meeting of stockholders, either annual or
special, however called and noticed, and wherever held, shall be as valid as
though they had been taken at a meeting duly held after regular call and notice,
if a quorum be present either in person or by proxy, and if, either before or
after the meeting, each person entitled to vote, who was not present in person
or by proxy, signs a written waiver of notice or a consent to the holding of the
meeting or an approval of the minutes thereof. The waiver of notice or consent
or approval need not specify either the business to be transacted or the purpose
of any annual or special meeting of stockholders. All such waivers, consents,
and approvals shall be filed with the corporate records or made a part of the
minutes of the meeting.
Attendance by a person at a meeting shall also constitute a waiver of
notice of and presence at that meeting, except when the person objects at the
beginning of the meeting to the transaction of any business because the meeting
is not lawfully called or convened. Attendance at a meeting is not a waiver of
any right to object to the consideration of matters required by law to be
included in the notice of the meeting but not so included, if that objection is
expressly made at the meeting.
2.10. Stockholder Action by Written Consent Without a Meeting.
Unless otherwise provided in the Certificate of Incorporation, any
action which may be taken at any annual or special meeting of stockholders may
be taken without a meeting and without prior notice, if a consent in writing,
setting forth the action so taken, is signed by the holders of outstanding
shares having not less than the minimum number of votes that would be necessary
to authorize or take that action at a meeting at which all shares entitled to
vote on that action were present and voted.
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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.
Following the closing date of the Company's initial public offering of
shares of Common Stock pursuant to an effective registration statement filed
with the Securities and Exchange Commission (the "IPO"), no action of
stockholders shall be taken by the stockholders except at an annual or special
meeting of the stockholders called in accordance with the notice requirements of
Section 2.5 above and no action of the stockholders shall be taken by written
consent.
2.11. Record Date for Stockholder Notice; Voting; Giving Consents.
For purposes of determining the stockholders entitled to notice of any
meeting or to vote thereat or entitled to give consent to corporate action
without a meeting, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty (60) days nor less than ten (10) days before
the date of any such meeting nor more than sixty (60) days before any such
action without a meeting, and in such event only stockholders of record on the
date so fixed are entitled to notice and to vote or to give consents, as the
case may be, notwithstanding any transfer of any shares on the books of the
corporation after the record date.
If the Board of Directors does not so fix a record date:
(a) the record date for determining stockholders entitled to notice of
or to vote at a meeting of stockholders shall be at the close of business on the
business day next preceding the day on which notice is given, or, if notice is
waived, at the close of business on the business day next preceding the day on
which the meeting is held; and
(b) the record date for determining stockholders entitled to give
consent to corporate action in writing without a meeting, (i) when no prior
action by the board has been taken, shall be the day on which the first written
consent is given, or (ii) when prior action by the board has been taken, shall
be at the close of business on the day on which the board adopts the resolution
relating to that action.
The record date for any other purpose shall be as provided in Article 8
of these bylaws.
2.12. Proxies.
Every person entitled to vote for directors, or on any other matter,
shall have the right to do so either in person or by one or more agents
authorized by a written proxy signed by the person and filed with the secretary
of the corporation, but no such proxy shall be voted or acted
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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, telecopy 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.
2.13. Inspectors of Election.
Before any meeting of stockholders, the Board of Directors may appoint
an inspector or inspectors of election to act at the meeting or its adjournment.
If no inspector of election is so appointed, then the chairman of the meeting
may, and on the request of any stockholder or a stockholder's proxy shall,
appoint an inspector or inspectors of election to act at the meeting. The number
of inspectors shall be either one (1) or three (3). If inspectors are appointed
at a meeting pursuant to the request of one (1) or more stockholders or proxies,
then the holders of a majority of shares or their proxies present at the meeting
shall determine whether one (1) or three (3) inspectors are to be appointed. If
any person appointed as inspector fails to appear or fails or refuses to act,
then the chairman of the meeting may, and upon the request of any stockholder or
a stockholder's proxy shall, appoint a person to fill that vacancy.
Such inspectors shall:
(a) determine the number of shares outstanding and the voting power of
each, the number of shares represented at the meeting, the existence of a
quorum, and the authenticity, validity, and effect of proxies;
(b) receive votes, ballots or consents;
(c) hear and determine all challenges and questions in any way arising
in connection with the right to vote;
(d) count and tabulate all votes or consents;
(e) determine when the polls shall close;
(f) determine the result; and
(g) do any other acts that may be proper to conduct the election or vote
with fairness to all stockholders.
ARTICLE 3.
DIRECTORS
3.1. Powers.
Subject to the provisions of the General Corporation Law of Delaware and
to any limitations in the Certificate of Incorporation or these bylaws relating
to action required to be
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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 and Term of Office.
The authorized number of directors shall be six (6). The number of
directors may be changed by an amendment to this bylaw, duly adopted by the
Board of Directors or by the stockholders, or by a duly adopted amendment to the
Certificate of Incorporation.
3.3. Resignation and Vacancies.
Any director may resign effective on giving written notice to the
chairman of the board, the president, the secretary or the Board of Directors,
unless the notice specifies a later time for that resignation to become
effective. If the resignation of a director is effective at a future time, the
Board of Directors may elect a successor to take office when the resignation
becomes effective.
Vacancies in the Board of Directors may be filled by a majority of the
remaining directors, even if less than quorum, or by a sole remaining director.
Each director so elected shall hold office until the next annual meeting of the
stockholders and until a successor has been elected and qualified.
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 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 an executor, administrator, trustee 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
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any such increase), then the Court of Chancery may, upon application of any
stockholder or stockholders holding at least ten (10) percent 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.
3.4. Removal.
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 vote at an election of directors; provided, however,
that if and so long as the stockholders of the corporation are entitled to
cumulative voting, if less than the entire board is to be removed, no director
may be removed without cause if the votes cast against his removal would be
sufficient to elect him if then cumulatively voted at an election of the entire
Board of Directors, pursuant to Delaware General Corporation Law Section
141(k)(2).
No reduction of the authorized number of directors shall have the effect
of removing any director prior to the expiration of such director's term of
office.
3.5. Place of Meetings; Meetings by Telephone.
Regular meetings of the Board of Directors may be held at any place
within or outside the State of Delaware that has been designated from time to
time by resolution of the board. In the absence of such a designation, regular
meetings shall be held at the principal executive office of the corporation.
Special meetings of the board may be held at any place within or outside the
State of Delaware that has been designated in the notice of the meeting or, if
not stated in the notice or if there is no notice, at the principal executive
office of the corporation.
Any meeting, regular or special, may be held by conference telephone or
similar communication equipment, so long as all directors participating in the
meeting can hear one another; and all such directors shall be deemed to be
present in person at the meeting.
3.6. First Meetings.
The first meeting of each newly elected Board of Directors shall be held
immediately following the annual meeting of the stockholders of this corporation
or as reasonably determined by the newly elected Board of Directors and no
notice of such meeting shall be necessary to the newly elected directors in
order legally to constitute the meeting, provided a quorum shall be present. In
the event of the failure of the stockholders to fix the time or place of such
first meeting of the newly elected Board of Directors, or in the event such
meeting is not held at the time and place so fixed by the stockholders, the
meeting may be held at such time and place as shall be specified in a notice
given as hereinafter provided for special meetings of the Board of Directors, or
as shall be specified in a written waiver signed by all of the directors.
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3.7. Regular Meetings.
Regular meetings of the Board of Directors may be held without notice if
the times of such meetings are fixed by the Board of Directors.
3.8. 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, or in the absence of the
chairman of the board by the chief executive officer or any three 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
telecopy, 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 seven (7) days before the
time of the holding of the meeting. If the notice is delivered personally or by
telephone or telecopy, it shall be delivered personally or by telephone or by
telecopy 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.
3.9. Quorum.
A majority of the authorized number of directors shall constitute a
quorum for the transaction of business, except to adjourn as provided in Section
3.10 of these bylaws. Every act or decision done or made by a majority of the
directors present at a duly held meeting at which a quorum is present shall be
regarded as the act of the Board of Directors, subject to the provisions of the
Certificate of Incorporation and applicable law.
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.
3.10. Waiver of Notice.
Notice of a meeting need not be given to any director (i) who signs a
waiver of notice or a consent to holding the meeting or an approval of the
minutes thereof, whether before or after the meeting, or (ii) who attends the
meeting without protesting, prior thereto or at its commencement, the lack of
notice to such directors. All such waivers, consents, and approvals shall be
filed with the corporate records or made part of the minutes of the meeting. A
waiver of notice need not specify the purpose of any regular or special meeting
of the Board of Directors.
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3.11. Adjournment.
A majority of the directors present, whether or not constituting a
quorum, may adjourn any meeting to another time and place.
3.12. Notice of Adjournment.
Notice of the time and place of holding an adjourned meeting need not be
given unless the meeting is adjourned for more than twenty-four (24) hours. If
the meeting is adjourned for more than twenty-four (24) hours, then notice of
the time and place of the adjourned meeting shall be given before the adjourned
meeting takes place, in the manner specified in Section 3.8 of these bylaws, to
the directors who were not present at the time of the adjournment.
3.13. Board Action By Written Consent Without A Meeting.
Any action required or permitted to be taken by the Board of Directors
may be taken without a meeting, provided that all members of the board
individually or collectively consent in writing to that action. Such action by
written consent shall have the same force and effect as a unanimous vote of the
Board of Directors. Such written consent and any counterparts thereof shall be
filed with the minutes of the proceedings of the board.
3.14. Fees and Compensation of Directors.
Directors and members of committees may receive such compensation, if
any, for their services and such reimbursement of expenses as may be fixed or
determined by resolution of the Board of Directors. This Section 3.15 shall not
be construed to preclude any director from serving the corporation in any other
capacity as an officer, agent, employee or otherwise and receiving compensation
for those services.
3.15. 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
subsidiary, including any officer or employee who is a director of the
corporation or its subsidiary, 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.
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ARTICLE 4.
COMMITTEES
4.1. Committees of Directors.
Subject to the Certificate of Incorporation of this corporation, the
Board of Directors may, by resolution adopted by a majority of the authorized
number of directors, designate one (1) or more committees, each consisting of
two or more directors, to serve at the pleasure of the board. The board may
designate one (1) or more directors as alternate members of any committee, who
may replace any absent member at any meeting of the committee. The appointment
of members or alternate members of a committee requires the vote of a majority
of the authorized number of directors. Any committee, to the extent provided in
the resolution of the board, shall have all the authority of the board, 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 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), (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 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. 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 3 of these bylaws, Section
3.5 (place of meetings), Section 3.7 (regular meetings), Section 3.8 (special
meetings and notice), Section 3.9 (quorum), Section 3.10 (waiver of notice),
Section 3.11 (adjournment), Section 3.12 (notice of adjournment), and Section
3.13 (action without 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 a committee may be determined either by resolution of the Board of Directors
or by resolution of such committee, that special meetings of a committee may
also be called by resolution of the Board of Directors, and that notice of
special meetings of a committee shall also be given to all alternate members,
who shall have the right to attend all meetings of such committee. The Board of
Directors may adopt rules for the government of any committee not inconsistent
with the provisions of these bylaws.
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ARTICLE 5.
OFFICERS
5.1. Officers.
The officers of the corporation shall be a chairman of the board, a
chief executive officer, a secretary and a chief financial officer. The
corporation may also have, at the discretion of the Board of Directors, a
president, one or more vice presidents, one or more assistant secretaries, one
or more assistant treasurers, and 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. Election of Officers.
The officers of the corporation, except such officers as may be
appointed in accordance with the provisions of Section 5.3 or Section 5.5 of
these bylaws, shall be chosen by the board, 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 may empower the chief executive
officer 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 the
Board of Directors at any regular or special meeting of the board or, except in
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.
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.
A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed in
these bylaws for regular appointments to that office.
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5.6. Chairman of The Board.
The chairman of the board, if such an officer be elected, shall preside
at meetings of the stockholders and 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 chief executive officer, 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. The chairman of the board shall
report to the Board of Directors.
5.7. Chief Executive Officer.
Subject to such 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 chief
executive officer 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 or she shall preside at all meetings of the stockholders and
the Board of Directors, in the absence or nonexistence of a chairman of the
board. He or she shall serve as the corporation's general manager, and shall
have general supervision, direction and control of the corporation's business
and its officers, and shall have such other powers and duties as may be
prescribed by the Board of Directors or these bylaws.
5.8. President.
Subject to such powers, if any, as may be given by the Board of
Directors to the chairman of the board, if there be such an officer, or the
chief executive officer, if there be such an officer, the president shall,
subject to the control of the chief executive officer, or the Board of Directors
if there is no chief executive officer, have general supervision, direction, and
control of the business and the officers of the corporation. He or she 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.
5.9. Vice Presidents.
In the absence or disability of the chief executive officer, if there be
such an officer, or president, if there be such an officer, 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 chief executive officer and when so acting shall have all the
powers of, and be subject to all the restrictions upon, the chief executive
officer. 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
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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 or she 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 money 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 or she shall disburse the funds of
the corporation as may be ordered by the Board of Directors, shall render to the
chief executive officer and directors, whenever they request it, an account of
all of his or her transactions as chief financial officer and of the financial
condition of the corporation, and shall have such other powers and perform such
other duties as may be prescribed by the Board of Directors or these bylaws.
ARTICLE 6.
INDEMNIFICATION OF DIRECTORS, OFFICERS,
EMPLOYEES AND OTHER AGENTS
6.1. Indemnification of Directors and Officers.
The corporation may, to the maximum extent and in the manner permitted
by the General Corporation Law of Delaware, indemnify each of its directors and
officers against expenses (including attorneys' fees), judgments, fines,
settlements and other amounts actually and reasonably incurred in connection
with any proceeding, arising by reason of the fact that such person is or was an
agent of the corporation. For purposes of this Section 6.1, a "director" or
"officer" of the corporation includes any person (i) who is or was a director or
officer of the
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corporation, (ii) who is or was serving at the request of the corporation as a
director or officer of another corporation, partnership, joint venture, trust or
other enterprise, or (iii) who was a director or officer of a corporation which
was a predecessor corporation of the corporation or of another enterprise at the
request of such predecessor corporation.
6.2. Indemnification of Others.
The corporation shall have the power, to the maximum extent and in the
manner permitted by the General Corporation Law of Delaware, to indemnify each
of its employees and agents (other than directors and officers) against expenses
(including attorneys' fees), judgments, fines, settlements and other amounts
actually and reasonably incurred in connection with any proceeding, arising by
reason of the fact that such person is or was an agent of the corporation. For
purposes of this Section 6.2, an "employee" or "agent" of the corporation (other
than a director or officer) includes any person (i) who is or was an employee or
agent of the corporation, (ii) who is or was serving at the request of the
corporation as an employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, or (iii) who was an employee or agent of a
corporation which was a predecessor corporation of the corporation or of another
enterprise at the request of such predecessor corporation.
6.3. Insurance.
The corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him or her and incurred
by him or her in any such capacity, or arising out of his or her status as such,
whether or not the corporation would have the power to indemnify him or her
against such liability under the provisions of the General Corporation Law of
Delaware.
ARTICLE 7.
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 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 is 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
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other agent to so 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 a 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.
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 or her 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 statement of the business and condition of the corporation.
7.4. Representation of Shares of Other Corporations.
The chairman of the board, the chief executive officer, 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 chief executive officer 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 herein granted 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.
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ARTICLE 8.
GENERAL MATTERS
8.1. Record Date for Purposes Other Than Notice and Voting.
For purposes of determining the stockholders entitled to receive payment
of any dividend or other distribution or allotment of any rights or the
stockholders entitled to exercise any rights in respect of any other lawful
action (other than action by stockholders by written consent without a meeting),
the Board of Directors may fix, in advance, a record date, which shall not be
more than sixty (60) days before any such action. In that case, only
stockholders of record at the close of business on the date so fixed are
entitled to receive the dividend, distribution or allotment of rights, or to
exercise such rights, as the case may be, notwithstanding any transfer of any
shares on the books of the corporation after the record date so fixed, except as
otherwise provided by law.
If the Board of Directors does not so fix a record date, then the record
date for determining stockholders for any such purpose shall be at the close of
business on the day on which the board adopts the applicable resolution or the
sixtieth (60th) day before the date of that action, whichever is later.
8.2. Checks; Drafts; Evidences of Indebtedness.
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.
8.3. Corporate Contracts and Instruments: How Executed.
The Board of Directors, except as otherwise provided in these bylaws,
may authorize any officer or officers, or agent or agents, 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, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
8.4. Stock Certificates; Partly Paid Shares.
The shares of a 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
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vice-chairman of the Board of Directors, or the president or vice-president, and
by the chief financial officer, the secretary or an assistant secretary of such
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 or she 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.
8.5. 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 or 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.
8.6. Lost Certificates.
Except as provided in this Section 8.6, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and canceled at the same time. The Board of
Directors may, in case any share certificate or certificate for any other
security is lost, stolen or destroyed, authorize the issuance of replacement
certificates on such terms and conditions as the board may require; the board
may require indemnification of the corporation secured by a bond or other
adequate security sufficient to protect the corporation against any claim that
may be made against it, including any expense or liability, on account of the
alleged loss, theft or destruction of the certificate or the issuance of the
replacement certificate.
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8.7. Construction; Definitions.
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the General Corporation Law of Delaware 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.
ARTICLE 9.
AMENDMENTS
The original or other bylaws of the corporation may be adopted, amended
or repealed by the stockholders entitled to vote; provided, however, that the
corporation may, in its Certificate of Incorporation, confer the power to adopt,
amend or repeal bylaws upon the directors. The fact that such power has been so
conferred upon the directors shall not divest the stockholders of the power, nor
limit their power to adopt, amend or repeal bylaws.
ARTICLE 10.
DISSOLUTION
If it should be deemed advisable in the judgment of the Board of
Directors of the corporation that the corporation should be dissolved, the
board, after the adoption of a resolution to that effect by a majority of the
whole board at any meeting called for that purpose, shall cause notice to be
mailed to each stockholder entitled to vote thereon of the adoption of the
resolution and of a meeting of stockholders to take action upon the resolution.
At the meeting a vote shall be taken for and against the proposed
dissolution. If a majority of the outstanding stock of the corporation entitled
to vote thereon votes for the proposed dissolution, then a certificate stating
that the dissolution has been authorized in accordance with the provisions of
Section 275 of the General Corporation Law of Delaware and setting forth the
names and residences of the directors and officers shall be executed,
acknowledged, and filed and shall become effective in accordance with Section
103 of the General Corporation Law of Delaware. Upon such certificate's becoming
effective in accordance with Section 103 of the General Corporation Law of
Delaware, the corporation shall be dissolved.
Whenever all the stockholders entitled to vote on a dissolution consent
in writing, either in person or by duly authorized attorney, to a dissolution,
no meeting of directors or stockholders shall be necessary. The consent shall be
filed and shall become effective in accordance with Section 103 of the General
Corporation Law of Delaware. Upon such consent's becoming effective in
accordance with Section 103 of the General Corporation Law of Delaware, the
corporation shall be dissolved. If the consent is signed by an attorney, then
the original power of attorney or a photocopy thereof shall be attached to and
filed with the consent. The consent filed with the Secretary of State shall have
attached to it the affidavit of the secretary or some other officer of the
corporation stating that the consent has been signed by or on behalf of all the
stockholders entitled to vote on a dissolution; in addition, there shall be
attached to the consent a
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certification by the secretary or some other officer of the corporation setting
forth the names and residences of the directors and officers of the corporation.
ARTICLE 11.
CUSTODIAN
11.1. Appointment of a Custodian in Certain Cases.
The Court of Chancery, upon application of any stockholder, may appoint
one or more persons to be custodians and, if the corporation is insolvent, to be
receivers, of and for the corporation when:
(i) at any meeting held for the election of directors the
stockholders are so divided that they have failed to elect successors to
directors whose terms have expired or would have expired upon qualification of
their successors; or
(ii) the business of the corporation is suffering or is
threatened with irreparable injury because the directors are so divided
respecting the management of the affairs of the corporation that the required
vote for action by the Board of Directors cannot be obtained and the
stockholders are unable to terminate this division; or
(iii) the corporation has abandoned its business and has failed
within a reasonable time to take steps to dissolve, liquidate or distribute its
assets.
11.2. Duties of Custodian.
The custodian shall have all the powers and title of a receiver
appointed under Section 291 of the General Corporation Law of Delaware, but the
authority of the custodian shall be to continue the business of the corporation
and not to liquidate its affairs and distribute its assets, except when the
Court of Chancery otherwise orders and except in cases arising under Sections
226(a)(3) or 352(a)(2) of the General Corporation Law of Delaware.
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EXHIBIT 10.11
INTERACTIVE MARKETING AGREEMENT
This Interactive Marketing Agreement (the "Agreement"), is made and
entered into as of March 1, 1998 (the "Effective Date"), by and between America
Online, Inc. ("AOL"), a Delaware corporation, with offices at 22000 AOL Way,
Dulles, Virginia 20166 and CyberSource Corporation, a/k/a "software.net" (the
"Marketing Partner" or "MP"), a California corporation, with offices at 3031
Tisch Way, Suite 900, San Jose, CA 95128 (each a "Party" and collectively the
"Parties").
INTRODUCTION
AOL and MP each desires to enter into an interactive marketing
relationship whereby AOL will promote MP, the MP Products and the digital
delivery of the MP Products through the interactive site referred to (and
further defined) herein as the Affiliated MP Site. This relationship is further
described below and is subject to the terms and conditions set forth in this
Agreement. Defined terms used herein but not defined in the body of the
Agreement shall be as defined in Exhibit B attached hereto.
TERMS
1. PROMOTION, DISTRIBUTION AND MARKETING.
1.1 AOL PROMOTION OF MP PRODUCTS AND AFFILIATED MP SITE. AOL will
provide MP with the promotions for MP, the MP Products and the
Affiliated MP Site described in Exhibit A attached hereto (the
"Promotions"). Subject to MP's reasonable approval, AOL will
have the right to fulfill its promotional commitments with
respect to any of the foregoing by providing MP with comparable
promotional placements in appropriate alternative areas of the
AOL Network. In addition, if AOL is unable to deliver any
particular Promotion described herein, subject to MP's
reasonable approval, AOL will provide MP, as its sole remedy,
with a comparable promotional placement. AOL reserves the right
to redesign or modify the organization, structure, "look and
feel," navigation and other elements of the AOL services at any
time. In the event such modifications materially and adversely
affect any specific Promotion described herein, subject to MP's
reasonable approval, AOL will provide MP, as its sole remedy,
with a comparable promotional placement.
1.2 IMPRESSIONS. During the Term, AOL will deliver the
following Impressions commitments through the Promotions (or any
comparable promotions as provided in Section 1.1 hereof) during
the following monthly periods (each a "Period"): [*] by the end
of the [*] month of the Term, [*] Impressions from the [*] month
to the end of [*] of the Term, and [*] month to the end of the
[*] month of the Term (which Impressions, together with the
Impressions delivered to MP pursuant to Section 1.3 hereof, as
adjusted from time to time in accordance with Section 1.3, are
hereinafter referred to as the "Impressions Commitment"). With
respect to the Impressions Commitment, AOL will not be obligated
to provide more than such target amounts, individually or in the
aggregate, in any given Period. Any shortfall in Impressions at
the end of a Period will not be deemed a breach of this
Agreement by AOL; instead, such shortfall will be added to the
Impressions target for the subsequent Period. In the event that
as of the Mutual Review Date, AOL shall not have provided a
minimum of [*] through the Promotions and the Additional
Promotions (the "Impressions Minimum"), AOL shall have a
reasonable time, not to exceed [*] within which to deliver the
Impressions Minimum. If AOL shall not have delivered the
Impressions Minimum within such [*] MP shall have the right for
fifteen (15) days to terminate this Agreement upon no less than
fifteen (15) days written notice to AOL, and within thirty (30)
days after such termination, [*] required pursuant to Section
4.1 hereof (the "Guaranteed Payments") [*]
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[*]. If there is a shortfall in Impressions as of the end of the
Initial Term (a "Final Shortfall"), AOL shall have the option to
(i) extend the initial Term (the "Extension Period") until the
earlier of (a) such time as AOL shall have delivered the number
of Impressions which comprise the Final Shortfall (the "Makegood
Impressions") or (b) six (6) months from the end of the Initial
Term; provided that, in the event that AOL shall not have
delivered the Makegood Impressions by the end of the Extension
Period, [*]. During the Extension Period, AOL shall maintain the
exclusivity provisions of Section 3.1 hereof.
1.3 ADDITIONAL IMPRESSIONS. In addition to the Promotions provided
to MP above, AOL shall provide promotions to MP (the "Additional
Promotions") in various categories of (i) the shareware area and
(ii) the web publishing section of the "On the Net" area of the
AOL Service Computing Channel as specified in Exhibit A-1
attached hereto. Additionally, should AOL create a channel or
other area relating to, or focused on, the [*], AOL shall use
commercially reasonable efforts to provide promotion to MP in
such channel or area. The Additional Promotions will deliver
approximately [*] Impressions to MP during the Term of the
Agreement as follows: [*] Impressions by the end of the [*]
month of the Term, [*] Impressions from the [*] month to the [*]
month of the Term, and [*] month to the end of the forty second
(42nd) month of the Term. In the event that MP shall desire to
exchange some of the Additional Promotions for other promotions
on the AOL Service, AOL will work with MP, in good faith, to
provide promotions to MP that are comparable to those provided
on Exhibit A-1.
1.4 CONTENT OF PROMOTIONS. The specific Content to be contained
within the Promotions (including, without limitation,
advertising banners, links, types of products advertised,
graphics, contextual promotions, and editorial Content) (the
"Promo Content") will be determined by MP, subject to (i) AOL's
technical limitations, (ii) the terms of this Agreement and
(iii) AOL's then standard and generally applicable policies
relating to advertising and promotions. AOL will furnish a copy
of the categories of such advertising policies to MP. Further,
AOL will notify MP of a change in such policies and upon the
request of MP, AOL shall furnish the text of any category of
advertising policies requested by MP to MP. MP will
consistently review and modify the Promo Content no less than
two times per week. The Parties will jointly consult with each
other regarding the Promo Content to ensure that it is designed
to maximize performance. Except to the extent expressly
described herein, the specific form, placement, duration and
nature of the Promotions will be determined by AOL in its
reasonable editorial discretion (consistent with the editorial
composition of the applicable screens).
1.5 USE OF PROMOTIONS. MP may sell the promotional spaces provided
herein to third parties in a manner consistent with its ongoing
business practices, provided that any promotional spaces sold to
a third party (i) may only promote the sale of MP Products
(excluding Ancillary Products), and (ii) must promote the sale
of such MP Products (excluding Ancillary Products), through the
Affiliated MP Site. Except to the extent expressly provided in
the preceding sentence, MP may not, nor shall it permit any
third party to, sell or offer to sell any of the promotional
spaces provided herein.
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1.6 MP PROMOTION OF AOL. MP will promote the availability of the
Affiliated MP Site through the AOL Network and will promote AOL as
more fully set forth in Exhibit C attached hereto.
2 AFFILIATED MP SITE.
2.1 CUSTOMIZED SITE. The Affiliated MOP Site shall be an optimized and
"mirrored" version of MP's main web site containing the specific
Content described in Section 2.2 below for distribution hereunder
according to AOL specifications and guidelines to ensure that (i) the
functionally and features within the Affiliated MP Site are optimized
for the client software then in use by a majority of AOL Members (as
determined by AOL and communicated to MP) and (ii) the forms used in
the Affiliated MP Site are designed and populated in a manner
intended to minimize delays when AOL Users attempt to access such
forms. The Affiliated MP Site may include up to four (4) Rainman
screens as mutually determined by AOL and MP. In the event that the
Parties shall create any Rainman screens, AOL shall determine, in its
sole discretion, which of its proprietary publishing tools (each a
"Tool") shall be made available to MP in order to develop and
implement the Rainman screens. Additionally, AOL shall provide MP
with an appropriate level of training with respect to the use of such
Tools, as determined by AOL in its sole discretion. MP shall be
granted a nonexclusive license to use any such Tool, which license
shall be subject to: (a) MP's compliance with all rules and
regulations relating to use of the Tools, as published from time to
time by AOL, (b) AOL's right to withdraw or modify such license at
any time, and (c) MP's express recognition that AOL provides all
Tools on an "as is" basis, without warranties of any kind.
2.1.1 SPECIFIC REQUIREMENTS.
(i) MP shall design the Affiliated MP Site to conform, in
all respects, with the provisions of Exhibit E attached
hereto, and
(ii) AOL reserves the right to review the Affiliated MP
Site to ensure that such site is compatible with AOL's
then-available client and host software and the AOL Network.
MP will take all necessary steps to conform its promotion
and sale of the MP Products through the Affiliated MP Site
to the then-existing technologies identified by AOL which
are optimized for the AOL Network. In consultation with MP,
AOL will be entitled to require reasonable changes to the
Content (including, without limitation, the features or
functionality) within the Affiliated MP Site to the extent
such Content will, in AOL's good faith judgment, adversely
affect any operational aspect of the AOL Network or the
online experience of any AOL User.
2.1.2 CUSTOMIZATION. MP shall customize the Affiliated MP Site
AOL Users as follows:
(i) create a customized home page "welcome mat" for the AOL
audience for each area on the Affiliated MP Site linked to
from the AOL Network on a continuous basis (each a "Welcome
Mat");
(ii) other than with respect to pre-packaged or pre-bundled
software, the packaging of which MP does not control, or
have the ability to control, ensure that AOL Users linking
to the Affiliated MP Site do not receive advertisements,
promotions or links for the products, services or content of
any other Interactive Service or any entity reasonably
construed to be in competition with AOL (such as, but not
limited to, MSN, Netscape, Yahoo); and
(iii) with the exception of advertising links sold and
implemented pursuant to this Agreement, provide continuous
navigational ability for AOL Users to
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return to an agreed-upon point on the AOL Network (for which AOL
shall supply the proper address) from the Affiliated MP Site
(e.g., the point on the AOL Network from which the Affiliated MP
Site is linked), which, at AOL's option, may be satisfied through
the use of a hybrid browser format.
2.2 CONTENT. MP will provide a comprehensive offering of the categories of MP
Products and other Content described in Exhibit D attached hereto, through
the Affiliated MP Site. The Parties acknowledge that Exhibit D shall be
modified from time to time by MP, provided that AOL shall have the right to
review such modifications, and to the extent that such modifications are
inconsistent with the sale of Software Products as provided herein, or
otherwise inconsistent with the provisions of this Agreement, AOL shall
have the right in its reasonable discretion, to reject such modifications.
MP will review, delete, edit, create, update and otherwise manage all
Content available on or through the Affiliated MP Site in accordance with
the terms of this Agreement or any amendments hereto. Except as otherwise
mutually agreed upon by the Parties hereto, the Affiliated MP Site shall
not contain Content (including without limitation, third party content)
relating to anything other than the categories of MP Products listed on
Exhibit D attached hereto.
2.3 PRODUCTION WORK. Except as agreed to in writing by the Parties pursuant to
the "Production Work" section of the Standard Online Commerce Terms &
Conditions attached hereto as Exhibit F, MP will be responsible for all
production work associated with the Affiliated MP Site, including all
related costs and expenses.
2.4 HOSTING; COMMUNICATIONS. MP will be responsible for all communications,
hosting and connectivity costs and expenses associated with the Affiliated
MP Site. In addition, MP will provide all computer, telephone and other
equipment or resources necessary for MP to access the AOL Network. MP and
AOL shall mutually agree upon, and reasonably cooperate in implementing,
the most appropriate means by which MP will connect the MP data center to
AOL's designated data center; provided, however, that in the event the
Parties determine that MP shall utilize a dedicated high speed connection
from the MP data center to AOL's designated data center, then MP shall be
responsible for all costs associated with such high speed connection.
2.5 PRODUCT OFFERING. MP will ensure that the Affiliated MP Site generally
includes all of the MP Products or Content (including, without limitation,
any features, offers, contests, functionality or technology) that are then
made available by or on behalf of MP through any Additional MP Channel and
which are not inconsistent with MP's other contractual obligations;
provided, however, that (i) such inclusion will not be required where it is
commercially or technically impractical to either Party (i.e., inclusion
would cause either Party to incur substantial incremental costs), and (ii)
specific material changes in scope, nature and/or offerings required by
such inclusion will be subject to AOL's review and approval and the terms
of this Agreement.
2.6 [*]
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[*]
2.7 [*]
2.8 OPERATING STANDARDS. MP will ensure that the Affiliated MP Site and
the delivery of the MP Products comply at all times with the standards
set forth in Exhibit E. To the extent site standards are not
established in Exhibit E with respect to any aspect or portion of the
Affiliated MP Site (or the MP Products or other Content contained
therein), MP will provide such aspect or portion at a level of
accuracy, quality, completeness, and timeliness which meets or exceeds
prevailing standards in the computer software industry. If at any time
during the Term MP fails to satisfy any requirement [*] of Exhibit
E AOL shall have the right (in addition to any other remedies
available to AOL hereunder) to reduce or cease placement of the
Promotions until such time as MP corrects its non-compliance (the
"Non-Compliance Period"), and if as a direct result of such
non-compliance AOL is unable to provide the Impressions required
hereunder during the Non-Compliance Period, AOL shall have the right
to reduce the Impressions Commitment, on a pro-rata basis, during the
Non-Compliance Period (e.g., if the Non-Compliance Period extends for
a period of two months, then AOL shall reduce the Impressions
Commitment by an amount equal to the product of two (2) times the
Impressions Commitment divided by forty two(42)).
2.9 NETWORK RESTRICTION. The Parties hereby agree that AOL shall have the
right, in its sole discretion, to reduce or cease placement of the
Promotions, or restrict access from the AOL Network to the Affiliated
MP Site (or any combination of the foregoing) (the "Network
Restriction Right") in the event that, as a result of the sale of the
MP Products in the manner contemplated hereby, and through no fault of
MP, the functional integrity of the AOL Network is compromised or the
ability of the AOL Network to adequately serve AOL Users is adversely
affected. If at any time during the Term AOL shall exercise the
Network Restriction Right for an aggregate of one hundred and twenty
(120) hours in any thirty (30) day period, then MP shall have the
right to request that AOL and MP monitor the Promotions and sales of
the MP Products through the Affiliated MP Site for a period of time
not to exceed forty five (45) days. If within such forty five (45) day
period, AOL and MP reasonably determine that the exercise of the
Network Restriction Right had a Material Adverse Effect on the sale of
the MP Products, the Parties shall renegotiate, in good faith, the
applicable terms of this Agreement for fifteen (15) days. If the
Parties cannot renegotiate the terms of the Agreement within such time
period, MP shall have the right for a period of fifteen (15) days to
terminate the Agreement as provided in Section 6.3 hereof, and within
thirty (30) days after such termination, MP or AOL, as the case may
be, [*]
[*]
---------
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<PAGE> 6
[*]
[*]
[*]
[*]
[*]
2.10 ADVERTISING SALES. Subject to the terms hereof, MP shall have the
right to sell promotions, advertisements, links, pointers or
similar services or rights through the Affiliated MP Site
("Advertisements"). The specific advertising inventory within the
Affiliated MP Site shall be determined by MP. [*]
3. AOL EXCLUSIVITY OBLIGATIONS.
3.1 EXCLUSIVE PRODUCTS. Provided that MP is in compliance with all
material terms of this Agreement, during the Initial Term, MP
shall be the exclusive, third party, re-seller of Software
Products delivered to an end user of such Software Products via
an electronic, digital download format (the "Exclusive Software
Products"), promoted by AOL in the specific manner and on the
specific screens of the AOL Service and AOL.com as provided in
Exhibit A attached hereto. Additionally, MP shall be a
non-exclusive, third party, re-seller of Software Products
delivered to an end user of such Software Products in a
pre-packaged box or other physical container (the "Semi-Exclusive
Software Products") as promoted by AOL in the specific manner and
on the specific screens of the AOL Service and AOL.com provided
for in Exhibit A. With respect to Exhibit A, on screens
designated as "Comprehensive Exclusive," MP shall be the
exclusive, third party, reseller of the Exclusive and
Semi-Exclusive Software Products, and on screens designated as
"Semi-Exclusive", MP shall be the exclusive, third party,
reseller of the Exclusive Software Products and a non-exclusive,
third party, reseller of the Semi-Exclusive Software Products;
provided that no more than one (1) other retailer of the
Semi-Exclusive Products shall appear on such screens (the
"Excluded Retailer"). During the Initial Term, except for the
Excluded Retailer on the Semi-Exclusive screens, AOL shall not
(i) promote any third party Software Products on the screens of
the AOL Service or AOL.com on which MP has an exclusivity as
provided herein, or (ii) provide any promotions on such screens
which link to the first screen (which shall include any flash
screen or temporary screen/display presented to an AOL User upon
clicking on a Promotion) of any third party web site on which any
Software Product titles are promoted or sold, or on which
Software Products are predominantly promoted. With respect to any
third party, to the extent (i) the tradename or trademark of such
third party shall contain the words "download", "downloadable",
"download software" or "downloadable software", or (ii) the
marketing materials of such third party shall encourage the
purchase of the
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<PAGE> 7
Exclusive or Semi-Exclusive Software Products, AOL shall not promote or
advertise such name or marketing material of such third party on any
screens of the AOL Service or AOL.com on which MP has an exclusivity as
provided herein. Notwithstanding the foregoing, to the extent that AOL
shall have the right to promote the Excluded Retailer, the foregoing
restrictions shall not apply to the promotion of Semi-Exclusive Software
Products by the Excluded Retailer.
3.2 [*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
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<PAGE> 8
[*]
3.3 AOL STORE RESTRICTIONS. Subject to the provisions of this Agreement,
during the Initial Term and any Renewal Term during which AOL maintains
the exclusivity provisions hereof, (i) the AOL Store shall not
advertise, promote or sell the Exclusive Software Products on the AOL
Service or AOL.com, and (ii) MP shall have the right during each quarter
of the Initial Term to request that, other than with respect to Pop-Ups
as provided in Section 3.2(iii) above, the AOL Store shall not
advertise or promote (through banners, buttons or other types of
similar permanent placements) five (5) specific Software Product
titles offered by MP at such time and identified in writing by MP (each
a "Restricted Product"), subject at all times to the following:
(a) within five (5) days after the Effective Date, MP shall
submit a list of Restricted Products to AOL for the first
quarter of the Agreement; provided that, AOL has the right to
reject any Restricted Product on such list to the extent that
AOL is unable to remove such Restricted Product from the AOL
Store due to any existing binding arrangements of AOL. MP shall
resubmit additional Restricted Products to AOL until the Parties
have agreed upon five (5) Restricted Products;
(b) prior to changing any Restricted Product, MP shall provide
AOL with forty five (45) days written notice which shall contain
the name and SKU of each Restricted Product MP wishes to add;
(c) AOL shall have the right to promote the Restricted Products
on the AOL Service or AOL.com so long as such promotions
(except with respect to Pop-Ups) link solely to the Affiliated
MP Site;
(d) in the event that AOL shall advertise Software Products via
Non-Modal Pop-Ups, AOL shall not, to the extent technologically
feasible, display such Non-Modal Pop-Ups in any of the
following areas: (1) any screens in the Computing Channel and
Games Channel of the AOL Service on which MP has an exclusivity
as provided herein, (2) any screens on the Personal Finance Web
Channel of AOL.com on which MP has an exclusivity as provided
herein and (3) any screens of the Affiliated MP Site accessed
by any AOL User; and
(e) in addition to the payments required pursuant to Section 4
hereof, MP shall pay to AOL an amount equal to fifteen percent
(15%) of Gross Transaction Margins derived from the sale of the
Restricted Products through the Affiliated MP Site (the
"Restricted Product Revenue Share"); provided that, from and
after such time as MP shall have reached the Threshold, MP shall
no longer be required to pay to AOL the Restricted Product
Revenue Share.
3.4 [*]
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<PAGE> 9
[*]
3.5 TRANSACTION PROCESSING. To the extent that AOL or any third
party other than MP sells Software Products that are digitally
delivered in an electronic download format on the AOL Service
or AOL.com, and provided that MP offers transaction processing
services that offer terms, rates and quality that are equal to,
or greater than, the top five (5) transaction processing
services in the software electronic download industry, AOL shall
consider the use of MP's transaction processing services related
to the sale of such Software Products on the AOL Service or
AOL.com.
3.6 AOL EXCLUSIVITIES. Notwithstanding the provisions of Section 3.1
above, MP shall not distribute any Exclusive or Semi-Exclusive
Products which are identical, or similar in nature to, any
products sold online by any existing or future partners of AOL
that are not Software Products, including, but not limited to,
books or other text based products and music compact disks
designed primarily for the retail sale of music or other similar
musical or audio based products; provided, however, that MP may
distribute categories of products that are packaged with,
ancillary to, or related to an Exclusive or Semi-Exclusive
Product and which constitute an integral part of such Exclusive
or Semi-Exclusive Product either by way of integration or by way
of instructions (the "Ancillary Products") as listed on Exhibit
D-1 attached hereto; and provided further that such Ancillary
Products shall be provided by MP at least two clicks away from
any screen on the AOL Service or AOL.com (including a Welcome
Mat) linking to the Affiliated MP Site.
3.7 PRODUCT OFFER RIGHT. If AOL shall determine that the sale of
certain Software Products is essential to a good AOL User
experience in, or necessary to the continued viability of,
any area of the AOL Service or AOL.com in which MP has an
exclusivity as provided herein, and provided that MP shall not
offer such Software Products for sale through the MP Affiliated
Site, MP shall have thirty (30) days after notice from AOL to
provide such Software Products, and if within such thirty (30)
day period MP is unable to provide such Software Products, AOL
shall have the right to provide such Software Products on the
AOL SERVICE OR AOL.com.
3.8 PERSONAL FINANCE CHANNEL RESTRICTION. In the event that MP shall
promote any third party in any of the promotional spaces
provided to MP in the Personal Finance Channel of the AOL
Service as set forth in Exhibit A, MP shall provide to AOL's
exclusive tax partner the opportunity to receive promotional
placements in the Personal Finance Channel on terms and
conditions (including, without limitation, scope, purpose,
amount, prominence or regularity) that are not less favorable
than the terms and conditions provided to such other third
party; provided that, in no event shall AOL's exclusive tax
partner be required to make any payments to MP in connection
with such promotional placements. To the extent that MP shall
comply with the foregoing requirements, and provided that AOL's
exclusive tax partner takes advantage of such promotions, MP
shall be entitled to deduct the value of the promotional spaces
provided to AOL's exclusive tax partner from the payments due to
AOL pursuant to Section 4.3 hereof.
4. PAYMENTS.
4.1 GUARANTEED PAYMENTS. Subject to the terms of this Agreement, MP
will pay to AOL a guaranteed payment of [*] as follows:
(i) [*] upon execution of this Agreement:
(ii) [*]
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<PAGE> 10
(iii) [*] upon the occurrence of the earlier of [*] the
earlier of
(iv) [*] upon the occurrence of the one (1) year anniversary
of this Agreement; and
(v) [*] upon the occurrence of the two (2) year anniversary
of this Agreement.
4.2 [*]
4.3 [*]
4.4 ALTERNATIVE REVENUE STREAMS. In the event MP or any of its
affiliates (a) receives or desires to receive, directly or
indirectly, any compensation in connection with the Affiliated
MP Site other than Transaction Revenues or Advertising Revenues
(an "Alternative Revenue Stream"), or (b) desires to materially
alter or change its current business model (e.g., a change to an
Auction Format, Retail Club or the rental of Software Products)
(an "Alternative Business Model") MP will promptly inform AOL in
writing, and the Parties will negotiate in good faith regarding
whether MP will be allowed to (i) market products producing such
Alternative Revenue Stream through the Affiliated MP Site, or
(ii) create an Alternative Business Model and if so, the
equitable portion of revenues from such Alternative Revenue
Stream or Alternative Business Model (if applicable) that will
be shared with AOL (in no event less than the percentage of
Gross Transaction Margins to be paid to AOL pursuant to this
Section 4). In the event the Parties cannot in good faith reach
agreement regarding such Alternative Revenue Stream or
Alternative Business Model, MP shall refrain from implementing
the Alternative Revenue Stream or the Alternative Business
Model.
4.5 WIRED PAYMENTS; LATE PAYMENTS. All payments required under this
Section 4 will be paid in immediately available, non-refundable
funds wired to AOL's account. If (i) the amounts owed pursuant
to Section 4.1 are not paid within five (5) business days of
the date when such amounts are due and payable, or (ii) the
amounts owed pursuant to Sections 4.2 and 4.3 are not paid
within fifteen (15) days of the date when such amounts are due
and payable, then in addition to its other remedies
hereunder, AOL shall have the right to immediately terminate
this Agreement. Notwithstanding the foregoing, after such time
as AOL shall have received the payments required pursuant to
Section 4.1(a) (b) and (c) hereof, if the remaining amounts owed
pursuant to Section 4.1, 4.2 or 4.3 are not paid within five
(5) business days or fifteen (15) days, as the case may be, of
the date when such amounts are due and payable, AOL shall
notify MP and MP shall have one additional five (5) day
period from the date of notice within which to make such
payment. If after such time payment shall not have been
received by AOL, then in addition to its other remedies
hereunder, AOL shall have the right to immediately terminate
this Agreement. All amounts owed hereunder not paid when due
and payable will bear interest from the date such amounts are
due and payable at the prime rate in effect at such time.
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<PAGE> 11
4.6 AUDITING RIGHTS. MP will maintain complete, clear and accurate
records of all expenses, revenues and fees in connection with
the performance of this Agreement. For the sole purpose of
ensuring compliance with this Agreement, AOL will have the
right, at its expense, to direct an independent certified
public accounting firm to execute a non-disclosure agreement
with MP and to conduct a reasonable and necessary inspection of
portions of the books and records of MP which are relevant to
MP's performance pursuant to this Agreement. Any such audit may
be conducted after twenty (20) business days prior written
notice.
4.7 TAXES. MP will collect and pay and indemnify and hold AOL
harmless from, any sales, use, excise, import or export value
added or similar tax or duty not based on AOL's net income,
arising from the license or sale of MP Products hereunder,
including any penalties and interest, as well as any costs
associated with the collection or withholding thereof, including
attorneys' fees.
4.8 REPORTS. MP will provide AOL with a monthly report in a
reasonable AOL-designated format agreed to by AOL and MP,
detailing the following activity in such month (and any other
information mutually agreed upon by the Parties or reasonably
required for measuring revenue activity by MP through the
Affiliated MP Site): summary sales information by day (date,
number of MP Products, number of orders, total Transaction
Revenues); and (ii) detailed sales information (order date/time
stamp (if technically feasible), purchaser name and screenname,
SKU or MP Product description) (the information in clauses (i)
and (ii) are collectively referred to herein as "Sales
Reports"). AOL will be entitled to use the Sales Reports in the
normal course of its business operations, subject to the
following: AOL will not disclose individual AOL Purchaser
Information to any third party. AOL will restrict its use of
the Sales Reports to (i) internal programming and advertising
rotation purposes and (ii) informational disclosures as part of
broader aggregate data regarding AOL Members. AOL will not use
the lists of user names of AOL Purchasers provided by MP to
AOL pursuant to this Section 4.8 to send targeted solicitations
marketing Software Products to such user names, provided that
the foregoing will not restrict AOL's ability to market any
products or services to its subscribers or any persons or
entities as part of more general marketing efforts which do not
exclusively make use of the screenname lists provided to AOL by
MP hereunder. More generally, each payment to be made by MP
pursuant to this Section 4 will be accompanied by a report
containing information which supports the payment, including
information identifying (i) gross Transaction Revenues and all
items deducted or excluded from gross Transaction Revenues to
produce Gross Transaction Margins, including, without
limitation, chargebacks and credits for returned or canceled
goods or services (and, where possible, an explanation of the
type of reason therefor, e.g., bad credit card information,
poor customer service, etc.) and (ii) any applicable
Advertising Revenues. AOL shall provide MP with standard
monthly usage information related to the Promotions which are
similar in substance and form to the reports provided by AOL to
other interactive marketing partners similar to MP.
5. WARRANTS [INTENTIONALLY OMITTED]
6. TERM; RENEWAL; TERMINATION.
6.1 TERM. Unless earlier terminated or extended as set forth
herein, the initial term of this Agreement will be forty two
(42) months from the Effective Date (the "Initial Term").
6.2 RENEWAL. Upon conclusion of the Initial Term, AOL shall have
the right to renew the Agreement for two successive one-year
renewal terms (each a "Renewal Term" and together with the
initial term, the "Term") by providing MP with notice of AOL'S
intention to renew the Agreement for a subsequent Renewal Term
no later than thirty (30) days prior to the commencement of
such Renewal Term. During any such Renewal Term: (i)
11
<PAGE> 12
[*]
6.3 TERMINATION FOR BREACH. Except as expressly provided elsewhere
in this Agreement, either Party may terminate this Agreement at
any time in the event of a material breach of the Agreement by
the other Party which remains uncured after thirty (30) days
written notice thereof to the other Party (or such shorter
period as may be specified elsewhere in this Agreement);
provided that, except as expressly set forth in Section 4.5
above, AOL will not be required to provide notice to MP in
connection with MP's failure to make any payment to AOL required
hereunder. Notwithstanding the foregoing, in the event of a
material breach of a provision that expressly requires action
to be completed within an express period shorter than thirty
(30) days, either Party may terminate this Agreement if the
breach remains uncured after written notice thereof to the
other Party.
6.4 TERMINATION FOR BANKRUPTCY/INSOLVENCY. Either Party may
terminate this Agreement immediately following written notice
to the other Party if the other Party (i) ceases ongoing
operations, (ii) becomes or is declared insolvent or bankrupt,
(iii) is the subject of any proceeding related to its
liquidation or insolvency (whether voluntary or involuntary)
which is not dismissed within ninety (90) calendar days or (iv)
makes an assignment for the benefit of creditors.
6.5 TERMINATION ON CHANGE OF CONTROL. In the event of a Change of
Control of MP resulting in control of MP by an Interactive
Service other than AOL, AOL may terminate this Agreement by
providing to MP thirty (30) days prior to written notice of
such intent to terminate.
6.6 [Intentionally Omitted]
6.7 EXPIRATION OF TERM. Upon expiration of the Term, AOL shall have
the right for a period not to exceed two (2) years to (a)
promote one or more "pointers" or links from the AOL Network to
the Affiliated MP Site or, at MP's option, to an MP Interactive
Site selling products substantially similar to the MP products,
and (b) use MP's tradenames, trademarks and service marks in
connection with such promotion. [*]
6.8 [*]
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<PAGE> 13
Agreement. In the event that the Parties cannot renegotiate the
applicable terms of this Agreement within thirty (30) days
following the end of the Monitoring Period, MP shall have the
right to terminate the Agreement upon no less than thirty (30)
days written notice to AOL, and within thirty (30) days of such
termination, MP or AOL, as the case may be, shall pay or
refund, respectively, the other, an amount equal to the
difference between (i) the Guaranteed Payments made to AOL to
date and (ii) an amount determined pursuant to the following
formula:
X = Y x (A/B)
Where X = Value delivered to date (based on impressions)
Y = Impressions delivered as of the termination date
less a pro-rata share of Impressions delivered
during the Monitoring Period (determined by reducing
the number of Impressions delivered during the
Monitoring Period in proportion to the reduction in
sales which occurred as a result of the Business
Model Change)
A = the Guaranteed Payments
B = the Impressions Commitment
provided that, if such amount is a positive number only AOL
shall have a payment obligation, and if such amount is a
negative number only MP shall have a payment obligation.
7. MANAGEMENT COMMITTEE/ARBITRATION. If the Parties are unable to resolve
any dispute, controversy or claim arising under this Agreement
(excluding any disputes relating to intellectual property rights or
confidentiality) (each a "Dispute"), such Dispute shall be submitted to
the Management Committee for resolution. If the Management Committee is
unable to resolve the Dispute within ten (10) business days after
submission to them, the Dispute shall be solely and finally settled by
arbitration in Washington, D.C. under the auspices of the American
Arbitration Association; provided that the Federal Rules of Evidence
shall apply in toto to any such Dispute and, subject to the arbitrators'
discretion to limit the time for and scope of discovery, the Federal
Rules of Civil Procedure shall apply with respect to discovery; and
provided further that, consistent with the parties' desire to avoid
delays and unnecessary expense, any Dispute arising from any provision
of the Agreement which expressly or implicitly provides for the parties
to reach mutual agreement as to certain terms therein shall not be
submitted to arbitration but shall be resolved in good faith by the
Management Committee. The arbitrator may enter a default decision
against any Party who fails to participate in the arbitration
proceedings. For purposes herein, the "Management Committee" shall mean
a committee made up of two (2) senior executives from each of the
Parties for the purpose resolving Disputes under this Section and
generally overseeing the relationship between the Parties contemplated
by this Agreement. Notwithstanding the foregoing, during the resolution
of any Dispute, the Parties hereto shall continue to make all payments
required hereunder.
13
<PAGE> 14
8. STANDARD TERMS. The Standard Online Commerce Terms & Conditions set
forth in Exhibit F attached hereto and Standard Legal Terms &
Conditions set forth on Exhibit G attached hereto are each hereby made
a part of this Agreement.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the
Effective Date.
AMERICA ONLINE, INC. CYBERSOURCE CORPORATION
By: /s/ DAVID M. COLBURN By:
------------------------------ ------------------------------
David M. Colburn, William S. McKiernan,
Senior Vice President, President and CEO
AOL Networks
14
<PAGE> 15
8. STANDARD TERMS. The Standard Online Commerce Terms & Conditions set
forth in Exhibit F attached hereto and Standard Legal Terms &
Conditions set forth on Exhibit G attached hereto are each hereby made
a part of this Agreement.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the
Effective Date.
AMERICA ONLINE, INC. CYBERSOURCE CORPORATION
By: By: /s/ WILLIAM S. McKIERNAN
------------------------------ ------------------------------
David M. Colburn, William S. McKiernan,
Senior Vice President, President and CEO
AOL Networks
14
<PAGE> 16
EXHIBIT A
PLACEMENT/PROMOTION PLAN
<TABLE>
<CAPTION>
Placement
- ----------------------------------------------------------------------------------------------------------
# SCREEN ITEM FREQUENCY
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Computing Channel Placement (Channel currently undergoing redesign)
- ----------------------------------------------------------------------------------------------------------
1 Channel Main Feature Product Promotion [*] [*]
- ----------------------------------------------------------------------------------------------------------
2 Download Software Integrated Promotion [*] [*]
- ----------------------------------------------------------------------------------------------------------
2 Download Software Feature Product Promotion [*] [*]
- ----------------------------------------------------------------------------------------------------------
3 Daily Download Integrated Promotion [*] [*]
- ----------------------------------------------------------------------------------------------------------
4 Companies Listing and rotational promotion [*] [*]
- ----------------------------------------------------------------------------------------------------------
5 Superstore Main 1 Promotion Box (rotating) + co-op box [*] [*]
- ----------------------------------------------------------------------------------------------------------
6 Superstore Main Product Search functionality - non - [*] [*]
branded
- ----------------------------------------------------------------------------------------------------------
7 Superstore Main Software Button [*] [*]
- ----------------------------------------------------------------------------------------------------------
8 Superstore Software Integration in Software Categories List [*] [*]
Category Box
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
9 Superstore Software Feature Product Promotion [*] [*]
Category
- ----------------------------------------------------------------------------------------------------------
10 Computing Channel Promotion [*] [*]
Software Search
- ----------------------------------------------------------------------------------------------------------
11 PC File Search Button Integration [*] [*]
Referee Screen
- ----------------------------------------------------------------------------------------------------------
12 Mac File Search Button Integration [*] [*]
Referee Screen
- ----------------------------------------------------------------------------------------------------------
13 Weekly Byte Newsletter Article Links [*] [*]
- ----------------------------------------------------------------------------------------------------------
14 Virus Information Integration [*] [*]
Center
- ----------------------------------------------------------------------------------------------------------
SHOPPING CHANNEL PLACEMENT
- ----------------------------------------------------------------------------------------------------------
15 Computing: Software Anchor + promotions [*] [*]
Department Main
- ----------------------------------------------------------------------------------------------------------
GAMES CHANNEL PLACEMENT
- ----------------------------------------------------------------------------------------------------------
16 Games Store Integration [*] [*]
- ----------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 17
<TABLE>
<CAPTION>
# AREA ITEM FREQUENCY
---- ---- ---------
<S> <C> <C> <C> <C>
AOL NETFIND PLACEMENT
- ----------------------------------------------------------------------------------------------------------
17 Search Results Full Banner; Computing Package Keywords [*] [*]
- ----------------------------------------------------------------------------------------------------------
18 Web Site Reviews Full Banner; Computing Package Directory [*] [*]
- ----------------------------------------------------------------------------------------------------------
NETCHANNELS PLACEMENT
- ----------------------------------------------------------------------------------------------------------
19 Computing Web Integration [*] [*]
Channel
- ----------------------------------------------------------------------------------------------------------
20 Personal Finance Web Financial Mgmt Software Store, textual [*] [*]
Channel integration and hyperlink
- ----------------------------------------------------------------------------------------------------------
21 Entertainment Web Games/Entertainment Software Store, [*] [*]
Channel textual integration
- ----------------------------------------------------------------------------------------------------------
22 AOL Netfind Netfind Home Page Button or similar [*] [*]
Homepage promotions (e.g., AOL Instant Messenger,
AOL.com Home Page, Communities, General
Rotation)
- ----------------------------------------------------------------------------------------------------------
AOL Service Personal Finance Channel
- ----------------------------------------------------------------------------------------------------------
23 Personal Finance Integration into Tax Center Permanent [*]
Channel Tax Planning
- ----------------------------------------------------------------------------------------------------------
</TABLE>
For the purposes of this Exhibit A:
"Anchor" shall mean a prominent permanent placement.
"Permanent" shall mean a placement which is always present on a screen.
"Rotating" shall mean a non-Permanent presence on a screen.
Keywords
The Affiliated MP Site will be accessible from the AOL Network through the use
of the keywords "softwarenet" "software.net" (or such other keyword as AOL may
assign to MP in the case of a name change; provided, however, that such keyword
(i) shall at all times be subject to availability and (ii) shall be a
"non-generic" trademark of MP).
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<PAGE> 18
EXHIBIT A-1
ADDITIONAL PROMOTIONS
<TABLE>
<CAPTION>
- ------------------------------------------------
# SCREEN
- ------------------------------------------------
<S> <C> <C>
- ------------------------------------------------
1 Animation and Video [*]
Main
- ------------------------------------------------
2 Business and Finance [*]
Main
- ------------------------------------------------
3 Desktop Publishing [*]
Main
- -------------------------------------------------
4 Development and [*]
Programming Main
- -------------------------------------------------
5 Education and [*]
Reference Main
- -------------------------------------------------
6 Fun and Games Main [*]
- -------------------------------------------------
7 Graphics Main [*]
- -------------------------------------------------
8 Home and Hobbies [*]
Main
- -------------------------------------------------
9 Internet Main [*]
- -------------------------------------------------
10 Music and Sound Main [*]
- -------------------------------------------------
11 Network and Telecom [*]
Main
- -------------------------------------------------
12 Utilities and Tools Main [*]
- -------------------------------------------------
</TABLE>
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<PAGE> 19
EXHIBIT B
Definitions
The following definitions will apply to this Agreement:
ADDITIONAL MP CHANNEL. Any other distribution channel (e.g., an Interactive
Service other than AOL) through which MP makes available an offering comparable
in nature to the Affiliated MP Site.
ADVERTISING REVENUES. The combination of AOL Advertising Revenues and Internet
Advertising Revenues:
AOL ADVERTISING REVENUES. (a) Aggregate amounts collected plus the fair
market value of any other compensation received (such as barter
advertising) by MP, or its agents, as the case may be, arising from the
license or sale of advertisements, promotions, links or sponsorships
("Advertisements") that appear within any pages of the Affiliated MP
Site or on any screens or forms preceding, framing or otherwise
directly associated with the Affiliated MP Site, less applicable
Advertising Sales Commissions and (b) a pro-rata portion of any co-op
marketing fees, or any similar fees collected by MP or its agents from
vendors ("Co-op Marketing Fees") for (i) "shelf space" in any MP
Interactive Site linked to from the AOL Network or (ii) direct
marketing efforts directed at any AOL Member or AOL User, as determined
by multiplying the amount of Co-op Marketing Fees collected by MP in
any given period of time by the quotient of (i) any Co-op Marketing
Fees derived from any Advertisements or marketing materials viewed by
AOL Users for such period of time divided by (ii) total Co-op Marketing
Fees derived from any Advertisements or marketing materials viewed by
all users for such period of time.
INTERNET ADVERTISING REVENUES. For each Advertisement on a page of the
Affiliated MP site or any MP Interactive Site which is not exclusively
available to AOL Users, the product of: (a) the amount collected plus
the fair market value of any other compensation received (such as
barter advertising) by MP or its agents arising from the license or
sale of such Advertisement attributable to a given period of time and
(b) the quotient of (i) Impressions on the page containing such
Advertisement by AOL Users for such period of time divided by (ii)
total Impressions on the page containing such Advertisement by all
users for such period of time (the "Internet Advertising Quotient")(or
such other percentage or formula as is mutually agreed upon in writing
by the Parties). MP will be responsible for calculating the Internet
Advertising Quotient related to Internet Advertising Revenues. In the
event that MP fails to perform such calculations, AOL has the right to
require MP to perform such calculations.
ADVERTISING SALES COMMISSION. (i) Actual amounts paid as commission to third
party agencies in connection with the sale of the Advertisement or [*] in
the event the Party has sold the Advertisement directly and will not be
deducting any third party agency commissions.
AFFILIATED MP SITE. The specific area to be promoted and distributed by AOL
hereunder through which MP can market and complete transactions regarding the
MP Products.
AOL INTERACTIVE SITE. Any Interactive Site which is managed, maintained, owned
or controlled by AOL or its agents.
AOL LOOK AND FEEL. The elements of graphics, design, organization,
presentation, layout, user interface, navigation and stylistic convention
(including the digital implementations thereof) which are generally associated
with Interactive Sites within the AOL Service or AOL.com.
AOL MEMBER. Any authorized user of the AOL Network, including any sub-accounts
using the AOL Network under an authorized master account.
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AOL NETWORK. (i) The AOL Service, (ii) AOL.com and (iii) any other product or
service owned, operated, distributed or authorized to be distributed by or
through AOL or its affiliates worldwide (and including those properties
excluded from the definitions of the AOL Service or AOL.com).
AOL PURCHASER. (i) Any person or entity who enters the Affiliated MP Site from
the AOL Service or AOL.com including, without limitation, from any third party
area therein (to the extent entry from such third party area is traceable
through both Parties' commercially reasonable efforts), and generates
Transaction Revenues (regardless of whether such person or entity provides an
e-mail address during registration or entrance to the Affiliated MP Site which
includes a domain other than an "AOL.com" domain); and (ii) any other person or
entity who, when purchasing a product, good or service through an MP
Interactive Site, provides an AOL.com domain name as part of such person or
entity's e-mail address; provided that any person or entity who has previously
satisfied the definition of AOL Purchaser will remain an AOL Purchaser, and any
subsequent purchases by such person or entity will also give rise to
Transaction Revenues hereunder (and will not be conditioned on the person or
entity's satisfaction of clauses (i) or (ii) above) and (b) with respect to
clause (ii) above, an AOL Purchaser shall not mean any person or entity that is
listed on a disk to be provided by MP to AOL within forty five (45) days of the
Effective Date.
AOL SERVICE. The narrow-band U.S. version of the America Online(R) brand
service, specifically excluding (a) AOL.com or any other AOL Interactive Site,
(b) the international versions of the AOL Service (e.g., AOL Japan), (c)
"Driveway," "AOL NetFind(TM)," "AOL Instant Messenger(TM)" or any similar
product or service offered by or through the U.S. version of the America
Online(R) brand service, (d) any programming or content area offered by or
through the U.S. version of the America Online(R) brand service over which AOL
does not exercise complete or substantially complete operational control (e.g.,
Content areas owned, maintained or controlled by AOL Studios or other AOL
affiliates, "Digital Cities(TM)," "WorldPlay(TM)," "Entertainment Asylum(TM),"
the "Hub(TM)," or any similar "sub-service," third-party Content areas, and any
Interactive Site containing "members.aol.com" as part of its URL), (e) any
yellow pages, white pages, classifieds or other search, directory, or review
services or Content offered by or through the U.S. version of the America
Online(R) brand service, (f) any version of the U.S. version of the America
Online(R) brand service distributed through any broadband distribution platform
or through any platform or device other than a desktop personal computer, (g)
any co-branded or private label branded version of the America Online(R) brand
service and (h) any property, feature, product or service which AOL or its
affiliates may acquire from a third party subsequent to the Effective Date.
[*]
AOL USER. Any user of the AOL Service or AOL.com.
AOL.COM. AOL's Internet-based Interactive Site to which AOL Members are pointed
as the default access point from the AOL Service to the principal AOL controlled
aggregation of content and navigation services outside the AOL Service,
specifically excluding (a) the AOL Service, (b) any international versions of
AOL.com, (c) "Driveway," "AOL NetFind(TM)," "AOL Instant Messenger(TM)" or
any similar product or service offered by or through such site or any other AOL
Interactive Site, (d) any programming or content area offered by or through such
site or any other AOL Interactive Site over which AOL does not exercise complete
or substantially complete operational control (e.g., Content areas owned,
maintained or controlled by AOL Studios or other AOL affiliates, "Digital
Cities(TM)," "WorldPlay(TM)," "Entertainment Asylum(TM)," the "Hub(TM)," or any
similar "sub-service," third-party Content areas, and any Interactive Site
containing "members.aol.com" as part of its URL), (e) any yellow pages, white
pages, classifieds or other search or directory services offered by or through
such site or any other AOL Interactive Site, (f) any version of such site
distributed through any broadband distribution platform or through any platform
or device other than a desktop personal computer, (g) any co-branded or private
label branded version of such site, and (h) any property, feature, product or
service which AOL or its affiliates may acquire from a third party subsequent to
the Effective Date.
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AUCTION FORMAT. A format whereby products are sold through the bidding by one
or more individuals or entities on a product or group of products, and the
price of such product or group of products is determined by the price paid by
the highest bidder.
CHANGE OF CONTROL. (a) The consummation of a reorganization, merger or
consolidation or sale or other disposition of substantially all of the assets
of a party; or (b) the acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended) of beneficial ownership (within the meaning of Rule 13d-3
promulgated under such Act) of more than 50% of either (i) the then
outstanding shares of common stock of such party; or (ii) the combined voting
power of the then outstanding voting securities of such party entitled to vote
generally in the election of directors.
CONFIDENTIAL INFORMATION. Any information relating to or disclosed in the
course of the Agreement, which is or should be reasonably understood to be
confidential or proprietary to the disclosing Party, including, but not limited
to, the material terms of this Agreement, information about AOL Members, AOL
Users, AOL Purchasers and MP customers, technical processes and formulas,
source codes, product designs, sales, cost and other unpublished financial
information, product and business plans, projections, and marketing data.
"Confidential Information" will not include information (a) already lawfully
known to or independently developed by the receiving Party, (b) disclosed in
published materials, (c) generally known to the public, or (d) lawfully
obtained from any third party.
CONTENT. Information, materials, features, products, advertisements,
promotions, links, pointers and software, including any modifications,
upgrades, updates, enhancements and related documentation.
FINANCING EVENT. Either (a) the receipt of equity funding of at least Seven
Million Dollars (US $7,000,000) by MP from a private investor or group of
investors or (b) the receipt of equity funding by MP as a result of the
initial public offering of securities of MP pursuant to an effective
registration statement under the Securities Act of 1933, as amended.
GROSS MARGINS. The sum total of Gross Transaction Margins and Advertising
Revenues derived pursuant to this Agreement.
GROSS TRANSACTION MARGINS. Aggregate amounts paid by AOL Purchasers in
connection with the sale, licensing, distribution or provision of any MP
Products, but excluding, in each case, the price paid to suppliers for the
products and/or services sold, credit card charges, credits and chargebacks for
returned or canceled goods or services, refunds, handling and shipping charges
(to the extent such charges are competitive) and amounts collected for sales or
use taxes or duties.
IMPRESSION. User exposure to the page containing the applicable Promotion as
set forth in Exhibit A, which links to the Affiliated MP Site, as such exposure
may be reasonably determined and measured by AOL in accordance with its
standard methodologies and protocols.
INTERACTIVE SERVICE. Any entity that offers online or Internet connectivity (or
any successor form of connectivity), aggregates and/or distributes a broad
selection of third-party interactive Content, or provides interactive
navigational services (including, without limitation, any online service
providers, Internet service providers, WebTV, @Home or other broadband
providers, search or directory providers, "push" product providers such as the
Pointcast Network or providers of interactive navigational environments such as
Microsoft's proposed "Active Desktop").
INTERACTIVE SITE. Any interactive site or area, including, by way of example
and without limitation, (i) an MP site on the World Wide Web portion of the
Internet or (ii) a channel or area delivered through a "push" product such as
the Pointcast Network or interactive environment such as Microsoft's proposed
"Active Desktop."
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LICENSED CONTENT. All Content offered through the Affiliated MP Site pursuant
to this Agreement or otherwise provided to AOL by MP for related purposes
(e.g., Promotions, AOL "slide shows", etc.), including in each case, any
modifications, upgrades, updates, enhancements, and related documentation.
MATERIAL ADVERSE EFFECT. A reduction of at least fifteen percent (15%) in
revenues from the sale of MP Products in comparison to the immediately
preceding two (2) months in sales of the MP Products; provided that the fifteen
percent (15%) reduction in revenues shall not be due to seasonal fluctuations
in sales of the MP Products as determined by a review of general sales patterns
in MP's industry or a review of MP's historical sales patterns with respect to
the MP Products.
MP INTERACTIVE SITE. Any Interactive Site (other than the Affiliated MP Site)
which is managed, maintained, owned or controlled by MP or its agents.
MP PRODUCT. Any product, good or service which MP (or others acting on its
behalf or as distributors) offers, sells, provides, distributes or licenses to
AOL Users directly or indirectly through (i) the Affiliated MP Site (including
through any Interactive Site linked thereto) and which fall in the categories
of products listed on Exhibit D to the Agreement, (ii) any other online means
related to an AOL User's visit to the MP Affiliated Site (e.g., e-mail offers
following user registration), or (iii) an "offline" means (e.g., toll-free
number) for receiving orders related to specific offers within the Affiliated
MP Site requiring purchasers to reference a specific promotional identifier or
tracking code, including, without limitation, products sold through surcharged
downloads (to the extent expressly permitted hereunder).
MUTUAL REVIEW DATE. Eighteen (18) months from the Effective Date.
[*]
RETAIL CLUB. Either (a) a business which sells a collection of goods, services
or products and derives a substantial portion of its revenues from subscription
fees paid by its members in order to gain access to such goods, services or
products (e.g.: CUC International), or (b) a business which initially offers
goods or services to its members at a steep discount in return for a
contractual commitment from such members to purchase a certain number of
goods or services at some future date (e.g.: Columbia Record Club or BMG Music
Club).
RUN OF SERVICE. Random, service-wide, non-placement specific advertising
placements.
SOFTWARE PRODUCTS. Compiled object code applications written in a clearly
defined programming language (e.g. word processing applications computer games,
tax programs, financial calculation applications and educational programs)
which are commercially sold to consumers through a retail store (online or
offline), or outlet.
THRESHOLD. Gross Margins generated by MP hereunder equal to Twenty One Million
Dollars (US $21,000,000) plus the Restricted Product Revenue Share amounts
generated pursuant to Section 3.3 of the Agreement.
TRANSACTION REVENUES. Aggregate amounts paid by AOL Purchasers in connection
with the sale, licensing, distribution or provision of any MP Products.
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EXHIBIT C
MP CROSS-PROMOTION
Online
To the extent that MP, provides a promotional banner, button, link or other
promotional presence (a "Promotional Presence") to any other Interactive
Service in an MP Interactive Site, MP shall offer a Promotional Presence to AOL
in such MP Interactive Site linking to such areas of the AOL Network as
determined by AOL and to the extent that MP provides promotional information
about the products of any other Interactive Service, MP shall offer to AOL a
prominent "Try AOL" feature where users can obtain promotional information
about AOL products and services and, at AOL's option, download or order AOL's
then-current version of client software for the AOL Service or software for
any other AOL products or services (e.g., AOL's Instant Messenger service) on
terms and conditions (including, without limitation, scope, purpose, amount,
prominence or regularity) that are no less favorable than the terms and
conditions provided to such other Interactive Service(1). MP shall make the
foregoing offers to AOL within fifteen (15) days of providing a Promotional
Presence to any other Interactive Service. To the extent that MP shall undertake
any of the foregoing promotions with respect to AOL, MP shall also promote AOL
as its preferred Interactive Service with respect to such MP Interactive Site.
Notwithstanding the foregoing, in the event that MP shall design and create a
customized MP Interactive Site which is not generally available to AOL Users,
MP shall not be required to undertake the foregoing promotional obligations
with respect to AOL.
Offline
In MP's televisions, radio and print advertisements and in any publications,
programs, features or other forms of media over which MP exercises at least
partial editorial control, MP shall use commercially reasonable efforts to
include the following:
o Specific reference or mentions (verbally where possible) of the Affiliated
MP Site's availability through America Online(R) prior to, and at least as
prominent as, any reference to any MP Interactive Site; and
o For instance, listing of the "URL(s)" the MP Interactive Site will be
accompanied by the AOL "keyword" for the Affiliated MP Site.
Member Acquisition Programs
The Parties shall negotiate, in good faith, various AOL member acquisition
programs, including without limitation, the bundling of AOL software with
products shipped by MP to existing MP customers who are not AOL Members(2).
- ------------
(1) AOL will pay MP a one-time standard bounty for each person who registers
for the AOL Network using MP's special identifier for this promotion and
subsequently pays AOL monthly usage fees across at least three billing cycles
for the use of the AOL Network. Note that if this promotion is delivered
through Microsoft's Active Desktop or any other "push" product (an "Operating
System"), such feature will link users directly to AOL software within the
Operating System or direct users without Internet access to an AOL application
setup program within the Operating System (all subject to any standard policies
of the Operating System).
(2) AOL will pay MP a one-time standard bounty for each person who registers
for the AOL Network using MP's special identifier for this promotion and
subsequently pays AOL monthly usage fees across at least three billing cycles
for the use of the AOL Network.
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EXHIBIT D
DESCRIPTION OF MP PRODUCTS AND OTHER CONTENT
Description of MP Products and Other Content
Software.net resells approximately 30,000 software titles from more than 1,000
vendors. The product offerings span a broad cross-section of software and
content. This software and content supports a variety of operating systems,
including Microsoft, Microsoft DOS, Macintosh and UNIX, Products are delivered
via ESD (electronic software download) technology and/or via traditional boxes.
Categories include:
Accounting Software
Back-up Software
CAD Software
Clip Art, Symbol & Image Libraries
Communications Software
Database Software
Desktop Publishing Software
Diagnostic Software
E-Mail, Groupware & Video Conference Software
Education & Edutainment Software
Fax, OCR & Document Imaging Software
File Conversion & File Transfer Software
Font Software
Forms Generator, Designer & Filler Software
Games & Entertainment Software
General Business Software
General Utility Software
Graphics & Presentation Graphics Software
Internet Software
Memory Manager Software
Menu Software & Desktop Organizers
Multimedia Software
Network Management & Utility Software
News & Business Information
Operating System Software
Plug-ins
Printer Utility Software
Programming Languages & Utilities
Project & Time Management Software
Reference & Information Software
Reusable Software Components
Screen Saver Software
Security Software
Statistics Software
Suites & Integrated Software Packages
Tax Software
Termination Emulation Software
Virus Detection Software
Voice Recognition Software
Word Processor Software
Try-Before-You Buy Demo
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Major software vendors include:
Microsoft
Lotus/IBM
Adobe
Symantec
Apple Computer
Netscape
Qualcomm
Intuit
MacAfee
Non-content information
Product descriptions
Third party product reviews
Marketing collateral
Merchandising
Support Directory and Resources
Product Forum
Product Ratings
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EXHIBIT D-1
ANCILLARY PRODUCT CATEGORIES
a. Documentation, manuals, instructional and training materials (e.g.,
videotapes, CD-ROM'S, DVD'S, and user guides),
b. Add-on and upgrade products (e.g., templates, fonts, clip art).
c. Consumable items (special stationery or other special paper).
d. Peripheral hardware equipment required for the correct operation of
software (e.g., dongles, microphones and cables) and other hardware
products packed with and essential to the use of software products.
The foregoing list may be modified by MP from time to time, as mutually agreed
upon by AOL and MP.
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EXHIBIT E
OPERATING STANDARDS
1. General. The Affiliated MP Site (including the MP Products and other
Content contained therein) will be in the top ten (10) in the computer software
industry, as determined by each of the following methods: (a) based on a
cross-section of third-party reviewers who are recognized authorities in such
industry and (b) with respect to all material quality averages or standards in
such industry including each of the following: (i) pricing of MP Products, (ii)
scope and selection of MP Products, (iii) quality of MP Products, (iv) customer
service and fulfillment associated with the marketing and sale of MP Products
and (v) ease of use. In addition, the Affiliated MP Site will, with respect to
each of the measures listed above, be generally competitive in all material
respects with that which is offered by any MP Competitors. In the event that MP
disagrees with AOL's determination with respect to the foregoing, the Parties
shall submit the matter to the Management Committee as provided in Section 7 of
the body of the Agreement.
2. Hosting; Capacity. MP will provide all computer servers, routers,
switches and associated hardware in an amount reasonably necessary to meet
anticipated traffic demands, adequate power supply (including generator
back-up) and HVAC, adequate insurance, adequate service contracts and all
necessary equipment racks, floor space, network cabling and power distribution
to support the Affiliated MP Site.
3. Speed; Accessibility. MP will ensure that the performance and
availability of the Affiliated MP Site (a) is monitored on a continuous, 24/7
basis and (b) remains competitive in all material respects with the performance
and availability of other similar sites based on similar form technology.
4. User Interface. MP will maintain a graphical user interface within the
Affiliated MP Site that is competitive in all material respects with interfaces
of other similar sites based on similar technology. AOL reserves the right to
conduct focus group testing to assess compliance herewith.
5. Service Level Response. MP agrees to provide the following service levels
in response to problems with or improvements to the Affiliated MP Site.
o For material functions of software that are or have become substantially
inoperable, MP will provided a bug fix or workaround within two (2)
business days after the first report of such error.
o For functions of the software that are impaired or otherwise fail to
operate in accordance with agreed upon specifications, MP will provide a
bug fix or workaround within three (3) business days after the first report
of such error.
o For errors disabling only certain non-essential functions, MP will provide
a bug fix or workaround within sixty (60) days after the first report of
such error.
o For all other errors, MP will address these results on a case-by-case basis
as soon as reasonably feasible.
6. Monitoring. AOL Network Operations Center will work with a MP-designated
technical contact in the event of any performance malfunction or other
emergency related to the Affiliated MP Site and will either assist or work in
parallel with MP's contact using MP tools and procedures, as applicable. The
Parties will develop a process to monitor performance and member behavior with
respect to access, capacity, security and related issues both during normal
operations and during special promotion/events.
7. Telecommunications. The Parties agree to explore encryption methodology
to secure data communications between the Parties' data centers. The network
between the Parties will be configured such that no single component failure
will significantly impact AOL Users. The network will be sized such that no
single line runs at more than 70% average utilization for a 5-minute peak in a
daily period.
8. Security Review. MP and AOL will work together to perform an initial
security review of, and to perform tests of the MP system, network, and service
security in order to evaluates the security risks and provides recommendations
to MP, including periodic follow-up reviews as reasonably required by MP or
AOL. MP will fix any security risks or breaches of security as may be
identified by AOL's Operations Security. Specific services to be performed on
behalf of AOL's Operations Security team will be as determined by AOL in its
sole discretion.
9. Technical Performance. MP will perform the following technical
obligations (and any updates thereto provided by AOL from time to time):
o MP will design the Affiliated MP Site to support the Windows version of the
Microsoft Internet Explorer 4.0 browser, and make commercially reasonable
efforts to support all other AOL browsers listed at:
"http://webmaster.info.aol.com/BrowTable.html."
o MP will configure the server from which it serves the site to examine the
HTTP User-Agent filed in order to identify the "AOL Member-Agents" listed
at "http://webmaster.info.aol.com/Brow2Text.html."
o MP will design its site to support HTTP 1.0 or later protocol as defined in
RFC 1945 (available at "http://ds.intemic.net/rfc/rfc1945.text" and to
adhere to
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AOL's parameters for refreshing cached information listed at
"http://webmaster.info.aol.com/CacheText.html."
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EXHIBIT F
STANDARD ONLINE COMMERCE TERMS & CONDITIONS
1. AOL NETWORK DISTRIBUTION. MP will not authorize or permit any third party
to distribute or promise the MP Products or any MP interactive Site through the
AOL Network absent AOL's prior written approval. The Promotions and any other
promotion or advertisement purchased from or provided by AOL will link only to
the Affiliated MP Site.
2. PROVISION OF OTHER CONTENT. In the event that AOL notifies MP that (i) as
reasonably determined by AOL, any Content within the Affiliated MP Site
violates AOL's then-standard Terms of Service (as set forth on the America
Online(R) brand service), the terms of this Agreement or any other standard,
written AOL policy or (ii) AOL reasonably objects to the inclusion of any
Content within the Affiliated MP Site (other than any specific items of Content
which may be expressly identified in this Agreement), then MP will take
commercially reasonable steps to block access by AOL Users to such Content
using MP's then-available technology. In the event that MP cannot, through its
commercially reasonable efforts, block access by AOL Users to the Content in
question, then MP will provide AOL prompt written notice of such fact. AOL may
then, at its option, restrict access from the AOL Network to the Content in
question using technology available to AOL. MP will cooperate with AOL's
reasonable requests to the extent AOL elects to implement any such access
restrictions.
3. CONTESTS. MP will take all steps necessary to ensure that any contest,
sweepstakes or similar promotion conducted or promoted through the Affiliated
MP Site (a "Contest") complies with all applicable federal, state and local
laws and regulations.
4. NAVIGATIONAL ICONS. Subject to the prior consent of MP, which consent will
not be unreasonably withheld, AOL will be entitled to establish navigational
icons, links and pointers connecting the Affiliated MP Site (or portions
thereof) with other content areas on or outside of the AOL Network.
5. DISCLAIMERS. Upon AOL's request, MP agrees to include within the
Affiliated MP Site a product disclaimer (the specific form and substance to be
mutually agreed upon by the Parties) indicating that transactions are solely
between MP and AOL Users purchasing MP Products from MP.
6. AOL LOOK AND FEEL. MP acknowledges and agrees that AOL will own all
right, title and interest in and to the elements of graphics, design,
organization, presentation, layout, user interface, navigation and stylistic
convention (including the digital implementations thereof) which are generally
associated with online areas contained within the AOL Network ("the AOL Look
and Feel"), subject to MP's ownership rights in any MP trademarks, service
marks, tradenames or copyrighted material within the Affiliated MP Site and
subject to MP's ownership rights to patents and technology trade secrets and
know-how.
7. MANAGEMENT OF THE AFFILIATED MP SITE. MP will manage, review, delete,
edit, create, update and otherwise manage all MP Products available on or
through the Affiliated MP Site, in a timely and professional manner and in
accordance with the terms of this Agreement. MP will ensure that each
Affiliated MP Site is current, accurate and well-organized at all times. MP
warrants that the MP Products, any other Content contained therein and any
technology used by MP in connection with the delivery of the MP Products: (i)
will not infringe on or violate any copyright, trademark, U.S. patent or any
other third party right, including without limitation, any music performance or
other music-related rights; (ii) will not violate AOL's then-applicable Terms
of Service; and (iii) will not violate any applicable law or regulation,
including those relating to contests, sweepstakes or similar promotions.
Additionally, MP represents and warrants that it owns or has a valid license to
all rights to any Licensed Content used in AOL "slide show" or other formats
embodying elements such as graphics, animation and sound, free and clear of all
encumbrances and without violating the right of any other person or entity. MP
also warrants that a reasonable basis exists for all MP Product performance or
comparison claims appearing through the Affiliated MP Site. AOL will have no
obligations with respect to the MP Products available on or through the
Affiliated MP Site, including, but not limited to, any duty to review or
monitor any such MP Products.
8. DUTY TO INFORM. MP will promptly inform AOL of any information related to
the MP Products or Affiliated MP Site which could reasonably lead to a claim,
demand, or liability of or against AOL and/or its affiliates by any third party.
9. CUSTOMER SERVICE. It is the sole responsibility of MP to provide customer
service to persons or entities purchasing MP Products through the AOL Network
("Customers"). AOL will have no obligations whatsoever with respect to customer
service in connection with the sale of MP Products, including without
limitation, order processing, billing, fulfillment, shipment, collection and
other customer service associated with any MP Products
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offered, sold or licensed through the Affiliated MP Site. MP will receive all
e-mails from Customers via a computer available to MP's customer service staff
and generally respond to such e-mails within one business day of receipt. MP
will receive all orders electronically and generally process all orders within
one business day of receipt, provided MP Products ordered are not advance order
items. MP will ensure that all orders of MP Products are received, processed,
fulfilled and delivered on a timely and professional basis. MP will offer AOL
Users who purchase MP Products through such Affiliated MP Site a thirty (30)
day money back satisfaction guarantee with respect to the delivery process
associated with the purchase of the MP Products and any representations in
connection therewith. Additionally, to the extent that the manufacturer of any
MP Product offers a money back guarantee with respect to such MP Product, MP
shall ensure that such money back guarantee is passed on to AOL Users who
purchase MP Products. MP will bear all responsibility for compliance with
federal, state and local laws in the event that MP Products are out of stock or
are no longer available at the time an order is received. MP will also comply
with the requirements of any federal, state or local consumer protection or
disclosure law. Payment for MP Products will be collected by MP directly from
customers. MP's order fulfillment operation will be subject to AOL's reasonable
review.
10. Production Work. In the event that MP requests AOL's production assistance
in connection with (i) ongoing programming and maintenance related to the
Affiliated MP Site, (ii) a redesign of or addition to the Affiliated MP Site
(e.g., a change to an existing screen format or construction of a new custom
form), (iii) production to modify work performed by a third party provider or
(iv) any other type of production work, MP will work with AOL to develop a
detailed production plan for the requested production assistance (the
"Production Plan"). Following receipt of the final Production Plan, AOL will
notify MP of (i) AOL's availability to perform the requested production work,
(ii) the proposed fee or fee structure for the requested production and
maintenance work and (iii) the estimated development schedule for such work. To
the extent the Parties reach agreement regarding implementation of agreed-upon
Production Plan, such agreement will be reflected in a separate work order
signed by the Parties. To the extent MP elects to retain a third party provider
to perform any such production work, work produced by such third party provider
must generally conform to AOL's production Standards & Practices (a copy of
which will be supplied by AOL to MP upon request). The specific production
resources which AOL allocates to any production work to be performed on behalf
of MP will be as determined by AOL in its sole discretion.
11. Overhead Accounts. To the extent AOL has granted MP any overhead accounts
on the AOL service, MP will be responsible for the actions taken under or
through its overhead accounts, which actions are subject to AOL's applicable
Terms of Service and for any surcharges, including, without limitation, all
premium charges, transaction charges, and any applicable communication
surcharges incurred by any overhead Account issued to MP, but MP will not be
liable for charges incurred by any overhead account relating to AOL's standard
monthly usage fees and standard hourly charges, which charges AOL will bear.
Upon the termination of this Agreement, all overhead accounts, related
screennames and any associated usage credits or similar rights, will
automatically terminate. AOL will have no liability for loss of any data or
content related to the proper termination of any overhead account.
12. AOL User Communications. To the extent MP sends any form of communications
to AOL Users, MP will promote the Affiliated MP Site as the location at which to
purchase Products (as compared to any more general or other site or
location). In addition, MP will not encourage AOL Users to take any action
inconsistent with the scope and purpose of this Agreement, including without
limitation, the following actions: (a) using Content other than the Licensed
Content; (b) bookmarking of interactive Sites other than the Affiliated MP
Site; (c) using interactive Sites other than those covered by the
revenue-sharing provisions herein; (d) changing the default home page on the
AOL browser; or (e) using any interactive Service other than AOL.
13. Merchant Certification Program. MP will participate in any generally
applicable "Certified Merchant" program operated by AOL or its authorized
agents or contractors. Such program may require merchant participants on an
ongoing basis to meet certain reasonable standards relating to provision of
electronic commerce through the AOL Network (including, as a minimum, use of
40-bit SSL encryption and if requested by AOL, 128-bit encryption) and may
also require the payment of certain reasonable certification fees to the
applicable entity operating the program. Each Certified Merchant in good
standing will be entitled to place on its affiliated Interactive Site an AOL
designed and approved button promoting the merchant's status as an AOL
Certified Merchant.
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EXHIBIT G
STANDARD LEGAL TERMS & CONDITIONS
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1. Promotional Materials/Press Releases. Each Party will submit to the other
Party, for its prior written approval, which will not be unreasonably withheld
or delayed, any marketing, advertising, press releases, and all other
promotional materials related to the Affiliated MP Site and/or referencing (the
other Party and/or its trade names, trademarks, and service marks the
"Materials"); provided, however, that either Party's use of screen shots of the
Affiliated MP Site for promotional purposes will not require the approval of
the other Party so long as America Online(R) is clearly identified as the
sources of such screen shots. Each Party will solicit and reasonably consider
the views of the other Party in designing and implementing such Materials. Once
approved, the Materials may be used by a Party and its affiliates for the
purpose of promoting the Affiliated MP Site and the content contained therein
and reused for such purpose until such approval is withdrawn with reasonable
prior notice. In the event such approval is withdrawn, existing inventories of
Materials may be depleted. Notwithstanding the foregoing, either Party may
issue press releases and other disclosures as required by law or as reasonably
advised by legal counsel without the consent of the other Party and in such
event, prompt notice thereof will be provided to the other Party.
2. License. MP hereby grants AOL a non-exclusive worldwide license to market,
license, distribute, reproduce, display, perform, transmit and promote the
Licensed Content, or any portion thereof, (excluding any products contained
therein) through such areas or features of the AOL Network as AOL deems
appropriate. MP acknowledges and agrees that the foregoing license permits AOL
to distribute portions of the Licensed Content in synchronism or timed relation
with visual materials prepared by MP or AOL (e.g., as part of an AOL "slide
show"). In addition, AOL Users will have the right to access and use the
Affiliated MP Site.
3. Trademark License. In designing and implementing the Materials and subject
to the other provisions contained herein, MP will be entitled to use the
following trade names, trademarks, and service marks and AOL: the "America
Online)(R) brand service, "AOL(TM)" service/software and AOL's triangle logo;
and AOL and its affiliates will be entitled to use the trade names,
trademarks, and service marks of MP (collectively, together with the AOL marks
listed above, the "Marks"); provided that each Party: (i) does not create a
unitary composite mark involving a Mark of the other Party without the prior
written approval of such other Party; and (ii) displays symbols and notices
clearly and sufficiently indicating the trademark status and ownership of the
other Party's Marks in accordance with applicable trademark law and practice.
4. Ownership of Trademarks. Each Party acknowledges the ownership of the
other Party in the Marks of the other Party and agrees that all use of the
other Party's Marks will inure to the benefit, and be on behalf, of the other
Party. Each Party acknowledges that its utilization of the other Party's Marks
will not create in it, nor will it represent it has, any right, title, or
interest in or to such Marks other than the license expressly granted herein.
Each Party agrees not to do anything contesting or impairing the trademark
rights of the other Party.
5. Quality Standards. Each Party agrees that the nature and quality of its
products and services supplied in connection with the other Party's Marks will
conform to quality standards set by the other Party. Each Party agrees to
supply the other Party, upon request, with a reasonable number of samples of
any Materials publicly disseminated by such Party which utilize the other
Party's Marks. Each Party will comply with all applicable laws, regulations,
and customs and obtain any required government approvals pertaining to use of
the other Party's marks.
6. Infringement Proceedings. Each Party agrees to promptly notify the other
Party of any unauthorized use of the other Party's Marks of which it has actual
knowledge. Each Party will have the sole right and discretion to bring
proceedings alleging infringement of its Marks or unfair competition related
thereto; provided, however, that each Party agrees to provide the other Party
with its reasonable cooperation and assistance with respect to any such
infringement proceedings.
7. Representations and Warranties. Each Party represents and warrants to the
other Party that: (i) such Party has the full corporate right, power and
authority to enter into this Agreement and to perform the acts required of it
hereunder; (ii) the execution of this Agreement by such Party, and the
performance by such Party of its obligations and duties hereunder, do not and
will not violate any agreements to which such Party is a party or by which it
is otherwise bound, and that such Party is not currently a party to any
agreement which would prevent it from performing its obligations under this
Agreement or which would nullify the exclusively obligations of Section 3.1
hereof; (iii) when executed and delivered by such Party, this Agreement will
constitute the legal, valid and binding obligation of such Party, enforceable
against such Party in accordance with its terms; and (iv) such Party
acknowledges that the other Party makes no representations, warranties or
agreements related to the subject matter hereof that are not expressly provided
for in this Agreement. MP hereby represents and warrants that it possesses all
authorizations, approvals, consents, licenses, permits, certificates or other
rights and permissions necessary to sell the MP Products, and the MP Products
shall be free from all bugs, viruses or other similar
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impairments.
8. Confidentiality. Each Party acknowledges that Confidential Information
may be disclosed to the other Party during the course of this Agreement. Each
Party agrees that it will take reasonable steps, at least substantially
equivalent to the steps it takes to protect its own proprietary information,
during the term of this Agreement, and for a period of three years following
expiration or termination of this Agreement, to prevent the duplication or
disclosure of Confidential Information of the other Party, other than by or to
its employees or agents who must have access to such Confidential Information
to perform such Party's obligations hereunder, who will each agree to comply
with this section. Notwithstanding the foregoing, either Party may issue a
press release or other disclosure containing Confidential Information without
the consent of the other Party, to the extent such disclosure is required by
law, rule, regulation or government or court order. In such event, the
disclosing Party will provide at least five (5) business days prior written
notice of such proposed disclosure to the other Party. Further, in the event
such disclosure is required of either Party under the laws, rules or
regulations of the Securities and Exchange Commission or any other applicable
governing body, such Party will (i) redact mutually agreed-upon portions of
this Agreement to the fullest extent permitted under applicable laws, rules and
regulations and (ii) submit a request to such governing body that such portions
and other provisions of this Agreement receive confidential treatment under the
laws, rules and regulations of the Securities and Exchange Commission or
otherwise be held in the strictest confidence to the fullest extent permitted
under the laws, rules or regulations of any other applicable governing body.
9. Limitation of Liability; Disclaimer; Indemnification.
Liability. UNDER NO CIRCUMSTANCES WILL EITHER PARTY BE LIABLE TO THE
OTHER PARTY FOR INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL OR EXEMPLARY
DAMAGES (EVEN IF THAT PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES), ARISING FROM BREACH OF THE AGREEMENT, THE SALE OF MP PRODUCTS, THE
FRAUDULENT PURCHASE OF MP PRODUCTS, THE USE OR INABILITY TO USE THE AOL NETWORK,
THE AOL SERVICE, AOL.COM OR THE AFFILIATED MP SITE, OR ARISING FROM ANY OTHER
PROVISION OF THIS AGREEMENT, SUCH AS, BUT NOT LIMITED TO, LOSS OF REVENUE OR
ANTICIPATED PROFITS OR LOST BUSINESS ("COLLECTIVELY, "DISCLAIMED DAMAGES");
PROVIDED THAT EACH PARTY WILL REMAIN LIABLE TO THE OTHER PARTY TO THE EXTENT ANY
DISCLAIMED DAMAGES ARE CLAIMED BY A THIRD PARTY AND ARE SUBJECT TO
INDEMNIFICATION PURSUANT TO SECTION 9.2. EXCEPT AS PROVIDED IN SECTION 9.2,
NEITHER PARTY WILL BE LIABLE TO THE OTHER PARTY FOR MORE THAN [*] PROVIDED THAT
EACH PARTY WILL REMAIN LIABLE FOR THE AGGREGATE AMOUNT OF ANY PAYMENT
OBLIGATIONS OWED TO THE OTHER PARTY PURSUANT TO SECTION 4.
9.1 No Additional Warranties. EXCEPT AS EXPRESSLY SET FORTH IN THIS
AGREEMENT, NEITHER PARTY MAKES ANY, AND EACH PARTY HEREBY SPECIFICALLY
DISCLAIMS ANY REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, REGARDING THE
AOL NETWORK, THE AOL SERVICE, AOL.COM, THE AFFILIATED MP SITE, ANY MP
INTERACTIVE SITE OR THE MP PRODUCTS INCLUDING ANY IMPLIED WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE AND IMPLIED WARRANTIES
ARISING FROM COURSE OF DEALING OR COURSE OF PERFORMANCE. WITHOUT LIMITING THE
GENERALITY OF THE FOREGOING, AOL SPECIFICALLY DISCLAIMS ANY WARRANTY REGARDING
THE PROFITABILITY OF THE AFFILIATED MP SITE.
9.2 Indemnity. Except as limited above, either Party will defend, indemnify,
save and hold harmless the other Party and the officers, directors, agents,
affiliates, distributors, franchisees and employees of the other Party from any
and all third party claims, demands, liabilities, costs or expenses, including
reasonable attorneys' fees ("Liabilities"), resulting from the indemnifying
Party's material breach of any duty, representation, or warranty of this
Agreement, except where Liabilities result from the gross negligence or knowing
and willful misconduct of the other Party.
9.3 Claims. Each Party agrees to (i) promptly notify the other Party in
writing of any indemnifiable claim and give the other Party the opportunity to
defend or negotiate a settlement of such claim at such other Party's expense,
and (ii) cooperate fully with the other Party, at that other Party's expense,
in defending or settling such claim. Each Party reserves the right, at its own
expense, to assume the exclusive defense and control of any matter otherwise
subject to indemnification by the other Party hereunder, and in such event, the
other Party will have no further obligation to provide indemnification for such
matter hereunder.
9.4 Acknowledgment. AOL and MP each acknowledges that the provisions of this
Agreement were negotiated to reflect an informed, voluntary allocation between
them of all risks (both known and unknown) associated with the transactions
contemplated hereunder. The limitations and disclaimers related to warranties
and
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liability contained in this Agreement are intended to limit the circumstances
and extent of liability. The provisions of this Section 9 will be enforceable
independent of and severable from any other enforceable or unenforceable
provision of this Agreement.
10 Solicitation of AOL Users. During the terms of this Agreement, and for the
two-year period following the expiration or termination of this Agreement,
neither MP nor its agents will use the AOL Network to (i) solicit, or
participate in the solicitation of AOL Users when that solicitation is for the
benefit of any entity which could reasonably be construed to be or become in
competition with AOL (other than with respect to the MP Products and the
Ancillary Products) or (ii) promote any services which could reasonably be
construed to be in competition with AOL including, but not limited to, services
available through the Internet. In addition, MP may not send AOL Users e-mail
communications promoting MP's Products through the AOL Network without a "Prior
Business Relationship." For purposes of this Agreement, a "Prior Business
Relationship" will mean that the AOL User has either (i) engaged in a
transaction with MP through the AOL Network or (ii) voluntarily provided
information to MP through a contest, registration, or other communication, which
included notice to the AOL User that the information provided by the AOL User
could result in an e-mail being sent to that AOL User by MP or its agents. A
Prior Business Relationship does not exist by virtue of an AOL User's visit to
an Affiliated MP Site (absent the elements above). More generally, MP will be
subject to any standard policies regarding e-mail distribution through the AOL
Network which AOL may implement.
11 Collection of User Information. MP is prohibited from collecting AOL Member
screennames or Prior Business Relationship e-mail addresses from public or
private areas of the AOL Network, except as specifically provided below. MP will
ensure that any survey, questionnaire or other means of collecting AOL Member
screennames or other AOL User e-mail addresses, names, addresses or other
identifying information ("User Information"), including, without limitation,
requests directed to specific AOL Member screennames or AOL User e-mail
addresses and automated methods of collecting such information (an "Information
Request") complies with (i) all applicable laws and regulations and (ii) any
privacy policies which have been issued by AOL in writing during the Term (the
"AOL Privacy Policies"). Each Information Request will clearly and conspicuously
specify to the AOL Users at issue the purpose for which User Information
collected through the Information Request will be used (the "Specified
Purpose").
12 Use of User Information. MP will restrict use of the User Information
collected through an Information Request to the Specified Purpose. In no event
will MP (i) provide User Information to any third party except to the extent
specifically (a) permitted under the AOL Privacy Policies or (b) authorized by
the members in questions), (ii) rent, sell or barter User Information in a
manner that identifies AOL Users as end-users of the AOL Service, AOL.com or the
AOL Network or (iv) otherwise use any User Information in contravention of
Section 10 above. Notwithstanding the foregoing, MP may disclose User
Information to its publishers and vendors for (a) registration purposes and (b)
in connection with specific fraud prevention measures, and in the case of AOL
Members who purchase MP Products from MP, MP will be entitled to use User
Information from such AOL Members as part of MP's aggregate list of Customers;
provided that MP's use does not in any way identify, promote or otherwise
disclose such User Information in a manner that identifies such AOL Members as
end-users of the AOL Service, AOL.com or the AOL Network. In addition, MP will
not use any User Information for any purpose (including any Specified Purpose)
not directly related to the business purpose of the Affiliated MP Site.
13 Excuse. Neither Party will be liable for, or be considered in breach of or
default under this Agreement on account of, any delay or failure to perform as
required by this Agreement as a result of any causes or conditions which are
beyond such Party's reasonable control and which such Party is unable to
overcome by the exercise of reasonable diligence.
14 Independent Contractors. The Parties to this Agreement are independent
contractors. Neither Party is an agent, representative or partner of the other
Party. Neither Party will have any right, power or authority to enter into any
agreement for or on behalf of, or incur any obligation or liability of, or to
otherwise bind, the Other Party. This Agreement will not be interpreted or
construed to create an association, agency, joint venture or partnership between
the Parties or to impose any liability attributable to such a relationship upon
either Party.
15 Notice. Any notice, approval, request, authorization, direction or other
communication under this Agreement will be given in writing and will be deemed
to have been delivered and given for all purposes on the delivery date if
delivered by electronic mail on the AOL Network to screenname
"[email protected]" or (i) on the delivery date if delivered personally to the
Party to whom the same is directed; (ii) one business day after deposit with a
commercial overnight carrier, with written verification of receipt, or (iii)
five business days after the mailing date, whether or not actually received, if
sent by U.S. mail, return receipt requested, postage and charges prepaid, or any
other means of rapid mail delivery for which a receipt is
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available, to the person(s) specified above at the address of the Party set
forth in the first paragraph of this Agreement. With respect to AOL, notice
shall be sent to the Senior Vice President of Business Affairs and the Deputy
General Counsel.
16 No Waiver. The failure of either Party to insist upon or enforce strict
performance by the other Party of any provision of this Agreement or to exercise
any right under this Agreement will not be construed as a waiver or
relinquishment to any extent of such Party's right to assert or rely upon any
such provision or right in that or any other instance; rather, the same will be
and remain in full force and effect.
17 Return of Information. Upon the expiration or termination of this
Agreement, each Party will, upon the written request of the other Party, return
or destroy (at the option of the Party receiving the request) all confidential
information, documents, manuals and other materials specified the other Party.
18 Survival. Section 4.8 of the Agreement and Sections 9 through 12 of this
Exhibit G, will survive the completion, expiration, termination or cancellation
of this Agreement.
19 Entire Agreement. This Agreement sets forth the entire agreement and
supersedes any and all prior agreements of the Parties with respect to the
transactions set forth herein. Neither Party will be bound by, and each Party
specifically objects to, any term, condition or other provision which is
different from or in addition to the provisions of this Agreement (whether or
not it would materially alter this Agreement) and which is proffered by the
other Party in any correspondence or other document, unless the Party to be
bound thereby specifically agrees to such provision in writing.
20 Amendment. No change, amendment or modification of any provision of this
Agreement will be valid unless set forth in a written instrument signed by the
Party subject to enforcement of such amendment, and in the case of AOL, by an
executive of at least the same standing to the executive who signed the
Agreement.
21 Further Assurances. Each Party will take such action (including, but not
limited to, the execution, acknowledgment and delivery of documents) as may
reasonably be requested by any other Party for the implementation or continuing
performance of this Agreement.
22 Assignment. Neither Party will assign this Agreement or any right, interest
or benefit under this Agrement without the prior written consent of the other
Party; provided that, in the event of a Party's sale, consolidation or merger,
the other Party's prior approval shall not be required. Subject to the
foregoing, this Agreement will be fully binding upon, inure to the benefit of
and be enforceable by the Parties hereto and their respective successors and
assigns.
23 Construction; Severability. In the event that any provision of this
Agreement conflicts with the law under which this Agreement is to be construed
or if any such provision is held invalid by a court with jurisdiction over the
Parties to this Agreement, (i) such provision will be deemed to be restated to
reflect as nearly as possible the original intentions of the Parties in
accordance with applicable law, and (ii) the remaining terms, provisions,
covenants and restrictions of this Agreement will remain in full force and
effect.
24 Remedies. Except where otherwise specified, the rights and remedies granted
to a Party under this Agreement are cumulative and in addition to, and not in
lieu of, any other rights or remedies which the Party may possess at law or in
equity; provided that, in connection with any dispute hereunder, MP will not be
entitled to offset any amounts that it claims to be due and payable from AOL
against amounts otherwise payable by MP to AOL.
25 Applicable Law; Jurisdiction. This Agreement will be interpreted, construed
and enforced in all respects in accordance with the laws of the Commonwealth of
Virginia except for its conflicts of laws principles. Each Party irrevocably
consents to the exclusive jurisdiction of the courts of the Commonwealth of
Virginia and the federal courts situated in the Commonwealth of Virginia, in
connection with any action to enforce the provisions of this Agreement, to
recover damages or other relief for breach or default under this Agreement, or
otherwise arising under or by reason of this Agreement.
26 Export Controls. Both Parties will adhere to all applicable laws,
regulations and rules relating to the export of technical data and will not
export or re-export any technical data, any products received from the other
Party or the direct product of such technical data to any proscribed country
listed in such applicable laws, regulations and rules unless properly
authorized.
27 Headings. The captions and headings used in this Agreement are inserted for
convenience only and will not affect the meaning or interpretation of this
Agreement.
28 Counterparts. This Agreement may be executed in counterparts, each of which
will be deemed an original and all of which together will constitute one and the
same document.
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EXHIBIT 10.12
SPONSORSHIP AGREEMENT
This agreement ("Agreement") is entered into as of the 30 day of March, 1998
("Effective Date"), by and between Excite, Inc., a California corporation,
located at 555 Broadway, Redwood City, California 94063 ("Excite"), and
CyberSource Corporation, a California corporation, located at 3031 Tisch Way,
Suite 900, San Jose, California 95128, (also known as "software.net" and
referred to herein as "Client").
RECITALS
A. Excite maintains a site on the internet at http://www.excite.com (the
"Excite Site") and owns, manages or is authorized to place advertising on
affiliated Web sites worldwide (collectively, the "Excite Network") which,
among other things, allow its users to search for and access content and
other sites on the Internet.
B. Within the Excite Site, Excite currently organizes certain content into
topical channels (the "Channels").
C. Excite also makes available to its users a number of community and
communications services, including chat and email.
D. Client is engaged in the business of the retail sale of computer software
at its Web site located at http://www.software.net (the "Client Site").
E. Client wishes to promote its business to Excite's users through promotions
and advertising in various portions of the Excite Site as set forth herein.
Therefore, the parties agree as follows:
1. SPONSORSHIP OF THE EXCITE COMPUTERS & INTERNET CHANNEL AND THE EXCITE
SHOPPING CHANNEL
a) A link to the Client Site (consistent with the format used on similar
links on the same page and as mutually determined by Client and
Excite) will be displayed on the home page of the Excite Computers &
Internet Channel in the "Today in the Computers & Internet Channel"
promotional area being developed by Excite (or in an equivalent
promotional area mutually determined by Client and Excite) when
launched, guaranteed to be displayed in at least [*] during each year
of the term of the Agreement, as mutually scheduled by the parties in
Exhibit A. Excite guarantees the display of [*] of this link in the
first year of the term of the Agreement. Excite estimates, but does
not guarantee, the display of [*] of this link in the
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CONFIDENTIAL
second year of the term of the Agreement and [*] of this link in the third
year of the term of the Agreement. For the purposes of this Agreement, an
"Impression" is any text and/or graphic link to the Client Site, any banner
advertisement linked to the Client Site, any other promotional placement
linked to the Client Site or any other hypertext link to the Client Site
served by Excite on the Excite Site, subject to the following: while the
parties acknowledge that Excite may serve multiple Impressions on a single
page, no more than three (3) different Impressions on a single page in the
areas specified by the terms of this Agreement may be counted toward
Excite's satisfaction of its Impression guarantees hereunder,
notwithstanding the total number of links, banner advertisements,
promotional placements or hypertext links that are located on such page.
b) Links to the Client Site (consistent with the format used on similar links
on the same page and as mutually determined by Client and Excite) will be
displayed on the home page of the Software department of the Excite
Computers & Internet Channel in the "Top 10 Downloads" promotional area
being developed by Excite (or in an equivalent promotional area mutually
determined by Client and Excite) when launched and for the duration of the
term of the Agreement. Excite estimates, but does not guarantee, the
display of [*] of this link in the first year of the term of the Agreement,
[*] of this link in the second year of the term of the Agreement and [*] of
this link in the third year of the term of the Agreement.
c) Links to the Client Site (consistent with the format used on similar links
on the same page and as mutually determined by Client and Excite) will be
displayed in the "Product Zone" and "Reviews" sections of the Software
department of the Excite Computers & Internet Channel in a location such
as the gray bar that appears above the fold but below the top advertising
banner (or in an equivalent promotional area mutually determined by Client
and Excite) for the duration of the term of the Agreement. A link to the
Client Site (in either a text or graphic format to be mutually determined
by Client and Excite following testing for the maximum effectiveness of
the link) will be displayed in the "Product Zone" and "Reviews" sections
of the Software department of the Excite Computers & Internet Channel in
the left-hand side of each such page for the duration of the term of the
Agreement. Excite estimates, but does not guarantee, the display of [*] of
this link in the first year of the term of the Agreement, [*] Impressions
of this link in the second year of the term of the Agreement and
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CONFIDENTIAL
[*] of this link in the third year of the term of the Agreement.
d) A link to the Client Site (consistent with the format used on similar links
on the same page and as mutually determined by Client and Excite) will be
displayed in the Software department of the Excite Computers & Internet
Channel in a "Shareware" page or promotional area being developed by Excite
(or in an equivalent promotional area mutually determined by Client and
Excite) when launched and for the duration of the term of the Agreement.
Excite estimates, but does not guarantee, the display of [*] of this link
in the first year of the term of the Agreement, [*] of this link in the
second year of the term of the Agreement and [*] Impressions of this link
in the third year of the term of the Agreement.
e) Excite will display a text and/or graphic link to the Client Site on the
"Sponsorship Strip" (consistent with the format used on similar links on
the same strip and as mutually determined by Client and Excite) in all
pages in the Software department of the Excite Computers & Internet Channel
in which the Sponsorship Strip is displayed for the term of the Agreement.
Excite may display a text and/or graphic link to the Client Site on the
Sponsorship Strip (consistent with the format used on similar links on the
same strip and as mutually determined by Client and Excite) in other pages
in the Excite Computers & Internet Channel in which the Sponsorship Strip
is displayed for the term of the Agreement as mutually determined by Client
and Excite. Excite estimates, but does not guarantee, the display of [*] of
this link in the first year of the term of the Agreement, [*] of this link
in the second year of the term of the Agreement and [*] Impressions of this
link in the third year of the term of the Agreement.
f) Links to the Client Site (consistent with the format used on similar links
on the same page and as mutually determined by Client and Excite) will be
displayed in all Software "Web Directory" pages in the Excite Computers &
Internet Channel in a promotional area in the left sidebar of these pages
being developed by Excite (or in an equivalent promotional area mutually
determined by Client and Excite) when launched and for the duration of the
term of the Agreement. Excite estimates, but does not guarantee, the
display of [*]
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CONFIDENTIAL
[*] Impressions of this link in the third year of the term of the
Agreement.
g) Links to the Client Site (consistent with the format used on similar
links on the same page and as mutually determined by Client and Excite)
will be displayed in the Excite Computers & Internet Channel, in the
Software area of the Shopping department of the Excite Computers &
Internet Channel and in the Computers & Software department of the
Excite Shopping Channel in a promotional/content module being developed
by Excite (or in an equivalent promotional area mutually determined by
Client and Excite) when launched and for the duration of the term of the
Agreement. Excite estimates, but does not guarantee, the display of [*]
Impressions of this link in the first year of the term of the Agreement,
[*] Impressions of this link in the second year of the term of the
Agreement and [*] Impressions of this link in the third year of the term
of the Agreement.
h) In the event that Excite develops product search categories for the
"Excite Shopping Search powered by Jango" service displayed on the
Excite Site ("Jango") which correspond to products available through the
Client Site, Excite will make reasonable commercial efforts to program
Jango to display links to the Client Site in response to user searches
for the products available through the Client Site. The development,
maintenance, modification and/or deletion of Jango product search
categories is within Excite's sole discretion. Client will reasonably
cooperate with Excite in providing information and access to the Client
Site in order to allow Excite to complete any necessary Jango
programming.
i) Set forth on Exhibit B hereto are copies of screenshots which are
illustrative of the placement of the links in the areas contemplated by
Sections 1(a) - (g). For the term of the Agreement, Excite will make
reasonable commercial efforts to maintain the aggregate prominence and
exposure of each of Client's links, advertising banners and promotional
placements as separately described in Sections 1(a) - (g) on a placement
by placement basis at a level equal to or better than the examples
displayed in Exhibit B.
2. SPONSORSHIP OF THE EXCITE SMALL BUSINESS AREA
a) The parties recognize that Excite is currently in the process of
developing a Small Business Area and that although related sponsorship,
promotional and advertising opportunities may vary over time, Client
shall be provided with the links, promotions, Impressions and other
benefits as set forth in this Section 2.
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b) Links to the Client Site (consistent with the format used on similar
links on the same page and as mutually determined by Client and Excite)
will be displayed in the Software department of the Excite Small
Business Area in a promotional/content module being developed by Excite,
in the Sponsorship Strip, in text links and/or equivalent promotional
areas (mutually determined by Client and Excite) when launched and for
the duration of the term of the Agreement. Excite estimates, but does
not guarantee, the display of [*] of these links in the first year of
the term of the Agreement, [*] of these links in the second year of the
term of the Agreement and [*] Impressions of these links in the third
year of the term of the Agreement.
3. ADVERTISING ON THE EXCITE SITE
a) Excite will display Client's banner advertising (which will link to the
Client Site) in general rotation on the Excite Computer & Internet
Channel for the duration of the Agreement. Excite guarantees the display
of [*] of these banners in the first year of the term of the Agreement,
[*] Impressions of these banners in the second year of the term of the
Agreement and [*] of these banners in the third year of the term of the
Agreement.
b) Excite will display Client's banner advertising (which will link to the
Client Site) on Excite Search results pages in response to the following
keyword packages and keywords: General Computer Package, Computer
Hardware Package, Computer Software Package and the keyword "antivirus".
When keyphrase advertising becomes available on the Excite Site, Excite
will display Client's banner advertising on Excite Search results pages
in response to the mutually determined keyphrases, subject to
availability. Excite guarantees the display of [*] Impressions under the
General Computer Package, [*] Impressions under the Computer Hardware
Package, [*] under the Computer Software Package, [*] under the
Connectivity Package, [*] under the keyword "antivirus" and [*]
Impressions of these banners in the first year of the term of the
Agreement. Excite guarantees the display of [*] Impressions of these
banners in the second year of the term of the Agreement, with the
allocation of Impressions between the keyword packages and keywords to
be determined in good faith by the parties prior to start of the second
year. Excite guarantees the display of
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[*] Impressions of these banners in the third year of the term of the
Agreement, with the allocation of Impressions between the keyword
packages and keywords to be determined in good faith by the parties
prior to start of the third year.
c) Excite will display Client's banner advertising (which will link to
the Client Site) in general rotation on the MailExcite service. Excite
guarantees the display of [*] Impressions of these banners in the
first year of the term of the Agreement, [*] Impressions of these
banners in the second year of the term of the Agreement and [*]
Impressions of these banners in the third year of the term of the
Agreement.
4. EMAIL CAMPAIGNS
a) Excite and Client will cooperate in developing customized email
campaigns for Client featuring Client's merchandise during the term of
the Agreement. All email marketing campaigns will comply with Excite's
then-current user data and privacy policies.
b) Excite guarantees that it will deliver [*] Impressions of the email
messages described in this Section 4 during the term of the Agreement.
For the purposes of this Section 4 only, each email message will count
as one (1) Impression.
5. IMPRESSION GUARANTEES
a) Excite guarantees the display of [*] Impressions of the links,
promotional placements, advertising banners and emails described in
Sections 1 - 4 in the first year of the term of the Agreement
pursuant to the schedule stated in Exhibit C. Excite guarantees that,
out of these [*] guaranteed Impressions in the first year of the term
of the Agreement, a total of [*] Impressions will consist of the
Impressions on the home page of the Software department of the Excite
Computers & Internet Channel described in Section 1(b), the "Product
Zone" and "Reviews" pages of the Computers & Internet Channel
described in Section 1(c), the "Shareware" page of the Software
department of the Excite Computers & Internet Channel described in
Section 1(f), the Software area of the Shopping department of the
Excite Computers & Internet Channel and in the Computers & Software
department of the Excite Shopping Channel described in Section 1(g)
and the keyword banners described in Section 3(b).
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b) Excite guarantees the display of [*] Impressions of the links,
promotional placements, advertising banners and emails described in
Sections 1 - 4 in the second year of the term of the Agreement
pursuant to the schedule stated in Exhibit C.
c) Excite guarantees the display of [*] Impressions of the links,
promotional placements, advertising banners and emails described in
Sections 1 - 4 in the third year of the term of the Agreement pursuant
to the schedule stated in Exhibit C.
6. EXCLUSIVITY
a) [*]
b) [*]
c) [*]
d) Notwithstanding the foregoing, Excite may display banner advertising
for Client's Competitors on the Excite Site in areas other than those
areas
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described in Section 6(b) and may display links to Client's Competitors
in Excite Search results pages in response to user queries, in Excite's
general directory of Web sites and in search results displayed in the
"Excite Shopping Service powered by Jango".
e) In the event the Excite creates any new Channels or other areas which
reasonably relate to the sale of software, Client, at its option, may
request inclusion in such Channels or other areas. In such event, the
parties shall negotiate in good faith a modification to this Agreement
whereby Client relinquishes certain of the links and promotions set
forth herein in exchange for inclusion of comparable value in such new
Channels or other areas.
7. LAUNCH DATE, RESPONSIBILITY FOR EXCITE NETWORK AND REPORTING
a) Client and Excite will use reasonable efforts to implement and put in
operation the display of the links, promotional placements and
advertising described in the Agreement by April 15, 1998 (the actual
date of such implementation to be referred to herein as the "Launch
Date"), except to the extent that different launch dates are described
in Sections 1-4.
b) The parties recognize that the scheduled Launch Date can be met only if
Client provides final versions of all graphics, text, keywords, banner
advertising, promotional placements, other promotional media and valid
URL links necessary to implement the promotional placements and
advertising described in the Agreement (collectively, "Impression
Material") to Excite fourteen (14) days prior to scheduled Launch Date.
c) [*]
d) Excite will have sole responsibility for providing, hosting and
maintaining, at its expense, the Excite Network. Except as limited by
the terms of this Agreement, Excite will have sole control over of the
"look and feel" of the Excite Network including, but not limited to,
the display, and placement of the parties' respective names and/or
brands and the promotional links, but excluding the content and
appearance of all advertising banners of Client appearing on the Excite
Site, which shall be controlled by Client, and excluding the content of
all links and promotional placements of Client
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appearing on the Excite Site, which shall be created by Client but
subject to Excite's generally-applicable advertising and promotion
standards.
e) Excite will maintain accurate records with respect to the number of
Impressions of Client's links, advertising banners and promotional
placements displayed on the Excite Site and will provide Client with
monthly reports substantiating the number of such Impressions. Client
has the right to audit such records once every twelve months during
the term of this Agreement. The terms and conditions of Section 8(h)
shall apply to such audit rights mutatis mutandis.
8. SPONSORSHIP, ADVERTISING AND TRANSACTION FEES
a) Client will pay Excite sponsorship and advertising fees of [*] for the
first year of the term of the Agreement. These fees will be paid in
equal monthly installments of [*] The first monthly payment will be
due only after 80% or more of the Impressions contemplated by Section
1 hereof are in place and operating and the advertising contemplated
by Section 3 hereof has substantially commenced ("First Payment
Date"). Subsequent installments will be due on a monthly basis
thereafter.
b) Client will pay Excite sponsorship and advertising fees of [*] for the
second year of the term of the Agreement. These fees will be paid in
equal monthly installments of [*] The first monthly payment will be
due upon the first anniversary of the First Payment Date. Subsequent
installments will be due on a monthly basis thereafter.
c) Client will pay Excite sponsorship and advertising fees of [*] for the
third year of the term of the Agreement. These fees will be paid in
equal monthly installments of [*] The first monthly payment will be
due upon the second anniversary of First Payment Date. Subsequent
installments will be due on a monthly basis thereafter.
d) [*]
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[*]
e) [*]
f) Client will pay Excite its share of Net Margins within thirty (30) days
after the close of the financial quarter in which Client recognizes the
revenue derived from these transactions.
g) The sponsorship fees and transaction payments are net of any agency
commissions to be paid by Client.
h) Client will maintain accurate records with respect to the calculation of
all transaction payments due under this Agreement. Once per year, the
parties will review these records to verify the accuracy and appropriate
accounting of all payments made pursuant to the Agreement. In addition,
Excite may, upon no less than thirty (30) days prior written notice to
Client (and no more than once per year), cause an independent Certified
Public Accountant to inspect the records of Client reasonably related to
the calculation of such payments during Client's normal business hours.
such Certified Public Accountant shall only be provided access to such
records after it has executed a nondisclosure agreement in a form
acceptable to Client. The fees charged by such Certified Public Accountant
in connection with the inspection will be paid by Excite unless the
payments made to Excite are determined to have been less than [*] of the
payments actually owed to Excite, in which case Client will be responsible
for the payment of the reasonable fees for such inspection.
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i) Excite shall be obligated to deliver the Impressions referred to in
Section 10(a) at the times and in the manner as set forth on Exhibit C
hereto. In the event that Excite shall fail to timely deliver all of
the Impressions required during any six month period, Excite shall
have thirty (30) days to deliver the shortfall of such Impressions. In
the event such shortfall is not delivered within such thirty (30) day
period, Client shall cease making any of the monthly payments
contemplated by Sections 8(a), (b) or (c) until such shortfall is
delivered. Until such shortfall is delivered, no Impressions will be
deemed delivered for the next six month period.
9. PUBLICITY
Unless required by law, neither party will make any public statement,
press release or other announcement relating to the terms of or
existence of this Agreement without the prior written approval of the
other. Notwithstanding the foregoing, the parties agree to issue an
initial press release regarding the relationship between Excite and
Client, the timing and wording of which will be mutually agreed upon.
10. TERM AND TERMINATION
a) Except as otherwise set forth herein, the term of this Agreement will
begin on the Launch Date and will not end until Excite displays of a
total of [*] of Client's advertising banners and promotional
placements on the Excite Site. Except as otherwise set forth herein,
regardless of Excite's actual delivery of Impressions, the term of
this Agreement will not be shorter than three (3) years after the
Launch Date.
b) Either party may terminate this Agreement if the other party
materially breaches its obligations hereunder and such breach remains
uncured for thirty (30) days following the notice to the breaching
party of the breach.
c) All undisputed payments that have accrued prior to the termination or
expiration of this Agreement will be payable in full within thirty
(30) days thereof.
d) The provisions of Section 11(a), (b) and (c) (Trademark Ownership and
License), Section 12 (Content Ownership), Section 13 (Confidentiality
and User Data), Section 14 (Indemnity), Section 15 (Limitation of
Liability) and Section 16 (Dispute Resolution) will survive any
termination or expiration of this Agreement.
11. TRADEMARK OWNERSHIP AND LICENSE
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a) Client will retain all right, title and interest in and to its
trademarks, service marks and trade names worldwide, subject to the
limited license granted to Excite hereunder.
b) Excite will retain all right, title and interest in and to its
trademarks, service marks and trade names worldwide, subject to the
limited license granted to Client hereunder.
c) Each party hereby grants to the other a non-exclusive, limited
license to use its trademarks, service marks or trade names only as
specifically described in this Agreement. All such use shall be in
accordance with each party's reasonable policies regarding
advertising and trademark usage as established from time to time.
d) Upon the expiration or termination of this Agreement, each part will
cease using the trademarks, service marks and/or trade names of the
other except;
i) As the parties may agree in writing; or
ii) To the extent permitted by applicable law.
12. CONTENT OF OWNERSHIP
a) Client will retain all right, title and interest in and to the Client
Site worldwide including, but not limited to, ownership of all
copyrights and other intellectual property rights therein.
b) Excite will retain all right, title, and interest in and to the
Excite Network worldwide including, but no limited to, ownership of
all copyrights, look and feel and other intellectual property rights
therein.
13. CONFIDENTIALITY AND USER DATA
a) For the purposes of this Agreement, "Confidential Information" means
information about the disclosing party's (or its suppliers") business
or activities that is proprietary and confidential, which shall
include all business, financial, technical and other information of a
party marked or designated by such party as "confidential" or
"proprietary" or information which, by the nature of the
circumstances surrounding the disclosure, ought in good faith to be
treated as confidential.
b) Confidential Information will not include information that (i) is in
or enters the public domain without breach of this Agreement, (ii)
the receiving party lawfully receives from a third party without
restriction on disclosure and without breach of a nondisclosure
obligation, (iii) the receiving party knew
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prior to receiving such information from the disclosing party or (iv)
the receiving party develops independent of any information originating
from the disclosing party.
c) Each party agrees (i) that it will not disclose to any third party or
use any Confidential Information disclosed to it by the other except as
expressly permitted in this Agreement and (ii) that it will take all
reasonable measures to maintain the confidentiality of all Confidential
Information of the other party in its possession or control, which will
in no event be less than the measures it uses to maintain the
confidentiality of its own information of similar importance.
d) The usage reports provided by Excite to Client hereunder will be deemed
to be the Confidential Information of Excite.
e) The terms and conditions of this Agreement will be deemed to be
Confidential Information and will not be disclosed without the written
consent of the other party.
f) For the purposes of this Agreement, "User Data" means all information
submitted by users referred to the Client Site from the Excite Site
during the term of the Agreement. The parties acknowledge that any
individual user of the Internet could be a user of Excite and/or Client
through activities unrelated to this Agreement and that user data
gathered independent of this Agreement, even from individuals who are
users of both parties' services, will not be deemed to be "User Data"
for the purposes of this Agreement.
g) Both parties will retain all rights to make use of any User Data
obtained through this Agreement, subject to the limitations and other
terms of this Agreement.
h) Client will provide to Excite all User Data collected by Client within
thirty (30) days following the end of each calendar month during the
term of this Agreement in a mutually-determined electronic format.
i) Excite will not use User Data collected by Client and delivered to
Excite to directly or indirectly solicit any such users either
individually or in the aggregate during the term of this Agreement and
at any time following the expiration or termination of this Agreement.
j) Client will not use User Data collected by Client to directly or
indirectly solicit Excite users on behalf of any of Excite's direct
competitors either individually or in the aggregate during the term of
this Agreement (except as provided for elsewhere in the Agreement) and
at any time following the expiration or termination of this Agreement.
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k) Neither party will sell, disclose, transfer or rent any User Data which
could reasonably be used to identify a specific named individual
("Individual Data") to any third party nor will either party use
Individual Data on behalf of any third party without the express
permission of the individual user. Where user permission for
dissemination of Individual Data to third parties has been obtained,
each party will use commercially reasonable efforts to require the third
party recipients of Individual Data to provide an "unsubscribe" feature
in any email communications generated by, or on behalf of, the third
party recipients of Individual Data.
l) Notwithstanding the foregoing, each party may disclose Confidential
Information or User Data (i) to the extent required by a court of
competent jurisdiction or other governmental authority or otherwise as
required by law or (ii) on a "need-to-know" basis under an obligation of
confidentiality to its legal counsel, accountants, banks and other
financing sources and their advisors.
14. INDEMNITY
a) Client will indemnify, defend and hold harmless Excite, its affiliates,
officers, directors, employees, consultants and agents from any and all
third party claims, liability, damages and/or costs (including, but not
limited to, attorneys fees) arising from:
i) The breach of any representation or covenant in this Agreement;
or
ii) Any claim that Client's advertising banners infringe or violate
any third party's copyright, patent, trade secret, trademark,
right of publicity or right of privacy or contain any defamatory
content; or
iii) Any claim arising from content displayed on the Client Site.
Excite will promptly notify Client of any and all such claims and will
reasonably cooperate with Client with the defense and/or settlement
thereof; provided that, if any settlement requires an affirmative
obligation of, results in any ongoing liability to or prejudices or
detrimentally impacts Excite in any way and such obligation, liability,
prejudice or impact can reasonably be expected to be material, then such
settlement shall require Excite's written consent (not to be
unreasonably withheld or delayed) and Excite may have its own counsel in
attendance at all proceedings and substantive negotiations relating to
such claim.
b) Excite will indemnify, defend and hold harmless Client, its affiliates,
officers, directors, employees, consultants and agents from any and all
third party claims, liability, damages and/or costs (including, but not
limited to, attorneys fees) arising from:
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i) The breach of any representation or covenant in this
Agrement; or
ii) Any claim arising from the Excite Network other than
content or services provided by Client.
Client will promptly notify Excite of any and all such claims and
will reasonably cooperate with Excite with the defense and/or
settlement thereof; provided that, if any settlement requires an
affirmative obligation of, results in any ongoing liability to or
prejudices or detrimentally impacts Client in any way and such
obligation, liability, prejudice or impact can reasonably be expected
to be material, then such settlement shall require Client's written
consent (not to be unreasonably withheld or delayed) and Client may
have its own counsel in attendance at all proceedings and
substantive negotiations relating to such claim.
c) EXCEPT AS SPECIFIED IN THIS AGREEMENT, NEITHER PARTY MAKES ANY
WARRANTY IN CONNECTION WITH THE SUBJECT MATTER OF THIS AGREEMENT
AND HEREBY DISCLAIMS ANY AND ALL IMPLIED WARRANTIES, INCLUDING ALL
IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE REGARDING SUCH SUBJECT MATTER.
15. LIMITATION OF LIABILITY
EXCEPT UNDER SECTIONS 14(a) AND 14(b), IN NO EVENT WILL EITHER PARTY
BE LIABLE TO THE OTHER FOR ANY SPECIAL, INCIDENTAL OR CONSEQUENTIAL
DAMAGES, WHETHER BASED ON BREACH OF CONTRACT, TORT (INCLUDING
NEGLIGENCE) OR OTHERWISE, WHETHER OR NOT THAT PARTY HAS BEEN ADVISED
OF THE POSSIBILITY OF SUCH DAMAGE. THE LIABILITY OF EITHER PARTY FOR
DAMAGES OR ALLEGED DAMAGES HEREUNDER, WHETHER IN CONTRACT, TORT OR
ANY OTHER LEGAL THEORY, IS LIMITED TO, AND WILL NOT EXCEED, [*]
16. DISPUTE RESOLUTION
a) The parties agree that any breach of either of the parties'
obligations regarding trademarks, service marks or trade names,
confidentiality and/or User Data would result in irreparable injury
for which there is no adequate remedy at law. Therefore, in the event
of any breach of threatened breach of a party's obligations,
regarding trademarks, service marks or trade names or
confidentiality, the aggrieved party will be entitled to seek
equitable relief in
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addition to its other available legal remedies in a court of competent
jurisdiction.
b) In the event of disputes between the parties arising from or
concerning in any manner the subject matter of this Agreement, other
than disputes arising from or concerning trademarks, service marks or
trade names, confidentiality and/or User Data, the parties will first
attempt to resolve the dispute(s) through good faith negotiation. In
the event that the dispute(s) cannot be resolved through good faith
negotiation within thirty days of notice by one party to the other of
its desire to seek the resolution of such a dispute, the parties will
refer the dispute(s) to a mutually acceptable mediator.
c) In the event that disputes between the parties arising from or
concerning in any manner the subject matter of this Agreement, other
than disputes arising from or concerning trademarks, service marks or
trade names, confidentiality and/or User Data, cannot be resolved
through good faith negotiation and mediation within thirty (30) days
of the engagement of a mutually acceptable mediator, the parties will
refer the dispute(s) to the American Arbitration Association for
resolution through binding arbitration by a single arbitrator pursuant
to the American Arbitration Association's rules applicable to
commercial disputes; provided, however, that the Federal Rules of
Evidence shall apply in toto to any such dispute, and, subject to the
arbitrator's discretion to limit the item and scope of discovery, the
Federal Rules of Civil Procedure shall apply with respect to
discovery.
17. GENERAL
a) Assignment. Neither party may assign this Agreement, in whole or in
part, without the other party's written consent (which will not be
unreasonably withheld), except that no such consent will be required
in connection with (i) a merger, reorganization or sale of all, or
substantially all, of such party's assets or (ii) either party's
assignment and/or delegation of its rights and responsibilities
hereunder to a wholly-owned subsidiary or joint venture in which the
assigning party holds an interest. Any attempt to assign this
agreement other than as permitted above will be null and void.
b) Governing Law. This Agreement will be governed by and construed in
accordance with the laws of the State of California, notwithstanding
the actual state or country of residence or incorporation of Excite or
Client.
c) Notice. Any notice under this Agreement will be in writing and
delivered by personal delivery, express courier, confirmed facsimile,
confirmed email or certified or registered mail, return receipt
requested, and will be deemed given upon personal delivery, one (1)
day after deposit with express courier, upon confirmation of receipt
of facsimile or email or five (5) days after deposit
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in the mail. Notices will be sent to a party at its address set forth
in this Agreement or such other address as that party may specify in
writing pursuant to this Section.
d) No Agency. The parties are independent contractors and will have no
power or authority to assume or create any obligation or
responsibility on behalf of each other. This Agreement will not be
construed to create or imply any partnership, agency or joint venture.
e) Force Majeure. Any delay in or failure of performance by either party
under this Agreement will not be considered a breach of this Agreement
and will be excused to the extent caused by any occurrence beyond the
reasonable control of such party including, but not limited to, acts
of God, power outages and governmental restrictions.
f) Severability. In the event that any of the provisions of this
Agreement are held to be unenforceable by a court or arbitrator, the
remaining portions of the Agreement will remain in full force and
effect.
g) Entire Agreement. This Agreement and the Exhibits hereto are the
complete and exclusive agreement between the parties with respect to
the subject matter hereof, superseding any prior agreements and
communications (both written and oral) regarding such subject matter.
This Agreement may only be modified, or any rights under it waived, by
a written document executed by both parties.
h) Counterparts. This Agreement may be executed in counterparts, each of
which will serve to evidence the parties' binding agreement.
CyberSource Corporation Excite, Inc.
By: /s/ JOHN PETTITT By: /s/ ROBERT C. HOOD
Name: John Pettitt Name: Robert C. Hood
Title: EVP Title: EVP-CFO
Date: 3/30/98 Date: 3-31-98
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555 Broadway
Redwood City, California 94063
650.568.6000 (voice)
650.568.6030 (fax)
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EXHIBIT A
"TODAY IN THE COMPUTERS & INTERNET CHANNEL"
ROTATION SCHEDULE
Week 1 Week 2 Week 3 Week 4 Notes
April
May
June Quarter end &
July Win 98
August
September [*] Quarter end
October [*]
November
December Quarter end &
January Christmas
February
March Tax season &
April Quarter end
- -------------------------------------------------------------
TOTALS [*]
- -------------------------------------------------------------
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EXHIBIT B
ILLUSTRATIVE SCREEN SHOTS
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MOCKUP OF C&I HOME PAGE FOR SOFTWARE NET (PLACEMENT 1a)
C&I Home Page
o 26 weeks - rotating according to schedule
o program out one line during rotation
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EXCITE COMPUTERS & INTERNET
C&I Software Home Page
o "Top 10 Ticket" is permanent
o Placement will rotate between "561-Tech Headlines" and "Get Free Software"
50/50 or 256 weeks each
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PRODUCT ZONE PAGE MOCKUP FOR SOFTWARE.NET (PLACEMENT 1c)
Product Zone and Product Review Page
o Permanent Link with 30-35 Characters avail. for programming, similar to "get
the best deal on software"
o Permanent text or graphic
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MOCKUP OF SHARWARE PAGE (PLACEMENT 1d)
Shareware Page
o Permanent Placement
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MOCKUP OF "SPONSORSHIP STRIP" (PLACEMENT 1e)
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MOCKUP OF SOFTWARE WEB DIRECTORY PAGE (PLACEMENT 1f)
WEB DIRECTORY
- PERMANENT LINK WITH
30-35 CHARACTERS AVAIL.
FOR PROGRAMMING SIMILAR
TO "DOWNLOAD SHAREWARE"
- PERMANENT PROMO BOX
BELOW THE SEARCH BOX
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SHOPPING/SOFTWARE
SMALL BUSINESS/SHOP/SOFTWARE
C&I/SHOP/SOFTWARE
o Permanent placement in "Hot Product" module -- specific deal offering
o Permanent placement in "Shop There First" but rotation within 3 spots
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SHOPPING HOME PAGE
o Permanent link under Computer Software Department link
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EXHIBIT C
IMPRESSION DELIVERY SCHEDULE
YEAR 1 IMPRESSIONS
[*] [*]
YEAR 2
[*] [*]
YEAR 3
[*] [*]
Contract Total [*]
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EXHIBIT 10.13
[NETSCAPE LOGO]
NETSCAPE COMMUNICATIONS CORPORATION
CO-MARKETING SERVICES AGREEMENT
This Co-Marketing Services Agreement ("Agreement"), entered into by and between
Netscape Communications Corporation ("Netscape"), a Delaware corporation located
at 501 East Middlefield Road, Mountain View, California 94043, and CyberSource
Corporation ("Co-Marketer"), a California corporation with its principal place
of business at 550 South Winchester Boulevard, Suite 301, San Jose, California
95128, is effective as of the effective date set forth below ("Effective Date").
RECITALS
A. Netscape is in the business of developing manufacturing, marketing and
distributing Internet-related products and technology, provides related
services, and in connection with its marketing efforts, maintains World
Wide Web sites for the provision of local language
geographically-targeted Internet content, navigation and directory
services;
B. Co-Marketer is in the business of electronic distribution of software
and digital products over the Internet; and
C. The parties wish to perform certain co-marketing activities, and
therefore wish to enter into this Agreement to provide certain services
in connection with the performance of such co-marketing activities.
NOW, THEREFORE, in consideration of the mutual covenants contained herein, the
parties agree as follows:
1. DEFINITIONS.
For purposes of this Agreement, in addition to the capitalized terms defined
elsewhere in this Agreement, the following terms shall have the meanings set
forth below:
"CO-MARKETER BRAND SERVICE" means the Internet-related content service specified
as "CoMarketer Brand Service" on Exhibit A.
"CONTENT PROVIDER" means a party meeting the requirements of the definition of
"Content Provider" as set forth on Exhibit A.
"FRONT PAGE" means. the page on the Internet which is the initial point of entry
for an end user accessing a Service.
"LAUNCH DATE" means the date set forth on Exhibit A.
"NETSCAPE'S LOCAL WEB SITES" means the collection of local-language
geographically-targeted HTML documents corresponding to the Territories and
accessible by the public via the Internet at the URLs Listed on Exhibit B and/or
at such other URL or URLs as Netscape may designate.
"PAGE VIEW" means the calling up of an HTML page.
"SERVICE" means the services specified as "Service" on Exhibit D, the operation
of which is further described in this Agreement. For the purposes of this
Agreement, the Service for each particular Territory shall be deemed a distinct
Service hereunder.
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"Service Ad Inventory" means the electronic advertising inventory within the
Services and any other advertising inventory which Co-Marketer will manage as
described in this Agreement.
"Service Name" means the name of a Service and local-language equivalents for
the Service's Territory, if any, such name(s) to be decided upon the mutual
agreement of the parties.
"Term" means the period specified as "Term" on Exhibit A.
"Territory" means each of the target language and geographic combinations listed
on Exhibit E attached hereto, collectively the "Territories".
2. Scope. All rights and obligations of Co-Marketer and Netscape set forth in
Sections 3 through 8 herein and on Exhibit D shall apply to each of the
Territories listed in Exhibit E. As further described herein, Co-Marketer shall
be responsible for the production and content programming for each Territory of
a Service, such production and content programming to be uniquely tailored to
the cultural, economic and linguistic qualities of, and the use of the Internet
in, such Territory, and to appear to an end user to be wholly-integrated for the
purposes of such Territory. The rights and obligations of the parties as set
forth in Sections 9 through 16 shall apply to the Territories in the aggregate,
as further described in such Sections.
3. Service Features. In addition to the features of each Service as described on
Exhibit D, each Service shall also conform with the following requirements:
3.1. Location of Service. The Services will reside solely on Co-Marketer's
servers but will have a "Netscape.com" domain name and will be directly linked,
within one click away, to Netscape's Local Web Sites. The parties acknowledge
and agree that all access to the Services shall be deemed to be via Netscape's
Local Web Sites, and therefore shall be counted as Netscape traffic. Co-Marketer
shall neither promote any other Web site, including but not limited to other
sites operated by Co-Marketer, from the Services nor promote the Services from
any other web site unless mutually agreed by Co-Marketer and Netscape.
Co-Marketer expressly agrees that Co-Marketer shall be solely responsible for
the purchase, implementation, maintenance and support of all software and
hardware required to fulfill its obligations under this Agreement.
3.2. Target Market The Service's primary target market is as specified as
"Target Market" on Exhibit A. The Services will be provided by Co-Marketer only
in the languages and focused on the geographic markets set forth in Exhibit E.
3.3. Name of the Service. Each Service Name will be mutually agreed upon
by Netscape and Co-Marketer. Co-Marketer shall not independently use the Service
Names without Netscape's prior written consent unless such use occurs in
connection with Co-Marketer's advertising sales and promotional efforts on
behalf of the Services. Each Service Name shall be displayed on every page of
the corresponding Service and no other locations without Netscape's prior
written consent except in connection with such advertising sales and promotional
efforts on behalf of such Service. If a Service Name includes a co-branding
component, Co-Marketer may not use the corresponding Service Name with
Netscape's name expunged, provided, however, that nothing herein shall restrict
Co-Marketer's use of the name "software.net" used independently of the Service
Name. Co-Marketer may not use a Service Name independent of the corresponding
Service except as provided for above in this Section 3.3.
3.4. Design of Service. The Services shall be co-branded equally by
Netscape and Co-Marketer. Co-Marketer shall be responsible for creating the
graphic user interface including navigation, architecture, look and feel as well
as the tone of each Service, taking into consideration the cultural, economic
and linguistic qualities of such Service's Territory; provided, however, that
Netscape and Co-Marketer shall mutually agree to the initial design of each
Service.
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4. Service Log Reports; Search Functionality.
4.1 Weekly Log Reports. On a weekly basis, Co-Marketer shall provide
Netscape with the daily user access logs for each URL or entry point into the
Service. The content and format of such reports shall be mutually agreed by
Co-Marketer and Netscape. The information contained in the report shall be
Netscape's and Co-Marketer's Confidential Information, provided, however that
Netscape shall have the right to use the information contained in such reports
in Netscape's confidential and public reporting of access to (1) the Services in
the aggregate, (2) Netscape's Local Web Sites, individually and in the
aggregate, and (3) Netscape's web sites worldwide in the aggregate.
4.2. Search Functionality. A field providing search functionality will be
included on pages within each Service as the parties may mutually determine. The
search executed from the search field will only cover content within such search
field's Service itself.
5. [*] in the Services.
5.1. Application Process. [*] in a Service. Co-Marketer will be
responsible for administering the Content Provider application process and serve
as the primary point of contact for companies interested in becoming Content
Providers.
5.2. Organization of Content Providers. In each Service, content provided
by Content Providers shall appear as set forth in Exhibit F or as otherwise
agreed to by the parties in writing from time to time.
5.3. Integrated Community. Netscape and Co-Marketer acknowledge that the
intent of each Service is to provide an "integrated community" experience for
Netscape users and not to provide Co-Marketer with any special prominence in
listings relative to Co-Marketer's other services, unless such enhanced presence
or positioning is agreed to by Netscape. Promotion of Co-Marketer's web sites
and Internet-related services within the Service will be minimized to prevent
diversion of user traffic from the Services. [*]
5.4. Technical Support. If Co-Marketer receives any questions from a
prospective or existing Content Provider relating to specific development or
technical support (such as how to develop on the Netscape platform), Co-Marketer
will refer the prospective or existing Content Provider to the Netscape
Developer Program as described on the language- and/or
geographically-appropriate Netscape Local Web Site.
6. Promotion of the Services in Netscape's Products; Performance Reviews. For as
long as Netscape offers the products and services described in Exhibit G,
Netscape shall provide the services set forth in Exhibit G to promote the
Services during the Term. The parties shall participate in performance reviews
as set forth on Exhibit G.
7. Co-Marketer's Obligations.
7.1. Production, Technology and Content Programming. Co-Marketer shall be
responsible for all production and content programming of the Services. The
Services shall be fully functional and accessible to end users on the Launch
Date unless otherwise mutually agreed by Co-Marketer and Netscape. The Services
shall use substantially the same technology and advantages as Co-Marketer uses
in Co-Marketer Brand Service unless otherwise agreed to by the parties. The
Services shall not be materially disadvantaged or suffer from inferior
production, programming or performance relative to Co-Marketer Brand Service, or
any similar service which Co-Marketer might make available to, or operate on
behalf of, third parties. The Services shall perform
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substantially up to the same performance standards as Co-Marketer Brand Service,
including, but not limited to, load time, timeliness of content, and quality of
programming. Co-Marketer shall perform its duties described herein with
substantially the same diligence and vigor as it employs with respect to its own
services and Web sites and the services and Web sites Co-Marketer may operate
for third parties, and Co-Marketer shall not favor its own Web sites, or those
of any third party, over any Service. With respect to features and
functionalities offered within the Services, Co-Marketer shall employ in the
Services Netscape's technology, if available, rather than a technology which
might compete with Netscape products or services. Co-Marketer's obligation to
produce the Services, including production services, technology and content
programming which meet or exceed standards established by Co-Marketer on its own
Web site or services (or the Web site or services Co-Marketer manages for any
third party) and general industry standards, is a material obligation of
Co-Marketer under this Agreement.
7.2. Equivalent Effort In operating the Service and performing
merchandising and transaction services thereon, Co-Marketer will operate the
Service and perform such services with substantially the same diligence and
vigor as it employs operating its own services and Web sites. Without limiting
the foregoing in the event Co-Marketer approaches a Content Provider for one or
more of its own services and Web sites, Co-Marketer shall not unreasonably favor
its own Web site, or the Web site or services of any third party, over any of
the Services. The parties acknowledge that nothing contained herein requires
that placement on the Services and Co-Marketer Web sites be offered at equal
pricing.
7.3. Material Harm to Netscape. Netscape may, in its reasonable
discretion, at any time refuse to accept or publish, or direct Co-Marketer to
refuse to accept or publish and cease publication of, a Content Provider listing
an advertisement and/or other content on a Service or Services and any other
areas related to the Services if such content is, in Netscape's reasonable
opinion, unlawful, harmful, fraudulent, threatening abusive, harassing,
defamatory, vulgar, obscene, profane, hateful, racially, ethnically or otherwise
objectionable, including, without limitation, any material that encourages
conduct that would constitute a criminal offense, give rise to civil liability,
or otherwise violate any applicable local, state, national or international law.
If Netscape, in its sole discretion, at any time reasonably determines that any
of Co-Marketer's web sites, including but not limited to the Services and any
other areas related to the Services, contains any material, or presents any
material in a manner that Netscape reasonably deems likely to cause Netscape
material damage, or an infringement of Netscape's or a third party's rights, or
unlawful in any country or territory, Netscape may immediately terminate this
Agreement if Co-Marketer has not revised to Netscape's reasonable satisfaction
that material or presentation within five (5) business days of notification by
any means from Netscape.
7.4. Co-Marketer's Policy of Neutrality; Netscape Now Program Compliance
on Co-Marketer's Web Site and the Services. In managing the Co-Marketer Brand
Service, Co-Marketer has adopted, and shall continue to keep in full force and
effect during the Term, a policy of neutrality regarding the issue of which
Internet client software, software provider or "push" content delivery system is
the preferable choice for users of such products. As a critical element of this
policy, Co-Marketer [*] and [*] that it [*] in general [*] or [*] of the
Co-Marketer [*] in a manner that [*] or [*] any particular Internet client
software, software provider or "push" content delivery system; provided,
however, that Co-Marketer may, in a manner substantially consistent with its
past practices, [*] programs (typically no longer than [*] in duration)
concerning specific software products and software providers which may result in
the [*] of certain Internet client software, software providers or "push"
content delivery systems on the Co-Marketer Brand Service. Co-Marketer agrees
that Netscape's "Netscape Now" button, or the corresponding button or text in a
successory program, shall be provided [*] and an [*] of [*]
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[*] on the Co-Marketer Brand Service as provided any other virtual button for
any other Internet client software, software provider or "push" content delivery
system. On pages operated by Co-Marketer on which the "Netscape Now" button is
to appear, Co-Marketer will produce such pages such that when an end user
presses or clicks on the Netscape Now button (or such other button used in
connection with any successor program to the Netscape Now program), the end
user's Internet client software will access the applicable HTML page located at
a URL supplied by Netscape. Co-Marketer shall use reasonable commercial efforts
promptly to remedy any malfunctioning of the "Netscape Now" button, provided
Netscape will fully cooperate with Co-Marketer to remedy any such
malfunctioning, and provided further that Co-Marketer shall not incur liability
for any failure to remedy such malfunctioning if such remedy is not within the
reasonable control of Co-Marketer. In the event that Netscape replaces the
Netscape Now program with a successor program, Netscape shall advise Co-Marketer
and Co-Marketer shall produce the page to conform to such successor program,
provided Co-Marketer's obligations under such successor program shall not be
materially increased. Netscape hereby grants Co-Marketer a nonexclusive,
nontransferable, nonassignable, nonsublicensable license to perform and display
the Netscape Now button directly in connection with fulfilling the foregoing
obligation. Co-Marketer's use of the Netscape Now button shall be in accordance
with Netscape's reasonable policies regarding advertising and trademark usage as
established from time to time by Netscape, including the guidelines of the
Netscape Now Program published on Netscape's U.S. English language Web Site.
Co-Marketer acknowledges that the Netscape Now button is a proprietary logo of
Netscape and contains Netscape's trademarks. In the event that Netscape
determines that Co-Marketer's use of the Netscape Now button is inconsistent
with Netscape's quality standards, then Netscape shall have the right to suspend
immediately such use of the Netscape Now button. Co-Marketer understands and
agrees that the use of the Netscape Now button in connection with this Agreement
shall not create any right, title or interest in or to the use of the Netscape
Now button or associated trademarks and that all such use and goodwill
associated with the Netscape Now button and associated trademarks will inure to
the benefit of Netscape. Co-Marketer agrees not to register or use any trademark
that is similar to the Netscape Now button. Co-Marketer further agrees that it
will not use the Netscape Now button in a misleading manner or otherwise in a
manner that could tend to reflect adversely on Netscape or its products.
7.5. Marketing Collateral. Co-Marketer will maintain on each Service
marketing collateral for such Service. The collateral will be updated regularly
and on an as-needed basis. The marketing collateral, as well as an application
for Content Provider participation in such Service, as described in Section 5.1,
shall be located in an easily accessible location. Each party shall include a
link to each Service's marketing collateral in an appropriate area of the
party's primary web site.
7.6. Service Enrollment Support. Co-Marketer shall provide information
and sales support to Content Providers regarding participation in the Service.
All fees charged by Co-Marketer to Content Providers related to the preparation
and maintenance of Content Provider's content on the Service shall be collected
and retained by Co-Marketer, such fees to be agreed upon by Co-Marketer and
Netscape.
7.7. Technical Support of Service. During the Term, Co-Marketer shall
provide technical support services for the Services in a timely basis.
Co-Marketer shall appoint a technical contact to whom Netscape may address all
technical questions relating to the Services. Co-Marketer shall use best
efforts to promptly remedy any material malfunctioning of the Services.
8. Joint Activities.
8.1. Advertising. Commencing on the Effective Date, Netscape and/or its
agent will manage and sell all advertising and sponsorships within the Service
Ad Inventory. The process of placement of advertisements on the Services shall
be mutually agreed by Co-Marketer and Netscape. [*] shall be reserved to
advertising by
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Content Providers related to such Content Provider's content on the Service.
In operating the Service, the performance of site auditing, traffic analysis,
functionality and other advertising related services shall be mutually agreed by
Co-Marketer and Netscape. Co-Marketer may require all advertisers on the
Services to execute Co-Marketer's then current form of insertion order.
8.2. Press Plans. Co-Marketer and Netscape agree to participate in a
joint press announcement regarding the Services which will take place on a
mutually agreed upon date. The parties shall agree to the form and content of
the joint press release. Notwithstanding the foregoing, either party may issue
its own press release, subject to the other party's prior approval of the
content within the release. With respect to major advertising and marketing deal
announcements regarding the Services, Netscape and Co-Marketer shall have
forty-eight (48) hours to respond, in writing, to any proposed announcement. In
any press announcement regarding any or all of the Services, both Co-Marketer
and Netscape's name and logo shall be included in the press release, and the
names and logos shall appear with equal prominence. Interviews with the press
regarding announcement of the Services shall be coordinated between both
Netscape and Co-Marketer.
8.3. Research. If Co-Marketer or Netscape conducts any research regarding
any or all of the Services, such research results shall be shared between both
companies on a timely basis. If Co-Marketer or Netscape conducts a study on
their respective local Web sites, both companies shall include the Services in
the study, as appropriate. Co-Marketer will conduct substantially the same level
and as much research and data collection regarding the Services as Co-Marketer
conducts with respect to Co-Marketer Brand Service.
8.4. Quarterly Reviews of the Services. Netscape and Co-Marketer agree
to establish quarterly reviews of the Services to evaluate the success of the
Services and agree to modifications and improvements to the Services.
8.5. Design Reviews and Ownership. The graphic user interface ("GUI") of
the Services shall be jointly owned by the parties, as mutually determined by
the parties. Netscape and Co-Marketer shall mutually agree to all major design
changes in the GUI, including, but not limited to, significant new artwork or
functional changes. As part of the approval process for significant changes to
the GUI the parties shall determine the ownership rights with respect to the
newly added feature or functionality, and either party may decline to add such
feature or functionality to the GUI. If either party has contributed to the GUI
such features or functionality owned by that party, the other party shall be
granted a royalty-free, irrevocable, perpetual world-wide license, without
payment or other charge therefore, to use, display, perform, reproduce and
distribute such feature or functionality in connection with the GUI in the
Services or any successor service after the termination or expiration of this
Agreement. In no event shall Netscape be entitled to a license or any ownership
right in any computer code written by Co-Marketer in connection with the GUI.
Any versions of the Services or successor programs or promotions to the Services
operated by Netscape after termination or expiration of this Agreement shall be
distinct from Co-Marketer Brand Service and shall have a concept, look and feel
distinct from Co-Marketer Brand Service. Nothing contained herein shall prevent
Netscape from independently developing features or functionality which are
similar to the features and functionality owned by Co-Marketer and implemented
in the Services, provided that no intellectual property of Co-Marketer is
utilized. The parties agree that Co-Marketer is not creating the Services as a
work made for hire. Except as set forth above with respect to the GUI, nothing
in the Agreement shall be deemed to grant to Netscape an express or implied
license or ownership right to any copyright, trademark, trade secret or patent
to any technology, content, or other material of Co-Marketer created for or
included in the Services, whether or not such were created at Netscape's request
or with Netscape's cooperation.
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8.6. Optimize for Netscape Technology. In order to demonstrate Netscape
and Co-Marketer's support of current Internet browser technologies, Co-Marketer
shall implement within each Service at least one of the following: HTML Frames,
layers, absolute positioning, dynamic HTML, Java, JavaScript or the then current
client software technology (or subsequent features displayable by an end user's
browser) within the beta testing period of the client software. Such features
shall be positioned in at the Front Page to each Service, at minimum, and the
optimized content shall be fully operational and publicly accessible at the time
of the release of the new Netscape client products. In addition, Co-Marketer
shall, at Netscape's request, implement user interface elements and interface
applications for the Service, provided that, in Co-Marketer's reasonable
judgment, such implementation does not require extraordinary development efforts
in the operation of the Services.
8.7. Server Software. In order to [*] the close relationship between
Co-Marketer and Netscape and [*] Co-Marketer's [*] of Netscape's products,
Co-Marketer agrees to use at least [*] of Netscape [*] product (currently
comprised of Netscape [*] [*] and Netscape [*]) to maintain Co-Marketer's web
sites and, if requested, provide Netscape with evidence of such use.
8.8. Traffic Building Programs. Co-Marketer shall participate in programs
designed and implemented by Netscape to increase traffic to the Services,
including but not limited to, Netscape's Universal Registration system or
equivalent services.
8.9. Other Co-Marketing Activities. In addition to joint activities set
forth in this Section 8, the parties shall participate in other co-marketing
activities related to the Services and this Agreement as agreed to by the
parties from time to time.
9. Payments.
9.1. Payment of Netscape's Portion of Shared Revenue. Co-Marketer shall
pay to Netscape Netscape's portion of the shared revenues, as such revenue
sharing is described in Section 10 and on Exhibit C as set forth on Exhibit C.
9.2. Current Interest and Taxes. All amounts payable hereunder are
denominated in U.S. Dollars, and all amounts payable to Netscape hereunder shall
be remitted in U.S. Dollars. Any portion of amounts due and payable hereunder
which has not been paid to Netscape within the applicable time set forth herein
shall bear interest at the lesser of (i) one percent (1%) per month, or (ii) the
maximum amount allowed by law. All payments due hereunder are exclusive of any
applicable taxes. Co-Marketer shall be responsible for all applicable national,
state and local taxes, value added or sales taxes, exchange, interest, banking,
collection and other charges and levies and assessments pertaining to payments
other than U.S. taxes based on Netscape's net income. If Co-Marketer is required
by law to make any deduction or to withhold taxes from any sum payable to
Netscape by Co-Marketer hereunder, (i) Co-Marketer shall effect such deduction
or withholding remit such amounts to the appropriate taxing authorities and
promptly furnish Netscape with tax receipts evidencing the payments of such
amounts, and (ii) the sum payable by Co-Marketer upon which the deduction or
withholding is based shall be increased to the extent necessary to ensure that,
after such deduction or withholding Netscape receives and retains, free from
liability for such deduction or withholding a net amount equal to the amount
Netscape would have received and retained in the absence of such required
deduction or withholding.
10. Revenue Sharing. For all pages in the Services, the parties will share
revenues derived from the Services as set forth on Exhibit C.
11. Focus of Priorities. During the Term, and in order to insure that
Co-Marketer's resources, priorities and attention are adequately focused on
developing and maintaining the Service, Co-
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Marketer shall maintain, on a consistent basis, both the quality and resources
required to operate the Services at the levels of quality and operation as
agreed by the parties upon the commencement of the Services, and shall take all
such steps as are required to maintain the Services to the levels of quality
maintained by Co-Marketer in its operation of the Co-Marketer Brand Service and
similar services operated by Co-Marketer on behalf of third parties.
12. Reporting and Audit Rights.
12.1. Reporting. In addition to the weekly log reports to be provided by
Co-Marketer as set forth in Section 4.1, within fifteen (15) days after the end
of each month during the Term: (i) Co-Marketer shall provide Netscape with a
report in common log format describing the total number of hits and page
impressions for each of the pages in the Services, and such other tracking
information as the parties shall mutually agree ("Access Logs"), and (ii)
Netscape shall provide Co-Marketer with a report describing the number of
redirects of traffic to the Services from Netscape's Local Web Sites and such
other tracking information as the parties shall mutually agree.
12.2. Audit Rights. Each party shall retain complete, clear and accurate
records regarding its activities under this Agreement. Each June and December
during the Term, the parties shall review the financial results for the Services
and Access Logs. Each party shall have the right, upon no less than fifteen (15)
days prior written notice to the other party, to cause an independent Certified
Public Accountant to inspect and audit, during the other party's normal business
hours, all relevant records of the other party upon which such other party's
revenue reports are based and, in the case of Co-Marketer, the Access Logs. The
costs of such audit shall be paid by the party requesting such audit, provided,
however, that (1) if said inspection shall reveal an error in excess of five
percent (5%) in monies due to by the party being audited, the audited party
shall pay for the audit, or (2) if such audit is of Co-Marketer and if said
inspection shall reveal an error in excess of five (5%) in traffic to the
Service, Co-Marketer shall pay for the audit. The audit rights as described
herein shall continue for two (2) months after the expiration or termination of
this Agreement.
13. Term and Termination.
13.1. Term. Unless earlier terminated pursuant to the provisions of
Section 13.2 or by Netscape as otherwise provided in this Agreement, this
Agreement shall remain in force for the Term.
13.2. Termination for Cause. In addition to rights to terminate this
Agreement as set forth elsewhere in this Agreement, including but not limited to
such rights as set forth in Section 7.3 and in Exhibit G attached hereto, either
party shall have the right to terminate this Agreement upon a material default
by the other party of any of its material obligations under this Agreement,
unless within thirty (30) calendar days after written notice of such default the
defaulting party remedies such default.
13.3. Rights Upon Termination or Expiration. Upon expiration or
termination of this Agreement, Co-Marketer shall remain obligated to provide
support service and maintenance operations for the Services for a period of
ninety (90) days from the time of termination or expiration. During this
wind-down period, the parties shall continue to perform the services with the
same level of care as specified in this Agreement, subject to Netscape's right
to request termination of operation of the Services by Co-Marketer at any time,
upon which Co-Marketer shall immediately cease the operations of the Services.
Upon expiration or termination of this Agreement, Netscape shall have the right,
without any additional payment, charge or royalty to Co-Marketer, to produce
versions of the Services which do not include Co-Marketer's proprietary
technology, logo or name but which might employ a graphic user interface which
is substantially similar to the graphic user interfaces of the Services. In
addition to the right to receive amounts
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payable at the time of the termination of expiration of this Agreement, Sections
3.3 ("Name of the Service"), 8.5 ("Design Reviews and Ownership"), 12.2 ("Audit
Rights"), 13.3 ("Rights Upon Termination or Expiration"), 13.4 ("No
Compensation"), 14 ("Warranties and Indemnification"), 15 ("Limitation of
Liability") and 16 ("General"), and provisions on Exhibits attached hereto that
provide for their survival, shall survive the termination or expiration of this
Agreement for any reason. Provisions of other Sections which, by their nature,
must remain in effect beyond the termination or expiration of this Agreement,
shall also survive termination or expiration of this Agreement for any reason.
13.4. No Compensation. Except for payments pursuant to Section 9 which
shall have accrued prior to the termination or expiration of this Agreement,
Co-Marketer shall not be entitled to any compensation, damages or payments in
respect to goodwill that has been established or for any damages on account of
prospective profits or anticipated sales, and Co-Marketer shall not be entitled
to reimbursement in any amount for any training advertising market development,
investments, leases or other costs that shall have been expended by either party
before the expiration or termination of this Agreement, regardless of the reason
for or method of termination of this Agreement. Co-Marketer hereby waives its
rights under applicable laws for any such compensation, reimbursement or
damages.
14. Warranties and Indemnification
14.1. Title. Co-Marketer warrants that (i) it has the right to perform
the services set forth in this Agreement, (ii) such performance does not
infringe on any third parties' proprietary or personal rights, (iii) it owns or
licenses all rights, title and interest in and to the technology underlying the
production of the Services, (iv) Netscape shall not be obligated to pay any fees
or royalties for implementing the Services other than as specifically set forth
in this Agreement, and (v) there are no pending or threatened lawsuits
concerning any aspect of the technology underlying the Services.
14.2. Performance. Co-Marketer warrants that the Services will function
substantially in accordance with the specifications set forth in this Agreement
and as the parties may determine from time to time. Co-Marketer shall repair any
malfunctions of the Services within a reasonable period of time (not to exceed
two (2) days) after notice by any party of such condition.
14.3. Responsibility. Co-Marketer represents and warrants to Netscape
that the Content Provider listings (other than Content Provider listings
provided by Netscape, if any), advertisements and other content managed by
Co-Marketer which will appear on the Services or any other areas related to the
Services, and material linked to the Services and managed by Co-Marketer will
not violate any criminal laws or any rights of any third parties, including but
not limited to, infringement or misappropriation of any copyright, patent,
trademark, trade secret, music, image, or other proprietary or property right,
false advertising, unfair competition, defamation, invasion of privacy or rights
of celebrity, violation of any antidiscrimination law or regulation, or any
other right of any person or entity, or otherwise violate any applicable local,
state, national or international law.
14.4. Disclaimer. THE WARRANTIES PROVIDED BY CO-MARKETER HEREIN ARE THE
ONLY WARRANTIES PROVIDED BY CO-MARKETER WITH RESPECT TO THE SERVICES. SUCH
WARRANTIES ARE IN LIEU OF ALL OTHER WARRANTIES BY CO-MARKETER, EXPRESS OR
IMPLIED, INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE, WITH RESPECT TO THE SERVICES.
14.5. Indemnification. Co-Marketer agrees to indemnify Netscape and to
hold Netscape harmless from any and all liability, loss, damages, claims, or
causes of action, including reasonable legal fees and expenses that may be
incurred by Netscape, arising out of or related to CoMarketer's breach of any of
the representations and warranties set forth in Section 14.3 or arising
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from third party claims alleging that Netscape's exercise of its rights to
benefit from the production of the Services granted by Co-Marketer hereunder
infringes any trademark, patent, copyright, trade secret or other proprietary
right of any third party. In connection with such indemnification, Netscape will
(i) promptly notify Co-Marketer in writing of any such claim and grant
Co-Marketer control of the defense and all related settlement negotiations, and
(ii) cooperate with Co-Marketer, at Co-Marketer's expense, in defending or
settling such claim; provided that if any settlement results in any ongoing
liability to, or prejudices or detrimentally impacts Netscape, and such
obligation, liability, prejudice or impact can reasonably be expected to be
material, then such settlement shall require Netscape's written consent. In
connection with any such claim, Netscape may have its own counsel in attendance
at all public interactions and substantive negotiations at its own cost and
expense.
15. Limitation of Liability. EXCEPT FOR CO-MARKETER'S OBLIGATIONS AND LIABILITY
UNDER SECTION 14.5, IN NO EVENT WILL EITHER PARTY BE LIABLE FOR ANY LOST PROFITS
OR ANY FORM OF INDIRECT, SPECIAL, INCIDENTAL, OR CONSEQUENTIAL DAMAGES OF ANY
CHARACTER FROM ANY CAUSES OF ACTION OF ANY KIND WITH RESPECT TO THIS AGREEMENT,
WHETHER ARISING IN TORT (INCLUDING NEGLIGENCE), CONTRACT, OR OTHERWISE, EVEN IF
IT HAS BEEN INFORMED IN ADVANCE OF THE POSSIBILITY OF SUCH DAMAGES. IN ADDITION,
IN NO EVENT SHALL NETSCAPE'S LIABILITY HEREUNDER EXCEED THE AMOUNTS [*] BY
[*] UNDER THIS AGREEMENT.
16. General.
16.1. Governing Law. This Agreement shall be subject to and governed in
all respects by the statutes and laws of the State of California without regard
to the conflicts of laws principles thereof. The Superior Court of Santa Clara
County and/or the United States District Court for the Northern District of
California shall have exclusive jurisdiction and venue over all controversies in
connection herewith, and each party hereby consents to such exclusive and
personal jurisdiction and venue.
16.2. Entire Agreement. This Agreement, including the exhibits and
attachments referenced on the signature page hereto, constitutes the entire
Agreement and understanding between the parties and integrates all prior
discussions between them related to its subject matter. No modification of any
of the terms of this Agreement shall be valid unless in writing and signed by an
authorized representative of each party.
16.3. Assignment. Co-Marketer may not assign any of its rights or delegate
any of its duties under this Agreement, or otherwise transfer this Agreement (by
merger, operation of law or otherwise) without the prior written consent of
Netscape. Any attempted assignment, delegation or transfer in derogation hereof
shall be null and void.
16.4. Notices. All notices required or permitted hereunder shall be given
in writing addressed to the respective parties as set forth below and shall
either be (i) personally delivered, (ii) transmitted by postage prepaid
certified mail, return receipt requested, or (iii) transmitted by nationally
recognized private express courier, and shall be deemed to have been given on
the date of receipt if delivered personally, or two (2) days after deposit in
mail or express courier. Either party may change its address for purposes hereof
by written notice to the other in accordance with the provisions of this
Subsection. The addresses for the parties are as follows:
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Co-Marketer: Netscape:
CyberSource Corporation Netscape Communications Corporation
550 South Winchester Blvd., Suite 301 501 East Middlefield Road, MV-002
San Jose, California 95128-2545 Mountain View, CA 94043
Fax: (408) 241-8258 Fax: (415) 528-4123
Attn: [ ] Attn: General Counsel
with copies to:
Jackson Tufts Cole & Black, LLP
60 South Market Street, 10th Floor
San Jose, California 95113
Fax: (408) 998-4889
Attn: [ ]
16.5. Confidentiality. All disclosures of proprietary and/or
confidential information in connection with this Agreement as well as the
contents of this Agreement, the financial arrangements described in this
Agreement, the Content Providers, advertising sales, end user information and
research related to the Service shall be governed by the terms of the Mutual
Nondisclosure Agreement attached hereto as Exhibit H. Except for information
regarding users of the Service and as otherwise set forth herein, the
information contained in the reports provided by each party hereunder shall be
deemed the Confidential Information of the disclosing party. Notwithstanding the
foregoing, the parties may, in its sole discretion, make publicly available the
auditing of traffic results and indicate that Co-Marketer is the source of the
information.
16.6. Force Majeure. Neither party will be responsible for any failure
to perform its obligations under this Agreement due to causes beyond its
reasonable control, including but not limited to, acts of God, war, riot,
embargoes, acts of civil or military authorities, fire, floods or accidents.
16.7. Waiver. The waiver, express or implied, by either party of any
breach of this Agreement by the other party will not waive any subsequent breach
by such party of the same or a different kind.
16.8. Heading. The headings to the Sections and Subsections of this
Agreement are included merely for convenience of reference and shall not affect
the meaning of the language included therein.
16.9. Independent Contractors. The parties acknowledge and agree that
they are dealing with each other hereunder as independent contractors. Nothing
contained in this Agreement shall be interpreted as constituting either party
the joint venturer, employee or partner of the other party or as conferring upon
either party the power of authority to bind the other party in any transaction
with third parties.
16.10. Severability. In the event any provision of this Agreement is
held by a court or other tribunal of competent jurisdiction to be unenforceable,
such provision shall be reformed only to the extent necessary to make it
enforceable, and the other provisions of this Agreement will remain in full
force and effect
16.11. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. For purposes hereof, a
facsimile copy of this Agreement, including the signature pages hereto, shall be
deemed to be an original. Notwithstanding the foregoing, the parties shall
deliver original execution copies of this Agreement to one another as soon as
practicable following execution thereof.
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The parties have duly executed this Agreement as of the later of the two (2)
dates set forth below.
Co-Marketer. Netscape:
CYBERSOURCE CORPORATION NETSCAPE COMMUNICATIONS
CORPORATION
By: [SIG] By: [SIG]
------------------------------ -----------------------------
Print Name: John Pettitt Print Name: Mike Homer
---------------------- ---------------------
Title: Exec V.P. Title: Senior V.P. Marketing
--------------------------- --------------------------
Date: 23 June 1997 Date: 06/23/97
---------------------------- ---------------------------
Co-Marketer Address: Netscape Address:
550 South Winchester Blvd., Suite 301 501 East Middlefield Road, MV-002
San Jose, California 95128-2545 Mountain View, California 94043
U.S.A. U.S.A.
Attention: K. Fargo Attention: General Counsel
--------------------------
Facsimile: (408) 241-8270 Facsimile: (415) 528-4123
-------------------------- ----------------------
Email: [email protected] Email:
------------------------------ --------------------------
Attached Exhibits:
Exhibit A: Additional Definitions
Exhibit B: Netscape's Local Web Sites
Exhibit C: Revenue Sharing
Exhibit D: Service
Exhibit E: Territories
Exhibit F: Pro Forma Layout of Service
Exhibit G: Netscape's Promotional Services, Performance Reviews
Exhibit H: Mutual Non-Disclosure Agreement
Exhibit I: End User Registration
Attachment 1: Form of End User Registration
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EXHIBIT A
Additional Definitions
Co-Marketer Brand Service: software.net
Content Provider. A party supplying (1) a product or products (as
such are approved by Netscape as set forth in Exhibit D)
which are marketed and distributed on the Service, and (2)
information and promotional materials regarding such
products, these items (1) and (2) collectively referred to
as such Content Provider's "Content".
Launch Date: August 1, 1997, subject to change by mutual agreement of the
parties.
Target Market: The Service's primary target market is the individual and
corporate/business end user who would use the Service for
personal use at home or the office. The Service will be
available only in the English language and targeted at the U.S.
and Canada markets.
Term: From: Effective Date
To: Second Anniversary of the Launch Date, provided, however, that
the Term shall be automatically extended for a one (1) year
period thereafter, provided that neither party objects to such
automatic renewal during the eighteen (18) month period
commencing on the Launch Date. Eighteen (18) months after the
Launch Date, the parties agree to enter into exclusive
negotiations for a period of sixty (60) days during which time
the parties shall negotiate in good faith the terms of a one (1)
year renewal period. If, at the end of such sixty (60) day
negotiations, no agreement is reached as to the terms of the
renewal period, this Agreement shall expire at the end of the
Term.
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EXHIBIT B
NETSCAPE'S LOCAL WEB SITES
<TABLE>
<CAPTION>
NETSCAPE LOCAL WEB SITE URL FOR LOCAL Page
- ----------------------- ------------------
<S> <C>
U.S. English http://home.netscape.com
</TABLE>
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EXHIBIT C
Revenue Sharing
1. Net Revenues. Net Revenue will be allocated [*]
2. [*]
3. Payment Terms. Amounts payable by Co-Marketer to Netscape hereunder shall
accrue upon receipt by Co-Marketer of Net Revenues. Within thirty (30) days
after the end of each Reporting Period during the Term of this Agreement,
Co-Marketer shall deliver to Netscape a report describing in detail the
calculation of Net Revenue for such Reporting Period, and shall remit to
Netscape Netscape's portion of such Net Revenue calculated as described above.
Amounts payable by [*] to [*] hereunder shall accrue upon receipt by [*] of [*].
Within thirty (30) days after the end of each Reporting Period during the Term
of this Agreement, Netscape shall deliver to Co-Marketer a report describing in
detail the calculation of Advertising Revenue for such Reporting Period, and
shall remit to Co-Marketer Co-Marketer's portion of such Advertising Revenue
calculated as described above.
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EXHIBIT D
Service
1. Description of Service. The primary features and functions of the Service is
the marketing and distribution of, and sale of licenses to use, Titles (as
defined below), such marketing to include, but not be limited to, the provision
of facilities for the immediate downloading of Titles by potential customers for
evaluation purposes. Features of the Service shall be mutually agreed by
Co-Marketer and Netscape. The Service will be modeled after, yet differentiated
from, the Co-Marketer Brand Service. Notwithstanding the foregoing, Co-Marketer
shall develop, subject to Netscape's approval, the concept, look and feel of the
Service to be distinct from Co-Marketer Brand Service. Access to and use of the
information provided on the Service will be provided free of charge to end
users. The Service will begin on or before the Launch Date. The Service will
operate as an on-line storefront and manage the marketing and distribution of
products created and/or distributed by Netscape's developers, the carrying of
such products on the Service to be subject to Netscape's prior approval as set
forth in paragraph 3 below. In addition to obligations set forth elsewhere in
this Agreement, Co-Marketer shall be responsible for (a) the negotiation of
agreements with Content Providers regarding their participation in the Service,
(b) the initial identification of proposed products to be included as Titles (as
defined below) in the Service, (c) the provision of technical and customer
support to end users of the Service, both by e-mail and telephone, (d) the
recording of transactions effected by means of the Service, including the
collection of revenue resulting therefrom and payment of any corresponding sales
and other taxes, (e) except as otherwise set forth in this Agreement, all
merchandising and promotions related to the Service, and the scheduling thereof,
(f) the provision of end user license agreements and proof of destruction
agreements will all Titles distributed by means of the Service, (g) actively
pursuing any product-related leads presented by Netscape to Co-Marketer, (h) the
maintenance of consistent and good relations with Netscape's developers
including without limitation, Content Providers, and (i) the development of
editorial content, other than that provided by publishers, developers and other
third parties, related to the products marketed on the Service, such development
to occur as agreed by the parties. As used herein, "Netscape's developers"
refers to those parties that develop software that operate in conjunction with
the Netscape ONE product platform.
2. End User Registration. If an end user elects either to purchase a license to
a Title or Titles or download a Title or Titles for evaluation through the
Service, the end user will have to register with the Service, as such
registration is set forth on Exhibit I.
3. Customer Service. Co-Marketer shall be responsible for all customer service
related to the marketing and distribution of the Titles, with the standards for
such customer service, including content and response time, to be mutually
agreed by Co-Marketer and Netscape. Co-Marketer shall be solely responsible for
supplying the necessary levels of staffing to support such customer service in
light of the projected growth in visitors to and transactions on the Service. In
the event Co-Marketer elects to delegate its customer support responsibilities
to a third party, Co-Marketer shall ensure that the services provided by such
third party meet or exceed the standards for customer services set forth herein
and as agreed to by Co-Marketer and Netscape prior to and after such
delegation.
4. Netscape Approval of Products. All products to be marketed for potential sale
on the Service must be compatible with the Netscape ONE platform, provided,
however, that Netscape may waive this requirement for a particular product in
its sole discretion. In addition, prior to displaying any product on the
Service, Co-Marketer shall send to Netscape, by means of e-mail sent to an
e-mail address specified by Netscape from time to time, a description of such
product. Within three (3) business days of receipt of such e-mail, Netscape
shall notify Co-Marketer of its determination of such product's appropriateness
for inclusion in the Service. Such determination
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shall be in Netscape's [*]. Co-Marketer [*] any Product in the Service for which
[*] an [*] from Netscape of such products [*] for [*] in the Service. In
addition, while the general purpose of inclusion in the Service of any product
is to maximize the profits of the Service, Netscape [*] to [*] products that [*]
in the Service for [*] or other purposes, and Co-Marketer [*] such products in
the Service and [*] such products [*] in the Services [*] to that of [*]
available in the Service. A product included in the Service is herein referred
to as a "Title".
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<PAGE> 18
EXHIBIT E
Territories
<TABLE>
<CAPTION>
Target Language Geographic Territory
--------------- --------------------
<S> <C>
English United States and Canada
</TABLE>
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EXHIBIT F
Pro Forma Layout of Service
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EXHIBIT G
Netscape's Promotional Services; Performance Reviews
1. Netscape's Local Web Sites. Pages of Netscape's Local Web Sites deemed by
Netscape in its sole discretion as likely to attract qualified prospective
customers of the Services shall feature a prominent link to the local-language
and geographically-appropriate Service in a location and format as Netscape
shall determine. Such pages may include, in Netscape's sole discretion, the home
page, the main Netscape client and server software download pages, the download
"thank you" page, the Netscape General Store page, the Netscape General Store
"thank you" page, the Software Direct page and the Intranet Solutions page.
2. Netscape Products and Services. During the Term, Netscape shall include
information regarding the Services in "Netscape Communicator News", "The
Netscape Channel" available to users of the Netscape Netcaster program,
"Software Direct" newsletters, and in the Netscape developer community by means
of Netscape's monthly newsletters and DevEdge web site. The frequency and
content of such information shall be in the sole discretion of Netscape.
3. Netscape Software. During the Term, at Co-Marketer's request Netscape shall
make available to Co-Marketer, for no additional fee, Netscape products and
software solely for Co-Marketer's use in developing, maintaining and enhancing
the Services during the Term. Upon expiration or termination of this Agreement,
Co-Marketer shall return, and erase all copies of, all Netscape products and
software provided by Netscape pursuant to this paragraph.
4. [*]
<TABLE>
<CAPTION>
Period Page Views Net Revenue
------ ---------- -----------
<S> <C> <C>
[*] [*] [*]
</TABLE>
[*]
(1) [*]
(2) [*]
(3) [*]
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EXHIBIT H
Mutual Non-Disclosure Agreement
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EXHIBIT I
End User Registration
1. Registration Process. End users who wish to purchase a license for a Title or
Titles or download a Title or Titles for evaluation through the Service will
have to register with such Service. User registration information [*] during the
[*] process and prior to the downloading of any product. In addition, the user
registration page will be linked to the Front Page as well as all other
appropriate pages in the Service. Initially, each Service will use Co-Marketer
Brand Service's registration back-end database in conjunction with a co-branded
front-end form of registration presented to end users. Such form of registration
shall be substantially similar to Attachment 1 attached hereto. At the time the
end user is asked to register, the end user will be notified as to what [*] is
required for them to provide, how the [*] will [*] and who will have [*] to the
[*] as described in Attachment 1. Co-Marketer will [*] to Netscape the [*]
during the registration process at a time interval and format to be mutually
agreed upon by the parties. The parties hereto acknowledge that it is their
intent to integrate the Services' user registration processes with Netscape's
"Universal Registration" system when such system becomes available. At such time
as each registration process is transferred to Netscape, Netscape shall use
reasonable commercial efforts to collect the same data from each Service
registration process as was collected by Co-Marketer. At such time as Netscapes
"Universal Registration" system is deployed, Netscape will provide to
Co-Marketer information about users registering for the Services by means of the
"Universal Registration" system in a format and timeframe to be mutually agreed
upon by Netscape and Co-Marketer. Netscape and Co-Marketer shall use reasonable
commercial efforts to coordinate the prompt transfer of user information from
Netscape to Co-Marketer at such time as Netscape's "Universal Registration"
system is used in connection with the Services.
2. Additional User Information. If Co-Marketer [*] information about [*] the
Services, in addition to information [*] during the registration process, such
information [*] to Netscape in a format and time frame as the parties shall
mutually agree.
3. [*] Confidential; Ownership. Information [*] provided by [*] during
registration with the Service, as well as information [*] provided from or about
[*], shall be the Confidential Information of and [*] by [*]. During the Term,
either party [*] such Confidential Information [*] for [*], in joint promotional
efforts related to the Services, but [*] such Confidential Information to any
third party. Notwithstanding the foregoing, (i) information [*] may be
aggregated and such aggregated information shall not be deemed Confidential
Information, provided such disclosure of information conforms with Netscape's
policy regarding the protection of [*], (ii) Netscape shall [*] any [*] of [*]
of the Service obtained during the Term of this Agreement, (iii) Co-Marketer
shall own information that it obtains independent of the operation of the
Service, and (iv) Co-Marketer shall be entitled to use any [*] obtained through
the operation of the Service in connection with [*] reporting by Co-Marketer,
[*] support of Service [*], and [*] database maintenance and operations. The
provisions of this paragraph shall survive termination or expiration of this
Agreement
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ATTACHMENT 1 TO EXHIBIT I
Form of User Registration
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AMENDMENT NO. 1
Co-Marketing Services Agreement
No: 002949-1
This Amendment No. 1 (the "Amendment") is entered into by and between Netscape
Communications Corporation, a Delaware corporation, with principal offices at
501 E. Middlefield Road, Mountain View, California 94043 ("Netscape"), and
CyberSource Corporation, a California corporation ("Licensee"), with a usual
place of business at 550 South Winchester Boulevard, Suite 301, San Jose
California 95128 effective as of the date of execution by Netscape ("Effective
Date").
WHEREAS, the parties have entered into a Co-Marketing Services effective June
23rd, 1997 (the "Agreement") for distribution of certain third party products on
the Internet through Licensee's affiliate, software.net, under the terms and
conditions therein; and
WHEREAS, the parties wish to modify and supplement the provisions of the
Agreement to enable software.net to distribute "shrink-wrapped" versions of
certain third party products through Netscape Software Depot by software.net;
NOW THEREFORE, the parties hereto, in consideration of the terms and conditions
herein, agree as follows:
1. [*]
2. Capitalized terms defined in the Agreement shall have the same meaning
in this Amendment as in the Agreement.
3. Except as explicitly modified, all terms, conditions and provisions of
the Agreement shall continue in full force and effect.
4. In the event of any inconsistency or conflict between the Agreement and
this Amendment, the terms, conditions and provisions of this Amendment
shall govern and control.
5. This Amendment and the Agreement constitute the entire and exclusive
agreement between the parties with respect to this subject matter. All
previous discussions and Agreement with respect to this subject matter
are superseded by the Agreement and this Amendment.
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<PAGE> 25
6. This Agreement can be executed in counterparts or by facsimile, each of
which shall be an original, but all of which shall constitute one
Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed
by their duly authorized representatives, effective as of the Effective Date.
NETSCAPE COMMUNICATIONS CORPORATION CYBERSOURCE CORPORATION
By: [SIG] By: [SIG]
------------------------------- -------------------------------
Signature Signature
Name: [SIG] Name: [SIG]
----------------------------- -----------------------------
Print or Type Print or Type
Title: Director of Revenue Title: CTO
---------------------------- ----------------------------
Date: 3/9/98 Date: 3/9/98
----------------------------- -----------------------------
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EXHIBIT 10.14
NETSCAPE
TRADEMARK LICENSE AGREEMENT
This Trademark License Agreement ("Agreement") is effective as of the 23rd day
of June 1997 ("Effective Date") and is entered into by and between Netscape
Communications Corporation ("Netscape"), a Delaware corporation located at 501
East Middlefield Road, Mountain View California 94043, and CyberSource
Corporation ("Licensee"), a California corporation with its principal place of
business at 550 South Winchester Boulevard, Suite 301, San Jose, California
95128.
RECITALS
A. Netscape owns and uses the name and/or trademark NETSCAPE and NETSCAPE
SOFTWARE DEPOT and the registered trademarks therefor as listed on
Exhibit A (collectively referred to as the "Marks") in connection with
its Internet-related software products, services and technology;
B. Licensee is in the business of secure, electronic distribution of
software and digital products over the Internet;
C. Licensee desires to use the trademark NETSCAPE solely in the titles set
forth in Exhibit B in connection with Internet online software virtual
storefront operations in the languages and geographic territories set
forth opposite such titles in Exhibit B; and
D. Netscape is willing to permit such use of the Marks under the terms and
conditions, set forth in this Agreement
NOW THEREFORE, the parties agree as follows:
1. Grant of License
1.1 Grant of License. Netscape hereby grants to Licensee a
non-exclusive, nontransferable license to use the Marks in the titles set forth
in Exhibit B solely in conjunction with Internet online software virtual
storefront operations in the languages and geographic territories set forth in
Exhibit B opposite such titles (the "Storefront Services") which shall in part,
promote Netscape's products and services and products that support Netscape
products, will be jointly developed by Netscape and Licensee, and which services
shall reside on Licensee's web site located at [_____________] deploying
Licensee's servers and be located one click away from Netscape's web site.
Licensee may only use the Marks as a collective whole and shall not separately
use any element or elements of the Marks.
1.2 Reservation of Rights. Netscape hereby reserves any and all
rights not expressly and explicitly granted in this Agreement, including
Netscape's right to authorize or license use of the Marks or any other
trademarks or names containing NETSCAPE, to any third party for use in
connection with any goods and services, including but not limited to, Internet
online software virtual storefront operations. Without limiting the rights
reserved in the preceding sentence, Netscape hereby reserves any and all rights
to use, authorize use or license use of the Marks or any other trademarks or
names containing NETSCAPE in any geographic territory listed in Exhibit B in a
language or language(s) different from the language listed next to such
geographic territory in Exhibit B. No right is provided to use any other
Netscape trademark, including without limitation, the Netscape Horizon Logo.
2. License Fee. For the rights granted to Licensee herein, Licensee shall
pay Netscape a one-time non-refundable license fee of Five Hundred Thousand
Dollars ($500,000), One Hundred Thousand
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Dollars ($100,000) of which shall be due and paid at the time of the execution
of this Agreement and Four Hundred Thousand Dollars ($400,000) of which shall be
due on June 30, 1997 and paid no later than September 30, 1997. The license fee
due hereunder is exclusive of any applicable taxes. Licensee shall be
responsible for all applicable national, state and local taxes, value added or
sales taxes, exchange, interest banking, collection and other charges and levies
and assessments pertaining to payments other than U.S. taxes based on Netscape's
net income. If Licensee is required by law to make any deduction or to withhold
from any sum payable to Netscape by Licensee hereunder, (i) Licensee shall
effect such deduction or withholding remit such amounts to the appropriate
taxing authorities and promptly furnish Netscape with tax receipts evidencing
the payments of such amounts, and (ii) the sum payable by Licensee upon which
the deduction or withholding is based shall be increased to the extent necessary
to ensure that, after such deduction or withholding Netscape receives and
retains, free from liability for such deduction or withholding a net amount
equal to the amount Netscape would have received and retained in the absence of
such required deduction or withholding.
3. Ownership of Marks. Licensee hereby acknowledges that Netscape is the
owner of the Marks, and any trademark applications and/or registrations thereto,
agrees that it will do nothing inconsistent with such ownership and agrees that
all use of the Marks by Licensee shall inure to the benefit of Netscape.
Licensee agrees that nothing in this Agreement shall give Licensee any right,
title or interest in the Marks other than the right to use the Marks in
accordance with this Agreement, Licensee agrees not to register or attempt to
register the Marks as a trademark, service mark, Internet domain name, trade
name, or any similar trademarks or name, with any domestic or foreign
governmental or quasigovernmental authority. Licensee may not register or use
the Marks or an abbreviation of the Marks as part of an Internet domain name.
The provisions of this paragraph shall survive the expiration or termination of
this Agreement.
4. Use of the Marks; Protection of the Marks.
4.1 Proper Use. Licensee agrees that all use of the Marks shall only
occur in connection with the Storefront Services and shall be in strict
compliance with the terms of this Agreement. Licensee may use the Marks as set
forth in Section 1.1 as well as in connection with the promotion of the
Storefront Services excluding the merchandising of non-Netscape products. Use of
the Marks for promotional purposes shall be submitted to Netscape for Netscape's
approval at least twenty (20) business days prior to the promotional use of the
Mark. The Marks shall always be used in the English language, and no
modifications to the Marks shall be used. Licensee shall use the Marks in
conformance with Netscape's trademark guidelines ("Trademark Guidelines"), set
forth in Exhibit C which Trademark Guidelines may be revised by Netscape from
time to time. Licensee agrees not to use any other trademark or service mark in
combination with the Marks other than as described in Section 1.1. Licensee has
no right to sublicense, transfer, translate or assign the use of the Marks or
use the Marks for any other purpose other than the purpose described herein.
Licensee may not use the Mark in connection with, or for the benefit of, any
third party's products or services. Licensee further agrees not to use the Marks
on or in connection with any products or services that are or could be deemed by
Netscape, in its reasonable judgment, to be obscene, pornographic, disparaging
of Netscape or its products or products, or otherwise in poor taste, or that are
themselves unlawful or whose purpose is to encourage unlawful activities by
others.
4.2 Quality Standards. Licensee agrees to maintain a consistent
level of quality of the Storefront Services performed in connection with the
Marks equal to that found in Licensee's existing Web site services. Licensee
further agrees to maintain a level of quality in connection with its use of the
Marks that is consistent with general industry standards.
4.3 Monitoring by Netscape. Licensee acknowledges that Netscape has
no further obligations under this Agreement other than the right to periodically
monitor Licensee's use of the Marks in conjunction with the Storefront Services.
Upon request by Netscape, Licensee shall provide Netscape with representative
samples of each such use prior to the time the Marks are published on the
Internet or in press materials or marketing or advertising materials. If
Netscape determines that Licensee is using the
2
<PAGE> 3
Marks improperly, and/or in connection with Storefront Services which do not
meet the standards set forth in Section 4.1 or Section 4.2, Netscape shall
notify Licensee, and Licensee shall remedy the improper use within two (2)
business days following receipt of such notice from Netscape. Use of the Marks
in connection with goods or services other than the Storefront Services or the
promotion of the Storefront Services, or in a manner inconsistent with the
Trademark Guidelines, shall constitute material breach of this Agreement. If
such material breach has not been cured within two (2) business days following
receipt of notice from Netscape, Netscape may immediately terminate the license
grant described in Section 1.1.
4.4 Legend; Disclaimer. Licensee shall include with any online
publication or publication in print containing the Marks a trademark legend
indicating that "Netscape is a trademark of Netscape Communications Corporation
registered in the U.S. and other jurisdictions" and that the Marks are used
under license, and a disclaimer that Licensee and not Netscape has produced the
Storefront Services and is responsible for the content thereof.
4.5 Storefront Services. If Netscape reasonably determines that the
Storefront Services contain or present any material that constitutes an
infringement of Netscape's trademark, patents, copyrights or trade secrets,
Licensee's right to use the Marks pursuant to the grant described in Section 1.1
shall, upon written notice from Netscape of such determination, be suspended
until Licensee has revised, removed or removed links to such material to
Netscape's reasonable satisfaction. If such revision or removal of, or removal
of links to, such material to Netscape's reasonable satisfaction has not
occurred within thirty (30) days of the notice from Netscape described in the
preceding sentence, Netscape may immediately terminate the license grant
described in Section 1.1. If Netscape reasonably determines that the Storefront
Services contains or presents any material that could reasonably constitute an
infringement of a third party's copyright, trademark, patents or trade secrets,
Netscape may immediately terminate this Agreement if Licensee has not revised to
Netscape's reasonable satisfaction that material or presentation within one (1)
business day of written notice from Netscape.
4.6 Licensee Web Sites. If Netscape, in its sole discretion, at any
time determines that Licensee's web sites or sites operated by Licensee on
behalf of other parties contain any material or present any material in a manner
that Netscape reasonably deems inaccurate or an improper tarnishment of
Netscape, the Netscape products or the Marks, or an infringement of Netscape's
or a third party's rights, including but not limited to rights under trademark,
patent, trade secret or copyright laws, or unlawful in any country or territory,
Netscape may immediately terminate this Agreement if Licensee has not revised to
Netscape's reasonable satisfaction that material or presentation within three
(3) business days of written notice from Netscape.
5. Confidential Information and Disclosure. Unless required by law, and
except to assert its rights hereunder or for disclosures to its own employees on
a "need to know" basis, Licensee agrees not to disclose the terms of this
Agreement or matters relating thereto without the prior written consent of
Netscape, which consent shall not be unreasonably withheld.
6. Indemnification by Licensee. Licensee agrees to indemnify Netscape and
to hold Netscape harmless from any and all liability, loss, damages, claims or
causes of action, including reasonable legal fees and expenses that may be
incurred by Netscape, arising out of performance of this Agreement, operation of
the Storefront Services, or Licensee's use of the marks and content on
Licensee's web sites linked to or presented in conjunction with the Marks,
except for liability, loss, damages, claims or causes of action arising out of
third party claims (i) that Licensee's use of the Marks infringe that third
party's valid and subsisting U.S. trademark registration in the Marks or (ii) in
respect of any act or omission of Netscape giving rise to liability. Netscape
shall provide Licensee with prompt written notice of any claim for which
indemnification is sought and cooperating fully with and allowing Licensee to
control the defense and settlement of such claim. Netscape may not settle any
such claim without Licensee's prior written consent, which consent shall not be
unreasonably withheld. Netscape shall have the right, at its own expense, to
participate in the defense of any such claim.
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7. Termination
7.1 Term and Termination. This Agreement and the term of the license
granted herein shall be perpetual unless terminated as provided in Section 4.3,
Section 4.5 or this Section 7.1. Netscape shall have the right to terminate this
Agreement upon the occurrence of one or more of the following: (a) any material
breach by Licensee of its obligations under this Agreement which remains uncured
for thirty (30) days or more following written notice of such breach from
Netscape, (b) use of the Marks by Licensee in a manner which is disparaging of
Netscape or its products and services and which remains uncured for two (2) days
following notice from Netscape, (c) Licensee and Netscape decide not to jointly
develop and launch the Storefront Services, or (d) the Storefront Services are
discontinued.
7.2 Effect of Termination. Upon termination of the Agreement,
Licensee agrees it shall immediately cease any and all use of the Marks.
8. General
8.1 Governing Law. This Agreement shall be subject to and governed
in all respects by the statutes and laws of the State of California without
regard to the conflicts of laws principles thereof. The Superior Court of Santa
Clara County and/or the United States District Court for the Northern District
of California shall have exclusive jurisdiction and venue over all controversies
in connection herewith, and each party hereby consents to such exclusive and
personal jurisdiction and venue.
8.2 Entire Agreement. This Agreement, including Exhibit A, Exhibit B
and Exhibit C attached hereto, constitutes the entire Agreement and
understanding between the parties and integrates all prior discussions between
them related to its subject matter. No modification of any of the terms of this
Agreement shall be valid unless in writing and signed by an authorized
representative of each party.
8.3 Assignment. Licensee may not assign any of its rights or
delegate any of its duties under this Agreement, or otherwise transfer this
Agreement (by merger, operation of law or otherwise) without the prior written
consent of Netscape. Any attempted assignment, delegation or transfer in
derogation hereof shall be null and void.
8.4 Notices. All notices required or permitted hereunder shall be
given in writing addressed to the respective parties as set forth below and
shall either be (a) personally delivered or (b) transmitted by
nationally-recognized private express courier, and shall be deemed to have been
given on the date of receipt if delivered personally, or two (2) days after
deposit with such express courier. Either party may change its address for
purposes hereof by written notice to the other in accordance with the provisions
of this Subsection. The addresses for the parties are as follows:
Licensee: Netscape:
CyberSource Corporation Netscape Communications Corporation
550 South Winchester Blvd., Suite 301 501 East Middlefield Road, MV-002
San Jose, California 95128-2545 Mountain View, CA 94043
Fax: (415) 528-4123
Fax: [(408) 241-8258] Attn: General Counsel
Attn: [__________________________]
8.5 Force Majeure. Neither party will be responsible for any failure
to perform its obligations under this Agreement due to causes beyond its
reasonable control, including but not limited to acts of God, war, riot,
embargoes, acts of civil or military authorities, fire, floods or accidents.
8.6 Waiver. Any waiver, either expressed or implied, by either party
of any default by the other in the observance and performance of any of the
conditions, covenants of duties set forth herein shall not constitute or be
construed as a waiver of any subsequent or other default.
8.7 Headings. The headings to the Sections and Subsections of this
Agreement are included merely for convenience of reference and shall not affect
the meaning of the language included therein.
4
<PAGE> 5
8.8 Independent Contractors. The parties acknowledge and agree that
they are dealing with each other hereunder as independent contractors. Nothing
contained in the Agreement shall be interpreted as constituting either party the
joint venture or partner of the other party or as conferring upon either party
the power of authority to bind the other party in any transaction with third
parties.
8.9 Survival. The provisions of Section 1.2 (Reservation of Rights),
3 (Ownership of Marks), 4.4 (Legend; Disclaimer), 5 (Confidential Information
and Disclosure), 6 (Indemnification by Licensee), 7.2 (Effect of Termination)
and 8 (General) will survive any termination of this Agreement
8.10 Equitable Relief. Licensee recognizes and acknowledges that a
breach by Licensee of this Agreement will cause Netscape irreparable damage
which cannot be readily remedied in monetary damages in an action at law, and
may, in addition thereto, constitute an infringement of the Marks. In the event
of any default or breach by Licensee that could result in irreparable harm to
Netscape or cause some loss or dilution of Netscape's goodwill, reputation, or
rights in the Marks, Netscape shall be entitled to immediate injunctive relief
to prevent such irreparable harm, loss, or dilution in addition to any other
remedies available.
8.11 Severability. Except as otherwise set forth in this Agreement,
the provisions of this Agreement are severable, and if any one or more such
provisions shall be determined to be invalid, illegal or unenforceable, in whole
or in part, the validity, legality and enforceability of any of the remaining
provisions or portions thereof shall not in any way be affected thereby and
shall nevertheless be binding between the parties hereto. Any such invalid,
illegal or unenforceable provision or portion thereof shall be changed and
interpreted so as to best accomplish the objectives of such provision or portion
thereof within the limits of applicable law.
8.12 Attorney's Fees. In the event of any action, suit, or proceeding
brought by either party to enforce the terms of this Agreement, the prevailing
party shall be entitled to receive its costs, expert witness fees, and
reasonable attorneys fees and expenses, including costs and fees on appeal.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the Effective
Date.
"LICENSEE" "NETSCAPE"
CYBERSOURCE CORPORATION NETSCAPE COMMUNICATIONS
CORPORATION
By: /s/ JOHN PETTITT By: /s/ MIKE HOMER
------------------------------- ----------------------------------
Name: John Pettitt Name: Mike Homer
----------------------------- --------------------------------
Title: Exec VP Title: Senior VP Marketing
---------------------------- -------------------------------
Date: 23 June 1997 Date: June 23
----------------------------- --------------------------------
Exhibit A: Licensed Netscape Trademarks
Exhibit B: Titles; Target Language and Geographic Combinations
Exhibit C: Trademark Guidelines
5
<PAGE> 6
EXHIBIT A
MARKS
NETSCAPE U.S. Federal Trademark Registration No. 2,027,552
NETSCAPE SOFTWARE DEPOT
1
<PAGE> 7
EXHIBIT B
TITLE; TARGET LANGUAGE AND GEOGRAPHIC COMBINATIONS
Title Target Language Geographic Territory
- ----- --------------- --------------------
Netscape Software Depot by English United States and Canada
software.net
1
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EXHIBIT C
TRADEMARK GUIDELINES
Netscape's Trademark Guidelines are published at the following URL:
http://home.netscape.com/misc/trademarks.html#trademarks
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Exhibit 10.16
[CYBERSOURCE LETTERHEAD]
18 March 1998
Mr. Mark Breier
1406 143rd Avenue N.E.
Bellevue, WA 98807
Re: Employment with CyberSource Corporation
Dear Mark:
CyberSource Corporation (also known as "software.net") (the "Company") is
pleased to offer you a position as Chief Executive Officer & President of the
Company and a position on its Board of Directors, on the terms set forth in
this letter agreement, effective upon your acceptance by execution of a
counterpart copy of this letter where indicated below.
1. Reporting Duties and Responsibilities. In this position you will report to
the Board of Directors of the Company. This offer is for a full time position,
located at the offices of the Company, except as travel to other locations may
be necessary to fulfill your responsibilities. Upon your acceptance of this
offer to become the Company's Chief Executive Officer & President, the Board of
Directors will elect you to fill a position on the Company's Board of
Directors, and while you remain the Chief Executive Officer & President of the
Company, the Board of Directors will continue to nominate you for a position on
the Board of Directors of the Company.
2. Salary; Bonus; Benefits and Vacation. Your initial base salary will be
$16,667 per month, (an annualized rate of $200,000), subject to adjustment in
good faith by the Company's Board of Directors, payable in accordance with the
Company's customary payroll practice as in effect from time to time. You will
also be eligible to earn an annual bonus in the amount of $50,000, payable
quarterly, based on the achievement of objectives which you and the Company's
Board of Directors will mutually determine in good faith. The objectives for
your first year will be determined promptly after your acceptance of this
letter, objectives for future years will be determined promptly after the
beginning of each fiscal year of the Company. As a special part of your bonus
plan, the Company will guarantee $25,000 of your first year bonus, payable in
four equal installments of $6,250 at the end of each of your first four
quarters of employment which shall be paid provided you are then employed by
the Company. You will also receive the highest standard benefits accorded the
Company's executives under the Company's employee benefits package, and will be
subject to the Company's vacation policy, as such package and policy are in
effect from time to time.
3. Stock Options. Effective within 7 days of your acceptance of the offer
contained in this letter, and subject to the Board of Directors approval, the
Company will grant you an option to purchase 1,000,000 shares of the Company's
Common Stock pursuant to the Company's stock option plan and standard stock
option agreement. All options will have an exercise price that will be equal to
the fair market value of the Company's Common Stock at the date of grant. The
options will become exercisable over a four-year exercise schedule with 25% of
the shares vesting at the end of your first twelve months of service, and with
an additional 2.083% vesting per month thereafter, at the close of each month
during which you remain employed with the Company. In the event that a change
of control (defined to mean the Company is sold or is a party to a merger with
another company resulting in the Company's shareholders immediately prior to
such transaction owning less than 50% of the successor company's voting capital
stock immediately following such transaction) occurs, or if you resign due to a
material reduction in your title or
<PAGE> 2
2
duties, or your principal office is moved by the Company to a location more
than 60 miles away from San Jose, California within 18 months of start date,
the vesting period of all options held by you will be accelerated by twelve
months. In the event that such a change of control or resignation as described
above occurs after 18 months of your start date, fifty percent of the unvested
options held by you will be immediately vested. The balance of the unvested
options held by you will continue to vest under the original vesting schedule.
4. Temporary Living/Commute Expenses. The Company will provide reimbursement
for temporary living expenses in the San Jose area for a period not to exceed
the earlier of 5 months or until such time that your family establishes a
primary residence in the Greater San Jose area, which we anticipate will take
place prior to August 31, 1998. In the interim, you will also be reimbursed for
commute/travel expenses incurred between Seattle and the Greater San Jose area.
5. Confidential Information. As an employee of the Company, you will have
access to certain Company confidential information and you may, during the
course of your employment, develop certain information or inventions which will
be the property of the Company. To protect the interest of the Company, you
will need to sign the Company's standard "Employee Inventions and
Confidentiality Agreement" as a condition of your employment. We wish to
impress upon you that we do not wish you to bring with you any confidential or
proprietary material of any former employer or to violate any other obligation
to your former employers, and you have advised us that in connection with your
employment by the Company you will not bring with you or otherwise use any such
confidential or proprietary material. You have also advised us that to your
knowledge your former employer, Amazon.com, has no concrete plans to make a
broadscale entry into the electronic commerce of software. In the event that
your former employer, Amazon.com institutes any action, suit or proceeding
claiming that your employment by the Company breaches the non-compete
provisions of your employment agreement with Amazon.com, the Company will
indemnify and hold you harmless from and against all liabilities, judgments,
damages, expenses and costs (including reasonable legal fees and costs)
directly arising from such action, suit or proceeding.
6. Relocation Assistance. The Company will provide reimbursement for all
standard household moving expenses to include packing/unpacking as well as
shipment of standard household items from your current residence in Bellevue,
Washington to the Greater San Jose area. The Company will also provide a one
time cash relocation allowance of $50,000 to be paid upon the closing of sale
of your Bellevue home or the closing of purchase of your California home,
whichever occurs first. This relocation allowance is intended to cover
transaction costs associated with the sale of your Bellevue home as well as the
purchase of your California home to include such items as Realtor fees, loan
points, closing costs and other miscellaneous expenses.
7. Housing Allowance. Starting at the purchase/close of escrow of your
California residence, software.net will provide a $3,000 per month allowance
for 18 months which will help to offset your increased costs associated with
the purchase of a California home provided you continue to be employed by the
Company.
8. Severance Payments/Acceleration Upon Termination. If the Board of
Directors terminate your employment with the Company for any reason other than
fraud or willful malfeasance (or similar wrongful acts) or willful and
continuing (after notice) neglect of duties, the Company will pay you as agreed
upon severance an amount equal to your then base salary for the lesser of
(i) twelve months; or (ii) the number of months before you obtain a position
with another firm. You agree that the payments set forth in this offer letter
constitute all payments that you shall be entitled to, and under any theory, in
the event of any termination of employment. In the event you are terminated
with or without cause at any time prior to your first year anniversary date,
125,000 shares of the Company's Common Stock will immediately vest. In the
event you are terminated with or without cause (except for the reasons set
forth in the first sentence of this paragraph) after
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3
Your 12 month anniversary date up until 18 months after start of employment,
the vesting period of all options held by you will be accelerated by six (6)
months.
9. At-Will Employment. While we look forward to a long term relationship,
should you decide to accept our offer, you will be an at-will employee of the
Company, which means the employment relationship can be terminated by either of
us for any reason at any time. Any statements or representations to the contrary
(and, indeed, any statements contradicting any provision in this letter) should
be regarded by you as ineffective. Further, your participation in any stock
option or benefit program is not to be regarded as assuring you of continuing
employment for any particular period of time.
10. Authorization to Work. Because of Federal regulations adopted in the
Immigration Reform and Control Act of 1986, you will need to present
documentation demonstrating that you have authorization to work in the United
States. If you have any questions about this requirement, which applies to U.S.
citizens and non-U.S. citizens alike, please contact our human resources
department.
11. Term of Offer. This offer will remain open until March 24, 1998. If you
decide to accept our offer, and I hope that you will, please sign the enclosed
copy of this letter in the space indicated and return it to me. Upon your
signature below, this will become our binding agreement with respect to the
subject matter of this letter, superseding in their entirety all other or prior
agreements by you with the Company as to the specific subjects of this letter,
you will be binding upon and inure to the benefit of our respective successors
and assigns, and your heirs, administrators and executors, will be governed by
California law, and may only be amended in a writing signed by you and the
Company.
12. Start Date. This offer is made with the understanding that you will be
available to start employment with software.net on or before April 7, 1998.
Mark, we are excited and pleased to have you join the software.net team. I am
confident that we will successfully capitalize on our enormous market
opportunity.
Sincerely,
/s/ WILLIAM S. McKIERNAN
- ---------------------------------
William S. McKiernan
President & CEO
Acknowledged, Accepted and Agreed Date: 3/23/98
/s/ MARK BREIER
- ---------------------------------
Mark Breier
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EXHIBIT 10.17
CREDIT AGREEMENT
DATED AS OF MAY 21, 1998
AMONG
SOFTWARE.NET CORPORATION,
DEUTSCHE BANK AG, NEW YORK BRANCH,
AS AGENT,
AND
THE OTHER FINANCIAL INSTITUTIONS PARTY HERETO
<PAGE> 2
CREDIT AGREEMENT
This CREDIT AGREEMENT is entered into as of May 21, 1998, among
SOFTWARE.NET CORPORATION, a California corporation (the "Borrower"), the several
financial institutions from time to time party to this Agreement (collectively,
the "Banks"; individually, a "Bank"), and DEUTSCHE BANK AG, New York Branch, as
agent for the Banks.
WHEREAS, the Banks have agreed to make available to the Borrower a
revolving credit facility upon the terms and conditions set forth in this
Agreement;
NOW, THEREFORE, in consideration of the mutual agreements, provisions
and covenants contained herein, the parties agree as follows:
ARTICLE I
DEFINITIONS
1.1 CERTAIN DEFINED TERMS. The following terms have the following
meanings:
"ACQUISITION" means any transaction or series of related transactions
for the purpose of or resulting, directly or indirectly, in (a) the acquisition
of all or substantially all of the assets of a Person, or of any business or
division of a Person, (b) the acquisition of in excess of 50% of the capital
stock, partnership interests, membership interests or equity of any Person, or
otherwise causing any Person to become a Subsidiary, or (c) a merger or
consolidation or any other combination with another Person (other than a Person
that is a Subsidiary) provided that the Borrower or the Subsidiary is the
surviving entity.
"AFFILIATE" means, as to any Person, any other Person which, directly
or indirectly, is in control of, is controlled by, or is under common control
with, such Person. A Person shall be deemed to control another Person if the
controlling Person possesses, directly or indirectly, the power to direct or
cause the direction of the management and policies of the other Person, whether
through the ownership of voting securities, membership interests, by contract,
or otherwise.
"AGENT" means Deutsche Bank in its capacity as agent for the Banks
hereunder, and any successor agent arising under SECTION 9.9.
"AGENT-RELATED PERSONS" means Deutsche Bank and any successor agent
arising under SECTION 9.9, together with their respective Affiliates (including,
in the case of Deutsche Bank, Deutsche Morgan Grenfell Inc.), and the officers,
directors, employees, agents and attorneys-in-fact of such Persons and
Affiliates.
"AGENT'S PAYMENT OFFICE" means the address for payments set forth on
Schedule 10.2 or such other address as the Agent may from time to time specify.
1.
<PAGE> 3
"AGREEMENT" means this Credit Agreement.
"APPLICABLE MARGIN" means 3.00% per annum.
"ASSIGNEE" has the meaning specified in SUBSECTION 10.8(a).
"ATTORNEY COSTS" means and includes all reasonable fees and
disbursements of any law firm or other external counsel, the reasonable
allocated cost of internal legal services and all disbursements of internal
counsel.
"BANK" has the meaning specified in the introductory clause hereto.
"BANKRUPTCY CODE" means the Federal Bankruptcy Reform Act of 1978 (11
U.S.C. Section 101, et seq.).
"BASE RATE" means, for any day, the higher of: (a) 0.50% per annum
above the latest Federal Funds Rate; and (b) the rate of interest in effect for
such day as publicly announced from time to time by Deutsche Bank in New York,
New York, as its "prime lending rate." (The "prime lending rate" is a rate set
by Deutsche Bank based upon various factors including Deutsche Bank's costs and
desired return, general economic conditions and other factors, and is used as a
reference point for pricing some loans, which may be priced at, above, or below
such announced rate.)
Any change in the prime lending rate announced by Deutsche Bank shall
take effect at the opening of business on the day specified in the public
announcement of such change.
"BASE RATE LOAN" means a Loan that bears interest based on the Base
Rate.
"BORROWING" means a borrowing hereunder consisting of Loans made to
the Borrower on the same day by the Banks under ARTICLE II.
"BORROWING DATE" means any date on which a Borrowing occurs under
SECTION 2.3.
"BUSINESS DAY" means any day other than a Saturday, Sunday or other
day on which commercial banks in New York City or San Francisco are authorized
or required by law to close.
"CAPITAL ADEQUACY REGULATION" means any guideline, request or
directive of any central bank or other Governmental Authority, or any other law,
rule or regulation, whether or not having the force of law, in each case,
regarding capital adequacy of any bank or of any corporation controlling a bank.
"CHANGE OF CONTROL" means the occurrence after the date of this
Agreement of: (i) any Person, or two or more Persons acting in concert,
acquiring beneficial ownership (within the meaning of Rule 13d-3 of the
Securities and Exchange Commission under the Securities Exchange Act of 1934, as
amended), directly or indirectly, of securities of Borrower (or other securities
convertible into such securities) representing greater than 50% of the combined
voting power of all securities of Borrower entitled to vote in the election of
directors; (ii) any Person, or
2.
<PAGE> 4
two or more Persons acting in concert, acquiring by contract or otherwise, or
entering into a contract or arrangement which, upon consummation, will result in
its or their acquisition of, or control over, securities of Borrower (or other
securities convertible into such securities) representing greater than 50% of
the combined voting power of all securities of Borrower entitled to vote in the
election of directors; or (iii) during any twelve consecutive calendar months,
individuals who were directors of Borrower on the first day of such period shall
cease to constitute a majority of the board of directors of Borrower.
"CLOSING DATE" means the date on which all conditions precedent set
forth in SECTION 4.1 are satisfied or waived by all Banks (or, in the case of
SUBSECTION 4.1 (e), waived by the Person entitled to receive such payment).
"CODE" means the Internal Revenue Code of 1986, and regulations
promulgated thereunder.
"COLLATERAL" means all property and interests in property and
proceeds thereof now owned or hereafter acquired by the Borrower and its
Subsidiaries in or upon which a Lien now or hereafter exists in favor of the
Lenders, or the Agent on behalf of the Banks, whether under this Agreement or
under any other documents executed by any such Person and delivered to the Agent
or the Banks.
"COLLATERAL DOCUMENTS" means, collectively, (i) the Security
Agreement, and all other security agreements, mortgages, deeds of trust, patent
and trademark assignments, lease assignments, guarantees and other similar
agreements between the Borrower or any Subsidiary and the Banks or the Agents
for the benefit of the Banks now or hereafter delivered to the Banks or the
Agent pursuant to or in connection with the transactions contemplated hereby,
and all financing statements (or comparable documents now or hereafter filed in
accordance with the Uniform Commercial Code or comparable law) against the
Borrower or any Subsidiary as debtor in favor of the Banks or the Agent for the
benefit of the Banks as secured party, and (ii) any amendments, supplements,
modifications, renewals, replacements, consolidations, substitutions and
extensions of any of the foregoing.
"COMMITMENT," as to each Bank, means the amount set forth opposite
its name on Schedule 2.1.
"COMPLIANCE CERTIFICATE" means a certificate substantially in the
form of EXHIBIT C.
"CONTINGENT OBLIGATION" means, as to any Person, any direct or
indirect liability of that Person, whether or not contingent, with or without
recourse, (a) with respect to any Indebtedness, lease, dividend, letter of
credit or other obligation (the "primary obligations") of another Person (the
"primary obligor"), including any obligation of that Person (i) to purchase,
repurchase or otherwise acquire such primary obligations or any security
therefor, (ii) to advance or provide funds for the payment or discharge of any
such primary obligation, or to maintain working capital or equity capital of the
primary obligor or otherwise to maintain the net worth or solvency or any
balance sheet item, level of income or financial condition of the primary
obligor, (iii) to purchase property, securities or services primarily for the
purpose of assuring the owner of any
3.
<PAGE> 5
such primary obligation of the ability of the primary obligor to make payment of
such primary obligation, or (iv) otherwise to assure or hold harmless the holder
of any such primary obligation against loss in respect thereof (each, a
"GUARANTY OBLIGATION"); (b) with respect to any Surety Instrument issued for the
account of that Person or as to which that Person is otherwise liable for
reimbursement of drawings or payments; or (c) to purchase any materials,
supplies or other property from, or to obtain the services of, another Person if
the relevant contract or other related document or obligation requires that
payment for such materials, supplies or other property, or for such services,
shall be made regardless of whether delivery of such materials, supplies or
other property is ever made or tendered, or such services are ever performed or
tendered. The amount of any Contingent Obligation shall, in the case of Guaranty
Obligations, be deemed equal to the stated or determinable amount of the primary
obligation in respect of which such Guaranty Obligation is made or, if not
stated or if indeterminable, the maximum reasonably anticipated liability in
respect thereof, and in the case of other Contingent Obligations shall be equal
to the maximum reasonably anticipated liability in respect thereof.
"CONTRACTUAL OBLIGATION" means, as to any Person, any provision of
any security issued by such Person or of any agreement, undertaking, contract,
indenture, mortgage, deed of trust or other instrument, document or agreement to
which such Person is a party or by which it or any of its property is bound.
"DEFAULT" means any event or circumstance which, with the giving of
notice, the lapse of time, or both, would (if not cured or otherwise remedied
during such time) constitute an Event of Default.
"DEUTSCHE BANK" means Deutsche Bank AG, New York Branch, the New York
branch of Deutsche Bank AG, a German banking corporation.
"DOLLARS", "DOLLARS" and "$" each mean lawful money of the United
States.
"EBITDA" means, with respect to the Borrower and its Subsidiaries for
any applicable period, Net Income for such period, plus, to the extent deducted
in determining Net Income for such period, the aggregate amount of (i) Interest
Expense, (ii) federal, state, local, foreign income and business and occupation
taxes and (iii) depletion, depreciation and amortization of tangible and
intangible assets.
"ELIGIBLE ASSIGNEE" means (a) a commercial bank organized under the
laws of the United States, or any state thereof, and having a combined capital
and surplus of at least $100,000,000; (b) a commercial bank organized under the
laws of any other country which is a member of the Organization for Economic
Cooperation and Development (the "OECD"), or a political subdivision of any such
country, and having a combined capital and surplus of at least $100,000,000,
provided that such bank is acting through a branch or agency located in the
country in which it is organized or another country which is also a member of
the OECD; and (c) a Person that is primarily engaged in the business of
commercial banking and that is (i) a Subsidiary of a Bank, (ii) a Subsidiary of
a Person of which a Bank is a Subsidiary, or (iii) a Person of which a Bank is a
Subsidiary.
4.
<PAGE> 6
"ENVIRONMENTAL CLAIMS" means all claims, however asserted, by any
Governmental Authority or other Person alleging potential liability or
responsibility for violation of any Environmental Law, or for release or injury
to the environment.
"ENVIRONMENTAL LAWS" means all federal, state or local laws,
statutes, common law duties, rules, regulations, ordinances and codes, together
with all administrative orders, directed duties, requests, licenses,
authorizations and permits of, and agreements with, any Governmental
Authorities, in each case relating to environmental, health, safety and land use
matters; including without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 ("CERCLA"), the Clean Air Act, the
Federal Water Pollution Control Act of 1972, the Solid Waste Disposal Act, the
Federal Resource Conservation and Recovery Act, the Toxic Substances Control Act
and the Emergency Planning and Community Right-to-Know Act.
"ERISA" means the Employee Retirement Income Security Act of 1974,
and regulations promulgated thereunder.
"ERISA AFFILIATE" means any trade or business (whether or not
incorporated) under common control with the Borrower within the meaning of
Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for
purposes of provisions relating to Section 412 of the Code).
"ERISA EVENT" means (a) a Reportable Event with respect to a Pension
Plan; (b) a withdrawal by the Borrower or any ERISA Affiliate from a Pension
Plan subject to Section 4063 of ERISA during a plan year in which it was a
substantial employer (as defined in Section 4001(a)(2) of ERISA) or a cessation
of operations which is treated as such a withdrawal under Section 4062(e) of
ERISA; (c) a complete or partial withdrawal by the Borrower or any ERISA
Affiliate from a Multiemployer Plan or notification that a Multiemployer Plan is
in reorganization; (d) the filing of a notice of intent to terminate, the
treatment of a Plan amendment as a termination under Section 4041 or 4041A of
ERISA, or the commencement of proceedings by the PBGC to terminate a Pension
Plan or Multiemployer Plan; (e) an event or condition which might reasonably be
expected to constitute grounds under Section 4042 of ERISA for the termination
of, or the appointment of a trustee to administer, any Pension Plan or
Multiemployer Plan; or (f) the imposition of any liability under Title IV of
ERISA, other than PBGC premiums due but not delinquent under Section 4007 of
ERISA, upon the Borrower or any ERISA Affiliate.
"EVENT OF DEFAULT" means any of the events or circumstances specified
in SECTION 8.1.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, and
regulations promulgated thereunder.
"FDIC" means the Federal Deposit Insurance Corporation, and any
Governmental Authority succeeding to any of its principal functions.
"FEDERAL FUNDS RATE" means, for any day, the rate set forth in the
weekly statistical release designated as H. 15(519), or any successor
publication, published by the Federal Reserve
5.
<PAGE> 7
Bank of New York (including any such successor, "H. 15(519)") on the preceding
Business Day opposite the caption "Federal Funds (Effective)'; or, if for any
relevant day such rate is not so published on any such preceding Business Day,
the rate for such day will be the arithmetic mean as determined by the Agent of
the rates for the last transaction in overnight Federal funds arranged prior to
9:00 a.m. (New York City time) on that day by each of three leading brokers of
Federal funds transactions in New York City selected by the Agent.
"FRB" means the Board of Governors of the Federal Reserve System, and
any Governmental Authority succeeding to any of its principal functions.
"FURTHER TAXES" means any and all present or future taxes, levies,
assessments, imposts, duties, deductions, fees, withholdings or similar charges
(including, without limitation, net income taxes and franchise taxes), and all
liabilities with respect thereto, imposed by any jurisdiction on account of
amounts payable or paid pursuant to SECTION 3.1.
"GAAP" means generally accepted accounting principles set forth from
time to time in the opinions and pronouncements of the Accounting Principles
Board and the American Institute of Certified Public Accountants and statements
and pronouncements of the Financial Accounting Standards Board (or agencies with
similar functions of comparable stature and authority within the U.S. accounting
profession), which are applicable to the circumstances as of the Closing Date.
"GOVERNMENTAL AUTHORITY" means any nation or government, any state or
other political subdivision thereof, any central bank (or similar monetary or
regulatory authority) thereof, any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government,
and any corporation or other entity owned or controlled, through stock or
capital ownership or otherwise, by any of the foregoing.
"GUARANTY OBLIGATION" has the meaning specified in the definition of
"CONTINGENT OBLIGATION."
"HAZARDOUS MATERIALS" means all those substances that are regulated
by, or which may form the basis of liability under, any Environmental Law,
including all substances identified under any Environmental Law as a pollutant,
contaminant, hazardous waste, hazardous constituent, special waste, hazardous
substance, hazardous material, or toxic substance, or petroleum or petroleum
derived substance or waste.
"INDEBTEDNESS" of any Person means, without duplication, (a) all
indebtedness for borrowed money; (b) all obligations issued, undertaken or
assumed as the deferred purchase price of property or services (other than trade
payables entered into in the ordinary course of business on ordinary terms); (c)
all non-contingent reimbursement or payment obligations with respect to Surety
Instruments; (d) all obligations evidenced by notes, bonds, debentures or
similar instruments, including obligations so evidenced incurred in connection
with the acquisition of property, assets or businesses; (e) all indebtedness
created or arising under any conditional sale or other title retention
agreement, or incurred as financing, in either case with respect to property
acquired by the Person (even though the rights and remedies of the seller or
6.
<PAGE> 8
bank under such agreement in the event of default are limited to repossession or
sale of such property); (f) all obligations with respect to capital leases; (g)
all indebtedness referred to in clauses (a) through (f) above secured by (or for
which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any Lien upon or in property (including accounts
and contracts rights) owned by such Person, even though such Person has not
assumed or become liable for the payment of such Indebtedness; and (h) all
Guaranty Obligations in respect of indebtedness or obligations of others of the
kinds referred to in clauses (a) through (g) above.
For all purposes of this Agreement, the Indebtedness of any Person
shall include all recourse Indebtedness of any partnership or joint venture or
limited liability Borrower in which such Person is a general partner or a joint
venturer or a member.
"INDEMNIFIED LIABILITIES" has the meaning specified in SECTION 10.5.
"INDEMNIFIED PERSON" has the meaning specified in SECTION 10.5.
"INDEPENDENT AUDITOR" has the meaning specified in SUBSECTION 6.1(a).
"INSOLVENCY PROCEEDING" means, with respect to any Person, (a) any
case, action or proceeding with respect to such Person before any court or other
Governmental Authority relating to bankruptcy, reorganization, insolvency,
liquidation, receivership, dissolution, winding-up or relief of debtors, or (b)
any general assignment for the benefit of creditors, composition, marshalling of
assets for creditors, or other, similar arrangement in respect of its creditors
generally or any substantial portion of its creditors; undertaken under U.S.
Federal, state or foreign law, including the Bankruptcy Code.
"INTEREST EXPENSE" means, for any applicable period, the aggregate
consolidated interest expense (both cash and non-cash and determined without
regard to original issue discount) of the Borrower and its Subsidiaries for such
period, as determined in accordance with GAAP, including, to the extent
allocable to interest expense in accordance with GAAP, (i) all other fees paid
or owed with respect to the issuance or maintenance of Contingent Obligations
(including letters of credit of the Borrower and its Subsidiaries), and (ii) the
portion of any payments made in respect of obligations in respect of capitalized
leases of the Borrower and its Subsidiaries allocable to interest expense.
"IRS" means the Internal Revenue Service, and any Governmental
Authority succeeding to any of its principal functions under the Code.
"ISSUING BANK" means Deutsche Bank or such other Bank as shall
replace Deutsche Bank, with the consent of Majority Banks, as the Bank
designated to issue Letters of Credit for the account of the Borrower pursuant
to the terms and conditions of this Agreement.
"JOINT VENTURE" means a corporation, partnership, limited liability
company, joint venture or other similar legal arrangement (whether created by
contract or conducted through a
7.
<PAGE> 9
separate legal entity) now or hereafter formed by the Borrower or any of its
Subsidiaries with another Person in order to conduct a common venture or
enterprise with such Person.
"LETTER OF CREDIT" has the meaning set forth in SECTION 2.1(b).
"LETTER OF CREDIT APPLICATION" means an application by the Borrower
to the Issuing Bank in the Issuing Bank's standard form, with appropriate
insertions.
"LETTER OF CREDIT COMMITMENT" means an amount equal to Four Million
Dollars ($4,000,000), which amount is a sublimit of, and not in addition to, the
aggregate Commitments of the Banks, as such may be reduced from time to time
pursuant to this Agreement.
"LETTER OF CREDIT UNDRAWN AMOUNT" means the stated but undrawn amount
of any issued and outstanding Letters of Credit.
"LIBOR" means the rate of interest per annum determined by the Agent
to be the arithmetic mean (rounded upward to the next 1/16th of 1%) of the rates
of interest per annum notified to the Agent by Deutsche Bank AG, London Branch
as the rate of interest at which dollar deposits, in the approximate amount of
the Letter of Credit to be issued and having a maturity of three (3) months,
would be offered to major banks in the London interbank market at their request
at approximately 11:00 a.m. (London Time) two Business Days prior to the
issuance date of the Letter of Credit.
"LIEN" means any security interest, mortgage, deed of trust, pledge,
hypothecation, assignment, charge or deposit arrangement, encumbrance, lien
(statutory or other) or preferential arrangement of any kind or nature
whatsoever in respect of any property (including those created by, arising under
or evidenced by any conditional sale or other title retention agreement, the
interest of a lessor under a capital lease, any financing lease having
substantially the same economic effect as any of the foregoing, or the filing of
any financing statement naming the owner of the asset to which such lien relates
as debtor, under the Uniform Commercial Code or any comparable law) and any
contingent or other agreement to provide any of the foregoing, but not including
the interest of a lessor under an operating lease.
"LOAN" means an extension of credit by a Bank to the Borrower under
Article II.
"LOAN DOCUMENTS" means this Agreement, any Notes, the Collateral
Documents and all other documents delivered to the Agent or any Bank in
connection herewith.
"MAJORITY BANKS" means at any time one or more Banks then holding in
excess of 66-2/3% of the then aggregate unpaid principal amount of the Loans,
or, if no such principal amount is then outstanding, one or more Banks then
having in excess of 66-2/3% of the Commitments.
"MARGIN STOCK" means "margin stock" as such term is defined in
Regulation G, T, U or X of the FRB.
"MATERIAL ADVERSE EFFECT" means (a) a material adverse change in, or
a material adverse
8.
<PAGE> 10
effect upon, the operations, business, properties, financial condition or
prospects of the Borrower or the Borrower and its Subsidiaries taken as a whole;
(b) a material impairment of the ability of the Borrower or any Subsidiary to
perform under any Loan Document and to avoid any Event of Default; or (c) a
material adverse effect upon (i) the legality, validity, binding effect or
enforceability against the Borrower or any Subsidiary of any Loan Document, or
(ii) the perfection or priority of any Lien granted under any of the Collateral
Documents;
"MATURITY DATE" means November 16, 1998.
"MODIFIED QUICK RATIO" means the sum of (a) cash, cash equivalents
and accounts receivable, divided by the sum of (b) current liabilities plus the
outstanding principal amount of the Term Loan, in each case determined in
accordance with GAAP.
"MULTIEMPLOYER PLAN" means a "multiemployer plan", within the meaning
of Section 4001(a)(3) of ERISA, to which the Borrower or any ERISA Affiliate
makes, is making, or is obligated to make contributions or, during the preceding
three calendar years, has made, or been obligated to make, contributions.
"NET INCOME" means, for any applicable period, the aggregate of all
amounts which, in accordance with GAAP, would be included as net income (or net
loss (including any extraordinary losses)) on a consolidated statement of income
of the Borrower and its Subsidiaries for such period; provided, however, that
"NET INCOME" shall exclude (i) the effect of any extraordinary or other
non-recurring non-cash gain outside the ordinary course of business and (ii) any
write-up in the value of any asset (to the extent such write-up exceeds any
write-down taken in connection with the same transaction or event which gave
rise to such write-up).
"NET OPERATING CASH FLOW" means the net amount of cash provided by
operating activities, as determined in accordance with GAAP.
"NOTE" means a promissory note executed by the Borrower in favor of a
Bank pursuant to SUBSECTION 2.2(b), in substantially the form of EXHIBIT B.
"NOTICE OF BORROWING" means a notice in substantially the form of
EXHIBIT A.
"OBLIGATIONS" means all advances, debts, liabilities, obligations,
covenants and duties arising under any Loan Document owing by the Borrower to
any Bank, the Agent, or any Indemnified Person, whether direct or indirect
(including those acquired by assignment), absolute or contingent, due or to
become due, now existing or hereafter arising.
"ORGANIZATION DOCUMENTS" means, for any corporation, the certificate
or articles of incorporation, the bylaws, any certificate of determination or
instrument relating to the rights of preferred shareholders of such corporation,
any shareholder rights agreement, and all applicable resolutions of the board of
directors (or any committee thereof) of such corporation.
"OTHER TAXES" means any present or future stamp, court or documentary
taxes or any other excise or property taxes, charges or similar levies which
arise from any payment made
9.
<PAGE> 11
hereunder or from the execution, delivery, performance, enforcement or
registration of, or otherwise with respect to, this Agreement or any other Loan
Documents.
"PARTICIPANT" has the meaning specified in SUBSECTION 10.12(d).
"PBGC" means the Pension Benefit Guaranty Corporation, or any
Governmental Authority succeeding to any of its principal functions under ERISA.
"PENSION PLAN" means a pension plan (as defined in Section 3(2) of
ERISA) subject to Title IV of ERISA which the Borrower sponsors, maintains, or
to which it makes, is making, or is obligated to make contributions, or in the
case of a multiple employer plan (as described in Section 4064(a) of ERISA) has
made contributions at any time during the immediately preceding five (5) plan
years.
"PERMITTED LIENS" has the meaning specified in SECTION 7.1.
"PERSON" means an individual, partnership, corporation, limited
liability company, business trust, joint stock company, trust, unincorporated
association, joint venture or Governmental Authority.
"PLAN" means an employee benefit plan (as defined in Section 3(3) of
ERISA) which the Borrower sponsors or maintains or to which the Borrower makes,
is making, or is obligated to make contributions and includes any Pension Plan.
"PRO RATA SHARE" means, as to any Bank at any time, the percentage
equivalent (expressed as a decimal, rounded to the ninth decimal place) at such
time of such Bank's Commitment divided by the combined Commitments of all Banks.
"REPORTABLE EVENT" means, any of the events set forth in Section
4043(c) of ERISA or the regulations thereunder, other than any such event for
which the 30-day notice requirement under ERISA has been waived in regulations
issued by the PBGC.
"REQUIREMENT OF LAW" means, as to any Person, any law (statutory or
common), treaty, rule or regulation or determination of an arbitrator or of a
Governmental Authority, in each case applicable to or binding upon the Person or
any of its property or to which the Person or any of its property is subject.
"RESPONSIBLE OFFICER" means the chief executive officer or the
president of the Borrower, or any other officer having substantially the same
authority and responsibility; or, with respect to compliance with financial
covenants, the chief financial officer, the treasurer or the controller of the
Borrower, or any other officer having substantially the same authority and
responsibility.
"SEC" means the Securities and Exchange Commission, or any
Governmental Authority succeeding to any of its principal functions.
"SOLVENT" means, as to any Person at any time, that (a) the fair
value of the property of
10.
<PAGE> 12
such Person is greater than the amount of such Person's liabilities (including
disputed, contingent and unliquidated liabilities) as such value is established
and liabilities evaluated for purposes of Section 101(31) of the Bankruptcy Code
and, in the alternative, for purposes of the applicable state law; (b) the
present fair saleable value of the property of such Person is not less than the
amount that will be required to pay the probable liability of such Person on its
debts as they become absolute and matured; (c) such Person is able to realize
upon its property and pay its debts and other liabilities (including disputed,
contingent and unliquidated liabilities) as they mature in the normal course of
business; (d) such Person does not intend to, and does not believe that it will,
incur debts or liabilities beyond such Person's ability to pay as such debts and
liabilities mature; and (e) such Person is not engaged in business or a
transaction, and is not about to engage in business or a transaction, for which
such Person's property would constitute unreasonably small capital.
"SUBORDINATED DEBT" means all indebtedness of the Borrower
subordinate to the payment of the Obligations of Borrower to the Banks
hereunder, the terms of which shall have been approved in writing by Majority
Banks.
"SUBSIDIARY" of a Person means any corporation, association,
partnership, limited liability company, joint venture or other business entity
of which 50% or more of the voting stock, membership interests or other equity
interests (in the case of Persons other than corporations), is owned or
controlled directly or indirectly by the Person, or one or more of the
Subsidiaries of the Person, or a combination thereof. Unless the context
otherwise clearly requires, references herein to a "Subsidiary" refer to a
Subsidiary of the Borrower.
"SURETY INSTRUMENTS" means all letters of credit (including standby
and commercial).
"TAXES" means any and all present or future taxes, levies,
assessments, imposts, duties, deductions, fees, withholdings or similar charges,
and all liabilities with respect thereto, excluding, in the case of each Bank
and the Agent, respectively, taxes imposed on or measured by its net income by
the jurisdiction (or any political subdivision thereof) under the laws of which
such Bank or the Agent, as the case may be, is organized or maintains a lending
office.
"TERM LOAN" has the meaning specified in SECTION 2.1.
"UNFUNDED PENSION LIABILITY" means the excess of a Plan's benefit
liabilities under Section 4001(a)(16) of ERISA, over the current value of that
Plan's assets, determined in accordance with the assumptions used for funding
the Pension Plan pursuant to Section 412 of the Code for the applicable plan
year.
"UNITED STATES" and "U.S." each means the United States of America.
"WHOLLY-OWNED SUBSIDIARY" means any Subsidiary at the time as of
which any determination is being made, is owned, beneficially and of record,
solely by the Borrower.
1.2 OTHER INTERPRETIVE PROVISIONS.
11.
<PAGE> 13
(a) The meanings of defined terms are equally applicable to
the singular and plural forms of the defined terms.
(b) The words "hereof", "herein", "hereunder" and similar
words refer to this Agreement as a whole and not to any particular provision of
this Agreement; and subsection, Section, Schedule and Exhibit references are to
this Agreement unless otherwise specified.
(c) (i) The term "documents" includes any and all
instruments, documents, agreements, certificates, indentures, notices and other
writings, however evidenced.
(ii) The term "including" is not limiting and
means "including without limitation."
(iii) In the computation of periods of time from
a specified date to a later specified date, the word "from" means "from and
including"; the words "to" and "until" each mean "to but excluding", and the
word "through" means 'to and including."
(d) Unless otherwise expressly provided herein, (i)
references to agreements (including this Agreement) and other contractual
instruments shall be deemed to include all subsequent amendments and other
modifications thereto, but only to the extent such amendments and other
modifications are not prohibited by the terms of any Loan Document, and (ii)
references to any statute or regulation are to be construed as including all
statutory and regulatory provisions consolidating, amending, replacing,
supplementing or interpreting the statute or regulation.
(e) The captions and headings of this Agreement are for
convenience of reference only and shall not affect the interpretation of this
Agreement.
(f) This Agreement and other Loan Documents may use several
different limitations, tests or measurements to regulate the same or similar
matters. All such limitations, tests and measurements are cumulative and shall
each be performed in accordance with their terms. Unless otherwise expressly
provided, any reference to any action of the Agent or the Banks by way of
consent, approval or waiver shall be deemed modified by the phrase "in its/their
sole discretion."
(g) This Agreement and the other Loan Documents are the
result of negotiations among and have been reviewed by counsel to the Agent, the
Borrower and the other parties, and are the products of all parties.
Accordingly, they shall not be construed against the Banks or the Agent merely
because of the Agent's or Banks' involvement in their preparation.
1.3 ACCOUNTING PRINCIPLES.
(a) Unless the context otherwise clearly requires, all
accounting terms not expressly defined herein shall be construed, and all
financial computations required under this Agreement shall be made, in
accordance with GAAP, consistently applied.
12.
<PAGE> 14
(b) References herein to "fiscal year" and "fiscal quarter"
refer to such fiscal periods of the Borrower.
ARTICLE II
THE CREDITS
2.1 AMOUNTS AND TERMS OF COMMITMENTS.
(a) Each Bank severally agrees, on the terms and conditions
set forth herein, to make loans to the Borrower (each such loan, a "TERM LOAN")
on the Closing Date in an amount not to exceed such Bank's Pro Rata Share of the
combined Commitments. Amounts borrowed as Term Loans hereunder may not be
prepaid.
(b) LETTER OF CREDIT SUBLIMIT UNDER TERM LOAN FACILITY.
Without limiting the generality of the foregoing, each Bank severally agrees
that the Borrower may, by delivery of notice to the Agent in accordance with
SECTION 2.3, also request the Issuing Bank to issue one or more standby letters
of credit for the account of Borrower, which letters of credit shall be in the
standard form of the Issuing Bank (each a "LETTER OF CREDIT"); in which event,
after satisfaction of all conditions precedent set forth in SECTION 4.1, the
Issuing Bank shall issue such Letters of Credit subject to and in accordance
with SECTION 2.15; provided, however, nothing contained in this Agreement shall
under any circumstance be deemed to require the Issuing Bank to issue any Letter
of Credit which, taking into account the issuance of such Letter of Credit,
would either cause the Letter of Credit Undrawn Amount to exceed the Letter of
Credit Commitment or cause the aggregate principal amount of the Term Loans then
outstanding plus the Letter of Credit Undrawn Amount to exceed the combined
Commitments.
2.2 LOAN ACCOUNTS.
(a) The Loans made by each Bank shall be evidenced by one
or more loan accounts or records maintained by such Bank in the ordinary course
of business. The loan accounts or records maintained by the Agent and each Bank
shall be conclusive absent manifest error of the amount of the Loans made by the
Banks to the Borrower and the interest and payments thereon. Any failure so to
record or any error in doing so shall not, however, limit or otherwise affect
the obligation of the Borrower hereunder to pay any amount owing with respect to
the Loans.
(b) Upon the request of any Bank made through the Agent,
the Loans made by such Bank may be evidenced by one or more Notes, instead of or
in addition to loan accounts. Each such Bank shall endorse on the schedules
annexed to its Note(s) the date, amount and maturity of each Loan made by it and
the amount of each payment of principal made by the Borrower with respect
thereto. Each such Bank is irrevocably authorized by the Borrower to endorse its
Note(s) and each Bank's record shall be conclusive absent manifest error;
provided, however, that the failure of a Bank to make, or an error in making, a
notation thereon with respect to any Loan shall not limit or otherwise affect
the obligations of the Borrower hereunder or under any such Note to such Bank.
13.
<PAGE> 15
2.3 PROCEDURE FOR BORROWING.
(a) The Borrowing of the Term Loan shall be made on the
Closing Date upon the Borrower's irrevocable written notice delivered to the
Agent in the form of a Notice of Borrowing (which notice must be received by the
Agent prior to 11:30 a.m. (New York City time) one Business Day prior to the
requested Borrowing Date specifying:
(i) the amount of the Borrowing, which shall be
in an aggregate minimum amount of $250,000 or any multiple of $50,000 in excess
thereof; and
(ii) the requested Borrowing Date, which shall be
a Business Day.
(b) The Agent will promptly notify each Bank of its receipt
of any Notice of Borrowing and of the amount of such Bank's Pro Rata Share of
that Borrowing.
(c) Each Bank will make the amount of its Pro Rata Share of
each Borrowing available to the Agent for the account of the Borrower at the
Agent's Payment Office by 11:30 a.m. (New York City time) on the Borrowing Date
requested by the Borrower in funds immediately available to the Agent. The
proceeds of all such Loans will then be made available to the Borrower by the
Agent at such office by crediting the account of the Borrower on the books of
Deutsche Bank with the aggregate of the amounts made available to the Agent by
the Banks and in like funds as received by the Agent.
2.4 INTENTIONALLY DELETED.
2.5 INTENTIONALLY DELETED.
2.6 INTENTIONALLY DELETED.
2.7 REPAYMENT. The Borrower shall repay to the Banks on
the Maturity Date the aggregate principal amount of
Term Loans outstanding on such date.
2.8 INTEREST.
(a) Each Loan shall bear interest on the outstanding
principal amount thereof from the applicable Borrowing Date at a rate per annum
equal to the Base Rate, plus the Applicable Margin.
(b) Interest on each Loan shall be paid in arrears on the
last day of each calendar quarter, commencing June 30, 1998. Interest shall also
be paid upon payment (including prepayment) in full of the Loans and, during the
existence of any Event of Default, interest shall be paid on demand of the Agent
at the request or with the consent of the Majority Banks.
(c) Notwithstanding subsection (a) of this Section, while
any Event of Default exists or after acceleration, the Borrower shall pay
interest (after as well as before entry of judgment thereon to the extent
permitted by law) on the principal amount of all outstanding
14.
<PAGE> 16
Obligations, at a rate per annum which is determined by adding 3% per annum to
the Applicable Margin then in effect for such Loans and, in the case of
Obligations not subject to an Applicable Margin, at a rate per annum equal to
the Base Rate plus 6%.
(d) Anything herein to the contrary notwithstanding, the
obligations of the Borrower to any Bank hereunder shall be subject to the
limitation that payments of interest shall not be required for any period for
which interest is computed hereunder, to the extent (but only to the extent)
that contracting for or receiving such payment by such Bank would be contrary to
the provisions of any law applicable to such Bank limiting the highest rate of
interest that may be lawfully contracted for, charged or received by such Bank,
and in such event the Borrower shall pay such Bank interest at the highest rate
permitted by applicable law.
2.9 FEES.
(a) The Borrower shall pay an arrangement fee to the Agent
for the Agent's own account, equal to 2.50% of the aggregate Commitments, which
shall be due and payable on the Closing Date.
(b) The Borrower shall pay to Agent for the account of each
Bank in accordance with its Pro Rata Share, a fee in the amount of seven and
one-half percent (7.5%) of the amount by which the Borrower's gross revenues
(determined in accordance with GAAP) in any month exceed the base level set
forth opposite such month below:
<TABLE>
<CAPTION>
Month Base Revenue
----- ------------
<S> <C>
May, 1998 $2,000,000
June, 1998 $2,000,000
July, 1998 $2,500,000
August, 1998 $2,500,000
September, 1998 $2,500,000
October, 1998 $3,000,000
November, 1998 $3,000,000
</TABLE>
provided, however, that the amount of compensation paid to Agent under this
SECTION 2.9(b) shall not exceed, in the aggregate, Three Hundred Thirty-Seven
Thousand Five Hundred Dollars ($337,500). Such fee shall be due and payable in
one payment not later than December 24, 1998 and shall be accompanied by a
statement of a Responsible Officer of Borrower certifying as to the calculation
thereof.
15.
<PAGE> 17
(c) As a condition to the issuance of each Letter of
Credit, the Borrower shall pay to the Issuing Bank for the account of each Bank
according to its Pro Rata Share a letter of credit fee which is a percentage of
the face amount of such Letter of Credit, payable quarterly in arrears
commencing June 30, 1998, equal to the Base Rate plus three percent (3.00%) per
annum less LIBOR.
2.10 COMPUTATION OF FEES AND INTEREST.
(a) All computations of interest for Base Rate Loans when
the Base Rate is determined by Deutsche Bank's "prime lending rate" shall be
made on the basis of a year of 365 or 366 days, as the case may be, and actual
days elapsed. All other computations of fees and interest shall be made on the
basis of a 360-day year and actual days elapsed (which results in more interest
being paid than if computed on the basis of a 365-day year). Interest and fees
shall accrue during each period during which interest or such fees are computed
from the first day thereof to the last day thereof.
(b) Each determination of an interest rate by the Agent
shall be conclusive and binding on the Borrower and the Banks in the absence of
manifest error. The Agent will, at the request of the Borrower or any Bank,
deliver to the Borrower or the Bank, as the case may be, a statement showing the
quotations used by the Agent in determining any interest rate and the resulting
interest rate.
2.11 PAYMENTS BY THE BORROWER.
(a) All payments to be made by the Borrower shall be made
without set-off, recoupment or counterclaim. Except as otherwise expressly
provided herein, all payments by the Borrower shall be made to the Agent for the
account of the Banks at the Agent's Payment Office, and shall be made in dollars
and in immediately available funds, no later than 2:00 p.m. (New York City time)
on the date specified herein. The Agent will promptly distribute to each Bank
its Pro Rata Share (or other applicable share as expressly provided herein) of
such payment in like funds as received. Any payment received by the Agent later
than 2:00 p.m. (New York City time) shall be deemed to have been received on the
following Business Day and any applicable interest or fee shall continue to
accrue.
(b) Whenever any payment is due on a day other than a
Business Day, such payment shall be made on the following Business Day, and such
extension of time shall in such case be included in the computation of interest
or fees, as the case may be.
(c) Unless the Agent receives notice from the Borrower
prior to the date on which any payment is due to the Banks that the Borrower
will not make such payment in full as and when required, the Agent may assume
that the Borrower has made such payment in full to the Agent on such date in
immediately available funds and the Agent may (but shall not be so required), in
reliance upon such assumption, distribute to each Bank on such due date an
amount equal to the amount then due such Bank. If and to the extent the Borrower
has not made such payment in full to the Agent, each Bank shall repay to the
Agent on demand such amount
16.
<PAGE> 18
distributed to such Bank, together with interest thereon at the Federal Funds
Rate for each day from the date such amount is distributed to such Bank until
the date repaid.
2.12 PAYMENTS BY THE BANKS TO THE AGENT.
(a) Unless the Agent receives notice from a Bank on or
prior to the Closing Date that such Bank will not make available as and when
required hereunder to the Agent for the account of the Borrower the amount of
that Bank's Pro Rata Share of the Borrowing, the Agent may assume that each Bank
has made such amount available to the Agent in immediately available funds on
the Borrowing Date and the Agent may (but shall not be so required), in reliance
upon such assumption, make available to the Borrower on such date a
corresponding amount. If and to the extent any Bank shall not have made its full
amount available to the Agent in immediately available funds and the Agent in
such circumstances has made available to the Borrower such amount, that Bank
shall on the Business Day following such Borrowing Date make such amount
available to the Agent, together with interest at the Federal Funds Rate for
each day during such period. A notice of the Agent submitted to any Bank with
respect to amounts owing under this subsection (a) shall be conclusive, absent
manifest error. If such amount is so made available, such payment to the Agent
shall constitute such Bank's Loan on the date of Borrowing for all purposes of
this Agreement. If such amount is not made available to the Agent on the
Business Day following the Borrowing Date, the Agent will notify the Borrower of
such failure to fund and, upon demand by the Agent, the Borrower shall pay such
amount to the Agent for the Agent's account, together with interest thereon for
each day elapsed since the date of such Borrowing, at a rate per annum equal to
the interest rate applicable at the time to the Loans comprising such Borrowing.
(b) The failure of any Bank to make any Loan on the
Borrowing Date shall not relieve any other Bank of any obligation hereunder to
make a Loan on such Borrowing Date, but no Bank shall be responsible for the
failure of any other Bank to make the Loan to be made by such other Bank on the
Borrowing Date.
2.13 SHARING OF PAYMENTS, ETC. If, other than as expressly provided
elsewhere herein, any Bank shall obtain on account of the Loans made by it any
payment (whether voluntary, involuntary, through the exercise of any right of
set-off, or otherwise) in excess of its ratable share (or other share
contemplated hereunder), such Bank shall immediately (a) notify the Agent of
such fact, and (b) purchase from the other Banks such participations in the
Loans made by them as shall be necessary to cause such purchasing Bank to share
the excess payment pro rata with each of them; provided, however, that if all or
any portion of such excess payment is thereafter recovered from the purchasing
Bank, such purchase shall to that extent be rescinded and each other Bank shall
repay to the purchasing Bank the purchase price paid therefor, together with an
amount equal to such paying Bank's ratable share (according to the proportion of
(i) the amount of such paying Bank's required repayment to (ii) the total amount
so recovered from the purchasing Bank) of any interest or other amount paid or
payable by the purchasing Bank in respect of the total amount so recovered. The
Borrower agrees that any Bank so purchasing a participation from another Bank
may, to the fullest extent permitted by law, exercise all its rights of payment
(including the right of set-off, but subject to SECTION 10.10) with respect to
such
17.
<PAGE> 19
participation as fully as if such Bank were the direct creditor of the Borrower
in the amount of such participation. The Agent will keep records (which shall be
conclusive and binding in the absence of manifest error) of participations
purchased under this Section and will in each case notify the Banks following
any such purchases or repayments.
2.14 SECURITY. All obligations of the Borrower and the Subsidiaries
under this Agreement, any Notes and all other Loan Documents shall be secured in
accordance with the Collateral Documents.
2.15 LETTER OF CREDIT SUBFACILITY.
(a) Subject to the terms and conditions of this Agreement
and in reliance upon the representations and warranties of the Borrower set
forth herein, on the Closing Date after satisfaction of all conditions precedent
set forth in SECTION 4.1, the Issuing Bank shall issue for the account of the
Borrower Letters of Credit in minimum amounts not less than $50,000, provided
that a request shall have been made for such Letters of Credit by a Borrowing
Notice, duly executed with appropriate insertions and as otherwise required by
SECTION 2.3, together with a duly executed Letter of Credit Application, with
appropriate insertions (which Borrowing Notice and Letter of Credit Application
shall have been received by the Issuing Bank prior to 11:30 a.m., New York City
time, one (1) Business Day prior to the requested issuing date). No Letter of
Credit shall have an expiration date that is later than July 31, 1999 provided
that (i) Borrower shall provide written notice to Agent five (5) Business Days
prior to the Maturity Date of the amount of all Letters of Credit to be
outstanding on such date, (ii) Borrower shall enter into a reimbursement
agreement with the Issuing Bank in form and substance satisfactory to the
Issuing Bank and (iii) Borrower's Letter of Credit reimbursement obligation
shall be secured by cash, on terms acceptable to the Issuing Bank and on deposit
with Agent and subject to a valid, perfected first priority security interest in
favor of Agent on behalf of Banks, at any time on and after the Maturity Date.
(b) Upon issuance of each Letter of Credit, each Bank shall
be deemed to have purchased a participation from the Issuing Bank equal to such
Bank's Pro Rata Share of the original stated amount of such Letter of Credit.
Nothing contained in this Agreement shall under any circumstance be deemed to
require any Bank to participate in the issuance of any Letter of Credit which,
taking into account such Bank's participation in such Letter of Credit, when
added to the aggregate of such Lender's participation in all other issued and
undrawn Letters of Credit, exceeds such Bank's Pro Rata Share of the Letter of
Credit Commitment.
(c) Unless otherwise expressly provided therein, each
beneficiary named by Borrower with respect to a Letter of Credit issued
hereunder shall be permitted to make full or partial draws under such Letter of
Credit. Upon the making of any draw under a Letter of Credit by such
beneficiary, the full amount of such draw shall be immediately due and payable
by the Borrower to the Issuing Bank. The Issuing Bank shall immediately give
written notification of the amount of such draw to the Agent, each Bank and the
Borrower and to the extent that the Issuing Bank has not been immediately
reimbursed by the Borrower for any payment required to be made by the Issuing
Bank under such Letter of Credit (and all commissions incurred but
18.
<PAGE> 20
unpaid in connection therewith), each Bank shall, according to its Pro Rata
Share of such Letter of Credit, reimburse the Issuing Bank immediately upon
written demand for the amount of such payment (and such unpaid commissions). The
obligation of each Bank to so reimburse the Issuing Bank shall be absolute and
unconditional and shall not be affected by the occurrence of a Default or Event
of Default or any other occurrence or event. Any such reimbursement shall not
relieve or otherwise limit or impair the obligation of the Borrower to reimburse
the Banks for the amount of any payment made by the Issuing Bank under any
Letter of Credit.
(d) Without limiting the generality of the preceding
subsections of this SECTION 2.15, upon any draw on any Letter of Credit as
confirmed by the Issuing Bank's written notice and demand for payment from each
Bank of its ratable participation amount, each Bank shall be deemed to have
made, without further notice to the Borrower, a Base Rate Loan in the principal
amount equal to such Bank's Pro Rata Share of the amount drawn under such Letter
of Credit (plus any unpaid commission). Any Base Rate Loan deemed to be advanced
after the Maturity Date shall be immediately due and payable but any Base Rate
Loan deemed to be advanced prior to the Maturity Date shall be due on the
Maturity Date and shall not be prepaid. The proceeds of such Base Rate Loans
shall be applied to reimburse the Issuing Bank for such payment required to be
made by the Issuing Bank under the Letter of Credit. In the event that any Base
Rate Loan shall be deemed to be made to a Borrower pursuant to this SECTION
2.15(d), such Base Rate Loan shall be deemed to have been made as of the date of
the honor of the draw under the respective Letter of Credit and interest shall
accrue thereon at the same rate as provided for other Base Rate Loans under this
Agreement or following the Maturity Date, at the rate specified in SECTION
2.8(c). In the event that the Issuing Bank does not receive the proceeds of any
Base Rate Loans made pursuant to this subsection by 11:30 a.m., New York City
time, on the date that the draw on the Letter of Credit is honored, the Bank
whose funds are delayed shall pay interest to the Issuing Bank on the amount not
received at the Federal Funds Rate from the date of such honor until the date on
which the Issuing Bank receives such proceeds by 10:00 a.m.
(e) (1) The Issuing Bank may resign as Issuing Bank by
giving notice to the Agent, the Banks and the Borrower on or before April 30 of
any calendar year, and such resignation shall be effective as to any Letter of
Credit outstanding on May 31 of such calendar year upon the then current expiry
date on such Letter of Credit. If the Issuing Bank shall resign as the Issuing
Bank under this Agreement, Majority Banks shall appoint a successor Issuing Bank
from among the Banks, with the consent of the Borrower (so long as no Event of
Default then exists) and such successor.
(2) If an Issuing Bank has resigned and no
successor Issuing Bank is appointed prior to such May 31, then until an
appointment of a successor Issuing Bank is made, in the event of a request by
Borrower for the issuance of a Letter of Credit, each Bank shall issue its own
Letter of Credit in an amount equal to such Bank's Pro Rata Share of the amount
of such requested Letter of Credit upon the terms and conditions set forth
herein, with such changes as are appropriate to apply to an individual Bank
issuing a Letter of Credit without participation. In the event of an
unreimbursed draw on a Letter of Credit issued pursuant to the provisions of
this SECTION 2.15, each Bank which has honored such a draw shall be deemed to
have made a Base Rate Loan to reimburse itself for the draw under such Letter of
Credit.
19.
<PAGE> 21
(3) Upon the acceptance of its appointment as a
successor Issuing Bank hereunder, such successor Issuing Bank shall succeed to
all the rights, powers and duties of the retiring Issuing Bank with respect to
any Letters of Credit issued subsequent to such acceptance, and the term
"Issuing Bank" shall mean such successor issuing bank with regard to such
subsequently issued Letters of Credit. Whether or not a successor Issuing Bank
is appointed, the retiring Issuing Bank shall retain all the rights, powers and
duties of an Issuing Bank with respect to any Letters of Credit previously
issued by such retiring Issuing Bank, and the term "Issuing Bank" shall mean
such retiring Issuing Bank with respect to such previously issued Letters of
Credit.
(f) The obligation of the Borrower to reimburse the Banks
for drawings made under the Letters of Credit shall be absolute, unconditional
and irrevocable, and shall be performed strictly in accordance with the terms of
this Agreement and such Letters of Credit, under all circumstances whatsoever,
including the following circumstances:
(1) Any lack of validity or enforceability of any
Letter of Credit, the obligation supported by such Letter of Credit or any other
agreement or instrument relating thereto (collectively, the "RELATED LC
DOCUMENTS");
(2) Any amendment or waiver of or any consent to
or departure from all or any of the Related LC Documents;
(3) The existence of any claim, set-off, defense
or other rights which the Borrower may have at any time against any beneficiary
or any transferee of any Letter of Credit (or any Persons or entities for whom
any such beneficiary or any such transferee may be acting), the Banks, the Agent
or any other Person, whether in connection with the Loan Documents, the Related
LC Documents or any unrelated transaction;
(4) Any breach of contract or other dispute
between the Borrower and any beneficiary or any transferee of any Letter of
Credit (or any Persons or entities for whom such beneficiary or any such
transferee may be acting), the Banks, the Agent or any other Person;
(5) Any draft, statement or any other document
presented under any Letter of Credit proving to be forged, fraudulent, invalid
or insufficient in any respect or any statement therein being untrue or
inaccurate in any respect whatsoever; or
(6) Any delay, extension of time, renewal,
compromise or other indulgence or modification granted or agreed to by the
Issuing Bank, with or without notice to or approval by the Borrower in respect
of any of the Borrower's Indebtedness under this Agreement.
(g) The Borrower assumes all risks of the acts or omissions
of any beneficiary and any transferee of each Letter of Credit; provided,
however, this assumption with respect to the Agent and the Banks, including the
Issuing Bank, is not intended to, and shall not, preclude the Borrower's
pursuing such rights and remedies as any of them may have against any such
beneficiary or transferee of a Letter of Credit at law or under any other
agreement. Neither the
20.
<PAGE> 22
Agent nor any Bank, including the Issuing Bank, nor any of their officers or
directors shall be liable or responsible for, without limitation: (1) the use
which may be made of any Letter of Credit or for any acts or omissions of any
beneficiary and any transferee of any Letter of Credit in connection therewith;
or (2) the validity, sufficiency or genuineness of documents, or of any
endorsement(s) thereon, even if such documents should in fact prove to be in any
or all respects invalid, insufficient, fraudulent or forged. In furtherance and
not in limitation of the foregoing, the Issuing Bank may accept documents that
appear on their face to be in order, without responsibility for further
investigation, regardless of any notice or information to the contrary.
Notwithstanding the foregoing, Borrower shall not be precluded from pursuing
such rights and remedies as Borrower shall have at law or equity in the event of
the gross negligence or willful misconduct of Agent or any Bank.
(h) Subject to the laws, customs and practices of the trade
in the area where the beneficiary is located and to the extent not otherwise
inconsistent with the provisions of this SECTION 2.15, each Letter of Credit
will be subject to, and performance under each Letter of Credit by the Issuing
Bank, its correspondents, and the beneficiary will be governed by, UCC Article 5
and the "Uniform Customs and Practice for Documentary Credit (1993 Revision),
International Chamber of Commerce, Publication No. 500," or by any later Uniform
Customs and Practice fixed by later Congresses of the International Chamber of
Commerce as in effect on the date the Letter of Credit is issued; provided,
however, that to the extent any conflict exists between UCC Article 5 and such
Uniform Customs and Practices then in effect, UCC Article 5 shall control.
ARTICLE III
TAXES AND YIELD PROTECTION
3.1 TAXES.
(a) Any and all payments by the Borrower to each Bank or
the Agent under this Agreement and any other Loan Document shall be made free
and clear of, and without deduction or withholding for, any Taxes. In addition,
the Borrower shall pay all Other Taxes.
(b) If the Borrower shall be required by law to deduct or
withhold any Taxes, Other Taxes or Further Taxes from or in respect of any sum
payable hereunder to any Bank or the Agent, then:
(i) the sum payable shall be increased as
necessary so that, after making all required deductions and withholdings
(including deductions and withholdings applicable to additional sums payable
under this Section), such Bank or the Agent, as the case may be, receives and
retains an amount equal to the sum it would have received and retained had no
such deductions or withholdings been made;
(ii) the Borrower shall make such deductions and
withholdings;
21.
<PAGE> 23
(iii) the Borrower shall pay the full amount
deducted or withheld to the relevant taxing authority or other authority in
accordance with applicable law; and
(iv) the Borrower shall also pay to each Bank or
the Agent for the account of such Bank, at the time interest is paid, Further
Taxes in the amount that the respective Bank specifies as necessary to preserve
the after-tax yield the Bank would have received if such Taxes, Other Taxes or
Further Taxes had not been imposed.
(c) The Borrower agrees to indemnify and hold harmless each
Bank and the Agent for the full amount of i) Taxes, ii) Other Taxes, and iii)
Further Taxes in the amount that the respective Bank establishes as necessary to
preserve the after-tax yield the Bank would have received if such Taxes, Other
Taxes or Further Taxes had not been imposed, and any liability (including
penalties, interest, additions to tax and expenses) arising therefrom or with
respect thereto, whether or not such Taxes, Other Taxes or Further Taxes were
correctly or legally asserted. Payment under this indemnification shall be made
within 30 days after the date the Bank or the Agent makes written demand
therefor.
(d) Within 30 days after the date of any payment by the
Borrower of Taxes, Other Taxes or Further Taxes, the Borrower shall furnish to
each Bank or the Agent the original or a certified copy of a receipt evidencing
payment thereof, or other evidence of payment reasonably satisfactory to such
Bank or the Agent.
(e) If the Borrower is required to pay any amount to any
Bank or the Agent pursuant to subsection (b) or (c) of this Section, then such
Bank shall use reasonable efforts (consistent with legal and regulatory
restrictions) to change the jurisdiction of its Lending Office so as to
eliminate any such additional payment by the Borrower which may thereafter
accrue, if such change in the sole judgment of such Bank is not otherwise
disadvantageous to such Bank.
3.2 FUNDING LOSSES. The Borrower shall reimburse each Bank and hold
each Bank harmless from any loss or expense which the Bank may sustain or incur
as a consequence of the failure of the Borrower to borrow a Loan after the
Borrower has given (or is deemed to have given) a Notice of Borrowing.
3.3 SURVIVAL. The agreements and obligations of the Borrower in this
Article III shall survive the payment of all other Obligations.
ARTICLE IV
CONDITIONS PRECEDENT
4.1 CONDITIONS OF INITIAL LOANS. The obligation of each Bank to make
its Loan or issue the first Letter of Credit hereunder is subject to the
condition that the Agent shall have received on or before the Closing Date all
of the following, in form and substance satisfactory to the Agent and each Bank,
and in sufficient copies for each Bank:
22.
<PAGE> 24
(a) CREDIT AGREEMENT AND NOTES. This Agreement and the
Notes executed by each party thereto;
(b) RESOLUTIONS; INCUMBENCY.
(i) Copies of the resolutions of the board of
directors of the Borrower and each Subsidiary that may become party to a Loan
Document authorizing the transactions contemplated hereby, certified as of the
Closing Date by the Secretary or an Assistant Secretary of such Person; and
(ii) A certificate of the Secretary or Assistant
Secretary of the Borrower and each Subsidiary that may become party to a Loan
Document certifying the names and true signatures of the officers of the
Borrower or such Subsidiary authorized to execute, deliver and perform, as
applicable, this Agreement, and all other Loan Documents to be delivered by it
hereunder;
(c) ORGANIZATION DOCUMENTS; GOOD STANDING. Each of the
following documents:
(i) the articles or certificate of incorporation
and the bylaws of the Borrower and each Subsidiary party to any Loan Document as
in effect on the Closing Date, certified by the Secretary or Assistant Secretary
of the Borrower or such Subsidiary as of the Closing Date; and
(ii) a good standing and tax good standing
certificate for the Borrower and each Subsidiary party to any Loan Document from
the Secretary of State (or similar, applicable Governmental Authority) of its
state of incorporation and each state where the Borrower or such Subsidiary is
qualified to do business as a foreign corporation as of a recent date, together
with a bring-down certificate by facsimile, dated the Closing Date;
(d) LEGAL OPINIONS. An opinion of Jackson Tufts Cole &
Black, counsel to the Borrower and addressed to the Agent and the Banks, in form
and substance reasonably satisfactory to Agent.
(e) PAYMENT OF FEES. Evidence of payment by the Borrower of
all reasonably accrued and unpaid fees, costs and expenses to the extent then
due and payable on the Closing Date, together with Attorney Costs of Deutsche
Bank to the extent invoiced prior to or on the Closing Date, plus such
additional amounts of Attorney Costs as shall constitute Deutsche Bank's
reasonable estimate of Attorney Costs incurred or to be incurred by it through
the closing proceedings (provided that such estimate shall not thereafter
preclude final settling of accounts between the Borrower and Deutsche Bank);
including any such costs, fees and expenses arising under or referenced in
SECTIONS 2.9 AND 10.4;
(f) COLLATERAL DOCUMENTS. The Collateral Documents,
executed by the Borrower, in appropriate form for recording, where necessary,
together with:
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(i) all UCC-1 financing statements to be filed,
registered or recorded to perfect the security interests of the Agent for the
benefit of the Lenders, and other filings, registrations and recordings
necessary and advisable to perfect the Liens of the Agent for the benefit of the
Lenders in accordance with applicable law;
(ii) written advice relating to such Lien and
Judgment searches as the Agent shall have requested, and such termination
statements or other documents as may be necessary to confirm that the Collateral
is subject to no other Liens in favor of any Persons (other than Permitted
Liens);
(iii) funds sufficient to pay any filing or
recording tax or fee in connection with any and all UCC-1 financing statements;
and
(iv) evidence that all other actions necessary
or, in the reasonable opinion of the Agent or the Lenders, desirable, to perfect
and protect the first priority security interest created by the Collateral
Documents have been taken.
(g) CERTIFICATE. A certificate signed by a Responsible
Officer, dated as of the Closing Date, stating that:
(i) the representations and warranties contained
in Article V are true and correct on and as of such date, as though made on and
as of such date;
(ii) no Default or Event of Default exists or
would result from the Borrowing or issuance of the Letter of Credit; and
(iii) there has occurred since December 31, 1997,
no event or circumstance that has resulted or could reasonably be expected to
result in a Material Adverse Effect; and
(h) OTHER DOCUMENTS. Such other approvals, opinions,
documents or materials as the Agent or any Bank may reasonably request.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Agent and each Bank that:
5.1 CORPORATE EXISTENCE AND POWER. The Borrower and each of its
Subsidiaries:
(a) is a corporation duly organized, validly existing and
in good standing under the laws of the jurisdiction of its incorporation;
(b) has the power and authority and all governmental
licenses, authorizations, consents and approvals to own its assets, carry on its
business and to execute, deliver, and perform its obligations under the Loan
Documents;
24.
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(c) is duly qualified as a foreign corporation and is
licensed and in good standing under the laws of each jurisdiction where its
ownership, lease or operation of property or the conduct of its business
requires such qualification or license, and where the failure to be so qualified
or licensed would have a Material Adverse Effect; and
(d) is in compliance in all material respects with all
Requirements of Law.
5.2 CORPORATE AUTHORIZATION; NO CONTRAVENTION. The execution,
delivery and performance by the Borrower and its Subsidiaries of this Agreement
and each other Loan Document to which such Person is party, have been duly
authorized by all necessary corporate action, and do not and will not:
(a) contravene the terms of any of that Person's
Organization Documents;
(b) conflict with or result in any breach or contravention
of, or the creation of any Lien under, any document evidencing any Contractual
Obligation to which such Person is a party or any order, injunction, writ or
decree of any Governmental Authority to which such Person or its property is
subject; or
(c) violate any Requirement of Law.
5.3 GOVERNMENTAL AUTHORIZATION. No approval, consent, exemption,
authorization, or other action by, or notice to, or filing with, any
Governmental Authority (except for recordings or filings in connection with the
Liens granted to the Agent under the Collateral Documents) is necessary or
required in connection with the execution, delivery or performance by, or
enforcement against, the Borrower or any of its Subsidiaries of the Agreement or
any other Loan Document.
5.4 BINDING EFFECT. This Agreement and each other Loan Document to
which the Borrower or any of its Subsidiaries is a party constitute the legal,
valid and binding obligations of the Borrower and any of its Subsidiaries to the
extent it is a party thereto, enforceable against such Person in accordance with
their respective terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, or similar laws affecting the enforcement of creditors'
rights generally or by equitable principles relating to enforceability.
5.5 LITIGATION. There are no actions, suits, proceedings, claims or
disputes pending, or to the best knowledge of the Borrower, threatened or
contemplated, at law, in equity, in arbitration or before any Governmental
Authority, against the Borrower, or its Subsidiaries or any of their respective
properties which:
(a) purport to affect or pertain to this Agreement or any
other Loan Document, or any of the transactions contemplated hereby or thereby;
or
(b) if determined adversely to the Borrower or its
Subsidiaries, would reasonably be expected to have a Material Adverse Effect. No
injunction, writ, temporary restraining order or any order of any nature has
been issued by any court or other Governmental
25.
<PAGE> 27
Authority purporting to enjoin or restrain the execution, delivery or
performance of this Agreement or any other Loan Document, or directing that the
transactions provided for herein or therein not be consummated as herein or
therein provided.
5.6 NO DEFAULT. No Default or Event of Default exists or would result
from the incurring of any Obligations by the Borrower or from the grant or
perfection of the Liens of the Agent and the Banks on the Collateral. As of the
Closing Date, neither the Borrower nor any Subsidiary is in default under or
with respect to any Contractual Obligation in any respect which, individually or
together with all such defaults, could reasonably be expected to have a Material
Adverse Effect, or that would, if such default had occurred after the Closing
Date, create an Event of Default under SUBSECTION 8.1(e).
5.7 ERISA COMPLIANCE.
(a) Each Plan is in compliance in all material respects
with the applicable provisions of ERISA, the Code and other federal or state
law. Each Plan which is intended to qualify under Section 401(a) of the Code has
received a favorable determination letter from the IRS and to the best knowledge
of the Borrower, nothing has occurred which would cause the loss of such
qualification. The Borrower and each ERISA Affiliate has made all required
contributions to any Plan subject to Section 412 of the Code, and no application
for a funding waiver or an extension of any amortization period pursuant to
Section 412 of the Code has been made with respect to any Plan.
(b) There are no pending or, to the best knowledge of
Borrower, threatened claims, actions or lawsuits, or action by any Governmental
Authority, with respect to any Plan which has resulted or could reasonably be
expected to result in a Material Adverse Effect. There has been no prohibited
transaction or violation of the fiduciary responsibility rules with respect to
any Plan which has resulted or could reasonably be expected to result in a
Material Adverse Effect.
(c) (i) No ERISA Event has occurred or is reasonably
expected to occur; (ii) no Pension Plan has any Unfunded Pension Liability;
(iii) neither the Borrower nor any ERISA Affiliate has incurred, or reasonably
expects to incur, any liability under Title IV of ERISA with respect to any
Pension Plan (other than premiums due and not delinquent under Section 4007 of
ERISA); (iv) neither the Borrower nor any ERISA Affiliate has incurred, or
reasonably expects to incur, any liability (and no event has occurred which,
with the giving of notice under Section 4219 of ERISA, would result in such
liability) under Section 4201 or 4243 of ERISA with respect to a Multiemployer
Plan; and (v) neither the Borrower nor any ERISA Affiliate has engaged in a
transaction that could be subject to Section 4069 or 4212(c) of ERISA.
5.8 USE OF PROCEEDS; MARGIN REGULATIONS. The proceeds of the Loans
are to be used solely for the purposes set forth in and permitted by SECTION
6.12 and SECTION 7.7. Neither the Borrower nor any Subsidiary is generally
engaged in the business of purchasing or selling Margin Stock or extending
credit for the purpose of purchasing or carrying Margin Stock.
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5.9 TITLE TO PROPERTIES. The Borrower and each Subsidiary have good
record and marketable title in fee simple to, or valid leasehold interests in,
all real property necessary or used in the ordinary conduct of their respective
businesses, except for such defects in title as could not, individually or in
the aggregate, have a Material Adverse Effect. As of the Closing Date, the
property of the Borrower and its Subsidiaries is subject to no Liens, other than
Permitted Liens.
5.10 TAXES. The Borrower and its Subsidiaries have filed all Federal
and other material tax returns and reports required to be filed, and have paid
all Federal and other material taxes, assessments, fees and other governmental
charges levied or imposed upon them or their properties, income or assets
otherwise due and payable, except those which are being contested in good faith
by appropriate proceedings and for which adequate reserves have been provided in
accordance with GAAP. There is no proposed tax assessment against the Borrower
or any Subsidiary that would, if made, have a Material Adverse Effect.
5.11 FINANCIAL CONDITION.
(a) The audited consolidated financial statements of the
Borrower and its Subsidiaries dated December 31, 1997, and the related
consolidated statements of income or operations, shareholders' equity and cash
flows for the fiscal year ended on that date:
(i) were prepared in accordance with GAAP
consistently applied throughout the period covered thereby, except as otherwise
expressly noted therein;
(ii) fairly present the financial condition of
the Borrower and its Subsidiaries as of the date thereof and results of
operations for the period covered thereby; and
(iii) except as specifically disclosed in
Schedule 5.11, show all material indebtedness and other liabilities, direct or
contingent, of the Borrower and its consolidated Subsidiaries as of the date
thereof, including liabilities for taxes, material commitments and Contingent
Obligations.
(b) Since December 31, 1997, there has been no Material
Adverse Effect.
5.12 ENVIRONMENTAL MATTERS.
(a) The on-going operations of the Borrower and each of its
Subsidiaries comply in all respects with all Environmental Laws, except such
non-compliance which would not (if enforced in accordance with applicable law)
result in liability in excess of $500,000 in the aggregate.
(b) The Borrower and each of its Subsidiaries have obtained
all licenses, permits, authorizations and registrations required under any
Environmental Law ("Environmental Permits") and necessary for their respective
ordinary course operations, all such Environmental Permits are in good standing,
and the Borrower and each of its Subsidiaries are in compliance with all
material terms and conditions of such Environmental Permits except to the extent
the
27.
<PAGE> 29
failure to have such Environmental Permits or to comply therewith could not
reasonably be expected to have a Material Adverse Effect.
(c) None of the Borrower, any of its Subsidiaries or any of
their respective present property or operations, is subject to any outstanding
written order from or agreement with any Governmental Authority, nor subject to
any judicial or docketed administrative proceeding, respecting any Environmental
Law, Environmental Claim or Hazardous Material, which would if adversely
determined, result in a liability or in economic loss in excess of $500,000 in
the aggregate.
(d) There are no Hazardous Materials or other conditions or
circumstances (i) existing with respect to any property of the Borrower or any
Subsidiary to its knowledge, or (ii) arising from operations prior to the
Closing Date of the Borrower or any of its Subsidiaries that would reasonably be
expected to give rise to Environmental Claims with a potential liability of the
Borrower and its Subsidiaries in excess of $500,000 in the aggregate for any
such condition, circumstance or property. In addition, (i) neither the Borrower
nor any Subsidiary has any underground storage tanks (x) that are not properly
registered or permitted under applicable Environmental Laws, or (y) that are
leaking or disposing of Hazardous Materials off-site, and (ii) the Borrower and
its Subsidiaries have notified all of their employees of the existence, if any,
of any health hazard arising from the conditions of their employment and have
met all notification requirements under Title III of CERCLA and all other
Environmental Laws.
5.13 COLLATERAL DOCUMENTS.
(a) As of the date hereof, the provisions of each of the
Collateral Documents are effective to create in favor of the Agent for the
benefit of the Banks, a legal, valid and enforceable security interest in all
right, title and interest of the Borrower and its Subsidiaries in the collateral
described therein, and financing statements have been delivered to the Agent for
filing in the offices in all of the jurisdictions in which Collateral is located
and upon the filing of such financing statements in such offices, the Agent, for
the benefit of the Banks, will have a perfected first priority security interest
(subject only to Permitted Liens) in the collateral described thereon in which a
security interest may be perfected by the filing of such financing statements or
assignments, and upon delivery of those items of Collateral for which physical
possession is the method for perfection, the Agent, for the benefit of the Banks
will have a valid, first priority security interest thereon.
(b) All representations and warranties of the Borrower and
any of its Subsidiaries party thereto contained in the Collateral Documents are
true and correct.
5.14 REGULATED ENTITIES. None of the Borrower, any Person controlling
the Borrower, or any Subsidiary, is an "Investment Company" within the meaning
of the Investment Company Act of 1940. The Borrower is not subject to regulation
under the Public Utility Holding Company Act of 1935, the Federal Power Act, the
Interstate Commerce Act, any state public utilities code, or any other Federal
or state statute or regulation limiting its ability to incur Indebtedness.
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5.15 NO BURDENSOME RESTRICTIONS. Neither the Borrower nor any
Subsidiary is a party to or bound by any Contractual Obligation, or subject to
any restriction in any Organization Document, or any Requirement of Law, which
could reasonably be expected to have a Material Adverse Effect.
5.16 COPYRIGHTS, PATENTS, TRADEMARKS AND LICENSES, ETC. The Borrower
or its Subsidiaries own or are licensed or otherwise have the right to use all
of the patents, trademarks, service marks, trade names, copyrights, contractual
franchises, authorizations and other rights that are reasonably necessary for
the operation of their respective businesses, without conflict with the rights
of any other Person. To the best knowledge of the Borrower, no slogan or other
advertising device, product, process, method, substance, part or other material
now employed, or now contemplated to be employed, by the Borrower or any
Subsidiary infringes upon any rights held by any other Person. No claim or
litigation regarding any of the foregoing is pending or threatened, and, to the
knowledge of the Borrower, no patent, invention, device, application, principle
or any statute, law, rule, regulation, standard or code is pending or proposed,
which in either case, could reasonably be expected to have a Material Adverse
Effect.
5.17 SUBSIDIARIES. As of the Closing Date, the Borrower has no
Subsidiaries.
5.18 INSURANCE. The properties of the Borrower and its Subsidiaries
are insured with financially sound and reputable insurance companies not
Affiliates of the Borrower, in such amounts, with such deductibles and covering
such risks as are customarily carried by companies engaged in similar businesses
and owning similar properties in localities where the Borrower or such
Subsidiary operates.
5.19 SOLVENCY. The Borrower and each of its Subsidiaries are Solvent.
5.20 FULL DISCLOSURE. None of the representations or warranties made
by the Borrower or any Subsidiary in the Loan Documents as of the date such
representations and warranties are made or deemed made, and none of the
statements contained in any exhibit, report, statement or certificate furnished
by or on behalf of the Borrower or any Subsidiary in connection with the Loan
Documents (including the offering and disclosure materials delivered by or on
behalf of the Borrower to the Banks prior to the Closing Date), contains any
untrue statement of a material fact or omits any material fact required to be
stated therein or necessary to make the statements made therein, in light of the
circumstances under which they are made, not misleading as of the time when made
or delivered; and provided, that financial projections delivered by or on behalf
of the Borrower were prepared in good faith on the basis of assumptions which
were reasonable in light of the historical performance of the Borrower and other
facts known at the time of their preparation.
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ARTICLE VI
AFFIRMATIVE COVENANTS
So long as any Bank shall have any Commitment hereunder, or any Loan
or other Obligation shall remain unpaid or unsatisfied, unless the Majority
Banks waive compliance in writing:
6.1 FINANCIAL STATEMENTS. The Borrower shall deliver to the Agent, in
form and detail satisfactory to the Agent and the Majority Banks, with
sufficient copies for each Bank:
(a) as soon as available, but not later than ninety (90)
days after the end of each fiscal year, a copy of the audited consolidated
balance sheet of the Borrower and its Subsidiaries as at the end of such year
and the related consolidated statements of income or operations, shareholders'
equity and cash flows for such year, setting forth in each case in comparative
form the figures for the previous fiscal year, and accompanied by the opinion of
Ernst & Young LLP or another nationally-recognized independent public accounting
firm ("INDEPENDENT AUDITOR") which report shall state that such consolidated
financial statements present fairly the financial position for the periods
indicated in conformity with GAAP applied on a basis consistent with prior
years. Such opinion shall not be qualified or limited because of a restricted or
limited examination by the Independent Auditor of any material portion of the
Borrower's or any Subsidiary's records; and
(b) as soon as available, but not later than forty-five
(45) days after the end of each fiscal quarter, a copy of the unaudited
consolidated balance sheet of the Borrower and its Subsidiaries as of the end of
such quarter and the related consolidated statements of income, shareholders'
equity and cash flows for the period commencing on the first day and ending on
the last day of such quarter, and certified by a Responsible Officer as fairly
presenting, in accordance with GAAP (subject to ordinary, good faith year-end
audit adjustments), the financial position and the results of operations of the
Borrower and the Subsidiaries.
6.2 CERTIFICATES; OTHER INFORMATION. The Borrower shall furnish to
the Agent, with sufficient copies for each Bank:
(a) concurrently with the delivery of the financial
statements referred to in SUBSECTION 6.1(a), a certificate of the Independent
Auditor stating that in making the examination necessary therefor no knowledge
was obtained of any Default or Event of Default, except as specified in such
certificate;
(b) concurrently with the delivery of the financial
statements referred to in subsections 6.1(a) and (b), a Compliance Certificate
executed by a Responsible Officer;
(c) promptly, copies of all financial statements and
reports that the Borrower sends to its shareholders, and copies of all financial
statements and regular, periodical or special reports (including Forms 10-K,
10-Q and 8-K) that the Borrower or any Subsidiary may make to, or file with, the
SEC; and
30.
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(d) promptly, such additional information regarding the
business, financial or corporate affairs of the Borrower or any Subsidiary as
the Agent, at the reasonable request of any Bank, may from time to time request.
6.3 NOTICES. The Borrower shall promptly notify the Agent and each
Bank:
(a) of the occurrence of any Default or Event of Default,
and of the occurrence or existence of any event or circumstance that foreseeably
will become a Default or Event of Default;
(b) of any matter that has resulted or may result in a
Material Adverse Effect, including (i) breach or non-performance of, or any
default under, a Contractual Obligation of the Borrower or any Subsidiary; (ii)
any dispute, litigation, investigation, proceeding or suspension between the
Borrower or any Subsidiary and any Governmental Authority; or (iii) the
commencement of, or any material development in, any litigation or proceeding
affecting the Borrower or any Subsidiary; including pursuant to any applicable
Environmental Laws;
(c) of the occurrence of any of the following events
affecting the Borrower or any ERISA Affiliate (but in no event more than 10 days
after such event), and deliver to the Agent and each Bank a copy of any notice
with respect to such event that is filed with a Governmental Authority and any
notice delivered by a Governmental Authority to the Borrower or any ERISA
Affiliate with respect to such event:
(i) an ERISA Event;
(ii) a material increase in the Unfunded Pension
Liability of any Pension Plan;
(iii) the adoption of, or the commencement of
contributions to, any Plan subject to Section 412 of the Code by the Borrower or
any ERISA Affiliate; or
(iv) the adoption of any amendment to a Plan
subject to Section 412 of the Code, if such amendment results in a material
increase in contributions or Unfunded Pension Liability; and
(d) of any material change in accounting policies or
financial reporting practices by the Borrower or any of its consolidated
Subsidiaries.
Each notice under this Section shall be accompanied by a written
statement by a Responsible Officer setting forth details of the occurrence
referred to therein, and stating what action the Borrower or any affected
Subsidiary proposes to take with respect thereto and at what time. Each notice
under SUBSECTION 6.3(A) shall describe with particularity any and all clauses or
provisions of this Agreement or other Loan Document that have been (or
foreseeably will be) breached or violated.
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6.4 PRESERVATION OF CORPORATE EXISTENCE, ETC. The Borrower shall, and
shall cause each Subsidiary to:
(a) preserve and maintain in full force and effect its
corporate existence and good standing under the laws of its state or
jurisdiction of incorporation; provided, however, that Borrower may
reincorporate in the State of Delaware in connection with the initial public
offering of its stock;
(b) preserve and maintain in full force and effect all
governmental rights, privileges, qualifications, permits, licenses and
franchises necessary or desirable in the normal conduct of its business;
(c) use reasonable efforts, in the ordinary course of
business, to preserve its business organization and goodwill; and
(d) preserve or renew all of its registered patents,
trademarks, trade names, service marks and copyrights, the non-preservation of
which could reasonably be expected to have a Material Adverse Effect.
6.5 MAINTENANCE OF PROPERTY. The Borrower shall maintain, and shall
cause each Subsidiary to maintain, and preserve all its property which is used
or useful in its business in good working order and condition, ordinary wear and
tear excepted.
6.6 INSURANCE. The Borrower shall maintain, and shall cause each
Subsidiary to maintain, with financially sound and reputable independent
insurers, insurance with respect to its properties and business against loss or
damage of the kinds customarily insured against by Persons engaged in the same
or similar business, of such types and in such amounts as are customarily
carried under similar circumstances by such other Persons.
6.7 PAYMENT OF OBLIGATIONS. The Borrower shall, and shall cause each
Subsidiary to, pay and discharge as the same shall become due and payable, all
their respective obligations and liabilities, including:
(a) all tax liabilities, assessments and governmental
charges or levies upon it or its properties or assets, unless the same are being
contested in good faith by appropriate proceedings and adequate reserves in
accordance with GAAP are being maintained by the Borrower or such Subsidiary;
(b) all lawful claims which, if unpaid, would by law become
a Lien upon its property; and
(c) all indebtedness, as and when due and payable, but
subject to any subordination provisions contained in any instrument or agreement
evidencing such Indebtedness.
32.
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6.8 COMPLIANCE WITH LAWS. The Borrower shall comply, and shall cause
each Subsidiary to comply, in all material respects with all Requirements of Law
of any Governmental Authority having jurisdiction over it or its business
(including the Federal Fair Labor Standards Act), except such as may be
contested in good faith or as to which a bona fide dispute may exist.
6.9 COMPLIANCE WITH ERISA. The Borrower shall, and shall cause each
of its ERISA Affiliates to: (a) maintain each Plan in compliance in all material
respects with the applicable provisions of ERISA, the Code and other federal or
state law; (b) cause each Plan which is qualified under Section 401(a) of the
Code to maintain such qualification; and (c) make all required contributions to
any Plan subject to Section 412 of the Code.
6.10 INSPECTION OF PROPERTY AND BOOKS AND RECORDS. The Borrower shall
maintain and shall cause each Subsidiary to maintain proper books of record and
account, in which full, true and correct entries in conformity with GAAP
consistently applied shall be made of all financial transactions and matters
involving the assets and business of the Borrower and such Subsidiary. The
Borrower shall permit, and shall cause each Subsidiary to permit,
representatives and independent contractors of the Agent or any Bank to visit
and inspect any of their respective properties, to examine their respective
corporate, financial and operating records, and make copies thereof or abstracts
therefrom, and to discuss their respective affairs, finances and accounts with
their respective directors, officers, and independent public accountants, all at
the expense of the Borrower and at such reasonable times during normal business
hours and as often as may be reasonably desired, upon reasonable advance notice
to the Borrower; provided, however, when an Event of Default exists the Agent or
any Bank may do any of the foregoing at the expense of the Borrower at any time
during normal business hours and without advance notice.
6.11 ENVIRONMENTAL LAWS. The Borrower shall, and shall cause each
Subsidiary to, conduct its operations and keep and maintain its property in
compliance with all Environmental Laws.
6.12 USE OF PROCEEDS. The Borrower shall use the proceeds of the
Loans for working capital, and general corporate purposes not in contravention
of any Requirement of Law or of any Loan Document.
6.13 FINANCIAL COVENANTS. At least one of the Borrower's (a) EBITDA
loss or (b) net operating cash flow deficiency, measured at end of each fiscal
quarter for the quarter then ended, shall not be greater than Five Million
Dollars ($5,000,000), until such time as the Borrower's cash and cash
equivalents equal or exceed Twenty-Five Million Dollars ($25,000,000).
Thereafter, the Borrower shall maintain at all times a Modified Quick Ratio of
not less than 1.50:1.00.
6.14 FURTHER ASSURANCES.
(a) The Borrower shall ensure that all written information,
exhibits and reports furnished to the Agent or the Banks do not and will not
contain any untrue statement of a material fact and do not and will not omit to
state any material fact necessary to make the
33.
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statements contained therein not misleading in light of the circumstances in
which made, and will promptly disclose to the Agent and the Banks and correct
any defect or error that may be discovered therein or in any Loan Document or in
the execution, acknowledgement or recordation thereof.
(b) Promptly upon request by the Agent or the Majority
Banks, the Borrower shall (and shall cause any of its Subsidiaries to) do,
execute, acknowledge, deliver, record, re-record, file, re-file, register and
re-register, any and all such further acts, deeds, conveyances, security
agreements, mortgages, assignments, estoppel certificates, financing statements
and continuations thereof, termination statements, notices of assignment,
transfers, certificates, assurances and other instruments the Agent or such
Majority Banks, as the case may be, may reasonably require from time to time in
order (i) to carry out more effectively, the purposes of this Agreement or any
other Loan Document, (ii) to subject to the Liens created by any of the
Collateral Documents any of the properties, rights or interests covered by any
of the Collateral Documents, except as otherwise provided in the Loan Documents,
(iii) to perfect and maintain the validity, effectiveness and priority of any of
the Collateral Documents and the Liens intended to be created thereby, and (iv)
to better assure, convey, grant, assign, transfer, preserve, protect and confirm
to the Agent and Banks the rights granted or now or hereafter intended to be
granted to the Banks under any Loan Document or under any other document
executed in connection therewith.
ARTICLE VII
NEGATIVE COVENANTS
So long as any Bank shall have any Commitment hereunder, or any Loan
or other Obligation shall remain unpaid or unsatisfied, unless the Majority
Banks waive compliance in writing:
7.1 LIMITATION ON LIENS. The Borrower shall not, and shall not suffer
or permit any Subsidiary to, directly or indirectly, make, create, incur, assume
or suffer to exist any Lien upon or with respect to any part of its property,
whether now owned or hereafter acquired, other than the following ("PERMITTED
LIENS"):
(a) any Lien (other than a Lien on the Collateral) existing
on property of the Borrower or any Subsidiary on the Closing Date and set forth
in Schedule 7.1 securing Indebtedness outstanding on such date;
(b) any Lien created under any Loan Document;
(c) Liens for taxes, fees, assessments or other
governmental charges which are not delinquent or remain payable without penalty,
or to the extent that non-payment thereof is permitted by SECTION 6.7, provided
that no notice of lien has been filed or recorded under the Code;
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(d) carriers', warehousemen's, mechanics', landlords',
materialmen's, repairmen's or other similar Liens arising in the ordinary course
of business which are not delinquent or remain payable without penalty;
(e) Liens (other than any Lien imposed by ERISA or on the
Collateral) consisting of pledges or deposits-required in the ordinary course of
business in connection with workers' compensation, unemployment insurance and
other social security legislation;
(f) Liens on the property of the Borrower (other than on
the Collateral) or its Subsidiary securing (i) the non-delinquent performance of
bids, trade contracts (other than for borrowed money), leases, statutory
obligations, (ii) contingent obligations on surety and appeal bonds, and (iii)
other non-delinquent obligations of a like nature; in each case, incurred in the
ordinary course of business;
(g) Liens consisting of judgment or judicial attachment
liens, provided that the enforcement of such Liens is effectively stayed and all
such liens in the aggregate at any time outstanding for the Borrower and its
Subsidiaries do not exceed $250,000;
(h) easements, rights-of-way, restrictions and other
similar encumbrances incurred in the ordinary course of business which, in the
aggregate, are not substantial in amount, and which do not in any case
materially detract from the value of the property subject thereto or interfere
with the ordinary conduct of the businesses of the Borrower and its
Subsidiaries;
(i) Liens on assets of corporations which become
Subsidiaries after the date of this Agreement, provided, however, that such
Liens existed at the time the respective corporations became Subsidiaries and
were not created in anticipation thereof;
(j) purchase money security interests on any property
acquired or held by the Borrower or its Subsidiaries in the ordinary course of
business, securing Indebtedness incurred or assumed for the purpose of financing
all or any part of the cost of acquiring such property; provided that (i) any
such Lien attaches to such property concurrently with or within 20 days after
the acquisition thereof, (ii) such Lien attaches solely to the property so
acquired in such transaction, (iii) the principal amount of the debt secured
thereby does not exceed 100% of the cost of such property, and (iv) the
principal amount of the Indebtedness secured by any and all such purchase money
security interests shall not at any time exceed $500,000;
(k) Liens securing obligations in respect of capital leases
on assets subject to such leases, provided that such capital leases are
otherwise permitted hereunder; and
(l) Liens arising solely by virtue of any statutory or
common law provision relating to banker's liens, rights of set-off or similar
rights and remedies as to deposit accounts or other funds maintained with a
creditor depository institution; provided that (i) such deposit account is not a
dedicated cash collateral account and is not subject to restrictions against
access by the Borrower in excess of those set forth by regulations promulgated
by the FRB, and (ii) such deposit account is not intended by the Borrower or any
Subsidiary to provide collateral to the depository institution.
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7.2 DISPOSITION OF ASSETS. The Borrower shall not, and shall not
suffer or permit any Subsidiary to, directly or indirectly, sell, assign, lease,
convey, transfer or otherwise dispose of (whether in one or a series of
transactions) any property (including accounts and notes receivable, with or
without recourse) or enter into any agreement to do any of the foregoing not
otherwise permitted by SECTION 7.3 below, except:
(a) dispositions of inventory, or used, worn-out or surplus
equipment, all in the ordinary course of business;
(b) the sale of equipment to the extent that such equipment
is exchanged for credit against the purchase price of similar replacement
equipment, or the proceeds of such sale are reasonably promptly applied to the
purchase price of such replacement equipment; and
(c) dispositions not otherwise permitted hereunder which
are made for fair market value; provided, that (i) at the time of any
disposition, no Event of Default shall exist or shall result from such
disposition, (ii) the aggregate sales price from such disposition shall be paid
in cash, and (iii) the aggregate value of all assets so sold by the Borrower and
its Subsidiaries, together, shall not exceed in any fiscal year $100,000.
7.3 CONSOLIDATIONS AND MERGERS. The Borrower shall not, and shall not
suffer or permit any Subsidiary to, merge, consolidate with or into, or convey,
transfer, lease or otherwise dispose of (whether in one transaction or in a
series of transactions all or substantially all of its assets (whether now owned
or hereafter acquired) to or in favor of any Person, except:
(a) any Subsidiary may merge with the Borrower, provided
that the Borrower shall be the continuing or surviving corporation, or with any
one or more Subsidiaries, provided that if any transaction shall be between a
Subsidiary and a Wholly-Owned Subsidiary, the Wholly-Owned Subsidiary shall be
the continuing or surviving corporation;
(b) any Subsidiary may sell all or substantially all of its
assets (upon voluntary liquidation or otherwise), to the Borrower or another
Wholly-Owned Subsidiary; and
(c) the Borrower may reincorporate in the State of Delaware
in connection with the initial public offering of its stock.
7.4 LOANS AND INVESTMENTS. The Borrower shall not purchase or
acquire, or suffer or permit any Subsidiary to purchase or acquire, or make any
commitment therefor, any capital stock, equity interest, or any obligations or
other securities of, or any interest in, any Person, or make or commit to make
any Acquisitions, or make or commit to make any advance, loan, extension of
credit or capital contribution to or any other investment in, any Person
including any Affiliate of the Borrower (together, "INVESTMENTS"), except for:
(a) Investments held by the Borrower or Subsidiary in the
form of cash equivalents; and
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(b) extensions of credit in the nature of accounts
receivable or notes receivable arising from the sale or lease of goods or
services in the ordinary course of business.
7.5 LIMITATION ON INDEBTEDNESS. The Borrower shall not, and shall not
suffer or permit any Subsidiary to, create, incur, assume, suffer to exist, or
otherwise become or remain directly or indirectly liable with respect to, any
Indebtedness, except:
(a) Indebtedness incurred pursuant to this Agreement;
(b) Indebtedness consisting of Contingent Obligations
permitted pursuant to SECTION 7.8;
(c) Indebtedness existing on the Closing Date and set forth
in SCHEDULE 7.5;
(d) Indebtedness secured by Liens permitted by SUBSECTION
7.1(j) in an aggregate amount outstanding not to exceed $500,000; and
(e) Indebtedness incurred in connection with leases
permitted pursuant to SECTION 7.10.
7.6 TRANSACTIONS WITH AFFILIATES. The Borrower shall not, and shall
not suffer or permit any Subsidiary to, enter into any transaction with any
Affiliate of the Borrower, except as disclosed on SCHEDULE 7.6; or upon fair and
reasonable terms no less favorable to the Borrower or such Subsidiary than would
obtain in a comparable arm's-length transaction with a Person not an Affiliate
of the Borrower or such Subsidiary; or as otherwise permitted by SECTION 7.3(c)
hereof.
7.7 USE OF PROCEEDS. The Borrower shall not, and shall not suffer or
permit any Subsidiary to, use any portion of the Loan proceeds, directly or
indirectly, (i) to purchase or carry Margin Stock, (ii) to repay or otherwise
refinance indebtedness of the Borrower or others incurred to purchase or carry
Margin Stock, (iii) to extend credit for the purpose of purchasing or carrying
any Margin Stock, or (iv) to acquire any security in any transaction that is
subject to Section 13 or 14 of the Exchange Act.
7.8 CONTINGENT OBLIGATIONS. The Borrower shall not, and shall not
suffer or permit any Subsidiary to, create, incur, assume or suffer to exist any
Contingent Obligations except:
(a) endorsements for collection or deposit in the ordinary
course of business;
(b) Contingent Obligations of the Borrower and its
Subsidiaries existing as of the Closing Date and listed in SCHEDULE 7.8; and
(c) Contingent Obligations with respect to Surety
Instruments incurred in the ordinary course of business.
7.9 JOINT VENTURES. The Borrower shall not, and shall not suffer or
permit any Subsidiary to enter into any Joint Venture, other than in the
ordinary course of business.
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7.10 LEASE OBLIGATIONS. The Borrower shall not, and shall not suffer
or permit any Subsidiary to, create or suffer to exist any obligations for the
payment of rent for any property under lease or agreement to lease, except for:
(a) leases of the Borrower and of Subsidiaries in existence
on the Closing Date;
(b) the lease set forth on SCHEDULE 7.10; and
(c) operating leases entered into by the Borrower or any
Subsidiary after the Closing Date in the ordinary course of business.
7.11 RESTRICTED PAYMENTS. The Borrower shall not, and shall not
suffer or permit any Subsidiary to, declare or make any dividend payment or
other distribution of assets, properties, cash, rights, obligations or
securities on account of any shares of any class of its capital stock, or
purchase, redeem or otherwise acquire for value any shares of its capital stock
or any warrants, rights or options to acquire such shares, now or hereafter
outstanding; except that the Borrower and any Wholly-Owned Subsidiary may:
(a) declare and make dividend payments or other
distributions payable solely in its common stock; and
(b) purchase, redeem or otherwise acquire shares of its
common stock or warrants or options to acquire any such shares with the proceeds
received from the substantially concurrent issue of new shares of its common
stock.
7.12 ERISA. The Borrower shall not, and shall not suffer or permit
any of its ERISA Affiliates to: (a) engage in a prohibited transaction or
violation of the fiduciary responsibility rules with respect to any Plan which
has resulted or could reasonably expected to result in liability of the Borrower
in an aggregate amount in excess of $500,000; or (b) engage in a transaction
that could be subject to Section 4069 or 4212(c) of ERISA.
7.13 CHANGE IN BUSINESS. The Borrower shall not, and shall not suffer
or permit any Subsidiary to, engage in any material line of business
substantially different from those lines of business carried on by the Borrower
and its Subsidiaries on the date hereof.
7.14 ACCOUNTING CHANGES. The Borrower shall not, and shall not suffer
or permit any Subsidiary to, make any significant change in accounting treatment
or reporting practices, except as required by GAAP, or change the fiscal year of
the Borrower or of any Subsidiary.
7.15 SUBORDINATED DEBT. The Borrower shall not and shall not suffer
or permit any of its Subsidiaries to:
(a) subject to clause (c) below, make any payment (whether
of principal, interest or otherwise) on any Subordinated Debt on any day other
than the stated, scheduled date
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for such payment set forth in the documents and instrument evidencing such
Subordinated Debt (which shall in all cases for principal be later than the
Maturity Date);
(b) make any payment on any Subordinated Debt in
contravention or violation of the subordination provisions thereof; or
(c) prepay, redeem, purchase or defeats any Subordinated
Debt, or make any deposit for any of the foregoing purposes; or
(d) enter into any amendment or modification of any
Subordinated Debt.
ARTICLE VIII
EVENTS OF DEFAULT
8.1 EVENT OF DEFAULT. Any of the following shall constitute an "Event
of Default":
(a) NON-PAYMENT. The Borrower fails to pay, (i) when and as
required to be paid herein, any amount of principal of any Loan, or (ii) within
five (5) days after the same becomes due, any interest, fee or any other amount
payable hereunder or under any other Loan Document; or
(b) REPRESENTATION OR WARRANTY. Any representation or
warranty by the Borrower or any Subsidiary made or deemed made herein, in any
other Loan Document, or which is contained in any certificate, document or
financial or other statement by the Borrower, any Subsidiary, or any Responsible
Officer, furnished at any time under this Agreement, or in or under any other
Loan Document, is incorrect in any material respect on or as of the date made or
deemed made; or
(c) SPECIFIC DEFAULTS. The Borrower fails to perform or
observe any term, covenant or agreement contained in any of SECTION 6.1, 6.2,
6.3, 6.9 OR 6.13 or in ARTICLE VII; or
(d) OTHER DEFAULTS. The Borrower or any Subsidiary party
thereto fails to perform or observe any other term or covenant contained in this
Agreement or any other Loan Document, and such default shall continue unremedied
for a period of 20 days after the earlier of (i) the date upon which a
Responsible Officer knew or reasonably should have known of such failure or (ii)
the date upon which written notice thereof is given to the Borrower by the Agent
or any Bank; or
(e) CROSS-DEFAULT. The Borrower or any Subsidiary (i) fails
to make any payment in respect of any Indebtedness or Contingent Obligation,
having an aggregate principal amount (including undrawn committed amounts and
including amounts owing to all creditors under any combined or syndicated credit
arrangement) of more than $250,000 when due
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(whether by scheduled maturity, required prepayment, acceleration, demand, or
otherwise); or (ii) fails to perform or observe any other condition or covenant,
or any other event shall occur or condition exist, under any agreement or
instrument relating to any such Indebtedness or Contingent Obligation, if the
effect of such failure, event or condition is to cause, or to permit the holder
or holders of such Indebtedness or beneficiary or beneficiaries of such
Indebtedness (or a trustee or agent on behalf of such holder or holders or
beneficiary or beneficiaries) to cause such Indebtedness to be declared to be
due and payable prior to its stated maturity, or such Contingent Obligation to
become payable or cash collateral in respect thereof to be demanded; or
(f) INSOLVENCY; VOLUNTARY PROCEEDINGS. The Borrower or any
Subsidiary (i) ceases or fails to be Solvent, or generally fails to pay, or
admits in writing its inability to pay, its debts as they become due, subject to
applicable grace periods, if any, whether at stated maturity or otherwise; (ii)
voluntarily ceases to conduct its business in the ordinary course; (iii)
commences any Insolvency Proceeding with respect to itself; or (iv) takes any
action to effectuate or authorize any of the foregoing; or
(g) INVOLUNTARY PROCEEDINGS. (i) Any involuntary Insolvency
Proceeding is commenced or filed against the Borrower or any Subsidiary, or any
writ, judgment, warrant of attachment, execution or similar process, is issued
or levied against a substantial part of the Borrower's or any Subsidiary's
properties, and any such proceeding or petition shall not be dismissed, or such
writ, judgment, warrant of attachment, execution or similar process shall not be
released, vacated or fully bonded within 60 days after commencement, filing or
levy; (ii) the Borrower or any Subsidiary admits the material allegations of a
petition against it in any Insolvency Proceeding, or an order for relief (or
similar order under non-U. S. law) is ordered in any Insolvency Proceeding; or
(iii) the Borrower or any Subsidiary acquiesces in the appointment of a
receiver, trustee, custodian, conservator, liquidator, mortgagee in possession
(or agent therefor), or other similar Person for itself or a substantial portion
of its property or business; or
(h) ERISA. (i) An ERISA Event shall occur with respect to a
Pension Plan or Multiemployer Plan which has resulted or could reasonably be
expected to result in liability of the Borrower under Title IV of ERISA to the
Pension Plan, Multiemployer Plan or the PBGC in an aggregate amount in excess of
$250,000; (ii) the aggregate amount of Unfunded Pension Liability among all
Pension Plans at any time exceeds $250,000; or (iii) the Borrower or any ERISA
Affiliate shall fail to pay when due, after the expiration of any applicable
grace period, any installment payment with respect to its withdrawal liability
under Section 4201 of ERISA under a Multiemployer Plan in an aggregate amount in
excess of $250,000; or
(i) MONETARY JUDGMENTS. One or more non-interlocutory
judgments, non-interlocutory orders, decrees or arbitration awards is entered
against the Borrower or any Subsidiary involving in the aggregate a liability
(to the extent not covered by independent third-party insurance as to which the
insurer does not dispute coverage) as to any single or related series of
transactions, incidents or conditions, of $250,000 or more, or following the
borrower's initial public offering of its stock, $500,000 or more, and the same
shall remain unvacated and unstayed pending appeal for a period of 10 days after
the entry thereof; or
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(j) NON-MONETARY JUDGMENTS. Any non-monetary judgment,
order or decree is entered against the Borrower or any Subsidiary which does or
would reasonably be expected to have a Material Adverse Effect, and there shall
be any period of 10 consecutive days during which a stay of enforcement of such
judgment or order, by reason of a pending appeal or otherwise, shall not be in
effect; or
(k) CHANGE OF CONTROL. There occurs any Change of Control,
provided, however, that for purposes of this SUBSECTION 8.1(k), "Change of
Control" shall not include the initial public offering of the Borrower's stock,
or any sales to underwriters or the reincorporation of Borrower into Delaware,
each in connection with such initial public offering; or
(l) LOSS OF LICENSES. Any Governmental Authority revokes or
fails to renew any material license, permit or franchise of the Borrower or any
Subsidiary, or the Borrower or any Subsidiary for any reason loses any material
license, permit or franchise, or the Borrower or any Subsidiary suffers the
imposition of any restraining order, escrow, suspension or impound of funds in
connection with any proceeding (judicial or administrative) with respect to any
material license, permit or franchise; or
(m) ADVERSE CHANGE. There occurs a Material Adverse Effect;
or
(n) INVALIDITY OF SUBORDINATION PROVISIONS. The
subordination provisions of any agreement or instrument governing any
Subordinated Debt is for any reason revoked or invalidated, or otherwise cease
to be in full force and effect, any Person contests in any manner the validity
or enforceability thereof or denies that it has any further liability or
obligation thereunder, or the Indebtedness hereunder is for any reason
subordinated or does not have the priority contemplated by this Agreement or
such subordination provisions; or
(o) COLLATERAL.
(i) Any provision of any Collateral Document
shall for any reason cease to be valid and binding on or enforceable in any
material respect against the Borrower or any Subsidiary party thereto or (B) the
Borrower or any Subsidiary shall state that any provision of any Collateral
Document shall for any reason cease to be valid and binding on or enforceable
against the Borrower or any Subsidiary party thereto in writing or bring an
action to limit its obligations or liabilities thereunder; or
(ii) any Collateral Document shall for any reason
(other than pursuant to the terms thereof) cease to create a valid security
interest in the Collateral purported to be covered thereby or such security
interest shall for any reason cease to be a perfected and first priority
security interest with respect to any material item of collateral subject only
to Permitted Liens.
8.2 REMEDIES. If any Event of Default occurs, the Agent shall, at the
request of, or may, with the consent of, the Majority Banks,
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(a) declare the Commitment of each Bank to make Loans to be
terminated, whereupon such Commitments shall be terminated;
(b) declare the unpaid principal amount of all outstanding
Loans, all interest accrued and unpaid thereon, and all other amounts owing or
payable hereunder or under any other Loan Document to be immediately due and
payable, without presentment, demand, protest or other notice of any kind, all
of which are hereby expressly waived by the Borrower;
(c) exercise on behalf of itself and the Banks all rights
and remedies available to it and the Banks under the Loan Documents or
applicable law; and
(d) demand that the Borrower (i) deposit cash with the
Agent in an amount equal to the amount of any Letter of Credit Undrawn Amount
remaining undrawn, as collateral security for the repayment of any future
drawings under such Letters of Credit, and the Borrower shall forthwith deposit
and pay such amounts, and (ii) pay in advance all Letter of Credit fees and
commissions scheduled or payable over the remaining term of each Letter of
Credit;
provided, however, that upon the occurrence of any event specified in subsection
(f) or (g) of SECTION 8.1 (in the case of clause (i) of subsection (g) upon the
expiration of the 60-day period mentioned therein), the obligation of each Bank
to make Loans shall automatically terminate and the unpaid principal amount of
all outstanding Loans and all interest and other amounts as aforesaid shall
automatically become due and payable without further act of the Agent or any
Bank.
8.3 RIGHTS NOT EXCLUSIVE. The rights provided for in this Agreement
and the other Loan Documents are cumulative and are not exclusive of any other
rights, powers, privileges or remedies provided by law or in equity, or under
any other instrument, document or agreement now existing or hereafter arising.
ARTICLE IX
THE AGENT
9.1 APPOINTMENT AND AUTHORIZATION; "AGENT". Each Bank hereby
irrevocably (subject to SECTION 9.9) appoints, designates and authorizes the
Agent to take such action on its behalf under the provisions of this Agreement
and each other Loan Document and to exercise such powers and perform such duties
as are expressly delegated to it by the terms of this Agreement or any other
Loan Document, together with such powers as are reasonably incidental thereto.
Notwithstanding any provision to the contrary contained elsewhere in this
Agreement or in any other Loan Document, the Agent shall not have any duties or
responsibilities, except those expressly set forth herein, nor shall the Agent
have or be deemed to have any fiduciary relationship with any Bank, and no
implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Agreement or any other Loan Document or
otherwise exist against the Agent. Without limiting the generality of the
foregoing sentence, the use of the term "agent" in this Agreement with reference
to the Agent is not intended to connote any fiduciary or other implied (or
express) obligations arising under agency doctrine of any
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applicable law. Instead, such term is used merely as a matter of market custom,
and is intended to create or reflect only an administrative relationship between
independent contracting parties.
9.2 DELEGATION OF DUTIES. The Agent may execute any of its duties
under this Agreement or any other Loan Document by or through agents, employees
or attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. The Agent shall not be responsible for the
negligence or misconduct of any agent or attorney-in-fact that it selects with
reasonable care.
9.3 LIABILITY OF AGENT. None of the Agent-Related Persons shall (i)
be liable for any action taken or omitted to be taken by any of them under or in
connection with this Agreement or any other Loan Document or the transactions
contemplated hereby (except for its own gross negligence or willful misconduct),
or (ii) be responsible in any manner to any of the Banks for any recital,
statement, representation or warranty made by the Borrower or any Subsidiary or
Affiliate of the Borrower, or any officer thereof, contained in this Agreement
or in any other Loan Document, or in any certificate, report, statement or other
document referred to or provided for in, or received by the Agent under or in
connection with, this Agreement or any other Loan Document, or for the value of
and title to any Collateral, or the validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement or any other Loan Document, or
for any failure of the Borrower or any other party to any Loan Document to
perform its obligations hereunder or thereunder. No Agent-Related Person shall
be under any obligation to any Bank to ascertain or to inquire as to the
observance or performance of any of the agreements contained in, or conditions
of, this Agreement or any other Loan Document, or to inspect the properties,
books or records of the Borrower or any of the Borrower's Subsidiaries or
Affiliates.
9.4 RELIANCE BY AGENT.
(a) The Agent shall be entitled to rely, and shall be fully
protected in relying, upon any writing, resolution, notice, consent,
certificate, affidavit, letter, telegram, facsimile, telex or telephone message,
statement or other document or conversation believed by it to be genuine and
correct and to have been signed, sent or made by the proper Person or Persons,
and upon advice and statements of legal counsel (including counsel to the
Borrower), independent accountants and other experts selected by the Agent. The
Agent shall be fully justified in failing or refusing to take any action under
this Agreement or any other Loan Document unless it shall first receive such
advice or concurrence of the Majority Banks as it deems appropriate and, if it
so requests, it shall first be indemnified to its satisfaction by the Banks
against any and all liability and expense which may be incurred by it by reason
of taking or continuing to take any such action. The Agent shall in all cases be
fully protected in acting, or in refraining from acting, under this Agreement or
any other Loan Document in accordance with a request or consent of the Majority
Banks and such request and any action taken or failure to act pursuant thereto
shall be binding upon all of the Banks.
(b) For purposes of determining compliance with the
conditions specified in SECTION 4.1, each Bank that has executed this Agreement
shall be deemed to have consented to, approved or accepted or to be satisfied
with, each document or other matter either sent by the
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Agent to such Bank for consent, approval, acceptance or satisfaction, or
required thereunder to be consented to or approved by or acceptable or
satisfactory to the Bank.
9.5 NOTICE OF DEFAULT. The Agent shall not be deemed to have
knowledge or notice of the occurrence of any Default or Event of Default, except
with respect to defaults in the payment of principal, interest and fees required
to be paid to the Agent for the account of the Banks, unless the Agent shall
have received written notice from a Bank or the Borrower referring to this
Agreement, describing such Default or Event of Default and stating that such
notice is a "notice of default". The Agent will notify the Banks of its receipt
of any such notice. The Agent shall take such action with respect to such
Default or Event of Default as may be requested by the Majority Banks in
accordance with Article VIII; provided, however, that unless and until the Agent
has received any such request, the Agent may (but shall not be obligated to)
take such action, or refrain from taking such action, with respect to such
Default or Event of Default as it shall deem advisable or in the best interest
of the Banks.
9.6 CREDIT DECISION. Each Bank acknowledges that none of the
Agent-Related Persons has made any representation or warranty to it, and that no
act by the Agent hereinafter taken, including any review of the affairs of the
Borrower and its Subsidiaries, shall be deemed to constitute any representation
or warranty by any Agent-Related Person to any Bank. Each Bank represents to the
Agent that it has, independently and without reliance upon any Agent-Related
Person and based on such documents and information as it has deemed appropriate,
made its own appraisal of and investigation into the business, prospects,
operations, property, financial and other condition and credit worthiness of the
Borrower and its Subsidiaries, the value of and title to any Collateral, and all
applicable bank regulatory laws relating to the transactions contemplated
hereby, and made its own decision to enter into this Agreement and to extend
credit to the Borrower and its Subsidiaries hereunder. Each Bank also represents
that it will, independently and without reliance upon any Agent-Related Person
and based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit analysis, appraisals and decisions in
taking or not taking action under this Agreement and the other Loan Documents,
and to make such investigations as it deems necessary to inform itself as to the
business, prospects, operations, property, financial and other condition and
credit worthiness of the Borrower. Except for notices, reports and other
documents expressly herein required to be furnished to the Banks by the Agent,
the Agent shall not have any duty or responsibility to provide any Bank with any
credit or other information concerning the business, prospects, operations,
property, financial and other condition or credit worthiness of the Borrower
which may come into the possession of any of the Agent-Related Persons.
9.7 INDEMNIFICATION OF AGENT. Whether or not the transactions
contemplated hereby are consummated, the Banks shall indemnify upon demand the
Agent-Related Persons (to the extent not reimbursed by or on behalf of the
Borrower and without limiting the obligation of the Borrower to do so), pro
rata, from and against any and all Indemnified Liabilities; provided, however,
that no Bank shall be liable for the payment to the Agent-Related Persons of any
portion of such Indemnified Liabilities resulting solely from such Person's
gross negligence or willful misconduct. Without limitation of the foregoing,
each Bank shall reimburse the Agent upon demand for its ratable share of any
costs or out-of-pocket expenses (including Attorney
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Costs) incurred by the Agent in connection with the preparation, execution,
delivery, administration, modification, amendment or enforcement (whether
through negotiations, legal proceedings or otherwise) of, or legal advice in
respect of rights or responsibilities under, this Agreement, any other Loan
Document, or any document contemplated by or referred to herein, to the extent
that the Agent is not reimbursed for such expenses by or on behalf of the
Borrower. The undertaking in this Section shall survive the payment of all
Obligations hereunder and the resignation or replacement of the Agent.
9.8 AGENT IN INDIVIDUAL CAPACITY. Deutsche Bank and its Affiliates
may make loans to, issue letters of credit for the account of, accept deposits
from, acquire equity interests in and generally engage in any kind of banking,
trust, financial advisory, underwriting or other business with the Borrower and
its Subsidiaries and Affiliates as though Deutsche Bank were not the Agent
hereunder and without notice to or consent of the Banks. The Banks acknowledge
that, pursuant to such activities, Deutsche Bank or its Affiliates may receive
information regarding the Borrower or its Affiliates (including information that
may be subject to confidentiality obligations in favor of the Borrower or such
Subsidiary) and acknowledge that the Agent shall be under no obligation to
provide such information to them. With respect to its Loans, Deutsche Bank shall
have the same rights and powers under this Agreement as any other Bank and may
exercise the same as though it were not the Agent, and the terms "Bank" and
"Banks" include Deutsche Bank in its individual capacity.
9.9 SUCCESSOR AGENT. The Agent may, and at the request of the
Majority Banks shall, resign as Agent upon 30 days' notice to the Banks. If the
Agent resigns under this Agreement, the Majority Banks shall appoint from among
the Banks a successor agent for the Banks. If no successor agent is appointed
prior to the effective date of the resignation of the Agent, the Agent may
appoint, after consulting with the Banks and the Borrower, a successor agent
from among the Banks. Upon the acceptance of its appointment as successor agent
hereunder, such successor agent shall succeed to all the rights, powers and
duties of the retiring Agent and the term "Agent" shall mean such successor
agent and the retiring Agent's appointment, powers and duties as Agent shall be
terminated. After any retiring Agent's resignation hereunder as Agent, the
provisions of this ARTICLE IX and SECTIONS 10.4 AND 10.5 shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was Agent
under this Agreement. If no successor agent has accepted appointment as Agent by
the date which is 30 days following a retiring Agent's notice of resignation,
the retiring Agent's resignation shall nevertheless thereupon become effective
and the Banks shall perform all of the duties of the Agent hereunder until such
time, if any, as the Majority Banks appoint a successor agent as provided for
above.
9.10 WITHHOLDING TAX.
(a) If any Bank is a "foreign corporation, partnership or
trust" within the meaning of the Code and such Bank claims exemption from, or a
reduction of, U.S. withholding tax under Sections 1441 or 1442 of the Code, such
Bank agrees with and in favor of the Agent, to deliver to the Agent:
45.
<PAGE> 47
(i) if such Bank claims an exemption from, or a
reduction of, withholding tax under a United States tax treaty, two properly
completed and executed copies of IRS Form 1001 before the payment of any
interest in the first calendar year and before the payment of any interest in
each third succeeding calendar year during which interest may be paid under this
Agreement;
(ii) if such Bank claims that interest paid under
this Agreement is exempt from United States withholding tax because it is
effectively connected with a United States trade or business of such Bank, two
properly completed and executed copies of IRS Form 4224 before the payment of
any interest is due in the first taxable year of such Bank and in each
succeeding taxable year of such Bank during which interest may be paid under
this Agreement; and
(iii) such other form or forms as may be required
under the Code or other laws of the United States as a condition to exemption
from, or reduction of, United States withholding tax.
Such Bank agrees to promptly notify the Agent of any change in circumstances
which would modify or render invalid any claimed exemption or reduction.
(b) If any Bank claims exemption from, or reduction of,
withholding tax under a United States tax treaty by providing IRS Form 1001 and
such Bank sells, assigns, grants a participation in, or otherwise transfers all
or part of the Obligations of the Borrower to such Bank, such Bank agrees to
notify the Agent of the percentage amount in which it is no longer the
beneficial owner of Obligations of the Borrower to such Bank. To the extent of
such percentage amount, the Agent will treat such Bank's IRS Form 1001 as no
longer valid.
(c) If any Bank claiming exemption from United States
withholding tax by filing IRS Form 4224 with the Agent sells, assigns, grants a
participation in, or otherwise transfers all or part of the Obligations of the
Borrower to such Bank, such Bank agrees to undertake sole responsibility for
complying with the withholding tax requirements imposed by Sections 1441 and
1442 of the Code.
(d) If any Bank is entitled to a reduction in the
applicable withholding tax, the Agent may withhold from any interest payment to
such Bank an amount equivalent to the applicable withholding tax after taking
into account such reduction. However, if the forms or other documentation
required by subsection (a) of this Section are not delivered to the Agent, then
the Agent may withhold from any interest payment to such Bank not providing such
forms or other documentation an mount equivalent to the applicable withholding
tax imposed by Sections 1441 and 1442 of the Code, without reduction.
(e) If the IRS or any other Governmental Authority of the
United States or other jurisdiction asserts a claim that the Agent did not
properly withhold tax from amounts paid to or for the account of any Bank
(because the appropriate form was not delivered or was not properly executed, or
because such Bank failed to notify the Agent of a change in circumstances which
rendered the exemption from, or reduction of, withholding tax ineffective, or
for any other
46.
<PAGE> 48
reason) such Bank shall indemnify the Agent fully for all amounts paid, directly
or indirectly, by the Agent as tax or otherwise, including penalties and
interest, and including any taxes imposed by any jurisdiction on the amounts
payable to the Agent under this Section, together with all costs and expenses
(including Attorney Costs). The obligation of the Banks under this subsection
shall survive the payment of all Obligations and the resignation or replacement
of the Agent.
ARTICLE X
MISCELLANEOUS
10.1 AMENDMENTS AND WAIVERS. No amendment or waiver of any provision
of this Agreement or any other Loan Document, and no consent with respect to any
departure by the Borrower or any applicable Subsidiary therefrom, shall be
effective unless the same shall be in writing and signed by the Majority Banks
(or by the Agent at the written request of the Majority Banks) and the Borrower
and acknowledged by the Agent, and then any such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given; provided, however, that no such waiver, amendment, or consent shall,
unless in writing and signed by all the Banks and the Borrower and acknowledged
by the Agent, do any of the following:
(a) increase or extend the Commitment of any Bank (or
reinstate any Commitment terminated pursuant to SECTION 8.2);
(b) postpone or delay any date fixed by this Agreement or
any other Loan Document for any payment of principal, interest, fees or other
amounts due to the Banks (or any of them) hereunder or under any other Loan
Document;
(c) reduce the principal of, or the rate of interest
specified herein on any Loan, or (subject to clause (ii) below) any fees or
other amounts payable hereunder or under any other Loan Document;
(d) change the percentage of the Commitments or of the
aggregate unpaid principal amount of the Loans which is required for the Banks
or any of them to take any action hereunder;
(e) amend this Section, or SECTION 2.13, or any provision
herein providing for consent or other action by all Banks; or
(f) release any material portion of the Collateral except
as otherwise may specifically be provided for;
and, provided further, that no amendment, waiver or consent shall, unless in
writing and signed by the Agent in addition to the Majority Banks or all the
Banks, as the case may be, affect the rights or duties of the Agent under this
Agreement or any other Loan Document.
10.2 NOTICES.
47.
<PAGE> 49
(a) All notices, requests, consents, approvals, waivers and
other communications shall be in writing (including, unless the context
expressly otherwise provides, by facsimile transmission, provided that any
matter transmitted by the Borrower by facsimile (i) shall be immediately
confirmed by a telephone call to the recipient at the number specified on
Schedule 10.2, and (ii) shall be followed promptly by delivery of a hard copy
original thereof) and mailed, faxed or delivered, to the address or facsimile
number specified for notices on Schedule 10.2; or, as directed to the Borrower
or the Agent, to such other address as shall be designated by such party in a
written notice to the other parties, and as directed to any other party, at such
other address as shall be designated by such party in a written notice to the
Borrower and the Agent.
(b) All such notices, requests and communications shall,
when transmitted by overnight delivery, or faxed, be effective when delivered
for overnight (next-day) delivery, or transmitted in legible form by facsimile
machine, respectively, or if mailed, upon the third Business Day after the date
deposited into the U.S. mail, or if delivered, upon delivery; except that
notices pursuant to Article II or IX to the Agent shall not be effective until
actually received by the Agent.
(c) Any agreement of the Agent and the Banks herein to
receive certain notices by telephone or facsimile is solely for the convenience
and at the request of the Borrower. The Agent and the Banks shall be entitled to
rely on the authority of any Person purporting to be a Person authorized by the
Borrower to give such notice and the Agent and the Banks shall not have any
liability to the Borrower or other Person on account of any action taken or not
taken by the Agent or the Banks in reliance upon such telephonic or facsimile
notice. The obligation of the Borrower to repay the Loans shall not be affected
in any way or to any extent by any failure by the Agent and the Banks to receive
written confirmation of any telephonic or facsimile notice or the receipt by the
Agent and the Banks of a confirmation which is at variance with the terms
understood by the Agent and the Banks to be contained in the telephonic or
facsimile notice.
10.3 NO WAIVER; CUMULATIVE REMEDIES. No failure to exercise and no
delay in exercising, on the part of the Agent or any Bank, any right, remedy,
power or privilege hereunder, shall operate as a waiver thereof; nor shall any
single or partial exercise of any right, remedy, power or privilege hereunder
preclude any other or further exercise thereof or the exercise of any other
right, remedy, power or privilege.
10.4 COSTS AND EXPENSES. The Borrower shall:
(a) whether or not the transactions contemplated hereby are
consummated, pay or reimburse Deutsche Bank (including in its capacity as Agent)
within five Business Days after demand (subject to subsection 4.1(e)) for all
costs and expenses reasonably incurred by Deutsche Bank (including in its
capacity as Agent) in connection with the development, preparation, delivery,
administration and execution of, and any amendment, supplement, waiver or
modification to (in each case, whether or not consummated), this Agreement, any
Loan Document and any other documents prepared in connection herewith or
therewith, and the consummation of the transactions contemplated hereby and
thereby, including reasonable
48.
<PAGE> 50
Attorney Costs incurred by Deutsche Bank (including in its capacity as Agent)
with respect thereto; and
(b) pay or reimburse the Agent and each Bank within five
(5) Business Days after demand (subject to SUBSECTION 4.1(e)) for all costs and
expenses (including Attorney Costs) reasonably incurred by them in connection
with the enforcement, attempted enforcement, or preservation of any rights or
remedies under this Agreement or any other Loan Document during the existence of
an Event of Default or after acceleration of the Loans (including in connection
with any "workout" or restructuring regarding the Loans, and including in any
Insolvency Proceeding or appellate proceeding).
10.5 BORROWER INDEMNIFICATION. Whether or not the transactions
contemplated hereby are consummated, the Borrower shall indemnify, defend and
hold the Agent-Related Persons, and each Bank and each of its respective
officers, directors, employees, counsel, agents and attorneys-in-fact (each, an
"INDEMNIFIED PERSON") harmless from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
charges, expenses and disbursements (including Attorney Costs) of any kind or
nature whatsoever which may at any time (including at any time following
repayment of the Loans and the termination, resignation or replacement of the
Agent or replacement of any Bank) be imposed on, incurred by or asserted against
any such Person in any way relating to or arising out of this Agreement or any
document contemplated by or referred to herein, or the transactions contemplated
hereby, or any action taken or omitted by any such Person under or in connection
with any of the foregoing, including with respect to any investigation,
litigation or proceeding (including any Insolvency Proceeding or appellate
proceeding) related to or arising out of this Agreement or the Loans or the use
of the proceeds thereof, whether or not any Indemnified Person is a party
thereto (all the foregoing, collectively, the "INDEMNIFIED LIABILITIES");
provided, that the Borrower shall have no obligation hereunder to any
Indemnified Person with respect to Indemnified Liabilities resulting solely from
the gross negligence or willful misconduct of such Indemnified Person. The
agreements in this Section shall survive payment of all other Obligations.
10.6 PAYMENTS SET ASIDE. To the extent that the Borrower makes a
payment to the Agent or the Banks, or the Agent or the Banks exercise their
right of set-off, and such payment or the proceeds of such set-off or any part
thereof are subsequently invalidated, declared to be fraudulent or preferential,
set aside or required (including pursuant to any settlement entered into by the
Agent or such Bank in its discretion) to be repaid to a trustee, receiver or any
other party, in connection with any Insolvency Proceeding or otherwise, then (a)
to the extent of such recovery the obligation or part thereof originally
intended to be satisfied shall be revived and continued in full force and effect
as if such payment had not been made or such set-off had not occurred, and (b)
each Bank severally agrees to pay to the Agent upon demand its pro rata share of
any amount so recovered from or repaid by the Agent.
10.7 SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, except that the Borrower may not assign or
transfer any of its rights or obligations under this Agreement without the prior
written consent of the Agent and each Bank.
49.
<PAGE> 51
10.8 ASSIGNMENTS, PARTICIPATIONS, ETC.
(a) Any Bank may, with the written consent of the Agent and
the Borrower, which consent shall not be unreasonably withheld, at any time
assign and delegate to one or more Eligible Assignees (provided that no written
consent of the Agent or the Borrower shall be required in connection with any
assignment and delegation by a Bank to an Eligible Assignee that is an Affiliate
of such Bank) (each an "ASSIGNEE") all, or any ratable part of all, of the
Loans, the Commitments and the other rights and obligations of such Bank
hereunder, in a minimum amount of $2,500,000; provided, however, that the
Borrower and the Agent may continue to deal solely and directly with such Bank
in connection with the interest so assigned to an Assignee until (i) written
notice of such assignment, together with payment instructions, addresses and
related information with respect to the Assignee, shall have been given to the
Borrower and the Agent by such Bank and the Assignee; (ii) such Bank and its
Assignee shall have delivered to the Borrower and the Agent an Assignment and
Acceptance in form acceptable to Agent together with any Note or Notes subject
to such assignment and (iii) the assignor Bank or Assignee has paid to the Agent
a processing fee in the amount of $3,500.
(b) From and after the date that the Agent notifies the
assignor Bank that it has received (and provided its consent with respect to) an
executed Assignment and Acceptance and payment of the above-referenced
processing fee, (i) the Assignee thereunder shall be a party hereto and, to the
extent that rights and obligations hereunder have been assigned to it pursuant
to such Assignment and Acceptance, shall have the rights and obligations of a
Bank under the Loan Documents, and (ii) the assignor Bank shall, to the extent
that rights and obligations hereunder and under the other Loan Documents have
been assigned by it pursuant to such Assignment and Acceptance, relinquish its
rights and be released from its obligations under the Loan Documents.
(c) Within five (5) Business Days after its receipt of
notice by the Agent that it has received an executed Assignment and Acceptance
and payment of the processing fee, the Borrower shall execute and deliver to the
Agent, new Notes evidencing such Assignee's assigned Loans and Commitment and,
if the assignor Bank has retained a portion of its Loans and its Commitment,
replacement Notes in the principal amount of the Revolving Loans retained by the
assignor Bank (such Notes to be in exchange for, but not in payment of, the
Notes held by such Bank). Immediately upon each Assignee's making its processing
fee payment under the Assignment and Acceptance, this Agreement shall be deemed
to be amended to the extent, but only to the extent, necessary to reflect the
addition of the Assignee and the resulting adjustment of the Commitments arising
therefrom. The Commitment allocated to each Assignee shall reduce such
Commitments of the assigning Bank pro tanto.
(d) Any Bank may at any time sell to one or more commercial
banks or other Persons not Affiliates of the Borrower (a "PARTICIPANT")
participating interests in any Loans, the Commitment of that Bank and the other
interests of that Bank (the "originating Bank") hereunder and under the other
Loan Documents; provided, however, that (i) the originating Bank's obligations
under this Agreement shall remain unchanged, (ii) the originating Bank shall
remain solely responsible for the performance of such obligations, (iii) the
Borrower and the Agent shall
50.
<PAGE> 52
continue to deal solely and directly with the originating Bank in connection
with the originating Bank's rights and obligations under this Agreement and the
other Loan Documents, and (iv) no Bank shall transfer or grant any participating
interest under which the Participant has rights to approve any amendment to, or
any consent or waiver with respect to, this Agreement or any other Loan
Document, except to the extent such amendment, consent or waiver would require
unanimous consent of the Banks as described in the first proviso to SECTION
10.1. In the case of any such participation, the Participant shall be entitled
to the benefit of SECTIONS 3.1, 3.2 AND 10.5 as though it were also a Bank
hereunder, and if amounts outstanding under this Agreement are due and unpaid,
or shall have been declared or shall have become due and payable upon the
occurrence of an Event of Default, each Participant shall be deemed to have the
right of set-off in respect of its participating interest in amounts owing under
this Agreement to the same extent as if the amount of its participating interest
were owing directly to it as a Bank under this Agreement.
(e) Notwithstanding any other provision in this Agreement,
any Bank may at any time create a security interest in, or pledge, all or any
portion of its rights under and interest in this Agreement and the Note held by
it in favor of any Federal Reserve Bank in accordance with Regulation A of the
FRB or U.S. Treasury Regulation 31 CFR Section 203.14, and such Federal Reserve
Bank may enforce such pledge or security interest in any manner permitted under
applicable law.
10.9 CONFIDENTIALITY. Each Bank agrees to take and to cause its
Affiliates to take normal and reasonable precautions and exercise due care to
maintain the confidentiality of all information identified as "confidential" or
"secret" by the Borrower and provided to it by the Borrower or any Subsidiary,
or by the Agent on the Borrower's or such Subsidiary's behalf, under this
Agreement or any other Loan Document, and neither it nor any of its Affiliates
shall use any such information other than in connection with or in enforcement
of this Agreement and the other Loan Documents or in connection with other
business now or hereafter existing or contemplated with the Borrower or any
Subsidiary; except to the extent such information (i) was or becomes generally
available to the public other than as a result of disclosure by the Bank, or
(ii) was or becomes available on a non-confidential basis from a source other
than the Borrower, provided that such source is not bound by a confidentiality
agreement with the Borrower known to the Bank; provided, however, that any Bank
may disclose such information (A) at the request or pursuant to any requirement
of any Governmental Authority to which the Bank is subject or in connection with
an examination of such Bank by any such authority; (B) pursuant to subpoena or
other court process; (C) when required to do so in accordance with the
provisions of any applicable Requirement of Law; (D) to the extent reasonably
required in connection with any litigation or proceeding to which the Agent, any
Bank or their respective Affiliates may be party; (E) to the extent reasonably
required in connection with the exercise of any remedy hereunder or under any
other Loan Document; (F) to such Bank's independent auditors and other
professional advisors; (G) to any Participant or Assignee, actual or potential,
provided that such Person agrees in writing to keep such information
confidential to the same extent required of the Banks hereunder; (H) as to any
Bank or its Affiliate, as expressly permitted under the terms of any other
document or agreement regarding confidentiality to which the Borrower or any
Subsidiary is party or is deemed party with such Bank or such Affiliate; and (I)
to its Affiliates.
51.
<PAGE> 53
10.10 SET-OFF. In addition to any rights and remedies of the Banks
provided by law, if an Event of Default exists or the Loans have been
accelerated, each Bank is authorized at any time and from time to time, without
prior notice to the Borrower, any such notice being waived by the Borrower to
the fullest extent permitted by law, to set off and apply any and all deposits
(general or special, time or demand, provisional or final) at any time held by,
and other indebtedness at any time owing by, such Bank to or for the credit or
the account of the Borrower against any and all Obligations owing to such Bank,
now or hereafter existing, irrespective of whether or not the Agent or such Bank
shall have made demand under this Agreement or any Loan Document and although
such Obligations may be contingent or unmatured. Each Bank agrees promptly to
notify the Borrower and the Agent after any such set-off and application made by
such Bank; provided, however, that the failure to give such notice shall not
affect the validity of such set-off and application.
10.11 AUTOMATIC DEBITS OF FEES. With respect to any fee, or any other
cost or expense (including Attorney Costs) due and payable to the Agent or
Deutsche Bank under the Loan Documents, the Borrower hereby irrevocably
authorizes Deutsche Bank to debit any deposit account of the Borrower with
Deutsche Bank in an amount such that the aggregate amount debited from all such
deposit accounts does not exceed such fee or other cost or expense. If there are
insufficient funds in such deposit accounts to cover the amount of the fee or
other cost or expense then due, such debits will be reversed (in whole or in
part, in Deutsche Bank's sole discretion) and such amount not debited shall be
deemed to be unpaid. No such debit under this Section shall be deemed a set-off.
10.12 NOTIFICATION OF ADDRESSES, LENDING OFFICES, ETC. Each Bank
shall notify the Agent in writing of any changes in the address to which notices
to the Bank should be directed, of addresses of any Lending Office, of payment
instructions in respect of all payments to be made to it hereunder and of such
other administrative information as the Agent shall reasonably request.
10.13 COUNTERPARTS. This Agreement may be executed in any number of
separate counterparts, each of which, when so executed, shall be deemed an
original, and all of said counterparts taken together shall be deemed to
constitute but one and the same instrument.
10.14 SEVERABILITY. The illegality or unenforceability of any
provision of this Agreement or any instrument or agreement required hereunder
shall not in any way affect or impair the legality or enforceability of the
remaining provisions of this Agreement or any instrument or agreement required
hereunder.
10.15 NO THIRD PARTIES BENEFITED. This Agreement is made and entered
into for the sole protection and legal benefit of the Borrower, the Banks, the
Agent and the Agent-Related Persons, and their permitted successors and assigns,
and no other Person shall be a direct or indirect legal beneficiary of, or have
any direct or indirect cause of action or claim in connection with, this
Agreement or any of the other Loan Documents.
10.16 GOVERNING LAW AND JURISDICTION.
52.
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(a) THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF CALIFORNIA; PROVIDED THAT
THE AGENT AND THE BANKS SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE
OF CALIFORNIA OR OF THE UNITED STATES FOR THE NORTHERN DISTRICT OF CALIFORNIA,
AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE BORROWER, THE AGENT
AND THE BANKS CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE
NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. EACH OF THE BORROWER, THE AGENT AND
THE BANKS IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE
LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY
NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH
JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO. THE
BORROWER, THE AGENT AND THE BANKS EACH WAIVE PERSONAL SERVICE OF ANY SUMMONS,
COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY
CALIFORNIA LAW.
10.17 WAIVER OF JURY TRIAL. THE BORROWER, THE BANKS AND THE AGENT
EACH WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF
ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN
DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION,
PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST
ANY OTHER PARTY OR ANY AGENT-RELATED PERSON, PARTICIPANT OR ASSIGNEE, WHETHER
WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE BORROWER, THE
BANKS AND THE AGENT EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE
TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE
PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED
BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING
WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF
THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF.
THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR
MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.
10.18 ENTIRE AGREEMENT. This Agreement, together with the other Loan
Documents, embodies the entire agreement and understanding among the Borrower,
the Banks and the Agent, and supersedes all prior or contemporaneous agreements
and understandings of such Persons, verbal or written, relating to the subject
matter hereof and thereof.
53.
<PAGE> 55
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their proper and duly authorized officers as
of the day and year first above written.
SOFTWARE.NET CORPORATION
By: /s/ Michael J. Praisner
-----------------------------------
Title: Chief Financial Officer
----------------------------------
By:
-----------------------------------
Title:
----------------------------------
DEUTSCHE BANK AG, NEW YORK BRANCH
as Agent
By: /s/ William W. McGinty
-----------------------------------
Title: Director
----------------------------------
By: /s/ Andre Heitbaum
-----------------------------------
Title: Assistant Vice President
----------------------------------
DEUTSCHE BANK AG, NEW YORK BRANCH
AND/OR CAYMAN ISLANDS BRANCH, AS BANK
By: /s/ William W. McGinty
-----------------------------------
Title: Director
----------------------------------
By: /s/ Andre Heitbaum
-----------------------------------
Title: Assistant Vice President
----------------------------------
54.
<PAGE> 56
SCHEDULE 2.1
COMMITMENTS
AND PRO RATA SHARES
<TABLE>
<CAPTION>
BANK COMMITMENT PRO RATA SHARE
---- ---------- --------------
<S> <C> <C>
Deutsche Bank AG, New York
and/or Cayman Islands Branch $4,800,000 100%
TOTAL $4,800,000 100%
</TABLE>
1.
<PAGE> 57
SCHEDULE 10.2
ADDRESSES FOR NOTICES
<TABLE>
<S> <C>
NAME OF FINANCIAL INSTITUTION: RELATIONSHIP MANAGER:
Robert A. Curley
Deutsche Bank AG Deutsche Morgan Grenfell Inc.
New York Branch 800 Oak Grove Suite 210
a/o Cayman Islands Branch Menlo Park, CA 94026
Tel: (650) 614-1143
Tel: (650) 614-1188
CONTACTS: BACK-UP OPERATIONS:
CREDIT: Lynn Sweeny
Olaf Janke Deutsche Bank AG
Deutsche Bank AG New York Branch
San Francisco Representative Office 31 W. 52nd Street
800 Oak Grove Suite 210 New York, NY 10019
Menlo Park, CA 94025 Tel: (212) 469-4098
Tel: (650) 614-1145 Tax: (212) 469-4139
Tel: (650) 614-1188
OPERATIONS AND ADDRESS FOR NOTICES: FEES:
Nancy Zorn Deutsche Bank AG
Deutsche Bank AG New York Branch
New York Branch ABA 02003780
31 W. 52nd Street Ref: software.net Corp.
New York, NY 10019 Fees
Tel: (212) 469-4112 Attn: Nancy Zorn
Fax: (212) 469-4139
PAYMENT INSTRUCTIONS:
PRINCIPAL & INTEREST: BORROWER AND ADDRESSES FOR NOTICES:
Deutsche Bank AG Software.net Corporation
New York Branch 3031 Tisch Way, Suite 900
ABA 026003780 San Jose, CA 95128
Ref: software.net Corp. Attn: Chief Financial Officer
Principal/Interest Tel: (408) 556-9300
Attn: Nancy Zorn Fax: (408) 241-8258
</TABLE>
i.
<PAGE> 58
SCHEDULES
<TABLE>
<S> <C>
Schedule 2.1 Commitments and Pro Rata Shares
Schedule 5.11 Permitted Liabilities
Schedule 7.1 Permitted Liens
Schedule 7.5 Permitted Indebtedness
Schedule 7.6 Affiliate Transactions
Schedule 7.8 Contingent Obligations
Schedule 7.10 Real Property Lease
Schedule 10.2 Offshore and Domestic Lending Offices,
Addresses for Notices
EXHIBITS
Exhibit A Form of Notice of Borrowing
Exhibit B Form of Promissory Note
Exhibit C Form of Compliance Certificate
</TABLE>
i.
<PAGE> 59
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE I DEFINITIONS...................................................1
1.1 Certain Defined Terms................................................1
1.2 Other Interpretive Provisions.......................................11
1.3 Accounting Principles...............................................12
ARTICLE II THE CREDITS..................................................13
2.1 Amounts and Terms of Commitments....................................13
2.2 Loan Accounts.......................................................13
2.3 Procedure for Borrowing.............................................14
2.7 Repayment...........................................................14
2.8 Interest............................................................14
2.9 Fees................................................................15
2.10 Computation of Fees and Interest....................................16
2.11 Payments by the Borrower............................................16
2.12 Payments by the Banks to the Agent..................................17
2.13 Sharing of Payments, Etc............................................17
2.14 Security............................................................18
2.15 Letter of Credit Subfacility........................................18
ARTICLE III TAXES AND YIELD PROTECTION...................................21
3.1 Taxes...............................................................21
3.2 Funding Losses......................................................22
3.3 Survival............................................................22
ARTICLE IV CONDITIONS PRECEDENT.........................................22
4.1 Conditions of Initial Loans.........................................22
ARTICLE V REPRESENTATIONS AND WARRANTIES...............................24
5.1 Corporate Existence and Power.......................................24
5.2 Corporate Authorization; No Contravention...........................25
5.3 Governmental Authorization..........................................25
5.4 Binding Effect......................................................25
5.5 Litigation..........................................................25
</TABLE>
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(CONTINUED)
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5.6 No Default..........................................................26
5.7 ERISA Compliance....................................................26
5.8 Use of Proceeds; Margin Regulations.................................26
5.9 Title to Properties.................................................27
5.10 Taxes...............................................................27
5.11 Financial Condition.................................................27
5.12 Environmental Matters...............................................27
5.13 Collateral Documents................................................28
5.14 Regulated Entities..................................................28
5.15 No Burdensome Restrictions..........................................29
5.16 Copyrights, Patents, Trademarks and Licenses, etc...................29
5.17 Subsidiaries........................................................29
5.18 Insurance...........................................................29
5.19 Solvency............................................................29
5.20 Full Disclosure.....................................................29
ARTICLE VI AFFIRMATIVE COVENANTS........................................30
6.1 Financial Statements................................................30
6.2 Certificates; Other Information.....................................30
6.3 Notices.............................................................31
6.4 Preservation of Corporate Existence, Etc............................32
6.5 Maintenance of Property.............................................32
6.6 Insurance...........................................................32
6.7 Payment of Obligations..............................................32
6.8 Compliance with Laws................................................33
6.9 Compliance with ERISA...............................................33
6.10 Inspection of Property and Books and Records........................33
6.11 Environmental Laws..................................................33
6.12 Use of Proceeds.....................................................33
6.13 Financial Covenants.................................................33
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6.14 Further Assurances..................................................33
ARTICLE VII NEGATIVE COVENANTS...........................................34
7.1 Limitation on Liens.................................................34
7.2 Disposition of Assets...............................................36
7.3 Consolidations and Mergers..........................................36
7.4 Loans and Investments...............................................36
7.5 Limitation on Indebtedness..........................................37
7.6 Transactions with Affiliates........................................37
7.7 Use of Proceeds.....................................................37
7.8 Contingent Obligations..............................................37
7.9 Joint Ventures......................................................37
7.10 Lease Obligations...................................................38
7.11 Restricted Payments.................................................38
7.12 ERISA...............................................................38
7.13 Change in Business..................................................38
7.14 Accounting Changes..................................................38
7.15 Subordinated Debt...................................................38
ARTICLE VIII EVENTS OF DEFAULT............................................39
8.1 Event of Default....................................................39
8.2 Remedies............................................................41
8.3 Rights Not Exclusive................................................42
ARTICLE IX THE AGENT....................................................42
9.1 Appointment and Authorization; "Agent"..............................42
9.2 Delegation of Duties................................................43
9.3 Liability of Agent..................................................43
9.4 Reliance by Agent...................................................43
9.5 Notice of Default...................................................44
9.6 Credit Decision.....................................................44
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9.7 Indemnification of Agent............................................44
9.8 Agent in Individual Capacity........................................45
9.9 Successor Agent.....................................................45
9.10 Withholding Tax.....................................................45
ARTICLE X MISCELLANEOUS................................................47
10.1 Amendments and Waivers..............................................47
10.2 Notices.............................................................47
10.3 No Waiver; Cumulative Remedies......................................48
10.4 Costs and Expenses..................................................48
10.5 Borrower Indemnification............................................49
10.6 Payments Set Aside..................................................49
10.7 Successors and Assigns..............................................49
10.8 Assignments, Participations, etc....................................50
10.9 Confidentiality.....................................................51
10.10 Set-off.............................................................52
10.11 Automatic Debits of Fees............................................52
10.12 Notification of Addresses, Lending Offices, Etc.....................52
10.13 Counterparts........................................................52
10.14 Severability........................................................52
10.15 No Third Parties Benefited..........................................52
10.16 Governing Law and Jurisdiction......................................52
10.17 Waiver of Jury Trial................................................53
10.18 Entire Agreement....................................................53
</TABLE>
iv.
<PAGE> 63
EXHIBIT 10.17
SECURITY AGREEMENT
THIS SECURITY AGREEMENT dated as of May 21, 1998 ("SECURITY
AGREEMENT"), is made by SOFTWARE.NET CORPORATION, a California corporation
("GRANTOR"), in favor of DEUTSCHE BANK AG, NEW YORK BRANCH, as Agent for Banks
under the Credit Agreement dated as of the date hereof among Grantor, Agent and
the Banks named therein (in its capacity as Agent, "SECURED PARTY").
RECITALS
A. Pursuant to that certain Credit Agreement dated as of even date
herewith by and among Grantor, Secured Party and Banks (as the same may from
time to time be amended, modified, supplemented or restated, the "CREDIT
AGREEMENT"), Banks have agreed to make certain advances of money and to extend
certain financial accommodation to Grantor in the amounts and manner set forth
in the Agreement (collectively, the "LOANS").
B. Banks are willing to make the Loans to Grantor, but only upon the
condition, among others, that Grantor shall have executed and delivered to
Secured Party this Security Agreement.
AGREEMENT
NOW, THEREFORE, in order to induce Banks to make the Loans and for
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, and intending to be legally bound, Grantor hereby
represents, warrants, covenants and agrees as follows:
1. DEFINED TERMS. When used in this Security Agreement the following
terms shall have the following meanings (such meanings being equally applicable
to both the singular and plural forms of the terms defined):
"COLLATERAL" shall have the meaning assigned to such term in Section
2 of this Security Agreement.
"CONTRACTS" means all contracts, undertakings, franchise agreements
or other agreements in or under which Grantor now holds or hereafter acquires
any right, title or interest, including, without limitation, with respect to an
Account, any agreement relating to the terms of payment or the terms of
performance thereof.
"COPYRIGHT LICENSE" means any written agreement, in which Grantor now
holds or hereafter acquires any interest, granting any right in or to any
Copyright or Copyright registration (whether Grantor is the licensee or the
licensor thereunder) including, without limitation, licenses
1.
<PAGE> 64
pursuant to which Grantor has obtained the exclusive right to use a copyright
owned by a third party.
"COPYRIGHTS" means all of the following in which Grantor now holds or
hereafter acquires any interest: (a) all copyrights, whether registered or
unregistered, held pursuant to the laws of the United States, any State thereof
or any other country; (b) registrations, applications, recordings and
proceedings in the United States Copyright Office or in any similar office or
agency of the United States, any State thereof or any other country; (c) any
continuations, renewals or extensions thereof; (d) any registrations to be
issued in any pending applications; (e) prior versions of works covered by
copyright and all works based upon, derived from or incorporating such works;
(f) income, royalties, damages, claims and payments now and hereafter due and/or
payable with respect to copyrights, including, without limitation, damages,
claims and recoveries for past, present or future infringement; (g) rights to
sue for past, present and future infringements of any copyright; and (h) any
other rights corresponding to any of the foregoing rights throughout the world.
"EVENT OF DEFAULT" means (i) any failure by Grantor forthwith to pay
or perform any of the Secured Obligations and (ii) any "Event of Default" as
defined in the Credit Agreement.
"LICENSE" means any Copyright License, Patent License, Trademark
License or other license of intellectual property rights or interests now held
or hereafter acquired by Grantor.
"LIEN" means any mortgage, lien, deed of trust, charge, pledge,
security interest or other incumbrance.
"PATENT LICENSE" means any written agreement, in which Grantor now
holds or hereafter acquires any interest, granting any right with respect to any
invention on which a Patent is in existence (whether Grantor is the licensee or
the licensor thereunder).
"PATENTS" means all of the following in which Grantor now holds or
hereafter acquires any interest: (a) all letters patent of the United States or
any other country, all registrations and recordings thereof and all applications
for letters patent of the United States or any other country, including, without
limitation, registrations, recordings and applications in the United States
Patent and Trademark Office or in any similar office or agency of the United
States, any State thereof or any other country; (b) all reissues, divisions,
continuations, renewals, continuations-in-part or extensions thereof; (c) all
petty patents, divisionals and patents of addition; (d) all patents to issue in
any such applications; (e) income, royalties, damages, claims and payments now
and hereafter due and/or payable with respect to patents, including, without
limitation, damages, claims and recoveries for past, present or future
infringement; and (f) rights to sue for past, present and future infringements
of any patent.
"SECURED OBLIGATIONS" means (a) the obligation of Grantor to repay
Secured Party all of the unpaid principal amount of, and accrued interest on
(including any interest that accrues after the commencement of bankruptcy), the
Loans, (b) the obligation of Grantor to pay any fees, costs and expenses of the
Secured Party under the Credit Agreement or under SECTION 6(B) hereof and (c)
all other indebtedness, liabilities and obligations of Grantor to Secured Party,
whether now
2.
<PAGE> 65
existing or hereafter incurred, and whether created under, arising out of or in
connection with any written agreement or otherwise.
"TRADEMARK LICENSE" means any written agreement, in which Grantor now
holds or hereafter acquires any interest, granting any right in and to any
Trademark or Trademark registration (whether Grantor is the licensee or the
licensor thereunder).
"TRADEMARKS" means any of the following in which Grantor now holds or
hereafter acquires any interest: (a) any trademarks, tradenames, corporate
names, company names, business names, trade styles, service marks, logos, other
source or business identifiers, prints and labels on which any of the foregoing
have appeared or appear, designs and general intangibles of like nature, now
existing or hereafter adopted or acquired, all registrations and recordings
thereof and any applications in connection therewith, including, without
limitation, registrations, recordings and applications in the United States
Patent and Trademark Office or in any similar office or agency of the United
States, any State thereof or any other country (collectively, the "MARKS"); (b)
any reissues, extensions or renewals thereof; (c) the goodwill of the business
symbolized by or associated with the Marks; (d) income, royalties, damages,
claims and payments now and hereafter due and/or payable with respect to the
Marks, including, without limitation, damages, claims and recoveries for past,
present or future infringement; and (e) rights to sue for past, present and
future infringements of the Marks.
"UCC" means the Uniform Commercial Code as the same may, from time to
time, be in effect in the State of California; provided, however, in the event
that, by reason of mandatory provisions of law, any or all of the attachment,
perfection or priority of Secured Party's security interest in any Collateral is
governed by the Uniform Commercial Code as in effect in a jurisdiction other
than the State of California, the term "UCC" shall mean the Uniform Commercial
Code as in effect in such other jurisdiction for purposes of the provisions
hereof relating to such attachment, perfection of priority and for purposes of
definitions related to such provisions.
In addition, the following terms shall be defined terms having the
meaning set forth for such terms in the UCC (definition sections of the UCC are
noted parenthetically): "ACCOUNT DEBTOR" (9105(1)(a)); "ACCOUNTS" (9106);
"CHATTEL PAPER" (9105(1)(b)); "DEPOSIT ACCOUNTS" (9105(e)); "DOCUMENTS"
(9105(1)(f); "EQUIPMENT" (9109(2)); "FINANCIAL ASSETS" (8102(a)(9)); "FIXTURES"
(9313(1)(a)); "GENERAL INTANGIBLES" (9106); "INSTRUMENTS" (9105(1)(i));
"INVENTORY" (9109(4)); "INVESTMENT PROPERTY" (9115(1)(f)); "PROCEEDS" (9306(1)).
Each of the foregoing defined terms shall include all of such items now owned,
or hereafter acquired, by Grantor.
All capitalized terms used herein and not otherwise defined herein
shall have the respective meanings given to them in the Credit Agreement.
2. GRANT OF SECURITY INTEREST. As collateral security for the prompt
and complete payment and performance when due (whether at stated maturity, by
acceleration or otherwise) of all the Secured Obligations and in order to induce
Secured Party and Banks to cause the Loans to be made, Grantor hereby assigns,
conveys, mortgages, pledges, hypothecates and transfers to Secured Party for the
benefit of Banks, and hereby grants to Secured Party for
3.
<PAGE> 66
the benefit of Banks, a security interest in all of Grantor's right, title and
interest in, to and under the following (all of which being collectively
referred to herein as the "Collateral"):
(a)All Accounts of Grantor;
(b)All Chattel Paper of Grantor;
(c)All Contracts of Grantor;
(d)All Deposit Accounts of Grantor;
(e)All Documents of Grantor;
(f)All Equipment of Grantor;
(g)All Financial Assets of Grantor;
(h)All Fixtures of Grantor;
(i)All General Intangibles of Grantor, including, without
limitation, all Copyrights, Patents, Trademarks, Licenses, designs, drawings,
technical information, marketing plans, customer lists, trade secrets,
proprietary or confidential information, inventions (whether or not patentable),
procedures, know-how, models and data;
(j)All Instruments of Grantor;
(k)All Inventory of Grantor;
(l)All Investment Property of Grantor;
(m)All property of Grantor held by Secured Party, or any
other party for whom Secured Party is acting as agent hereunder, including,
without limitation, all property of every description now or hereafter in the
possession or custody of or in transit to Secured Party or such other party for
any purpose, including, without limitation, safekeeping, collection or pledge,
for the account of Grantor, or as to which Grantor may have any right or power;
(n)All other goods and personal property of Grantor,
wherever located, whether tangible or intangible, and whether now owned or
hereafter acquired, existing, leased or consigned by or to Grantor; and
(o)To the extent not otherwise included, all Proceeds of
each of the foregoing and all accessions to, substitutions and replacements for
and rents, profits and products of each of the foregoing.
3. RIGHTS OF SECURED PARTY; COLLECTION OF ACCOUNTS.
4.
<PAGE> 67
(a)Notwithstanding anything contained in this Security
Agreement to the contrary, Grantor expressly agrees that it shall remain liable
under each of its Contracts and each of its Licenses to observe and perform all
the conditions and obligations to be observed and performed by it thereunder and
that it shall perform all of its duties and obligations thereunder, all in
accordance with and pursuant to the terms and provisions of each such Contract
or License. Secured Party shall not have any obligation or liability under any
Contract or License by reason of or arising out of this Security Agreement or
the granting to Secured Party of a lien therein or the receipt by Secured Party
of any payment relating to any Contract or License pursuant hereto, nor shall
Secured Party be required or obligated in any manner to perform or fulfill any
of the obligations of Grantor under or pursuant to any Contract or License, or
to make any payment, or to make any inquiry as to the nature or the sufficiency
of any payment received by it or the sufficiency of any performance by any party
under any Contract or License, or to present or file any claim, or to take any
action to collect or enforce any performance or the payment of any amounts which
may have been assigned to it or to which it may be entitled at any time or
times.
(b)Secured Party authorizes Grantor to collect its
Accounts, provided that such collection is performed in a prudent and
businesslike manner, and Secured Party may, upon the occurrence and during the
continuation of any Event of Default and without notice, limit or terminate said
authority at any time. Upon the occurrence and during the continuance of any
Event of Default, at the request of Secured Party, Grantor shall deliver all
original and other documents evidencing and relating to the performance of labor
or service which created such Accounts, including, without limitation, all
original orders, invoices and shipping receipts.
(c)Secured Party may at any time, upon the occurrence and
during the continuance of any Event of Default, without notifying Grantor of its
intention to do so, notify Account Debtors of Grantor, parties to the Contracts
of Grantor, obligors in respect of Instruments of Grantor and obligors in
respect of Chattel Paper of Grantor that the Accounts and the right, title and
interest of Grantor in and under such Contracts, Instruments and Chattel Paper
have been assigned to Secured Party and that payments shall be made directly to
Secured Party. Upon the request of Secured Party, Grantor shall so notify such
Account Debtors, parties to such Contracts, obligors in respect of such
Instruments and obligors in respect of such Chattel Paper. Upon the occurrence
and during the continuance of any Event of Default, Secured Party may, in its
name or in the name of others, communicate with such Account Debtors, parties to
such Contracts, obligors in respect of such Instruments and obligors in respect
of such Chattel Paper to verify with such parties, to Secured Party's
satisfaction, the existence, amount and terms of any such Accounts, Contracts,
Instruments or Chattel Paper.
4. REPRESENTATIONS AND WARRANTIES. Grantor hereby represents and
warrants to Secured Party that:
(a)Except for the security interest granted to Secured
Party under this Security Agreement and Permitted Liens, Grantor is the sole
legal and equitable owner of each item of the Collateral in which it purports to
grant a security interest hereunder, having good and marketable title thereto,
free and clear of any and all Liens except for Permitted Liens.
5.
<PAGE> 68
(b)No effective security agreement, financing statement,
equivalent security or lien instrument or continuation statement covering all or
any part of the Collateral exists, except such as may have been filed by Grantor
in favor of Secured Party pursuant to this Security Agreement except for
Permitted Liens.
(c)This Security Agreement creates a legal and valid
security interest on and in all of the Collateral in which Grantor now has
rights and all filings, other than the filing of financing statements in the
appropriate office in the State of California and the Commonwealth of Virginia,
and other actions necessary or desirable to perfect and protect such security
interest have been duly taken. Accordingly, and upon the filing of appropriate
financing statements with the Secretary of State of California, Secured Party
has a fully perfected first priority security interest in all of the Collateral
located in the State of California in which Grantor now has rights subject only
to Permitted Liens. This Security Agreement will create a legal and valid and
fully perfected first priority security interest in the Collateral in which
Grantor later acquires rights, when Grantor acquires those rights subject only
to Permitted Liens and additional filings to be made with the United States
Copyright Office and/or Patent and Trademark Office as are necessary to perfect
Secured Party's security interest in subsequent ownership rights and interests
of Grantor in Copyrights, Patents, Trademarks and Licenses.
(d)Grantor's chief executive office, principal place of
business and the place where Grantor maintains its records concerning the
Collateral are presently located at the address set forth on the signature page
hereof. The Collateral is presently located at such address and at such
additional addresses set forth on SCHEDULE A attached hereto.
(e)All Copyrights, Copyright Licenses, Patents, Patent
Licenses, Trademarks and Trademark Licenses now owned, held or in which Grantor
otherwise has any interest are listed on SCHEDULE B attached hereto.
5. COVENANTS. Grantor covenants and agrees with Secured Party that
from and after the date of this Security Agreement and until the Secured
Obligations have been performed and paid in full:
5.1 DISPOSITION OF COLLATERAL. Grantor shall not sell,
lease, transfer or otherwise dispose of any of the Collateral, or attempt or
contract to do so, other than as permitted by the Credit Agreement.
5.2 RELOCATION OF BUSINESS OR COLLATERAL. Grantor shall not
relocate its chief executive office, principal place of business or its records,
or allow the relocation of any Collateral (except as allowed pursuant to SECTION
5.1 immediately above) from such address(es) provided to Secured Party pursuant
to SECTION 4(d) above without twenty (20) days prior written notice to Secured
Party.
5.3 LIMITATION ON LIENS ON COLLATERAL. Grantor shall not,
directly or indirectly, create, permit or suffer to exist, and shall defend the
Collateral against and take such other action as is necessary to remove, any
Lien on the Collateral, except Permitted Liens.
6.
<PAGE> 69
5.4 TAXES, ASSESSMENTS, ETC. Grantor shall pay promptly
when due all property and other taxes, assessments and government charges or
levies imposed upon, and all claims (including claims for labor, materials and
supplies) against, the Equipment, Fixtures or Inventory, except to the extent
the validity thereof is being contested in good faith and adequate reserves are
being maintained in connection therewith.
5.5 MAINTENANCE OF RECORDS. Grantor shall keep and maintain
at its own cost and expense satisfactory and complete records of the Collateral.
5.6 REGISTRATION OF INTELLECTUAL PROPERTY RIGHTS. Grantor
shall promptly register or cause to be registered (to the extent not already
registered) the most recent version of any Copyright and any Copyright License
and any Patent, Patent License, Trademark or Trademark License, which,
individually or in the aggregate, is material to the conduct of Grantor's
business, with the United States Copyright Office or Patent and Trademark
Office, as applicable, including, without limitation, in all such cases the
filing of applications for renewal, affidavits of use, affidavits of
noncontestability and opposition and interference and cancellation proceedings.
Grantor shall register or cause to be registered with the United States
Copyright Office or Patent and Trademark Office, as applicable, those additional
rights and interests developed or acquired by Grantor after the date of this
Security Agreement, including, without limitation, any additions to the rights
and interests of Grantor listed on SCHEDULE B hereto, prior to the sale or
licensing of any product containing such rights and interests.
5.7 NOTIFICATION REGARDING CHANGES IN INTELLECTUAL
PROPERTY. Grantor shall promptly advise Secured Party of any subsequent
ownership right or interest of the Grantor in or to any Copyright, Patent,
Trademark or License not specified on SCHEDULE B hereto and hereby authorizes
and appoints Secured Party as Grantor's attorney-in-fact to modify or amend such
Schedule, as necessary, to reflect any addition or deletion to such ownership
rights.
5.8 DEFENSE OF INTELLECTUAL PROPERTY. Grantor shall (i)
protect, defend and maintain the validity and enforceability of the Copyrights,
Patents and Trademarks, (ii) use its best efforts to detect infringements of the
Copyrights, Patents and Trademarks and promptly advise Secured Party in writing
of material infringements detected and (iii) not allow any Copyrights, Patents
or Trademarks to be abandoned, forfeited or dedicated to the public without the
written consent of Secured Party unless reasonable business practice would
determine that any such abandonment is appropriate.
5.9 FURTHER ASSURANCES; PLEDGE OF INSTRUMENTS. At any time
and from time to time, upon the written request of Secured Party, and at the
sole expense of Grantor, Grantor shall promptly and duly execute and deliver any
and all such further instruments and documents and take such further action as
Secured Party may reasonably deem necessary or desirable to obtain the full
benefits of this Security Agreement, including, without limitation, facilitating
the filing of UCC-1 Financing Statements in all applicable jurisdictions and
this Security Agreement (and any amendment hereto) or a collateral assignment
(and any amendments thereto) with the United States Copyright Office and/or
Patent and Trademark Office, as applicable.
7.
<PAGE> 70
6. RIGHTS AND REMEDIES UPON DEFAULT.
(a)At any time after any Event of Default shall have
occurred and while such Event of Default is continuing, Secured Party may
exercise in addition to all other rights and remedies granted to it under this
Security Agreement, all rights and remedies of a secured party under the UCC.
(b)Grantor also agrees to pay all fees, costs and expenses
of Secured Party, including, without limitation, reasonable attorneys' fees,
reasonably incurred in connection with the enforcement of any of its rights and
remedies hereunder.
(c)Grantor hereby waives presentment, demand, protest or
any notice (to the maximum extent permitted by applicable law) of any kind in
connection with this Security Agreement or any Collateral.
(d)The Proceeds of any sale, disposition or other
realization upon all or any part of the Collateral shall be distributed by
Secured Party in the following order of priorities:
FIRST, to Secured Party in an amount sufficient
to pay in full the reasonable costs of Secured Party in connection with such
sale, disposition or other realization, including all fees, costs, expenses,
liabilities and advances reasonably incurred or made by Secured Party in
connection therewith, including, without limitation, reasonable attorneys' fees;
SECOND, to Secured Party in an amount equal to
the then unpaid Secured Obligations; and
FINALLY, upon payment in full of the Secured
Obligations, to Grantor or its representatives, in accordance with the UCC or as
a court of competent jurisdiction may direct.
7. INDEMNITY. Grantor agrees to defend, indemnify and hold harmless
Secured Party and its officers, employees, and agents against (a) all
obligations, demands, claims and liabilities claimed or asserted by any other
party in connection with the transactions contemplated by this Security
Agreement and (b) all losses or expenses in any way suffered, incurred or paid
by Secured Party as a result of or in any way arising out of, or following
transactions between Secured Party and Grantor, whether under this Security
Agreement or otherwise (including without limitation, reasonable attorneys fees
and expenses), except for losses arising from or out of Secured Party's gross
negligence or willful misconduct.
8. LIMITATION ON SECURED PARTY'S DUTY IN RESPECT OF COLLATERAL.
Secured Party shall be deemed to have acted reasonably in the custody,
preservation and disposition of any of the Collateral if it takes such action as
Grantor requests in writing, but failure of Secured Party to comply with any
such request shall not in itself be deemed a failure to act reasonably and no
failure of Secured Party to do any act not so requested shall be deemed a
failure to act reasonably.
8.
<PAGE> 71
9. REINSTATEMENT. This Security Agreement shall remain in full force
and effect and continue to be effective should any petition be filed by or
against Grantor for liquidation or reorganization, should Grantor become
insolvent or make an assignment for the benefit of creditors or should a
receiver or trustee be appointed for all or any significant part of Grantor's
property and assets and shall continue to be effective or be reinstated, as the
case may be, if at any time payment and performance of the Secured Obligations,
or any part thereof, is, pursuant to applicable law, rescinded or reduced in
amount or must otherwise be restored or returned by any obligee of the Secured
Obligations, whether as a "voidable preference," "fraudulent conveyance" or
otherwise, all as though such payment or performance had not been made. In the
event that any payment, or any part thereof, is rescinded, reduced, restored or
returned, the Secured Obligations shall be reinstated and deemed reduced only by
such amount paid and not so rescinded, reduced, restored or returned.
10. MISCELLANEOUS.
10.1 NO WAIVER; CUMULATIVE REMEDIES.
(a) Secured Party shall not by any act, delay,
omission or otherwise be deemed to have waived any of its respective rights or
remedies hereunder, nor shall any single or partial exercise of any right or
remedy hereunder on any one occasion preclude the further exercise thereof or
the exercise of any other right or remedy.
(b) The rights and remedies hereunder provided
are cumulative and may be exercised singly or concurrently and are not exclusive
of any rights and remedies provided by law.
(c) None of the terms or provisions of this
Security Agreement may be waived, altered, modified or amended except by an
instrument in writing, duly executed by Grantor and Secured Party.
10.2 TERMINATION OF THIS SECURITY AGREEMENT. Subject to
SECTION 9 hereof, this Security Agreement shall terminate upon the payment and
performance in full of the Secured Obligations.
10.3 SUCCESSOR AND ASSIGNS. This Security Agreement and all
obligations of Grantor hereunder shall be binding upon the successors and
assigns of Grantor, and shall, together with the rights and remedies of Secured
Party hereunder, inure to the benefit of Secured Party, any future holder of any
of the indebtedness and their respective successors and assigns. No sales of
participations, other sales, assignments, transfers or other dispositions of any
agreement governing or instrument evidencing the Secured Obligations or any
portion thereof or interest therein shall in any manner affect the Lien granted
to Secured Party hereunder.
10.4 GOVERNING LAW. In all respects, including all matters
of construction, validity and performance, this Security Agreement and the
Secured Obligations arising hereunder shall be governed by, and construed and
enforced in accordance with, the laws of the State of
9.
<PAGE> 72
California applicable to contracts made and performed in such State, excluding
conflict of laws principles that would cause the application of laws of any
other jurisdiction.
10.
<PAGE> 73
IN WITNESS WHEREOF, each of the parties hereto has caused this
Security Agreement to be executed and delivered by its duly authorized officer
on the date first set forth above.
ADDRESS OF GRANTOR SOFTWARE.NET CORPORATION
By:
- ------------------------------- ---------------------------------------
Printed Name:
- ------------------------------- -----------------------------
Title:
- ------------------------------- ------------------------------------
ACCEPTED AND ACKNOWLEDGED BY:
DEUTSCHE BANK AG, NEW YORK BRANCH, AS AGENT FOR BANKS
By:
---------------------------------------
Printed Name:
-----------------------------
Title:
------------------------------------
By:
---------------------------------------
Printed Name:
-----------------------------
Title:
------------------------------------
11.
<PAGE> 74
SCHEDULE A
LOCATION OF COLLATERAL
ENTITY ADDRESS
B-1.
<PAGE> 75
SCHEDULE B
INTELLECTUAL PROPERTY
<TABLE>
<CAPTION>
ISSUED COPYRIGHT(S)
- -------------------
COUNTRY COPYRIGHT REGISTRATION REGISTRATION COPYRIGHT OWNER ASSIGNMENT
DESCRIPTION NUMBER DATE AUTHOR OF RECORD HISTORY
- ------------------- ----------- ------ ---- ------ --------- -------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
<TABLE>
<CAPTION>
PENDING COPYRIGHT(S)
- --------------------
COUNTRY COPYRIGHT APPLICATION APPLICATION CREATION PUBLIC COPYRIGHT OWNER ASSIGNMENT
DESCRIPTION NUMBER DATE DATE DISTRIBUTION DATE AUTHOR OF RECORD HISTORY
- --------------------- ----------- ------ ---- ---- ----------------- ------ --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
<TABLE>
<CAPTION>
UNREGISTERED COPYRIGHT(S)
- -------------------------
COUNTRY COPYRIGHT CREATION PUBLIC COPYRIGHT OWNER ASSIGNMENT
DESCRIPTION DATE DISTRIBUTION DATE AUTHOR OF RECORD HISTORY
- ------------------------- ----------- ---- ----------------- ------ --------- -------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
<TABLE>
<CAPTION>
COPYRIGHT LICENSE(S)
- --------------------
COUNTRY AGREEMENT AGREEMENT PARTIES REGISTRATION
DESCRIPTION DATE TO AGREEMENT NUMBER
- -------------------- ----------- ---- ------------ ------
<S> <C> <C> <C> <C>
</TABLE>
B-1.
<PAGE> 76
<TABLE>
<CAPTION>
PATENT APPLICATION(S)
- ---------------------
COUNTRY PATENT APPLICATION FILING OWNER ASSIGNMENT
TITLE NUMBER DATE OF RECORD HISTORY
- ----------- ----- ------ ---- --------- -------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
<TABLE>
<CAPTION>
PATENT(S)
- ---------
COUNTRY PATENT REGISTRATION ISSUE OWNER ASSIGNMENT
TITLE NUMBER DATE OF RECORD HISTORY
- ----------- ----- ------ ---- --------- -------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
<TABLE>
<CAPTION>
PATENT LICENSE(S)
- -----------------
COUNTRY AGREEMENT AGREEMENT PARTIES REGISTRATION
DESCRIPTION DATE TO AGREEMENT NUMBER
- ----------------- ----------- ---- ------------ ------
<S> <C> <C> <C> <C>
</TABLE>
<TABLE>
<CAPTION>
TRADEMARK APPLICATION(S)
- ------------------------
COUNTRY MARK APPLICATION FILING OWNER ASSIGNMENT
TITLE NUMBER DATE OF RECORD HISTORY
- ------------------------ --------------- ------------- ----------- ------------------------ --------------
<S> <C> <C> <C> <C> <C>
USA SOFTWARE.NET 74-565718 08/24/94 software.net Corporation N/A
- ------------------------ --------------- ------------- ----------- ------------------------ --------------
USA DIGITAL GEAR 75-442168 02/27/98 software.net Corporation N/A
- ------------------------ --------------- ------------- ----------- ------------------------ --------------
USA SOFTWARE TV 75-371655 10/01/97 software.net Corporation N/A
- ------------------------ --------------- ------------- ----------- ------------------------ --------------
</TABLE>
<TABLE>
<CAPTION>
TRADEMARK(S)
- ------------
COUNTRY MARK REGISTRATION ISSUE OWNER ASSIGNMENT
TITLE NUMBER DATE OF RECORD HISTORY
- ------------------- -------- ------------ --------- ---------- --------------
<S> <C> <C> <C> <C> <C>
</TABLE>
B-2.
<PAGE> 77
<TABLE>
<CAPTION>
TRADEMARK LICENSE(S)
- --------------------
COUNTRY AGREEMENT AGREEMENT PARTIES REGISTRATION
DESCRIPTION DATE TO AGREEMENT NUMBER
- ------------------- ----------- ----------- ------------ --------------
<S> <C> <C> <C> <C>
</TABLE>
B-3
<PAGE> 78
EXHIBIT A
TO
FINANCING STATEMENT BETWEEN
DEUTSCHE BANK AG, NEW YORK BRANCH, AS AGENT,
AS SECURED PARTY
AND
SOFTWARE.NET CORPORATION, AS DEBTOR
This Financing Statement covers all right, title and interest of the
Debtor in, to and under all of the following (collectively, the "COLLATERAL"):
(a) All Accounts of Debtor;
(b) All Chattel Paper of Debtor;
(c) All Contracts of Debtor;
(d) All Deposit Accounts of Debtor;
(e) All Documents of Debtor;
(f) All Equipment of Debtor;
(g) All Financial Assets of Debtor;
(h) All Fixtures of Debtor;
(i) All General Intangibles of Debtor, including, without
limitation, all Copyrights, Patents, Trademarks, Licenses, designs, drawings,
technical information, marketing plans, customer lists, trade secrets,
proprietary or confidential information, inventions (whether or not patentable),
procedures, know-how, models and data;
(j) All Instruments of Debtor;
(k) All Inventory of Debtor;
(l) All Investment Property of Debtor;
(m) All property of Debtor held by Secured Party, or any
other party for whom Secured Party is acting as agent hereunder, including,
without limitation, all property of every description now or hereafter in the
possession or custody of or in transit to Secured Party or such other party for
any purpose, including, without limitation, safekeeping, collection or pledge,
for the account of Debtor, or as to which Debtor may have any right or power;
<PAGE> 79
DEBTOR: SOFTWARE.NET CORPORATION
SECURED PARTY: DEUTSCHE BANK AG, NEW YORK BRANCH, AS AGENT
(n) All other goods and personal property of Debtor,
wherever located, whether tangible or intangible, and whether now owned or
hereafter acquired, existing, leased, consigned by or to Debtor; and
(o) To the extent not otherwise included, all Proceeds of
each of the foregoing and all accessions to, substitutions and replacements for
and rents, profits and products of each of the foregoing.
1. DEFINED TERMS. When used herein the following terms shall have the
following meanings (such meanings being equally applicable to both the singular
and plural forms of the terms defined):
"CONTRACTS" means all contracts, undertakings, franchise agreements
or other agreements in or under which Debtor now holds or hereafter acquires any
right, title or interest, including, without limitation, with respect to an
Account, any agreement relating to the terms of payment or the terms of
performance thereof.
"COPYRIGHT LICENSE" means any written agreement, in which Debtor now
holds or hereafter acquires any interest, granting any right in or to any
Copyright or Copyright registration (whether Debtor is the licensee or the
licensor thereunder) including, without limitation, licenses pursuant to which
Debtor has obtained the exclusive right to use a copyright owned by a third
party.
"COPYRIGHTS" means all of the following in which Debtor now holds or
hereafter acquires any interest: (a) all copyrights, whether registered or
unregistered, held pursuant to the laws of the United States, any State thereof
or any other country; (b) registrations, applications, recordings and
proceedings in the United States Copyright Office or in any similar office or
agency of the United States, any State thereof or any other country; (c) any
continuations, renewals or extensions thereof; (d) any registrations to be
issued in any pending applications; (e) prior versions of works covered by
copyright and all works based upon, derived from, or incorporating such works;
(f) income, royalties, damages, claims and payments now and hereafter due and/or
payable with respect to copyrights, including, without limitation, damages,
claims and recoveries for past, present or future infringement; (g) rights to
sue for past, present and future infringements of any copyright; and (h) any
other rights corresponding to any of the foregoing rights throughout the world.
"LICENSE" means any Copyright License, Patent License, Trademark
License or other license of rights or interests now held or hereafter acquired
by Debtor.
"PATENT LICENSE" means any written agreement, in which Debtor now
holds or hereafter acquires any interest, granting any right with respect to any
invention on which a Patent is in existence (whether Debtor is the licensee or
the licensor thereunder).
"PATENTS" means all of the following in which Debtor now holds or
hereafter acquires any interest: (a) all letters patent of the United States or
any other country, all registrations and
<PAGE> 80
DEBTOR: SOFTWARE.NET CORPORATION
SECURED PARTY: DEUTSCHE BANK AG, NEW YORK BRANCH, AS AGENT
recordings thereof and all applications for letters patent of the United States
or any other country, including, without limitation, registrations, recordings
and applications in the United States Patent and Trademark Office or in any
similar office or agency of the United States, any State thereof or any other
country; (b) all reissues, divisions, continuations, renewals,
continuations-in-part or extensions thereof; (c) all petty patents, divisionals
and patents of addition; (d) all patents to issue in any such applications; (e)
income, royalties, damages, claims and payments now and hereafter due and/or
payable with respect to patents, including, without limitation, damages, claims
and recoveries for past, present or future infringement; and (f) rights to sue
for past, present and future infringement of any patent.
"TRADEMARK LICENSE" means any written agreement, in which Debtor now
holds or hereafter acquires any interest, granting any right in and to any
Trademark or Trademark registration (whether Debtor is the licensee or the
licensor thereunder).
"TRADEMARKS" means any of the following in which Debtor now holds or
hereafter acquires any interest: (a) any trademarks, tradenames, corporate
names, company names, business names, trade styles, service marks, logos, other
source or business identifiers, prints and labels on which any of the foregoing
have appeared or appear, designs and general intangibles of like nature, now
existing or hereafter adopted or acquired, all registrations and recordings
thereof, and any applications in connection therewith, including, without
limitation, registrations, recordings and applications in the United States
Patent and Trademark Office or in any similar office or agency of the United
States, any State thereof or any other country (collectively, the "Marks"); (b)
any reissues, extensions or renewals thereof; (c) the goodwill of the business
symbolized by or associated with the Marks; (d) income, royalties, damages,
claims and payments now and hereafter due and/or payable with respect to the
Marks, including, without limitation, damages, claims and recoveries for past,
present or future infringement; and (e) rights to sue for past, present and
future infringements of the Marks.
"UCC" means the Uniform Commercial Code as the same may, from time to
time, be in effect in the State of California; provided, however, in the event
that, by reason of mandatory provisions of law, any or all of the attachment,
perfection or priority of Secured Party's security interest in any Collateral is
governed by the Uniform Commercial Code as in effect in a jurisdiction other
than the State of California, the term "UCC" shall mean the Uniform Commercial
Code as in effect in such other jurisdiction for purposes of the provisions
hereof relating to such attachment, perfection of priority and for purposes of
definitions related to such provisions.
In addition, the following terms shall be defined terms having the
meaning set forth for such terms in the UCC (definition sections of the UCC are
noted parenthetically): "ACCOUNT DEBTOR" (9105(1)(a)); "ACCOUNTS" (9106);
"CHATTEL PAPER" (9105(1)(b)); "DEPOSIT ACCOUNTS" (9105(e)); "DOCUMENTS"
(9105(1)(f); "EQUIPMENT" (9109(2)); "FINANCIAL ASSETS" (8102(a)(9)); "FIXTURES"
(9313(1)(a)); "GENERAL INTANGIBLES" (9106); "INSTRUMENTS" (9105(1)(i));
"INVENTORY" (9109(4)); "INVESTMENT PROPERTY" (9115(1)(f)); "PROCEEDS" (9306(1)).
Each of the
<PAGE> 81
DEBTOR: SOFTWARE.NET CORPORATION
SECURED PARTY: DEUTSCHE BANK AG, NEW YORK BRANCH, AS AGENT
foregoing defined terms shall include all of such items now owned, or hereafter
acquired, by Debtor.
<PAGE> 82
EXHIBIT ________
EXHIBIT A
BORROWING NOTICE
Date:___________
TO: DEUTSCHE BANK AG, NEW YORK BRANCH, as Agent for the Banks
31 W. 52nd Street
New York, NY 10019
Attention: Nancy Zorn
RE: Credit Agreement dated as of May 21, 1998 (as amended, modified,
supplemented or restated from time to time, the "Credit Agreement"),
by and among SOFTWARE.NET CORPORATION, a California corporation, as
the borrower (the "Borrower"), the financial institutions from time
to time party thereto and named as Banks therein (the "Lenders"), and
DEUTSCHE BANK AG, NEW YORK BRANCH, as the agent (the "Agent")
Ladies and Gentlemen:
The undersigned refers to the Credit Agreement, the terms defined therein used
herein as defined, and hereby gives you notice irrevocably, pursuant to Section
2.3 of the Credit Agreement, of the [Borrowing of a Loan]/[request for issuance
of a Letter of Credit] as specified herein:
1. The Borrower/Account Party is ______________________.
Items 2 and 3 below apply only to the Borrowing of a Loan:
2. The Borrowing Date, which shall be a Business Day, of the
requested Borrowing is the Closing Date.
3. The aggregate amount of the requested Borrowing is $___________ .
Items 4 through 6 below apply only to the request for the issuance of a Letter
of Credit:
4. The issuance date, which shall be a Business Day, of the requested
Letter of Credit is the Closing Date.
5. The aggregate amount of the requested Letter of Credit is
$___________.
6. Attached hereto is a duly completed Letter of Credit application.
The undersigned hereby certifies that the following statements are
true and on the date hereof, and will be true on the date of the proposed
Borrowing or issuance of the Letter of Credit, as applicable, before and after
giving effect thereto and to the application of the proceeds therefrom, as
applicable:
1.
<PAGE> 83
(a) the representations and warranties of the Borrower
contained in Section 5 of the Credit Agreement are true, accurate and
complete in all material respects with the same effect as though made
on and as of such date (except to the extent such representations and
warranties relate to an earlier date, in which case they are true,
accurate and complete in all material respects as of such date);
(b) no Default or Event of Default has occurred and is
continuing, or would result from such proposed Borrowing or issuance
of such Letter of Credit; and
(c) the requested Borrowing or Letter of Credit will not
cause the aggregate principal amount of all outstanding Term Loans
plus the Letter of Credit Undrawn Amount to exceed, as of the
designated Borrowing Date or issuance date, as applicable, the
aggregate Commitments.
SOFTWARE.NET CORPORATION.
a California corporation
By:
-------------------------------------------
Name:
-----------------------------------------
Title:
----------------------------------------
2.
<PAGE> 84
EXHIBIT B
SECURED PROMISSORY NOTE
$4,800,000 May 21, 1998
Menlo Park, California
FOR VALUE RECEIVED, SOFTWARE.NET CORPORATION, a California
corporation ("BORROWER"), hereby unconditionally promises to pay to the order of
DEUTSCHE BANK AG, NEW YORK AND/OR CAYMAN ISLANDS BRANCHES, ("LENDER"), in lawful
money of the United States of America and in immediately available funds, the
principal sum of Four Million Eight Hundred Thousand Dollars ($4,800,000) (the
"LOAN") together with accrued and unpaid interest thereon, each due and payable
on the dates and in the manner set forth below.
This Promissory Note is one of the Notes referred to in and is
executed and delivered in connection with that certain Credit Agreement dated as
of even date herewith and executed by Borrower, Deutsche Bank AG, New York
Branch, as Agent, and the Banks named therein (as the same may from time to time
be amended, modified or supplemented or restated, the "CREDIT AGREEMENT").
Additional rights of Lender, including rights of acceleration, are set forth in
the Credit Agreement. All capitalized terms used herein and not otherwise
defined herein shall have the respective meanings given to them in the Credit
Agreement.
1. PRINCIPAL REPAYMENT. The outstanding principal amount of the Loan
shall be due and payable on the Maturity Date. This Note may not be prepaid,
either in whole or in part, prior to the Maturity Date.
2. INTEREST RATE. Borrower further promises to pay interest on the
outstanding principal amount hereof from the date hereof until payment in full,
which interest shall be payable at the rates per annum and on the dates
determined pursuant to the Credit Agreement. Any principal repayment or interest
payment not paid when due, whether at stated maturity, by acceleration or
otherwise, shall bear interest at a rate per annum equal to the Base Rate plus
6%.
3. PLACE OF PAYMENT. All amounts payable hereunder shall be payable
at the office of Lender set forth on a Schedule to the Credit Agreement, unless
another place of payment shall be specified in writing by Lender.
4. APPLICATION OF PAYMENTS. Payment on this Note shall be applied in
the manner set forth in the Credit Agreement.
5. SECURED NOTE. The full amount of this Note is secured by the
Collateral identified and described as security therefor in the Security
Agreement executed by and delivered by Borrower. Borrower shall not, directly or
indirectly, create, permit or suffer to exist, and shall defend the Collateral
against and take such other action as is necessary to remove, any Lien on or
3.
<PAGE> 85
in the Collateral, or in any portion thereof, except as permitted pursuant to
the Security Agreement.
6. DEFAULT. Each of the following events shall be an "Event of
Default" hereunder:
(a) Borrower fails to pay timely any of the principal
amount due under this Note on the date the same becomes due and payable or any
accrued interest or other amounts due under this Note within five (5) days after
the date the same becomes due and payable; or
(b) The Borrower (i) ceases or fails to be Solvent, or
generally fails to pay, or admits in writing its inability to pay, its debts as
they become due, subject to applicable grace periods, if any, whether at stated
maturity or otherwise; (ii) voluntarily ceases to conduct its business in the
ordinary course; (iii) commences any Insolvency Proceeding with respect to
itself; or (iv) takes any action to effectuate or authorize any of the
foregoing; or
(c) (i) Any involuntary Insolvency Proceeding is commenced
or filed against the Borrower, or any writ, judgment, warrant of attachment,
execution or similar process, is issued or levied against a substantial part of
the Borrower's properties, and any such proceeding or petition shall not be
dismissed, or such writ, judgment, warrant of attachment, execution or similar
process shall not be released, vacated or fully bonded within 60 days after
commencement, filing or levy; (ii) the Borrower admits the material allegations
of a petition against it in any Insolvency Proceeding, or an order for relief
(or similar order under non-U. S. law) is ordered in any Insolvency Proceeding;
or (iii) the Borrower acquiesces in the appointment of a receiver, trustee,
custodian, conservator, liquidator, mortgagee in possession (or agent therefor),
or other similar Person for itself or a substantial portion of its property or
business; or
(d) An "Event of Default" under the Credit Agreement.
Upon the occurrence of an Event of Default hereunder, all unpaid principal,
accrued interest and other amounts owing hereunder shall, at the option of
Lender, and, in the case of an Event of Default pursuant to (b) or (c) above,
automatically, be immediately due, payable and collectible by Lender pursuant to
applicable law.
7. WAIVER. Borrower waives presentment and demand for payment, notice
of dishonor, protest and notice of protest of this Note, and shall pay all
reasonable costs of collection when incurred, including, without limitation,
reasonable attorneys' fees, costs and other expenses.
The right to plead any and all statutes of limitations as a defense
to any demands hereunder is hereby waived to the full extent permitted by law.
8. GOVERNING LAW. This Note shall be governed by, and construed and
enforced in accordance with, the laws of the State of California, excluding
conflict of laws principles that would cause the application of laws of any
other jurisdiction.
4.
<PAGE> 86
9. SUCCESSORS AND ASSIGNS. The provisions of this Note shall inure to
the benefit of and be binding on any successor to Borrower and shall extend to
any holder hereof.
BORROWER SOFTWARE.NET CORPORATION
By:
-------------------------------------
Printed Name:
---------------------------
Title:
---------------------------------
5.
<PAGE> 87
EXHIBIT C
COMPLIANCE CERTIFICATE
______________ , 199_/200_
Date:____________
TO: DEUTSCHE BANK AG, NEW YORK BRANCH, as Agent for the Banks
31 W. 52nd Street
New York, NY 10019
Attention: Nancy Zorn
RE: Credit Agreement dated as of May 21, 1998 (as amended, modified,
supplemented or restated from time to time, the "Credit Agreement"),
by and among SOFTWARE.NET CORPORATION, a California corporation, as
the borrower (the "Borrower"), the financial institutions from time
to time party thereto and named as Banks therein (the "Lenders"),
DEUTSCHE BANK AG, NEW YORK BRANCH, as the agent (the "Agent")
Ladies and Gentlemen:
Reference is made to the Credit Agreement. Capitalized terms used in this
Compliance Certificate have the same meaning when used herein as given to them
in the Credit Agreement.
Pursuant to Section 6.2(b) of the Credit Agreement, Borrower, by its undersigned
chief financial officer or controller, as applicable, acting solely in his/her
respective capacity as such chief financial officer or controller, as
applicable, hereby certifies that the information furnished in SCHEDULE 1
attached hereto and incorporated herein by this reference was true, accurate and
complete as of the last date of the Fiscal Quarter or Fiscal Year, as
applicable, immediately preceding the date of this Compliance Certificate and
that:
1. Such chief financial officer or controller, as applicable, has
reviewed the terms of the Credit Agreement and has made, or caused to be made
under his or her supervision, a review in reasonable detail of the transactions
and financial condition of the Borrower during the accounting period covered by
financial statements delivered pursuant to Sections 6.1(a) and 6.1(b) of the
Credit Agreement.
2. All representations and warranties of the Borrower stated in the
Credit Agreement are true, accurate and complete in all material respects as of
the date hereof; provided, however, that those representations and warranties
expressly referring to another date are true, accurate and complete in all
material respects as of such date; and provided, further that the
representations and warranties set forth in Section 5 of the Credit Agreement
shall be deemed to be made with respect to the financial statements most
recently delivered to the Agent pursuant to Sections 6.1(a) and 6.1(b), as
applicable, of the Credit Agreement.
1.
<PAGE> 88
3. Such review has not disclosed the existence during or at the end
of such accounting period, and the undersigned does not have knowledge of the
existence as of the date hereof of any Default or Event of Default, except for
such conditions or events listed on SCHEDULE 2 attached hereto, specifying the
nature and period of existence thereof and what action the Borrower has taken,
is taking and proposes to take with respect thereto.
IN WITNESS WHEREOF, this Compliance Certificate is executed by the undersigned
this _______ day of ________________ , 199_/200_.
SOFTWARE.NET CORPORATION
a California corporation
By:
-------------------------------------
Name:
-----------------------------------
Title:
---------------------------------
2.
<PAGE> 89
SCHEDULE 1 TO COMPLIANCE CERTIFICATE
DATED __________, 19__/200_
FINANCIAL COVENANTS OF THE BORROWER
<TABLE>
<S> <C>
I. PROFITABILITY AND OPERATING PROFITABILITY (SECTION 6.13). (calculated
on a Fiscal Quarter basis).
A. EBITDA
Current Fiscal Quarter $_______________
Is the amount in line A equal
to or less than ($5,000,000)? Yes ________(In compliance)
No ________(Not in compliance)
B. Net operating cash flow
Current Fiscal Quarter $_______________
Is the amount in line B equal to
or less than ($5,000,000)? Yes ________(In compliance)
No ________(Not in compliance)
Borrower must be in compliance with either I.A. or I.B
II. LIQUIDITY (Section 6.13).
A. i) Cash $____________
2. Cash equivalents $____________
3. Total $____________
Is the total amount of line A.3 equal to or
greater than $25,000,000? Yes ________(apply Modified
Quick Ratio Test)
No ________(apply EBITDA/net
operating cash flow loss test)
III. MODIFIED QUICK RATIO (Section 6.13)
A. ii) Cash and Cash Equivalents $____________
2. Accounts Receivable $____________
3. Lines A.1 and A.2 $____________
B. iii) Current Liabilities $____________
2. Term Loans outstanding $____________
3. Lines B.1 and B.2 $____________
</TABLE>
1.
<PAGE> 90
<TABLE>
<S> <C>
C. Modified Quick Ratio (Line A.3 divided by Line B.3 :1.00
-------------
Is Line C greater than or equal to 1.50: 1.00? Yes __________(in compliance)
No __________(not in compliance)
</TABLE>
2.
<PAGE> 91
SCHEDULE 2 TO COMPLIANCE CERTIFICATE
DATED ______________, 19__/200_
LIST OF EXCEPTIONS
Condition(s) or event(s) constituting a Default or an Event of Default
Period of existence
Remedial action with respect to such condition or event
3.
<PAGE> 92
EXHIBIT ______
INTELLECTUAL PROPERTY SECURITY AGREEMENT
This Intellectual Property Security Agreement is entered into as of
May 21, 1998 by and between DEUTSCHE BANK AG, New York Branch, as Agent for
Banks ("Agent") and SOFTWARE.NET CORPORATION, a California corporation
("Grantor").
RECITALS
A. Banks have agreed to make certain advances of money and to extend
certain financial accommodation to Grantor (the "Loans") in the amounts and
manner set forth in that certain Credit Agreement by and among Agent, Banks and
Grantor dated of even date herewith (as the same may be amended, modified or
supplemented from time to time, the "Credit Agreement"; capitalized terms used
herein are used as defined in the Credit Agreement). Banks are willing to make
the Loans to Grantor, but only upon the condition, among others, that Grantor
shall grant to Agent for the benefit of Banks a security interest in certain
Copyrights, Trademarks and Patents to secure the obligations of Grantor under
the Credit Agreement.
B. Pursuant to the terms of the Credit Agreement, Grantor has granted
to Agent for the benefit of Banks a security interest in all of Grantor's right,
title and interest, whether presently existing or hereafter acquired, in, to and
under all of the Collateral.
NOW, THEREFORE, for good and valuable consideration, receipt of which
is hereby acknowledged, and intending to be legally bound, as collateral
security for the prompt and complete payment when due of its obligations under
the Credit Agreement, Grantor hereby represents, warrants, covenants and agrees
as follows:
AGREEMENT
To secure its obligations under the Credit Agreement, Grantor grants
and pledges to Agent for the benefit of Banks a security interest in all of
Grantor's right, title and interest in, to and under its Copyrights, Patents and
Trademarks (including without limitation those Copyrights, Patents and
Trademarks listed on Schedules A, B and C hereto), and including without
limitation all proceeds thereof (such as, by way of example but not by way of
limitation, license royalties and proceeds of infringement suits), the right to
sue for past, present and future infringements, all rights corresponding thereto
throughout the world and all re-issues, divisions continuations, renewals,
extensions and continuations-in-part thereof.
This security interest is granted in conjunction with the security
interest granted to Agent for the benefit of Banks under the Security Agreement
dated as of the date hereof. The rights and remedies of Agent and Banks with
respect to the security interest granted hereby are in addition to those set
forth in the Credit Agreement, the Security Agreement and the other Loan
Documents, and those which are now or hereafter available to Agent and Banks as
a matter of law or equity. Each right, power and remedy of Agent or Banks
provided for herein or in the Credit Agreement or any of the Loan Documents, or
now or hereafter existing at law or in equity
1.
<PAGE> 93
shall be cumulative and concurrent and shall be in addition to every right,
power or remedy provided for herein and the exercise by Agent or any Bank of any
one or more of the rights, powers or remedies provided for in this Intellectual
Property Security Agreement, the Credit Agreement or any of the other Loan
Documents, or now or hereafter existing at law or in equity, shall not preclude
the simultaneous or later exercise by any person, including Agent or any Bank,
of any or all other rights, powers or remedies.
IN WITNESS WHEREOF, the parties have cause this Intellectual Property
Security Agreement to be duly executed by its officers thereunto duly authorized
as of the first date written above.
GRANTOR:
Address of Grantor: SOFTWARE.NET CORPORATION
3031 Tisch Way, Suite 900 By:________________________________
San Jose, CA 95128 Printed Name:______________________
Attn: Chief Financial Officer Title:_____________________________
AGENT:
Address of Bank: DEUTSCHE BANK AG, New York Branch
31 West 52nd Street By:________________________________
New York, NY 10019 Printed Name:______________________
Attn: Nancy Zorn Title:_____________________________
DEUTSCHE BANK AG, New York Branch
By:________________________________
Printed Name:______________________
Title:_____________________________
2.
<PAGE> 94
EXHIBIT A
COPYRIGHTS
<TABLE>
<CAPTION>
Description Registration/ Registration/
- --------------- Application Application
Number Date
------ ----
<S> <C> <C>
None
</TABLE>
3.
<PAGE> 95
EXHIBIT B
PATENTS
<TABLE>
<CAPTION>
Description Registration/ Registration/
- --------------- Application Application
Number Date
------ ----
<S> <C> <C>
None
</TABLE>
4
<PAGE> 96
EXHIBIT C
TRADEMARKS
<TABLE>
<CAPTION>
Description Registration/ Registration/
- --------------- Application Application
Number Date
------------ --------------
<S> <C> <C>
SOFTWARE.NET 74/565186 08/24/94
DIGITAL GEAR 75/442168 02/27/98
SOFTWARE TV 75/371655 10/01/97
</TABLE>
5.
<PAGE> 1
EXHIBIT 10.20
INTER-COMPANY CROSS LICENSE AGREEMENT
This Agreement is entered into as of this 19th day of May, 1998 by and
between Internet Commerce Services Corporation, a Delaware corporation, with its
principal place of business at 550 S. Winchester Boulevard, Suite 300, San Jose,
CA 95128 (hereafter "ICS") and software.net Corporation, a California
corporation previously known as CyberSource Corporation, with its principal
place of business at 3031 Tisch Way, Suite 900, San Jose, CA 95128 (hereafter
"software.net").
RECITALS
A. WHEREAS, the parties entered into that certain Conveyance Agreement
dated December 31, 1997 (hereafter "Conveyance Agreement"), which among other
things, conveyed, transferred and assigned from CyberSource Corporation to
Internet Commerce Services Corporation all intellectual property and other
assets of the "back office" aspects of the internet commerce services business
of CyberSource Corporation; and
B. WHEREAS, in furtherance of the Conveyance Agreement, [ * ]
C. WHEREAS, on or about April 22, 1998, CyberSource Corporation changed
its name to software.net Corporation; and
D. WHEREAS, on or about April 23, 1998, the parties entered into that
certain Inter-Company Cross License Agreement (the "Original Cross-License
Agreement") for the purposes of clarifying the ownership of such intellectual
property which has not been specifically described in the foregoing assignments
and to set forth the terms for the cross licensing of technology, data and
information held by each party; and
E. WHEREAS, the parties now desire to amend the Original Cross License
Agreement for the purposes of clarifying the terms of the Original Cross
License Agreement.
AGREEMENT
In consideration of the mutual agreements herein contained and other
good and valuable consideration, receipt and sufficiency of which is hereby
acknowledged, the parties agree that the Original Cross License Agreement shall
be amended and restated as follows:
1. DEFINITIONS. The following definitions shall apply to this Agreement
and each of the Schedules attached hereto.
1.1. "Internal use" (with or without capitalization) shall mean
use only by IP Licensee's employees, agents or authorized representatives on
computer systems controlled by IP Licensee.
1.2. "IP Owner" shall mean a party which is the owner of the
particular technology or intellectual property as identified in Section 2
hereunder.
<PAGE> 2
1.3. "IP Licensee" shall mean a party which is the licensee for a
particular technology or intellectual property as identified in Section 3
hereunder.
1.4. "Licensed IP" shall mean the particular technology or
intellectual property which is cross licensed under Section 3, herein.
2. OWNERSHIP OF INTELLECTUAL PROPERTY
2.1 software.net acknowledges, agrees and affirms that, as
between software.net and ICS, ICS is the sole and exclusive owner of the
following, and that nothing else was transferred to ICS under the Conveyance
Agreement except for the following:
2.1.1. That SmartCert Technology as described in Schedule
2.1.1, attached hereto (hereafter "SmartCert"), including without limitation,
any and all improvements, enhancements and modifications thereto created and
developed by either or both parties on or before December 31, 1998;
2.1.2. Those certain inventions as described in the patent
applications identified in Schedule 2.1.2, attached hereto ("Patents Pending");
2.1.3. Those certain "back office" technologies and
systems as described in Schedule 2.1.3, attached hereto (hereafter "Backoffice
Systems");
2.1.4. The rights to licenses of software and other
intellectual property acquired from third parties in connection with ICS's
internet commerce operations as described in Schedule 2.1.4, attached hereto
(hereafter "ICS Third Party Software"), subject to any required consents to
assignment which have not been obtained; and
2.1.5. The trademarks and service marks and applications
thereof described in Schedule 2.1.5, attached hereto (hereafter "ICS Trademarks,
Services Marks and Applications Thereof").
2.2. ICS acknowledges, agrees and affirms that as between
software.net and ICS, software.net is the sole and exclusive owner of the
following:
2.2.1. That software known as "Cache Manager", but
excluding the underlying SmartCert Technology, as described in Schedule 2.2.1
attached hereto (hereafter "Cache Manager"), including without limitation any
and all improvements, enhancements and modifications thereto created and
developed by either or both parties on or before December 31, 1998;
2.2.2. That certain database of customer information, as
described in Schedule 2.2.2, attached hereto (hereafter "Customer Database");
2.2.3. That certain software which comprises
software.net's internet software and digital content superstore and related
server engine as described in Schedule 2.2.3, attached hereto (hereafter "Store
Engine");
-2-
<PAGE> 3
2.2.4. The rights to licenses of software and other
intellectual property acquired from third parties in connection with
software.net's operations as described in Schedule 2.2.4, attached hereto
(hereafter "software.net Third Party Software"); and
2.2.5. The trademarks and service marks and applications
thereof described in Schedule 2.2.5, attached hereto (hereafter "software.net
Trademarks, Service Marks and Applications Thereof").
2.3. The parties acknowledge, agree and affirm that the utility
tools set forth in Schedule 2.3, attached hereto (hereafter "Jointly Owned
Utility Tools") are jointly owned by both parties and may be freely used by
either party without accounting to each other.
2.4. Ownership of any other inventions not cited in above
sections 2.1, 2.2 and 2.3, which were made by the parties on or before June 30,
1998 ("Background Inventions") shall be as follows:
2.4.1. If made exclusively by one party, then such
Background Inventions shall be the property of that party.
2.4.2. If made jointly by both parties, then such
Background Inventions shall be jointly owned without accounting to each other.
In the case of a jointly filed patent application, the patent expenses shall be
divided equally between the parties. If either party elects not to file an
application on a joint Background Invention and/or not pay its share of the
expenses thereof, the other party may file at its own expense and shall have
sole control of the prosecution thereof. The party not participating in the
prosecution thereof shall remain liable for its share of the expenses for
prosecution of the application unless it assigns its entire interest in the
Background Invention to the prosecuting party.
2.5. Ownership of improvements, enhancements and modifications
made by the parties after December 31, 1998 and before January 1, 2000 to any of
the technologies and information which are licensed under sections 3.1 and 3.3,
herein (hereafter "Enhancements") shall be treated as follows:
2.5.1. If made exclusively by one party, then such
Enhancements shall be the property of that party.
2.5.2. If made jointly by both parties, then such
Enhancements shall be jointly owned without accounting to each other. In the
case of a jointly filed patent application, the patent expenses shall be divided
equally between the parties. If either party elects not to file an application
on a jointly owned Enhancement and/or not pay its share of the expenses thereof,
the other party may file at its own expense and shall have sole control of the
prosecution thereof. The party not participating in the prosecution thereof
shall remain liable for its share of the expenses for prosecution of the
application unless it assigns its entire interest in the Enhancement to the
prosecuting party.
-3-
<PAGE> 4
2.6. Each of the parties agrees to execute, acknowledge, and
deliver as necessary any instruments confirming the ownership by the other in
accordance with this Section 2.
3. CROSS LICENSES.
3.1. SmartCert. ICS hereby grants to software.net, and
software.net accepts, a worldwide, perpetual, irrevocable, royalty-free license
with respect to the SmartCert Technology in object and source code (including
all related user documentation) as follows:
3.1.1. a non-exclusive license for software.net's
internal use only, which license shall also include the right to
reproduce and modify;
3.1.2. a license to modify the SmartCert software for
the purposes of merging it into Cache Manager alone or Cache
Manager in combination with other software (including all
related user documentation) developed, owned or licensed by
software.net and to reproduce and sublicense the merged product
(but not the SmartCert software alone) directly to, and for use
by, enterprises (including without limitation corporations,
partnerships, sole proprietorships and universities) and
governmental agencies, provided:
3.1.2.1. sublicenses of the merged product to
the U.S. Government or other governmental agencies shall
be as "restricted computer software" or "limited rights
data" as set forth in "Rights in Data - General" at 48
CFR 52.227-14, or as "commercial computer software" or
"commercial computer software documentation" under DFARS
252.227-7015, or under such other similar applicable
terms and conditions to prevent the transfer of rights
in and to the technology to the government other than
under normal commercial licensing terms and conditions;
and
3.1.2.2. sublicenses of the merged product shall
not include the right to further sublicense to another
party the merged product;
3.1.3. software.net shall keep the source code for the SmartCert
Technology confidential in accordance with Section 6, below.
3.2. Patents Pending. In the event that letters patent issue from the
Patents Pending, ICS grants to software.net, and software.net accepts, a
worldwide, perpetual, irrevocable, royalty-free, nonexclusive license to
practice any and all methods, systems and other inventions described in said
letters patent with the following conditions:
3.2.1. Such license shall not include the right to sublicense,
except in conjunction with, and only to the extent as necessary to give
effect to, the sublicense of any software, products or technology
licensed by ICS to software.net pursuant to any other license which may
be granted in writing by ICS to software.net, including the license set
forth in above Section 3.1.
3.2.2. Such license shall not in any way convey, grant or
transfer to software.net any right to use any software, technical data
or physical device owned by ICS, including without limitation, the
SmartCert Technology, its object code, source code and related
documentation. Any right to use such software, technical data or
physical device shall be governed by a separate license agreement, or
in the case of the SmartCert Technology, shall be governed by above
section 3.1.
-4-
<PAGE> 5
3.3. Cache Manager. software.net hereby grants to ICS, and ICS accepts,
a non-exclusive, worldwide, perpetual, irrevocable, royalty-free license with
respect to the Cache Manager software in source and object codes (including all
related user documentation) as follows:
3.3.1. such license shall be for ICS's internal use only, and
shall include the right to reproduce and modify the source and object
codes;
3.3.2. such license shall not permit any right to sublicense;
and
3.3.3. ICS shall keep the source code for the Cache Manager
confidential in accordance with Section 6, below.
3.4. Customer Database. software.net hereby grants to ICS, and ICS
accepts, a non-exclusive, worldwide, perpetual, irrevocable, royalty-free
license with respect to the Customer Database as follows:
3.4.1. Customer Database shall be used only as part of the fraud
detection and verification system owned by ICS, including without the
limitation, the IVS system, and shall include the right to reproduce and
modify;
3.4.2. sublicensing of the Customer Database is not permitted
except in conjunction with the sublicensing of ICS's fraud detection and
verification system provided that (i) sublicensees are expressly
prohibited under such sublicenses from using the Customer Data for any
purpose other than for fraud detection and verification utilizing ICS's
fraud detection and verification system, (ii) sublicensees shall not
have access to the raw, human-readable Customer Database, but shall have
only access to the evaluated scores derived from the utilization of the
fraud detection and verification system, (iii) such sublicensees shall
agree under said sublicenses that any such breach of said limitation of
use by sublicensee shall constitute irreparable injury which shall
entitle ICS and software.net to extraordinary remedies, including
without limitation, injunctive relief, and (iv) ICS indemnifies and
holds harmless software.net for any and all damages and losses suffered
by software.net resulting from any breach of said limitation of use by
any of such sublicensees, including without limitation any and all
attorneys' fees and costs to enjoin the unlawful use of the Customer
Data caused by such breach; and
3.4.3. ICS shall keep the Customer Database confidential in
accordance with Section 6, below.
3.5. Background Inventions. If any letters patent should issue on
Background Inventions which are owned exclusively by one party ("Single Owner
Background Patents"), the parties agree as follows:
-5-
<PAGE> 6
3.5.1. The owner of the Single Owner Background Patent
shall grant to the other party a worldwide, perpetual,
irrevocable, royalty-free, nonexclusive license, without the
right to sublicense, to practice any and all methods, systems
and inventions contained in the Single Owner Background Patent;
3.5.2. Such license to practice the Single Owner
Background Patent does not convey in any way to the licensee any
right to use any of the licensor's software, technical data or
physical device in connection with the Single Owner Background
Patent. Such use of the licensor's software, technical data or
physical device shall be governed by a separate license to be
negotiated and agreed to by the parties.
3.6. Relations Back to Date of Conveyance Agreement. Each of the
licenses of the Licensed IP by the IP Owners to the IP Licensees as set forth in
this Agreement shall be effective as of December 31, 1997, the effective date of
the Conveyance Agreement.
4. MOST FAVORED TERMS FOR ENHANCEMENTS. A party owning exclusively a
Enhancement is not required to offer such Enhancement to any entity. However, if
the party owning such Enhancement should offer such Enhancement to any third
party, it shall offer to the other party under this Agreement such Enhancement
under terms and conditions which are at least as favorable to the best terms and
conditions offered to any other third party under similar circumstances. If at
any time more favorable terms and conditions are granted to any third party
pertaining to such Enhancement, the party acting as IP Owner or grantor shall
notify the other party herein and, if the other party so elects, shall be
automatically become entitled to such more favorable terms and conditions.
5. LIMITATION OF WARRANTY. DISCLAIMER OF WARRANTIES. EACH OF THE
TECHNOLOGIES, INFORMATION AND INTELLECTUAL PROPERTIES LICENSED HEREUNDER ARE
PROVIDED "AS IS" WITH ALL FAULTS AND WITHOUT ANY REPRESENTATIONS OR WARRANTIES.
THE ENTIRE RISK AS TO SATISFACTORY QUALITY, PERFORMANCE, ACCURACY, AND EFFORT IS
WITH THE IP LICENSEE. THIS DISCLAIMER OF WARRANTY EXTENDS TO THE RESPECTIVE IP
LICENSEES AND IP LICENSEE'S CUSTOMERS AND END-USERS AND IS IN LIEU OF ALL
WARRANTIES AND CONDITIONS WHETHER EXPRESS, IMPLIED, OR STATUTORY, INCLUDING THE
IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR PARTICULAR PURPOSE, TITLE AND
NONINFRINGEMENT WITH RESPECT TO THE LICENSED TECHNOLOGIES AND INTELLECTUAL
PROPERTIES.
6. CONFIDENTIALITY. The Customer Database, the Patents Pending,
Backoffice Systems and the source code for SmartCert, Cache Manager and the
Store Engine and all documentation and information designated by the party
disclosing the information (the "Disclosing Party") as proprietary and
confidential, including without limitation drawings, computer program listings,
techniques, algorithms and processes and technical and marketing information
which are supplied by the Disclosing Party in connection with this Agreement or
which have been treated by either of the parties heretofore as proprietary and
confidential (the foregoing shall be collectively referred to hereafter as
"Confidential Information") shall be
-6-
<PAGE> 7
treated confidentially by the recipient of Confidential Information
("Recipient") and its employees, and shall not be disclosed by the
Recipient without Disclosing Party's prior written consent. Each party
shall have an appropriate agreement with each of its employees having
access to the Confidential Information sufficient to enable the party to
comply with all terms of this Agreement. Each party agrees to protect
the Confidential Information with the same (but in no case less than
reasonable) standard of care and procedures it uses to protect its own
trade secrets and proprietary information.
7. INDEMNITY.
7.1. Each IP Licensee shall indemnify and hold harmless the IP
Owner for any and all third party claims based on the IP Licensee's usage of the
Licensed IP, excluding any third party claim based on a claim that Licensed IP
infringes the third party's patent, copyright, trademark or other proprietary
right.
7.2. The indemnities set forth in sections section 3.4.2 and 7.1,
above, will not apply to the extent the party claiming the indemnification was
responsible for giving rise to the matter upon which the claim for
indemnification is based and will not apply unless the party claiming
indemnification promptly notifies the other of any matters in respect of which
the indemnity may apply and of which the notifying party has knowledge and gives
the other full opportunity to control the response thereto and the defense
thereof, including without limitation any agreement relating to the settlement
thereof.
8. LIMITATION OF LIABILITY. EXCEPT FOR LIABILITY FOR PERSONAL INJURY AND
PHYSICAL PROPERTY DAMAGE, THE INDEMNITY PROVISIONS OF SECTION 3.4.2, ABOVE, AND
A BREACH OF THE CONFIDENTIALITY PROVISIONS OF SECTION 6, ABOVE, IN NO EVENT
SHALL EITHER PARTY BE LIABLE FOR ANY SPECIAL, PUNITIVE, EXEMPLARY, INDIRECT,
INCIDENTAL OR CONSEQUENTIAL DAMAGES (INCLUDING BUT NOT LIMITED TO SUCH DAMAGES
ARISING FROM BREACH OF CONTRACT OR WARRANTY OR FROM NEGLIGENCE OR STRICT
LIABILITY), OR FOR INTERRUPTED COMMUNICATIONS, LOST DATA, LOST PROFITS, LOST
SAVINGS, OR ANY COST OF PROCUREMENT OF SUBSTITUTE GOODS OR SERVICES ARISING OUT
OF OR RESULTING FROM THIS AGREEMENT, EVEN IF THE PARTY HAD BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES.
9. MARKINGS. In conjunction with the licenses granted herein, the
respective IP Licensee shall agree to place such markings, notices and legends
as requested by the IP Owner for purposes of preservation of rights under
patent, copyright, trademark or other proprietary rights.
10. TERMINATION. Any IP Licensee may terminate its license for the
applicable Licensed IP by giving written notice and returning to the IP Owner
all copies of the Licensed IP in its possession. All sublicenses and licenses,
if any, granted by the IP Licensee as permitted under the terms of this
Agreement shall continue under their own terms.
11. GENERAL
-7-
<PAGE> 8
11.1. Governing Law. This Agreement shall be governed and
interpreted by the laws of the State of California, excluding its conflict of
laws provisions. The parties agree that any action brought for any dispute
between the parties relating to this Agreement shall take place in, and the
parties consent to jurisdiction of, the Superior Court for the County of Santa
Clara or the United States District Court for the Northern California District
in San Jose, California.
11.2. Irreparable Injury. The parties agree that a violation or
breach of Sections 3, 4, 6 and 9, herein, will result in irreparable injury and
agree that such provisions shall be specifically enforced by the injured party.
11.3. Severability; Waiver. If any provision of this Agreement is
held to be invalid or unenforceable for any reason, the remaining provisions
will continue in full force without being impaired or invalidated in any way.
The parties agree to replace any invalid provision with a valid provision which
most closely approximates the intent and economic effect of the invalid
provision. The waiver by either party of a breach of any provision of this
Agreement will not operate or be interpreted as a waiver of any other or
subsequent breach.
11.4. Headings. Headings used in this Agreement are for reference
purposes only and in no way define, limit, construe or describe the scope or
extent of such section or in any way affect this Agreement.
11.5. Successors and Assigns. This Agreement, and the licenses
herein granted, will inure to the benefit of, and be binding upon, the parties
hereto and their respective successors and assigns, but will not be assigned by
either party, except to a wholly-owned subsidiary or to a party acquiring
substantially all of its business and assuming all of its obligations and
liabilities, without the written consent of the other party. In the event of any
assignment, the transferor or assignor will remain obligated to perform its own
obligations and, in addition, will be jointly liable for the proper performance
of the obligations of the transferee or assignee pursuant to this Agreement.
11.6. Notice. Any notices required or permitted hereunder shall
be given to the appropriate party at the address specified above or at such
other address as the party shall specify in writing. Such notice shall be deemed
given: upon personal delivery; if sent by telephone facsimile, upon confirmation
of receipt; if sent by electronic mail, upon confirmation of receipt; or if sent
by certified or registered mail, postage prepaid, five (5) days after the date
of mailing.
11.7. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which shall
be taken together and deemed to be one instrument.
11.8. Entire Agreement. This Agreement, including any exhibits
attached hereto, and the Conveyance Agreement sets forth the entire
understanding and agreement of the parties and supersedes any and all oral or
written agreements or understandings between the parties, including without
limitation the Original Cross License Agreement, as to the subject matter of
this Agreement. It may be changed only by a writing signed by both parties.
Neither party is relying upon any warranties, representations, assurances or
inducements not expressly set forth herein.
-8-
<PAGE> 9
IN WITNESS WHEREOF, each of the parties hereto have executed this
Agreement as of the date first written above.
SOFTWARE.NET CORPORATION: INTERNET COMMERCE SERVICES
CORPORATION:
By: /s/ Jim Lussier By: /s/ W.S. McKiernan
-------------------------------- -------------------------------
Title: V.P., Business Operations Title: President & CEO
----------------------------- ----------------------------
Fax: 415-241-8258 Fax: 408-241-8270
------------------------------- ------------------------------
E Mail: [email protected] E Mail: [email protected]
---------------------------- --------------------------
-9-
<PAGE> 10
SCHEDULE 2.1.1
SMARTCERT TECHNOLOGY
All right, title, interest, and benefit (including to make, use, or sell
under patent law; to copy, adapt, distribute, display, perform, transmit and
access under copyright law; and to use and disclose under trade secret law) in
and to all United States and foreign patents and patent applications, patent
license rights, patentable inventions, trade secrets, trademarks, service marks,
trade names (including, in the case of trademarks, service marks and trade
names, all goodwill appertaining thereto), copyrights, technology licenses,
know-how, confidential information, shop rights, and all other intellectual
property rights owned or claimed in the following:
That certain software program, in object code and source code,
called SmartCert by the parties, which program is used to deliver
products electronically together with marketing and promotional
information. Such program, among other things, tracks the
transmission of electronically distributed software and has
features which enables interrupted downloads to be resumed
without reloading the entire product.
<PAGE> 11
SCHEDULE 2.1.2
PATENTS PENDING
[*] which has been recorded with the United States Patent & Trademark
Office, all right, title and interest (including without limitation, all
divisional, continuing, substitute, renewal and reissue applications thereof) in
and to the following applications pending with the United States Patent &
Trademark Office:
<TABLE>
<CAPTION>
TITLE APPLICATION NO. FILING DATE
- ----- --------------- -----------
<S> <C> <C>
[*] [*] [*]
[*] [*] [*]
[*] [*] [*]
</TABLE>
<PAGE> 12
SCHEDULE 2.1.3
BACK OFFICE SYSTEMS
All right, title and interest in those backoffice software systems which
are operated by ICS as of the date of this Agreement, except as otherwise
specified in Section 2.2 of this Agreement, including without limitation:
1. Payment processing system
2. IVS system
3. Export and territory management system
4. Fulfillment house notification system
5. Rights management system
6. Global rights registry (old LCH) database system
7. US sales tax calculation system
8. IBM/SMS NetTrade Finance system for international currency payment
processing
9. VAT calculation system
10. Digital warehouse for storing and downloading digital products like
software
11. Simple Commerce Messaging Protocol (SCMP) client libraries and
related server libraries and functions
12. Digital Commerce Component (DCC), an SCMP implementation over
Windows NT for Microsoft Site Server
13. Payment processing software for direct connection to FUSA and other
processors
14. SmartReg web site and associated images, scripts and server
components
15. www.cybersource.com web site and associated images, scripts, server
components and worldwide registered use of name
16. www.esdmap.org web site and associated images, scripts, server
components and worldwide registered use of name
17. CommerceFLEX and all components
18. CommerceEZ and all related components
<PAGE> 13
19. The EDI message and transaction processing systems and
infrastructure
20. The Thin Server framework and application concepts
-2-
<PAGE> 14
SECTION 2.1.4
ICS THIRD PARTY SOFTWARE
All rights to the licenses from third parties for products which are
used by ICS in its operations, including without limitation:
1. Vertex tax system
2. Sybase
3. CyberCash system for payment processing
4. IC Verify system for payment processing
5. Operating system software from SUN supporting for all servers owned
by ICS
6. Development tools (software) from SUN and Microsoft for platforms
7. SUN Net Manager
<PAGE> 15
SCHEDULE 2.1.5
ICS TRADEMARKS, SERVICE MARKS AND APPLICATIONS THEREOF
A. Subject to the Assignment of Marks dated March 26, 1998, all right,
title and interest in and to the following trademarks, service marks and
applications thereof, together with all goodwill appertaining thereto:
<TABLE>
<CAPTION>
UNITED STATES MARK USPTO REGISTRATION NO.
- ------------------ ----------------------
<S> <C>
CYBERSOURCE 2,006,769
</TABLE>
<TABLE>
<CAPTION>
UNITED STATES MARK USPTO APPLICATION SERIAL NO.
- ------------------ ----------------------------
<S> <C>
CYBERSOURCE 75/411012
IVS 75/310542
COMMERCEEZ 75/240894
COMMERCEFLEX 75/240895
SMARTCERT 75/417912
</TABLE>
B. All right, title and interest in and to the following trademarks,
service marks and applications thereof, together with all goodwill appertaining
thereto:
<TABLE>
<CAPTION>
INTERNATIONAL MARK COUNTRY APPLICATION NO.
- ------------------ ------- ---------------
<S> <C> <C>
CYBERSOURCE European Union (CTM) 000678391
CYBERSOURCE Canada 0869935
SMARTCERT European Union (CTM) 000728253
SMARTCERT Canada 0869936
</TABLE>
<PAGE> 16
SCHEDULE 2.2.1
CACHE MANAGER
All right, title, interest, and benefit (including to make, use, or sell
under patent law; to copy, adapt, distribute, display, perform, transmit and
access under copyright law; and to use and disclose under trade secret law) in
and to all United States and foreign patents and patent applications, patent
license rights, patentable inventions, trade secrets, trademarks, service marks,
trade names (including, in the case of trademarks, service marks and trade
names, all goodwill appertaining thereto), copyrights, technology licenses,
know-how, confidential information, shop rights, and all other intellectual
property rights owned or claimed in the following (excluding the SmartCert
Technology, which is owned by ICS):
That software, in object code and source code, called Cache
Manager by the parties, which works in conjunction with the
SmartCert software to enable a cache of downloaded software at
locations inside a customer's firewall. Cache Manager enables the
distribution of caches of software to locations within an
enterprise, ensuring a large enterprise that the current release
of software programs is available to staff with minimal
management intervention.
<PAGE> 17
SCHEDULE 2.2.2
CUSTOMER DATABASE
All right, title and interest in the information gathered by
software.net related to its customers and which information has been used by ICS
in its fraud detection and verification system as of April 23, 1998.
<PAGE> 18
SCHEDULE 2.2.3
THE STORE ENGINE
All right, title and interest in the software and digital content
superstore software systems (the "Store Engine" systems) which are operated by
software.net as of the date of this Agreement, except as otherwise specified in
Section 2.1 of this Agreement, including without limitation:
The computer software, in object code and source code, which is
based on a distributed transaction processing model that runs the
entire software.net site, excluding any ownership rights to
software that is licensed by ICS or third parties to
software.net.
Any and all software (source and object) related to the webpages
produced by either or both parties since its inception
appertaining to the software.net URL.
<PAGE> 19
SCHEDULE 2.2.4
SOFTWARE.NET THIRD PARTY SOFTWARE
All rights to the licenses from third parties for products which are
used by software.net in its operations, including without limitation:
1. Netscape web servers
2. Any and all operating system and development tools software
licensed for machines owned by software.net
3. All software licensed from Microsoft under the internal use
agreement between Microsoft and software.net
4. Such other business applications resident on systems owned by
software.net
5. Solomon accounting software
6. Quickbooks accounting software
<PAGE> 20
SCHEDULE 2.2.5
SOFTWARE.NET TRADEMARKS, SERVICE MARKS AND APPLICATIONS THEREOF
All right, title and interest in and to the following trademarks,
service marks and applications thereof, together with all goodwill appertaining
thereto:
<TABLE>
<CAPTION>
UNITED STATES MARK USPTO SERIAL NO.
- ------------------ ----------------
<S> <C>
SOFTWARE.NET 74/565186
SOFTWARE.NET plus DESIGN 75/304973
SOFTWARE TV 75/371655
DIGITAL GEAR 75/442168
</TABLE>
<PAGE> 21
SCHEDULE 2.3
JOINTLY OWNED UTILITY TOOLS
Any and all internally written tools to monitor the correct operation of
web servers, routers and other network equipment created by either or both
parties on or before the date of this Agreement.
<PAGE> 1
EXHIBIT 10.23
EXODUS COMMUNICATIONS, INC.
INTERNET SERVICES AND PRODUCTS AGREEMENT
This Agreement defines the terms and conditions between Exodus Communications,
Inc. (hereafter referred to as Exodus) and Software.Net/Cybersource (hereinafter
referred to as Customer) whereby Exodus provides value-added Internet services
and related products to Customer.
1. Exodus will provide the following services and products at the prices
shown (see Addenda for additional services):
Connection Type Usage Level Price Billing Period
------ ---- ------
One Time Installation Cost Price
------
Telco Connection provided by: Price 350 Billing Period Monthly
------- ------
One Time Installation Cost Price 1,000
------
Other: ExcColocate-10 MBG rack
dedicated ethernet Price $4,000 Billing Period Monthly
Other: Installation Price $1,000 Billing Period One-Time
(Installation of each additional rack
-- $1,000)
Equipment: see Attachment A
(if applicable) Price
------
Exodus will not increase prices for services provided during the Billing
Period identified above. Exodus reserves the right to change prices
beyond the billing period upon notice to Customer 30 days in advance of
any change. All prices are exclusive of any tax, levy, customs duty,
import tax or similar governmental charge that may be accesses by any
jurisdiction. All such taxes are the responsibility of Customers.
2. The term of this Agreement is for one year from the date Internet access
is connected. Customer may cancel within the first 30 days without
penalty, thereafter it is non cancelable, and will automatically renew
yearly thereafter, unless 60 day advanced notice is given by either party
prior to this agreement's anniversary date. Customer may cancel with 30
day advance notice if Customer can show that Exodus has failed to provide
commercially reasonable service levels or price increases (if any) are
not acceptable to Customer. At the time Exodus connection service is
installed or product is shipped, Exodus will invoice the Customer.
Payments for subsequent billing periods will be issued in advance of the
provision of service. Invoices are due upon receipt.
3. Exodus makes no warranty of any kind with respect to services and products
provided under this Agreement. Exodus DISCLAIMS ALL WARRANTIES, EXPRESS
AND IMPLIED, INCLUDING THE WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE AND NON-INFRINGEMENT WITH RESPECT TO THE DOMAIN NAMES
OBTAINED FOR CUSTOMERS, SERVICES OR ANY INFORMATION OBTAINED THROUGH THE
SERVICES. In situations involving performance or nonperformance of
services or products furnished under this Agreement, Customer's sole
remedy shall be: in the case of products, repair, or return of the
defective product to Exodus for refund, at the discretion of Exodus. In
the case of services, refund of a prorata portion of the price paid for
services which were not provided. Credit will only be issued for periods
of lost service greater than 24 hours. Nothing on this clause shall
preclude customer from cancelling service as defined in Section 2 above.
4. Exodus will not be liable for any damages Customer may suffer arising out
of acts of God, use, or inability to use, Exodus's Internet services or
related products unless such damages are caused by an intentional and
willful act of Exodus. In no event shall Exodus be liable for unauthorized
access to Customer's transmission facilities or Customer premise
equipment or for unauthorized access to or alteration, theft or
destruction of Customer's data files, programs, procedure or information
through accident, fraudulent means or devices, or any other method.
Exodus will not be liable for indirect, incidental, special or
consequential damages or for any lost property or data of Customer.
Exodus's liability for damages to Customer for any cause whatsoever,
regardless of form of action, including negligence, shall not exceed an
amount equal to the price of products and services purchased by Customer
during the twelve month period preceding the event which caused the
damages or injury.
5. Exodus will indemnify and hold Customer harmless against any claims or
demand by any third party that any hardware or software provided by Exodus
to Customer hereunder, infringes any U.S. copyright or patent. Except for
such indemnity, Customer agrees to indemnify and hold Exodus harmless
against any claim or demand by any third party due to or arising out of
the use by Customer of Internet services and related products provided
hereunder.
6. Customer is solely responsible for the content of any transmissions by
Customer and any third party utilizing customer's facilities or Exodus'
facilities. Use of other organization's network or computing resources are
subject to their respective permission and usage policies. Customer agrees
to comply with all applicable laws with regard to the transmission and use
of information and content, solicitation of any activity that is
prohibited by applicable law over Internet. Customer further agrees not to
use the
<PAGE> 2
Internet service for illegal purposes, to interfere with or disrupt other
network users, network services or network equipment. Customer shall be
liable for and shall indemnify and defend EXODUS from and against any
claims in anyway arising from or related to (i) the alleged infringement of
patent, trademark, design, copyright or any other intellectual property
rights in relation to the Customer's use of the services and (ii) Customer
use or inclusion of any information, photographs, art work or other
content (including without limitation claims based on invasion of privacy,
right of publicity, the Communications Decency Act of 1996, obscenity or
pornography, and the violation of any sales or ordinances or other laws).
7. Customer understands that Internet use, and related products and services
provided under this Agreement, may require registrations and related
administrative reports which are public in nature. In addition Customer
agrees Exodus may include its name in directories of Exodus customers.
8. Unless otherwise authorized in writing by Exodus and attached as an Addenda
to this agreement, Customer shall limit access to and use of the Internet
connection services to its employees solely for Customer's business
purposes and shall not resell or otherwise generate income by providing
connectivity to the Internet service to third parties. Customer's right to
use the Internet services and products provided hereunder is limited to
Customer and is nontransferable.
9. Failure by the Customer to comply with the terms of this agreement will
result in immediate termination of Exodus Internet services.
10. Customer agrees not to export or re-export (including by way of electronic
transmission), directly or indirectly, any software or technical data
through the Internet services without first obtaining any required export
license or governmental approval.
11. This Agreement, together with any Addenda, constitute the entire agreement
of the parties with respect to the services and products provided hereunder
and supersede any prior agreements. These terms and conditions shall
prevail notwithstanding any different or additional terms and conditions
in any forms provided by Customer. No waiver of any rights hereunder shall
be deemed to be a waiver of the same right on any other occasion. This
Agreement shall be governed by the laws of the State of California without
regard to conflicts of law principles.
These Terms and Conditions have been read, are understood, and are hereby
accepted.
/s/ JOHN PETTITT 4/27/96 /s/ [illegible]
- --------------------------------- ---------------------------------
Customer Representative Date Exodus Representative Date
(Signature) (Signature)
John Pettitt
- --------------------------------- ---------------------------------
Name Name
VP
- --------------------------------- ---------------------------------
Title Title
<PAGE> 3
REGISTRANT INFORMATION
To avoid delay with your connection, please fill out form completely
COMPANY INFORMATION
Company Name: Cyber Source
------------------------------------------------------------------
Address: 1050 Chestnut # 202
-----------------------------------------------------------------------
City: Menlo Park State: CA Zip: 94025
------------------------------------- ------------- ----------
Telephone: 415 423 3065 Fax: 473 3066
--------------------------------- ------------------------------
Contact Name: John Pettitt Title: VP
--------------------------------- -------------------------
BILLING INFORMATION
Address:
-----------------------------------------------------------------------
City: State: Zip:
------------------------------------- ------------- ----------
Telephone: Fax:
--------------------------------- ------------------------------
Contact Name: Blake Burke Title: Controller
--------------------------------- -------------------------
Purchase Order #: JP 96501 Credit Card #:
------------------------ -------------------------
NETWORK/TECHNICAL INFORMATION
Technical Contract: John Pettitt (JP 302) Phone: 473-3065
---------------------------------- ------------------
Connection Type: T1/Colocate Point of Presence:
---------------------- ---------------------
Number of Hosts: Current IP Address: 204.69.144
------------ ------------------------------
(If you already have one)
Network Type (Ethernet, Token Ring, arcnet): E
-------------------------------------------------------------------
Network Cabling (Twisted pair, coaxial, thicknet):
-----------------------------
What will your Internet Connection Be used for:
--------------------------------
- --------------------------------------------------------------------------------
Circuit Demarcation Location: St #202
--------------------------------------------------
- --------------------------------------------------------------------------------
*Note - When ordering circuit we need to provide specific circuit termination
paint to the Telco.
DOMAIN NAME REGISTRATION INFORMATION
First Choice Domain Name: Software.net (already regd)
------------------------------------------------------
Second Choice Domain Name:
-----------------------------------------------------
(You must provide an alternate)
Administrative Contact Name:
---------------------------------------------------
Phone: Email Address: JP 302
--------------------------- ------------------------------
*Note - The Interate requires an Email Address
to complete Domain Name Registration.
<PAGE> 4
[EXODUS LOGO]
PRICE ESTIMATE FOR INTERNET DATA CENTER SERVICES
Customer Name: CyberSource Quote Number CY101M0D2
Original Service Agreement Date: (for renewals only)
---------------------
Request for Service
------------------
Date
Check appropriate box(es):
[ ] New Service
[ ] Annual Renewal
[ ] Additional Service(s)/Product(s)
[X] Modification of Existing Service(s)
[ ] Other
<TABLE>
<CAPTION>
Co-Location Fast Ethernet
- -------------------------------------------------------------------------------------------------------------
Product Number Description Quantity Startup Monthly
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Exo-ColNet-10Mb 100Megabit Ethernet Connection 1 $15,000
Dedicated usage based, Includes
10mbps full duplex usage,
additional usage at $1250/mbps**
- -------------------------------------------------------------------------------------------------------------
Exo-ColNet-10Mb Back-up 10Megabit Ethernet 1 ($5,000)*
Connection *Note this connection
not to be billed until it is used as a
production connection per
Cybersources*
- -------------------------------------------------------------------------------------------------------------
Exo-T1BU Private T1 backup access into 2 Waived Waived
Colocation space (List $1,000)
- -------------------------------------------------------------------------------------------------------------
Exo-ColNet-SU Colocation Backbone Setup 10Mpb 1 Waived
(List $1,000)
- -------------------------------------------------------------------------------------------------------------
Exo-Cage-78, 7x8 cage 8x19 Cage 1 $7752
(List $13,680)
- -------------------------------------------------------------------------------------------------------------
Exo-Cage-R785U 8x19 Cage Setup 1 $2,500
- -------------------------------------------------------------------------------------------------------------
EXODUS Total Total includes one 100Megabit $2,500 $22,752
connection
- -------------------------------------------------------------------------------------------------------------
EXODUS Total* Total including two connections, $2,500 $27,752
100mbps and Live backup
10Megabit connections*
- -------------------------------------------------------------------------------------------------------------
</TABLE>
**$1250/mbps ove 10mbps prorated based on 95% Rule explained in contract
QUOTATION INCLUDES:
o SNMP monitoring of the line and report if line is down
o Access to servers from behind a protective zone, and complete Internet
Access, which includes: Mail, FTP, News and Telnet, etc.
REDUNDANT INTERNET CONNECTION
o Exodus has multiple 45 MB ATM (Worldcom) connections into the Internet
Backbone, i.e., MAE EAST, MAE WEST, MAE LA, PAIX, SprintNAP and Pac Bell NAP.
<PAGE> 5
[EXODUS LOGO]
PRICE ESTIMATE FOR INTERNET DATA CENTER SERVICES
Customer Name: CyberSource Quote Number CY101MOD1
Original Service Agreement Date: _____________ (for renewals only)
Request for Service ____________________
Date
Check appropriate box(es):
[ ] New Service
[ ] Annual Renewal
[ ] Additional Service(s)/Product(s)
[X] Modification of Existing Service(s)
[ ] Other
<TABLE>
<CAPTION>
CO-LOCATION FAST ETHERNET
- --------------------------------------------------------------------------------------------------------
PRODUCT NUMBER DESCRIPTION QUANTITY START UP MONTHLY
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Exo-ColNet-10Mb 10Megabit Ethernet Connection 1 $5,000
Dedicated for Production
- --------------------------------------------------------------------------------------------------------
Exo-ColNet-10Mb Back-up 10Megabit Ethernet 1 $(5,000)*
Connection *Note this connection
not to be billed until it is used as a
production connection per
Cybersources' request
- --------------------------------------------------------------------------------------------------------
Exo-T1BU Private T1 backup access into 2 Waived Waived
Colocation space (List $1,000)
- --------------------------------------------------------------------------------------------------------
Exo-ColNet-SU Colocation Backbone Setup 10Mpb 1 Waived
(List $1,000)
- --------------------------------------------------------------------------------------------------------
Exo-Cage-78, 7x8 cage 8x19 Cage 1 $7752
(List $13,680)
- --------------------------------------------------------------------------------------------------------
Exo-Cage-R785U 8x19 Cage Setup 1 $2,500
- --------------------------------------------------------------------------------------------------------
EXODUS Total Total including one 10Megabit $2,500 $12,752
connection
- --------------------------------------------------------------------------------------------------------
EXODUS Total* Total including two 10Megabit $2,500 $17,752
connection
- --------------------------------------------------------------------------------------------------------
</TABLE>
QUOTATION INCLUDES:
o SNMP monitoring of the line and report if line is down
o Access to servers from behind a protective zone, and complete Internet
Access, which includes: Mail, FTP, News and Telnet, etc.
REDUNDANT INTERNET CONNECTION
o Exodus has multiple 45 MB ATM (Worldcom) connections into the Internet
Backbone, i.e. MAE EAST, MAE WEST, MAE LA, PAIX, SprintNAP and Pac Bell
NAP.
FACILITY SERVICES
<PAGE> 6
[EXODUS LOGO]
EXODUS COMMUNICATIONS, INC.
Internet Services And Products Agreement
Addendum No. ____
Customer Name: CyberSource
------------------------------
Original Service Agreement Date:
------------
Effective Date of Change: 7/7
-------------------
Check appropriate box(es):
[ ] Annual Renewal
[ ] Additional Service(s)/Product(s)
[X] Modification of Existing Service(s)
[ ] Other
Description: Cancel All Old Access Cards. Issue 4 new ones
-----------------------------------------------------------------
Three of the old one's were lost.
-----------------------------------------------------------------
-----------------------------------------------------------------
-----------------------------------------------------------------
Exodus and Customer agree that his Addendum shall constitute a Service
Agreement incorporating the term described above, subject to the terms and
conditions of this addendum and that certain Service Agreement referenced above
and any prior addenda thereto. The terms and conditions of said Service
Agreement and any prior addendum are hereby incorporated by reference and made
a part thereof to the same extent as if such terms and conditions were set
forth in full herein. To the extent that any terms and conditions in this
Addendum conflict with the terms and conditions in the Service Agreement or
prior addendum thereto, the terms and conditions, herein will supersede any
conflicting prior terms and conditions.
CUSTOMER EXODUS COMMUNICATIONS, INC.
By: By: [SIG]
------------------------- ----------------------------
Title: Title: Project Manager
---------------------- -------------------------
Date: Date: 7/7/97
------------------------ --------------------------
<PAGE> 7
[EXODUS LOGO]
EXODUS COMMUNICATIONS, INC.
Internet Services And Products Agreement
Addendum No. ____
Customer Name: CyberSource
------------------------------
Original Service Agreement Date:
------------
Effective Date of Change: August 27, 1997
-------------------
Check appropriate box(es):
[ ] Annual Renewal
[ ] Additional Service(s)/Product(s)
[ ] Modification of Existing Service(s)
[ ] Other
Description: Upgrade Network Connection from 10 mbps dedicated to 100 mbps usage
-----------------------------------------------------------------
based with 10 mbps full duplex CIR additional usage $1,250/mbps
-----------------------------------------------------------------
over 10 mbps. Current connection cost $5,000/mo. New Connection
-----------------------------------------------------------------
cost $15,000/mo. Net Additional Monthly $10,000/mo.
-----------------------------------------------------------------
-----------------------------------------------------------------
-----------------------------------------------------------------
Exodus and Customer agree that his Addendum shall constitute a Service
Agreement incorporating the term described above, subject to the terms and
conditions of this addendum and that certain Service Agreement referenced above
and any prior addenda thereto. The terms and conditions of said Service
Agreement and any prior addendum are hereby incorporated by reference and made
a part thereof to the same extent as if such terms and conditions were set
forth in full herein. To the extent that any terms and conditions in this
Addendum conflict with the terms and conditions in the Service Agreement or
prior addendum thereto, the terms and conditions, herein will supersede any
conflicting prior terms and conditions.
CUSTOMER EXODUS COMMUNICATIONS, INC.
By: [SIG] By:
------------------------- ----------------------------
Title: CTO Title:
---------------------- -------------------------
Date: 8/14/97 Date:
------------------------ --------------------------
<PAGE> 8
Quotation/Review and Order Deviation Sheet
- --------------------------------------------------------------------------------
Company Name: CyberSource Account Status:
- --------------------------------------------------------------------------------
PRICING DEVIATION
- --------------------------------------------------------------------------------
Product Number List Actual Delta %
- --------------------------------------------------------------------------------
Installation $1500/mbps $1250/mbps $250 18%
Usage ------------------------------------------------------------
Exo-Fast-VU50 Monthly $ - $ - $ -
- --------------------------------------------------------------------------------
Product Number List Actual Delta %
Installation $ - $ - $ -
------------------------------------------------------------
Monthly $ - $ - $ -
- --------------------------------------------------------------------------------
Reason for Deviation:
Needed to be more competitive on the based pricing. Customers has also
experienced some problems.
- --------------------------------------------------------------------------------
-------------------------------------------
Sam Mohammad
Signature Required:
Product Deviation
- ----------------------------
Product Number
- --------------------------------------------------------------------------------
Deviation Description:
- --------------------------------------------------------------------------------
Reason for Deviation:
- --------------------------------------------------------------------------------
----------------------------------------------
Product Marketing Manager
Signature Required:
Customization/Expedition
- ------------------------
Product Number
- --------------------------------------------------------------------------------
Customization Description/Expedition Date:
- --------------------------------------------------------------------------------
Reason for Customization/Expedition:
- --------------------------------------------------------------------------------
----------------------------------------------
Director of Operations
Signature Required:
CONTRACT MODIFICATION
- ---------------------
Product Number
- ---------------------------------------
Section of Contract to be Modified:
- --------------------------------------------------------------------------------
Reason for Modification:
- --------------------------------------------------------------------------------
-----------------------------------------------
Dick Stoltz
Signature Required:
- --------------------------------------------------------------------------------
Reviewed by:
- -------------------------------- ------------------------------
Mike Williams Sales Engineer
<PAGE> 9
[EXODUS LOGO]
PRICE ESTIMATE FOR INTERNET DATA CENTER SERVICES
Customer Name: CyberSource Quote Number CY101MOD
Original Service Agreement Date: __________ (for renewals only)
Request for Service _______________
Date
Check appropriate box(es):
[ ] New Service
[ ] Annual Renewal
[ ] Additional Service(s)/Product(s)
[X] Modification of Existing Service(s)
[ ] Other
<TABLE>
<CAPTION>
Co-Location Fast Ethernet
- -----------------------------------------------------------------------------------------------------
Product Number Description Quantity Start up Monthly
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Exo-ColNet-10Mb 10 Megabit Ethernet Connection 2 $10,000
Dedicated
- -----------------------------------------------------------------------------------------------------
Exo-TIBU Private TI backup access into 2 Waived Waived
Colocation space (List $1,000)
- -----------------------------------------------------------------------------------------------------
Exo-ColNet-SU Colocation Backbone Setup 10Mpb 1 Waived
(List $1,000)
- -----------------------------------------------------------------------------------------------------
Exo-Cage-78, 7x8 cage 10x7 1 $3,575
(List $6,300)
- -----------------------------------------------------------------------------------------------------
Exo-Cage-R785U 10x7 Cage Setup 1 $2,500
- -----------------------------------------------------------------------------------------------------
EXODUS Total $2,500 $13,575
- -----------------------------------------------------------------------------------------------------
</TABLE>
QUOTATION INCLUDES:
o SNMP monitoring of the line and report if line is down
o Access to servers from behind a protective zone, and complete Internet
Access, which includes: Mail, FTP, News and Telnet, etc.
REDUNDANT INTERNET CONNECTION
O Exodus has multiple 45 MB ATM (Worldcom) connections into the Internet
Backbone, i.e. MAE EAST, MAE WEST CIX, and Pac Bell NAP.
FACILITY SERVICES
o 100 Mbps Dedicated Port Access to a 7' x 8' Cage
o Full Video Surveillance with 24x7 monitoring and secure entry
o (FM200) Fire Suppression system
<PAGE> 10
o Air Conditioned room with raised floor included.
o 24x7 Line conditioned Guaranteed Power Source backed by UPS and diesel
generator.
o 24x7 Card Key Access for all assigned (company) employees.
o Exodus will provide Secure Card Key access to staff. The deposit cost per
card key will be $100.00 (3 cards).
o Short, but commercially accepted lead time for installation of new
connections included.
SUPPORT REQUIREMENTS
o Pro-Active reaction to connectivity problems of the INTERNET lines.
o Guaranteed response time to emergency problems within 1 hour.
o Trouble tickets will be handled and escalated up the channels accordingly.
o Clients will be notified via email and/or pager within 15 minutes.
CUSTOMER
By: /s/ John Pettitt, CTO Date: 3/28/97
------------------------------ ---------------------
EXODUS COMMUNICATIONS, INC.
By: Date:
------------------------------ ---------------------
By: Date:
------------------------------ ---------------------
By: Date:
------------------------------ ---------------------
<PAGE> 11
[EXODUS LOGO]
PRICE ESTIMATE FOR INTERNET DATA CENTER SERVICES
Customer Name: CyberSource Quote Number CY101MOD1
Original Service Agreement Date: __________ (for renewals only)
Request for Service ___________
Date
Check appropriate box(es):
[ ] New Service
[ ] Annual Renewal
[ ] Additional Service(s)/Product(s)
[X] Modification of Existing Service(s)
[ ] Other
<TABLE>
<CAPTION>
Co-Location Fast Ethernet
- --------------------------------------------------------------------------------------------------------
Product Number Description Quantity Start up Monthly
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Exo-ColNet-10Mb 10Megabit Ethernet Connection 1 $ 5,000
Dedicated for Production
- --------------------------------------------------------------------------------------------------------
Exo-Colnet-10Mb Back-up 10Megabit Ethernet 1 $ (5,000)*
Connection *Note this connection
not to be billed until it is used
as a production connection per
CyberSource's request
- --------------------------------------------------------------------------------------------------------
Exo-TIBU Private TI backup accept into 2 Waived Waived
Colocation space (List $1,000)
- --------------------------------------------------------------------------------------------------------
Exo-Colnet-SU Colocation Backbone Setup 10Mb 1 Waived
(List $1,000)
- --------------------------------------------------------------------------------------------------------
Exo-Cage-78, 7x2 cage 9x19 Cage $ 7,752
(List $13,680)
- --------------------------------------------------------------------------------------------------------
Exo-Cage-R785U 8x19 Cage Setup 1 $2,500
- --------------------------------------------------------------------------------------------------------
EXODUS Total Total including one 10Megabit $2,500 $12,752
connection
- --------------------------------------------------------------------------------------------------------
EXODUS Total* Total including two 10Megabit $2,500 $17,752
connections
- --------------------------------------------------------------------------------------------------------
</TABLE>
QUOTATION INCLUDES:
- - SNMP monitoring of the line and report if line is down
- - Access to servers from behind a protective zone, and complete Internet
Access, which includes: Mail, FTP, News and Telnet, etc.
REDUNDANT INTERNET CONNECTION
- - Exodus has multiple 45 MB ATM(Worldcom connections into the Internet
Backbone, i.e., MAE EAST, MAE WEST, MAE LA, PAIX, SprintNap and PacBell NAP.
FACILITY SERVICES
<PAGE> 12
o Dual 10 Mbps Dedicated Port Access to a 7' x ?' Cage
o Full Video Surveillance with 24x7 monitoring and secure entry.
o (FM200) Fire Suppression system
o Air Conditioned room with raised floor included.
o 24x7 Line conditioned Guaranteed Power Source backed by UPS and diesel
generator
o 24x7 Card Key Access for all assigned (company) employees
o Exodus will provide Secure Card Key access to staff. The deposit cost per
card key will be $100.00 (3 Cards)
o Short, but commercially accepted lead time for installment of new
connections included.
SUPPORT REQUIREMENTS
o Pro-Active reaction to connectivity problems of the INTERNET lines
o Guaranteed response time to emergency problems within 1 hour
o Trouble tickets will be handled and escalated to the channels accordingly.
o Clients will be notified via email and/or pager within 15 minutes.
CUSTOMER
By: [SIG] Date: 4/30/97
-------------------------- ------------------------------
EXODUS COMMUNICATIONS, INC.
By: Date:
-------------------------- ------------------------------
By: Date:
-------------------------- ------------------------------
By: Date:
-------------------------- ------------------------------
<PAGE> 13
[EXODUS LOGO]
EXODUS COMMUNICATIONS, INC.
Internet Services And Products Agreement
Addendum No. ____
Customer Name: CyberSource
------------------------------
Original Service Agreement Date:
------------
Effective Date of Change: 4/24/97
-------------------
Check appropriate box(es):
[ ] Annual Renewal
[ ] Additional Service(s)/Product(s)
[X] Modification of Existing Service(s)
[ ] Other
Description: (1) Additional 82 square feet of cage space at 54 square foot
Total $4,182.000
-----------------------------------------------------------------
(2) Delay install of 2nd 10 mbps connection until further notice
-----------------------------------------------------------------
-----------------------------------------------------------------
-----------------------------------------------------------------
Exodus and Customer agree that his Addendum shall constitute a Service
Agreement incorporating the term described above, subject to the terms and
conditions of this addendum and that certain Service Agreement referenced above
and any prior addenda thereto. The terms and conditions of said Service
Agreement and any prior addendum are hereby incorporated by reference and made
a part thereof to the same extent as if such terms and conditions were set
forth in full herein. To the extent that any terms and conditions in this
Addendum conflict with the terms and conditions in the Service Agreement or
prior addendum thereto, the terms and conditions, herein will supersede any
conflicting prior terms and conditions.
CUSTOMER EXODUS COMMUNICATIONS, INC.
By: [SIG] By: [SIG]
---------------------------- ----------------------------
Title: Director of Operations Title:
------------------------- -------------------------
Date: 4/30/97 Date:
--------------------------- --------------------------
<PAGE> 14
QUOTATION/REVIEW AND ORDER DEVIATION SHEET
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
<S> <C>
Company Name: Account Status:
- -------------------------------------------------------------------------------------------------------------
PRICING DEVIATION
- -------------------------------------------------------------------------------------------------------------
Product Number List Actual Delta %
- -------------------------------------------------------------------------------------------------------------
10x7 Cage Installation $2,500 $2,500 $ 0 --
Monthly $6,300 $3,575 $2,725
- -------------------------------------------------------------------------------------------------------------
Product Number List Actual Delta %
- -------------------------------------------------------------------------------------------------------------
Installation $ $ $
Monthly $ $ $
- -------------------------------------------------------------------------------------------------------------
Reason for Deviation:
Prior contract price
- -------------------------------------------------------------------------------------------------------------
/s/ BARRY JAMES FOLSOM
--------------------------------------
Signature Required: Barry James Folsom
PRODUCT DEVIATION
- -------------------------------
Product Number
- -------------------------------------------------------------------------------------------------------------
Deviation Description:
- -------------------------------------------------------------------------------------------------------------
Reason for Deviation:
- -------------------------------------------------------------------------------------------------------------
--------------------------------------
Signature Required: Product Marketing Manager
CUSTOMIZATION/EXPEDITION
- -------------------------------
Product Number
- -------------------------------------------------------------------------------------------------------------
Customization Description/Expedition Date:
- -------------------------------------------------------------------------------------------------------------
Reason for Customization/Expedition:
- -------------------------------------------------------------------------------------------------------------
--------------------------------------
Signature Required: Director of Operations
CONTRACT MODIFICATION
- -------------------------------
Product Number
- ------------------------------------------
Sections of Contract to be Modified:
- -------------------------------------------------------------------------------------------------------------
Reason for Modification:
- -------------------------------------------------------------------------------------------------------------
--------------------------------------
Signature Required: Dick Stoltz
- -------------------------------------------------------------------------------------------------------------
Reviewed by:
/s/ MIKE WILLIAMS 3/29/97
- ----------------------------- -----------------------------------
Mike Williams Sales Engineer
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 15
[EXODUS LOGO]
EXODUS COMMUNICATIONS, INC.
INTERNET SERVICES AND PRODUCTS AGREEMENT
ADDENDUM NO. 1
Customer Name: CyberSource
----------------------
Original Service Agreement Date:
-------------
Effective Date of Change: Order date 3/28/97
--------------------------
Install date T.B.D.
Check appropriate box(es):
[ ] Annual Renewal
[ ] Additional Service(s)/Product(s)
[X] Modification of Existing Service(s)
[ ]
Description: Reference Quotation CY101MOD
-------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Exodus and Customer agree that his Addendum shall constitute a Service
Agreement incorporating the term described above, subject to the terms and
conditions of this addendum and that certain Service Agreement referenced above
and any prior addenda thereto. The terms and conditions of said Service
Agreement and any prior addendum are hereby incorporated by reference and made
a part thereof to the same extent as if such terms and conditions were set
forth in full herein. To the extent that any terms and conditions in this
Addendum conflict with the terms and conditions in the Service Agreement or
prior addendum thereto, the terms and conditions, herein will supersede any
conflicting prior terms and conditions.
CUSTOMER EXODUS COMMUNICATIONS, INC.
BY: SIGNATURE ON QUOTATION BY: [SIG]
--------------------------------- ------------------------------------
TITLE: 3/28/97 CTO TITLE:
------------------------------- ---------------------------------
DATE: 3/28/97 DATE:
-------------------------------- ----------------------------------
<PAGE> 1
EXHIBIT 10.24
INTERNET COMMERCE SERVICES AGREEMENT
This Internet Commerce Services Agreement (the "Agreement") is entered
into as of April 23rd 1998 between Internet Commerce Services Corporation, a
California corporation ("ICS"), and software.net, a California corporation (the
"Customer").
The Customer desires to obtain and ICS is willing to supply certain
electronic commerce support services on the terms and subject to the conditions
set forth in this Agreement.
For good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, ICS and the Customer hereby agree as follows:
1. The Internet Commerce Services.
(a) ICS will provide the Customer with the Internet Commerce Services set forth
on Annex 1 to this Agreement (the "Services"). Customer will remit to ICS
the setup fee set forth in Annex 2 upon execution of this Agreement.
(b) ICS will deliver to Customer an invoice for fixed monthly subscription fees
and non-fixed monthly transaction fees relating to the Services in the
amounts set forth on Annex 2 to this Agreement on the [first (1st)]
business day of each month following the month in which the Services are
provided (the "ICS Invoice"). Customer will remit the amounts due under the
ICS Invoice on or before the thirtieth (30th) day of the month following
the month in which the Services are provided.
(c) Interest shall accrue on any unpaid fees owed by the Customer to ICS
pursuant to this Section 1 at the lower of 1.5% per month or the maximum
amount permitted by applicable law.
(d) ICS shall be entitled to revise any and all of the aforesaid monthly fees
in respect of any Additional Term (as defined in Section 2 of this
Agreement) provided that ICS gives notice to the Customer on or before the
sixtieth (60th) day (including non-business days) prior to the commencement
of any such Additional Term.
2. Term and Termination.
(a) The initial term of this Agreement shall be one (1) year from the date
hereof. Thereafter this Agreement will renew automatically for additional
terms of one (1) year (each such term hereinafter an "Additional Term")
unless (i) Customer gives written notice of termination to ICS of not less
than thirty (30) calendar days, or (ii) ICS gives notice to Customer of not
less than sixty (60) calendar days, prior to any such renewal that the
Agreement shall not so renew.
(b) The Agreement may be terminated by either party at any time in the event of
a material breach by the other party which remains uncured after thirty
(30) day written notice thereof. The parties acknowledge that non-payment
of fees constitutes a material breach of this Agreement. Failure on the
part of ICS to operate at less than 98% availability over any two week
period shall constitute material breach of this Agreement.
(c) The Agreement may be terminated by Software.net in the event ICS fails to:
(i) operate at less than 98% availability over any two week period (ii)
demonstrate good faith efforts to provide 15 second transaction response
time commencing after the date of implementing direct payment processing
capability.
(d) In the event that ICS reasonably believes that Customer's conduct or
Customer's products or their contents violate applicable law, injure the
reputation of ICS, or pose a threat to ICS's systems, equipment, processes,
or Intellectual Property Rights (as defined in Section 12 of this
Agreement), ICS may discontinue providing the Services.
(e) The Agreement may be terminated be either party effective immediately and
without any requirement of notice, in the event that (i) the other party by
files a petition in bankruptcy, files a petition seeking any
reorganization, arrangement, composition, or similar relief under any law
regarding insolvency or relief for debtors, or makes an assignment for the
benefit of creditors; (ii) a receiver, trustee, or similar officer is
appointed for the business or property of such party; (iii) any involuntary
petition or proceeding under bankruptcy or insolvency laws is instituted
against such party and not stayed, enjoined, or discharged within sixty
(60) days; or (iv) the other party adopts a resolution for discontinuance
of its business or for dissolution.
3. Intellectual Property Rights.
Except to the extent set forth in Annex 2 of this Agreement, neither
party will acquire any ownership interest in the other's Intellectual Property
Rights. All Intellectual Property Rights not specifically granted in this
Agreement are reserved by the parties. The Customer agrees that all
Intellectual Property Rights created by ICS in connection with this Agreement
and all the documentation therefor and all renewals and extensions thereof,
shall be entirely ICS's property, free of any claims whatsoever by the
Customer. ICS shall have the sole and exclusive right to register such
Intellectual Property Rights.
4. Confidential Information.
(a) Each party acknowledges and agrees that any Confidential information
received from the other party will be the sole and exclusive property of
the other party and may not be used or disclosed except as necessary to
perform the obligations required under this Agreement.
(b) Upon termination of this Agreement, each party shall promptly return all
information, documents, manuals and other materials belonging to the other
party except as otherwise provided in this Agreement.
5. Promotional Materials/Press Release.
Each party shall submit to the other for approval (which approval
shall not be unreasonably withheld), marketing, advertising, press releases, and
other promotional materials related to the Services and referencing, as the
case may be, the Customer or ICS; provided, however, that each shall be
permitted to disclose the existence of the Agreement without the consent of the
other.
6. Limitation of Liability.
(a) UNDER NO CIRCUMSTANCES SHALL (i) EITHER PARTY BE LIABLE TO THE OTHER PARTY
OR ANY THIRD PARTY FOR INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL OR
EXEMPLARY DAMAGES (EVEN IF THAT PARTY HAS BEEN ADVISED OF THE POSSIBILITY
OF SUCH DAMAGES), ARISING FROM THE USE OR INABILITY TO USE THE SERVICES OR
ANY OTHER PROVISION OF THIS AGREEMENT, SUCH AS, BUT NOT LIMITED TO, LOSS OF
REVENUE OR ANTICIPATED PROFITS OR LOST BUSINESS, COSTS OF DELAY, ANY
FAILURE OF DELIVERY, COSTS OF LOST OR DAMAGED DATA OR DOCUMENTATION, OR
LIABILITIES TO THIRD PARTIES ARISING FROM ANY SOURCE OR (ii) ICS BE LIABLE
TO THE CUSTOMER OR ANY THIRD PARTY FOR ANY DAMAGES ARISING OUT OF THE
SERVICES OR OTHERWISE ARISING OUT OF THIS AGREEMENT IN EXCESS OF THE AMOUNT
OF FEES ACTUALLY PAID TO ICS BY THE CUSTOMER PURSUANT TO SECTION 1 OF THIS
AGREEMENT.
(b) THE CUSTOMER SHALL BEAR (i) ALL COLLECTION RISK (INCLUDING, WITHOUT
LIMITATION, CREDIT CARD FRAUD AND ANY OTHER TYPE OF CREDIT FRAUD) WITH
RESPECT TO SALES OF ITS PRODUCTS AND (ii) ALL RESPONSIBILITY AND LIABILITY
FOR THE PROPER PAYMENT OF ALL TAXES WHICH MAY BE LEVIED OR ASSESSED
(INCLUDING, WITHOUT LIMITATION, SALES TAXES) WHICH MAY BE LEVIED IN RESPECT
OF SALES OF ITS OR ITS CUSTOMERS' PRODUCTS.
(c) Except as set forth in the Annexes to this Agreement, the Customer is
solely responsible for maintaining complete backup records of all
information relating to its customers' orders, inquiries and purchases and
any other customer information once such information has been provided to
the Customer by ICS.
(d) ICS has no obligation to attempt to monitor or regulate the content of the
Products and Customer agrees to hold ICS harmless in the event that the
content of any of the Products is illegal. The Customer hereby represents
and warrants to ICS that the Products do not infringe on or violate the
Intellectual Property Rights of any third party and will not contain any
content which violates any applicable law, regulation or third party right.
7. No Additional Warranties.
EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, ICS HEREBY
SPECIFICALLY DISCLAIMS ANY REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED,
REGARDING THE SERVICES, INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE AND IMPLIED WARRANTIES ARISING FROM COURSE OF
DEALING OR COURSE OF PERFORMANCE.
8. Relationship of Parties.
The parties shall perform all of their duties under this Agreement as
independent contractors. Nothing in this Agreement shall be construed to give
either party the power to direct or control the daily activities of the other
party, or the constitute the parties as principal and agent, employer and
employee, franchisor and franchisee, partners, joint venturers, co-owners, or
otherwise as participants in a joint undertaking. The parties understand and
agree that, except as specifically provided in this Agreement, neither party
grants the other party the power or authority to make or give any agreement,
statement, representation, warranty, or other commitment on behalf of the other
party, or to enter into any contract or otherwise incur any liability or
obligation, express or implied, on behalf of the other party; or to transfer,
release, or waive any right, title, or interest of
<PAGE> 2
such other party.
9. Entire Agreement.
This Agreement (including the Annexes hereto) constitutes and contains the
entire agreement between the parties with respect to the subject matter hereof
and supersedes any prior oral or written agreements. Each party acknowledges
and agrees that the other has not made any representations, warranties or
agreements of any kind, except as expressly set forth herein.
10. Modifications, Amendments, and Waivers.
This Agreement may not be modified or amended, including by custom, usage
of trade, or course of dealing, except by an instrument in writing signed by
duly authorized officers of both of the parties hereto.
11. Counterparts.
This Agreement may be executed in counterparts each of which shall be
deemed an original and all such counterparts shall constitute one and the same
agreement.
12. Certain Definitions.
The following definitions shall apply to this Agreement and each of the
Annexes to this Agreement.
"Confidential Information" Any data or information, oral or written,
treated as confidential that relates to either party's (or, if either party is
bound to protect the confidentiality of any third party's information, such
third party's) past, present, or future research, development or business
activities, including any unannounced product(s) and service(s), any information
relating to services, developments, inventions, processes, plans, financial
information, forecasts, and projections and the financial terms of this
Agreement. Notwithstanding the foregoing, Confidential Information shall not be
deemed to include information if: (i) it was already known to the receiving
party prior to the date of this Agreement as established by documentary
evidence; (ii) it is in or has entered the public domain through no breach of
this Agreement or other wrongful act of the receiving party; (iii) it has been
rightfully received by the receiving party from a third party and without breach
of any obligation of confidentiality of such third party to the owner of the
Confidential Information; (iv) it has been approved for release by written
authorization of the owner of the Confidential Information; (v) demographic,
product purchasing data or similar market analysis information derived by ICS
from the information described in the preceding sentence; or (v) it is required
to be disclosed pursuant to final binding order of a governmental agency or
court of competent jurisdiction, provided that the owner of the Confidential
Information has been given reasonable notice of the pendency of such an order
and the opportunity to contest it.
"Intellectual Property Rights." All (a) copyrights (including, without
limitation, the exclusive right to reproduce, distribute copies of, display and
perform the copyrighted work and to prepare derivative works), copyright
registrations and applications, trademark rights (including, without limitation,
registrations and applications), patent rights, trade names, mask-work rights,
trade secrets, moral rights, author's rights, algorithms, rights in packaging,
goodwill and other intellectual property rights, and all renewals and extensions
thereof, regardless of whether any of such rights arise under the laws of the
United States or any other state, country or jurisdiction; (b) intangible legal
rights or interests evidenced by or embodied in any idea, design, concept,
technique, invention, discovery, enhancement or improvement, regardless of
patentability, but including patents, patent applications, trade secrets, and
know-how; and (c) all derivatives of any of the foregoing.
"Products" Those products and/or services of the Customer in respect of
which the Services will be utilized.
13. Export Screening.
In completing the Services ICS will use reasonable efforts to (i) obtain
the credit card statement mailing address in addition to all other information
supplied by the prospective customers and their browsers, (ii) deny shipments
to any countries to which exports are prohibited by United States law, and
(iii) deny shipments to parties listed on the United States list of Specially
Designated Nationals or the Table of Denial Orders.
14. Governmental Law; Consent to Jurisdiction.
This Agreement will be deemed entered into in California and will be
governed by and interpreted in accordance with the laws of the State of
California, excluding (i) that body of law known as conflicts of law, and (ii)
the United Nations Convention on Contracts for the Sale of Goods. The parties
agree that any dispute arising under this Agreement will be resolved in the
state or federal courts in Santa Clara County, California, and the parties
hereby expressly consent to jurisdiction therein.
15. Assignment.
This Agreement may not be transferred or assigned by either party other
than by operation of law or to either party's lenders for collateral security
purposes, without the prior written consent of the other party, which consent
shall not be unreasonably withheld. Any attempt by either party to assign any
of its rights or delegate any of its duties hereunder without the prior written
consent of the other party shall be null and void.
16. Survival.
The provisions of this Agreement relating to payment of any fees or other
amounts owed, payment of any interest on unpaid fees, confidentiality and
warranties and indemnities shall survive any termination or expiration of this
Agreement.
17. Headings.
The headings in this Agreement are intended for convenience of reference
and shall not affect its interpretation.
18. Force Majeure.
Neither party shall be responsible for delays or failures in performance
resulting from acts beyond its control, such as acts of God, acts of war,
computer viruses, epidemics, power outages, fire, earthquakes and other
disasters.
19. Notices.
Any notice, approval, request, authorization, direction or other
communication under this Agreement shall be given in writing at the address set
forth below and shall be deemed to have been delivered and given for all
purposes (i) on the delivery date it delivered personally to the party to whom
the same is directed; (ii) one (1) business day after deposit with a commercial
overnight carrier, with written verification of receipt, and (iii) upon
completion of transmission if sent via telecopier with an confirmation of
successful transmission.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
ICS CORPORATION
550 S. Winchester Boulevard, Suite 301
San Jose, CA 95128-2545
(408)556-9100 Fax: (408)241-8270
Attn: GREGORY T. QUINN
--------------------------------
Phone: 408-260-6091
-------------------------------
By: /s/ GREGORY T. QUINN
---------------------------------
(signature of authorized ICS
employee)
Name:
CUSTOMER:
Software.net 3031 Tisch Way
- -------------------------------------
San Jose, CA 95328
- -------------------------------------
Attn: John Pettitt
--------------------------------
Phone: 408-490-3011
-------------------------------
Fax:
---------------------------------
By: /s/ JOHN PETTITT
----------------------------------
(signature of authorized employee)
Name: John Pettitt
--------------------------------
(print)
Title: LTO
-------------------------------
<PAGE> 3
ANNEX 1
INTERNET COMMERCE SERVICES
MERCHANT SETUP AND ACTIVATION
Activation Fees: See Software.net pricing schedule Annex 2
This section describes the specific Merchant setup deliverables for Internet
Commerce Services.
INTERNET COMMERCE SERVICES CORPORATION (ICS) SCMP ACCESS SOFTWARE
1. Access to download the SCMP libraries or the appropriate plugin and
documentation.
2. Single run time license for the merchant to issue commerce transactions
using SCMP libraries, scripts and programs.
SUPPORT, TESTING AND ACTIVATION
1. Setup of single SCMP client merchant account in the ICS system to access the
ICS Commerce servers.
2. Setup of public/private key pairs for the merchant.
3. Support during initial testing of ICS transactions on the ICS test server.
The ICS test server is used to validate operation of the SCMP client
merchant account with the ICS ICS servers and validate a proper return
result message from ICS. A test server is available 7x24. There is no
charge for test transactions.
4. Setup of customer support screens to use ICS Customer support interface.
Setup and testing of customer support interface.
5. Testing of credit card merchant account with a Technical Support
representative to validate proper communication with the bank and payment
processors.
IMPORTANT-Establishing the credit card merchant account is the
responsibility of merchant. ICS has relationships with many different
merchant banks and credit card service providers. A referral can be
provided as requested.
6. Full-cycle system testing to verify ability of complete system to process a
transaction from the start to finish. Availability to test will be
configured within two business days from request. Merchant notifies its
assigned Technical Support Representative via email and requests being moved
to the production servers. ICS updates its database and clears out all test
transactions in order to begin billing. At that point, ICS considers the
merchant "live" and all transactions are billable.
7. Technical Support phone support time is covered under this agreement for up
to sixty (60) days from the signing of the agreement. Additional time is
available if required. See Annex 2 for pricing.
NOTE: The Technical Support time is dedicated to helping the merchant do all
the proper testing prior to going public. Tech support will not help with code
development, business rules, or any other requests that are outside the scope
of setting up a merchant to use our services. Should a merchant require other
services, ICS will gladly recommend a systems Integrator.
MERCHANT SERVICES MONTHLY SUBSCRIPTION FEE
1. Maintenance of account to access the specific ICS services
DIGITAL COMMERCE TRANSACTIONS
TRANSACTIONS FEES: See Software.net pricing schedule Annex 2
AVAILABLE SERVICES: The following services are available in response to
each transaction request from the Merchant.
1. RISK MANAGEMENT AND TERRITORY MANAGEMENT SERVICES
(a) IVS(TM) Fraud Screen-In addition to real-time bank validation, every
transaction is checked, analyzed, and cross-checked by over 150 operations
for assessment of fraud risk. A score is applied based on the findings and
the resulting score is then returned via an SCMP message to the merchant for
an accept or decline order decision.
(b) US Government Export Compliance-Each transaction is checked and analyzed to
comply with the restricted countries list and the restricted individual
parties list from the United States State Department and Treasury
Department.
<PAGE> 4
(c) Territory Management - Each transaction is checked against the Merchant's
pre-defined territory restrictions. This enables the Merchant to set rules
that disallow sales to specific countries in order to keep a stable price
model or honor special distribution agreements within a country.
2. DIGITAL PRODUCTS DELIVERY SERVICES
(a) Digital Product Managed Download - ICS will dynamically generate a URL for
downloading purchased digital products from the ICS BOB servers. IMPORTANT
- Before requesting this service, you will need to register your digital
products with ICS and host them on the ICS download servers.
(b) Issue Key - Pay First model - ICS will dynamically build an Electronic
License Certificate (ELC) with the end-users information and rights to the
product and send that ELC directly to the end-user. If the merchant
selects one of the other offered technologies, ICS will issue the
appropriate unlock key based on the merchants selected technology. See the
appropriate product data sheet for the specifics of how the key is
generated and delivered. Credit Card pre-authorization.
(c) Issue Key - Try before you buy (TBYB) model - ICS will issue the
appropriate unlock key based on the merchants selected TBYB technology.
See the appropriate product data sheet for the specifics of how the key is
generated and delivered.
(d) Rights Revocation - Return Key/ELC - ICS will accept a return key/ELC
request from the merchant. In the case of an GRR issued ELC, the request
will need to be followed by a Letter of Destruction (LOD) signed by the
end user sent to the Merchant before the return will be reported to the IP
owner.
3. DIGITAL PRODUCT PACKAGING AND WAREHOUSING
(a) Digital Delivery Preparation Options - ICS will digitally "package" each
product with the merchant's selected packaging technology (See Annex 2 for
available packaging options). This includes digitally preparing the gold
master code into Bag of Bits (BOB), testing of the unpack process for
complete file decryption, and initialization of the install process. ICS
will turnaround a prepared digital product within 7 working days from
receipt of golden master and all information required for packing and
distribution. Rush charges may apply for requested shorter turnaround (see
Annex 2).
COMMERCIAL SERVICES AND PHYSICAL FULFILLMENT TRANSACTIONS
Transactions Fees: See Software.net pricing schedule Annex 2
AVAILABLE SERVICES:
1. PAYMENT PROCESSING
(a) Credit Card pre-authorization - (this includes the banks Address
Verification Service (AVS) if available). Bank confirmation that the card
is a valid number and has the appropriate amount of funds for the
transaction. AVS checks the billing address provided matches the billing
address on record with the bank.
(b) Credit Card settlement (Bill) - billing and posting of pre-authorized
funds to merchant account.
(c) Credit/Return - process a credit to the credit card holder's account.
Merchants can credit a transaction that has already been billed in the
event of a product return.
2. SALES TAX PROCESSING
(a) Tax Calculation - Use of Vertex tax tables for calculation of sales tax.
ICS will calculate tax based on the merchant defined nexus and product
category selections, ICS will return the tax value as a separate line item
in the SCMP name/value pair format. ICS will also provide tax as a
separate line item in the daily and monthly reports. IMPORTANT - it is the
responsibility of the merchant to capture and store this tax data in their
own database systems for proper reporting and filing of taxes. ICS does
not provide any special tax reports.
<PAGE> 5
3. FULFILLMENT HOUSE MESSAGING
a) Ship order message to Fulfillment house - ICS will send a ship product
message to a Fulfillment House for pick, pack and ship of an order.
ICS supports a standard message. Merchant can select the desired
delivery methods: email, PGP email, SCMP, or EDI messaging. If
Merchant wishes Fulfillment House to process card settlement for
merchant after the order has been shipped, the message sent from ICS
to the Fulfillment house must be encrypted to protect customer's
credit card data. Some of the noted options may require additional
setup charges (see Annex 2). Set-up of the Fulfillment House must be
completed prior to transacting business at the site.
4. STANDARD REPORTING FROM MERCHANT SERVICES CONSISTS OF THE FOLLOWING:
- Reports: 1 daily; 1 monthly.
- Formats: std. ASCII text tab delimited.
- Reports are sent as email attachments.
The reports will consist of a Tab delimited file containing full
information on all attempted orders. Important - these reports are NOT
intended for individual service transaction reconciliation (e.g.,
IVS_score, ics_bill). They are order level details of all order
processed through ICS.
<PAGE> 6
ANNEX 2: U.S. PRICE LIST FOR SOFTWARE.NET 4/22/98
<TABLE>
<CAPTION>
<S> <C>
Internet Commerce Services Corporation (ICS)
CommerceFLEX Implementation (SCMP) [*]
Merchant Set-up & Activation (additional TIDs)
Transaction Pricing (see attached for listing of services and exclusions)
Global Rights Registry Services [*]
Intellectual Property Rights Management
Required for all IP Owners utilizing Global Rights Registry Services. Covers
property rights management services for 50 SKU's. Secure, global, rights
registration, property rights protection, record retention (24 months following
date of registration), and quarterly rights reporting. Includes property rights
protection services to prevent unauthorized access; and secure record storage
on redundant servers, geographically located to comply with don protection
regulations. Digital warehousing of associated digital content and maintenance
of SKU archive for 24 months following date of last request is provided at no
additional charge.
Intellectual Property Registration & Preparation [*]
Sm@rtCert
Sm@rtCert Auto-Registration
Registration of one SmartCert SKU, any associated content, and processing for
distribution. IP Owner manages all registration via online form. IP Owner
may modify the SmartCert and associated content within 30 days of initial
registration without additional charge. Changes subsequent to 30 days will be
treated as a new registration. SmartCerts not requiring validation (such as
promotional SmartCerts) are considered final when released for registration;
any modification is considered a new registration.
Fees are billable monthly, based on annual committed registration volume. [*]
ICS Assisted Sm@rtCert Registration [*]
Registration of one SmartCert SKU and any associated content and processing for
distribution. Customer supplies ICS with physical master and graphics. ICS
handles administration. IP Owner may modify the SmartCert and associated content
within 30 days of initial registration without additional charge. Charges
subsequent to 30 days will be treated as a new registration. SmartCerts not
requiring validation (such as promotional SmartCerts) are considered final when
released for registration; any modification is considered a new registration.
Portland Software v1.5 Preparation & Registration [*]
Includes all services necessary to brand the product, conduct QA procedures on
the branding process, and prepare it for distribution. Once tested, the
preparation and registration process is considered complete. Normal turnaround
96 hrs M-F. Guarantee 48 hr delivery M-F, add $200 to packing fee.
Packing Maintenance Services
1 year maintenance for 2 additional re-packs
1 year maintenance for 4 additional re-packs
Preview TimeLOCK v3.0 Preparation & Registration [*]
TimeLOCK 3.0 - Distribution Ready Client Build
This option completely builds and brands a product for distribution. Customer
may purchase the builder tool from Preview or ICS. If customer has already
'built' product, only the registration fee is applies. Optionally, the customer
may have ICS provide the labor to build the product. Guarantee 48hr delivery,
add $350
TimeLOCK 3.0 - Channel Branding [*]
This option brands a product for distribution previously registered by a
publisher with the Global Rights Registry. Customer may purchase the branding
tool from Preview or ICS. Customer may have ICS provide the labor to brand the
product. Guarantee 48hr delivery, add $350.
Rights Revocation Services [*]
Rights Revocation
Includes processing Letters of Destruction (digitally submitted only) and
adjustment of all records to revoke rights in the event of returns or requests
for revocation.
</TABLE>
- --------------------
(c) 1998 ICS Corporation, Prices subject to change without notice.
* Further information on this page has been omitted and filed separately
with the Securities and Exchange Commission.
<PAGE> 7
TRANSACTION SERVICES
ADDENDUM TO SOFTWARE.NET PRICE LIST 4/22/98
<TABLE>
<CAPTION>
<S> <C>
BUNDLED TRANSACTION PRICING
Bundled Transaction Pricing [*]
Risk Management & Distribution Control Services [*]
IVS(TM) Fraud Protection Services
Territory Management
DIGITAL RIGHTS ISSUANCE, VALIDATION, AND DIGITAL DELIVERY SERVICES
SM@RTCERT
Sm@rtCert Issuance and Validation
Fee charged for each valid access request, not to exceed number of rights
issued on certificate. Includes issuance, U.S. Government export compliance and
2 year proof of purchase retention.
Promotional Sm@rtCert Issuance
Issuance of promotional SmartCerts. e.g. those not requiring validation after
issuance.
PORTLAND SOFTWARE v1.5 digital unlock key delivery [*]
includes U.S. Government export compliance and Portland Software unlock key
PREVIEW SOFTWARE v3.01 digital unlock key delivery
includes U.S. Government export compliance, credit card pre-authorization and
settlement, IVS, sales tax calculation, and Preview Software unlock key
SECURE DIGITAL PRODUCT DELIVERY
includes successful download guarantee, 2 year reissue guarantee, U.S.
Government export compliance
COMMERCIAL SERVICES [*]
Tax Calculation
PAYMENT PROCESSING [*]
Credit card pre-authorization
Credit card settlement (bill)
Credit/return
FULFILLMENT MESSAGING
Ship order notification to 3rd party fulfillment house (email)
EDI to trading partners currently established as of 4/1/98
ADDITIONAL SERVICES NOT INCLUDED IN BUNDLED PRICE
CREDIT CARD RETURN [*]
AUTOMATED LICENSE/RIGHTS CANCELLATION
CUSTOM FULFILLMENT MESSAGING
PGP key exchange set-up [*]
EDI or custom message setup
(applies to trading partners not currently supported as of 4/1/98 or used
expressly to support software.net business)
</TABLE>
<PAGE> 8
Amendment No. One to
Internet Commerce Services Agreement
As Between Internet Commerce Services Corporation
And software.net Corporation
Dated April 23, 1998
This Amendment No. One (hereafter "Amendment") to the Internet Commerce
Services Agreement as between Internet Commerce Services Corporation and
software.net Corporation dated April 23, 1998 (the "Services Agreement") is
hereby entered into as between Internet Commerce Services Corporation ("ICS")
and software.net Corporation ("software.net" or "Customer").
WITNESSETH:
WHEREAS the parties did enter into the Services Agreement, which under its
terms was made effective as of April 23, 1998.
WHEREAS the parties now wish to amend the above-mentioned Services
Agreement to include certain [*]
WHEREFORE, the parties agree to amend the Services Agreement as follows:
AMENDMENT
1. [*]
[*]
<PAGE> 9
2. Intellectual Property Indemnification by ICS. [*]
[*]
3. The parties further agree that the effective date of the Services
Agreement shall be as of December 31, 1997.
4. Except as expressly set forth herein, all other terms of the Services
Agreement shall remain in full force and effect.
5. This Amendment may be executed in counterparts, each of which shall
be deemed an original, but all of which shall constitute but one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed and delivered by their duly authorized representatives.
Date: May 20, 1998 Internet Commerce Services Corporation
By: /s/ [ILLEGIBLE]
------------------------------------
Its: EXECUTIVE VICE PRESIDENT
------------------------------------
Date: May 20, 1998 software.net Corporation
By: /s/ [ILLEGIBLE]
------------------------------------
Its: VICE PRESIDENT, BUSINESS OPERATIONS
------------------------------------
2
<PAGE> 10
Amendment No. Two to
Internet Commerce Services Agreement
As Between Internet Commerce Services Corporation
And software.net Corporation
Dated April 23, 1998
This Amendment No. Two (hereafter "Amendment") to the Internet Commerce
Services Agreement as between Internet Commerce Services Corporation and
software.net Corporation dated April 23, 1998 (the "Services Agreement") is
hereby entered into as between Internet Commerce Services Corporation ("ICS")
and software.net Corporation ("software.net" or "Customer").
WITNESSETH:
WHEREAS the parties did enter into the Services Agreement, which under its
terms was made effective as of April 23, 1998.
WHEREAS the parties did enter into Amendment No. 1 to amend the
above-mentioned Services Agreement to include certain mutual intellectual
property infringement indemnifications and to make the Services Agreement
effective as of December 31, 1997.
WHEREAS the parties desire to clarify the Amendment No. 1 to indicate that
the parties agreed that the commencement date for the initial one-year term of
the Services Agreement shall be the same as the effective date of the Services
Agreement, that is, December 31, 1997.
WHEREFORE, the parties agree to amend the Services Agreement as follows:
AMENDMENT
1. Notwithstanding any provisions to the contrary in the Services
Agreement and amendments thereof, the parties agree that the commencement date
for the initial one-year term of the Services Agreement and the effective date
of the Services Agreement shall be December 31, 1997.
2. Except as expressly set forth herein, all other terms of the Services
Agreement and amendments thereof shall remain in full force and effect.
3. This Amendment may be executed in counterparts, each of which shall be
deemed an original, but all of which shall constitute but one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their duly authorized representatives.
Date: May 21, 1998 Internet Commerce Services Corporation
By: /s/ SIGNATURE
-----------------------------------
Its: Executive Vice President
-----------------------------------
Date: May 21, 1998 software.net Corporation
By: /s/ SIGNATURE
-----------------------------------
Its: Vice President, Business Operations
-----------------------------------
<PAGE> 1
EXHIBIT 10.25
SOUTH BAY OFFICE TOWER
OFFICE BUILDING LEASE
by and between
PGP-SOUTH BAY OFFICE TOWERS, INC., A CALIFORNIA CORPORATION
("LANDLORD")
and
CYBERSOURCE CORPORATION, A CALIFORNIA CORPORATION
("TENANT")
<PAGE> 2
TABLE OF CONTENTS
1. Definitions ............................................................ 2
2. Term ................................................................... 2
3. Possession ............................................................. 2
4. Annual Basic Rent ...................................................... 2
5. Rental Adjustments...................................................... 3
6. Tenant's Share of Direct Expenses ...................................... 3
7. Security Deposit........................................................ 4
8. Tenant Improvements .................................................... 4
9. Use .................................................................... 4
10. Notices ................................................................ 4
11. Brokers ................................................................ 4
12. Holding Over ........................................................... 4
13. Taxes on Tenant's Property ............................................. 5
14. Condition of Premises .................................................. 5
15. Alterations ............................................................ 5
16. Repairs ................................................................ 5
17. Liens .................................................................. 6
18. Entry by Landlord ...................................................... 6
19. Utilities and Services ................................................. 6
20. Indemnification ........................................................ 6
21. Damage to Tenant's Property ............................................ 6
22. Insurance .............................................................. 6
23. Destruction ............................................................ 7
24. Eminent Domain ......................................................... 8
25. Defaults and Remedies .................................................. 8
26. Assignments and Subletting ............................................. 9
27. Subordination .......................................................... 9
28. Estoppel Certificate ................................................... 9
29. Rules and Regulations .................................................. 10
30. Conflict of Laws ....................................................... 10
31. Successors and Assigns ................................................. 10
32. Surrender of Premises .................................................. 10
33. Attorney's Fees ........................................................ 10
34. Performance by Tenant .................................................. 10
35. Mortgagee Protection ................................................... 10
36. Definition of Landlord ................................................. 10
37. Waiver ................................................................. 10
38. Identification of Tenant ............................................... 10
39. Terms and Headings ..................................................... 10
40. Examination of Lease ................................................... 10
41. Time ................................................................... 10
42. Prior Agreements; Amendments ........................................... 10
43. Separability ........................................................... 10
44. Recording .............................................................. 11
45. Parking ................................................................ 11
46. Tenant's Remedy ........................................................ 11
47. Modification for Lender ................................................ 11
48. Substitution of Premises ............................................... 11
49. Survival ............................................................... 11
50. Environmental .......................................................... 11
51. Reasonableness ......................................................... 11
52. Right of First Offer ................................................... 11
53. Option to Expand ....................................................... 11
<PAGE> 3
BASIC LEASE INFORMATION
SOUTH BAY OFFICE TOWER
<TABLE>
<S> <C>
Date of Lease July 8, 1997
------------
Landlord PGP-South Bay Office Towers, Inc.
a California Corporation
Address of Landlord: PGP-South Bay Office Towers, Inc.
3031 Tisch Way 07PW
San Jose, CA 95128
Tenant: CyberSource Corporation, a California Corporation
-------------------------------------------------
Address of Tenant: 550 South Winchester Blvd., Suite 301, San Jose, CA 95128
---------------------------------------------------------
Contact Person: Blake Burke, Controller
Premises: Suite #900, consisting of approximately 7,424 rentable sq. ft.
-----
Address of Building: South Bay Office Tower, 3031 Tisch Way, San Jose, CA 95128.
Lease Term: Five (5) Years
--------------
Estimated
Commencement Date: October 1, 1997
---------------
Estimated
Expiration Date: September 30, 2002
------------------
Security Deposit $68,445.60 *See Addendum I to Lease.
----------
</TABLE>
<TABLE>
Annual Basic Rent MONTHS SQ. FT. RATE MONTHLY RENT ANNUAL RENT
------ ------- ---- ------------ -----------
Suite 900
---------
<S> <C> <C> <C> <C>
Months 1-12 7,424 2.28 $16,926.72 $203,120.64
Months 13-24 7,424 2.38 $17,669.12 $212,029.44
Months 25-36 7,424 2.48 $18,411.52 $220,938.24
Months 37-48 7,424 2.58 $19,153.92 $229,847.04
Months 49-60 7,424 2.68 $19,896.32 $238,755.84
</TABLE>
<TABLE>
<S> <C>
Base Year for
Direct Expenses 1998
----
Tenant's
Pro-Rata Share 0.044/100 percent (4.42%)
------ -----
Use of Premises: General Office
Number of Allowed
Parking Spaces: 29
--
Brokers of Record: Landlord: Colliers Parrish
Tenant: Colliers Parrish
</TABLE>
ADDITIONAL DEFINITIONS:
"Building" shall mean that building commonly known as 3031 Tisch Way, San Jose,
California, 95128 in which the Premises are located. "Project" shall mean the
land and other real property consisting of approximately 168,094 square feet
located at 3031 Tisch Way in the City of San Jose, California 95128, the
building thereon known as South Bay Office Tower and all other improvements on
or appurtenances to such land other real property.
Exhibit A: The Premises and the Project
Exhibit B: Standards for Utilities and Services
Exhibit C: Rules and Regulations
Exhibit D: Tenant Improvement Work Letter
Exhibit E. Commencement Date Memorandum
The Basic Lease Information contained herein is hereby incorporated into and
made a part of this Lease. Each reference in this Lease to any of the Basic
Lease Information shall mean the respective information hereinafter set forth
and shall be construed to incorporate all of the terms provided under the
particular Lease paragraph pertaining to such information. In the event of
conflict between any Basic Lease Information and the Lease itself, the latter
shall be deemed correct.
<PAGE> 4
OFFICE BUILDING LEASE
THIS LEASE is made as of the 8th day, of July, 1997, by and between
PGP-South Bay Office Towers, Inc., a California corporation ("Landlord"), and
CyberSource Corporation, a California Corporation, ("Tenant").
WITNESSETH:
Landlord hereby leases to Tenant and Tenant hereby leases from Landlord, Suite
Number 900 (the "Premises") outlined on the floor plan attached hereto and
marked Exhibit A being situated in the Project (as defined in the Basic Lease
Information), for the term and subject to the terms, covenants, agreements and
conditions set forth below, to each and all of which Landlord and Tenant
mutually agree.
1. Definitions
(a) "Building" shall have the meaning set forth on the Basic Lease
Information.
(b) "Common Area" shall mean all lobby areas, vestibules, corridors,
atriums, promenades, and restrooms in the Building or elsewhere in the Project
intended for the benefit of all tenants (or invitees) of the Project; the areas
on individual floors devoted to corridors, vestibules, elevator lobbies, other
lobbies, electric and telephone closets, restrooms, mechanical rooms, janitor
closets and other similar facilities for the benefit or all tenants (or
invitees) on the particular floor; and those areas of the Project devoted to
mechanical and service rooms servicing more than one floor or the Project as a
whole. Common Area shall further include all portions of the Project outside
any building structure which are usable by all tenants of the Project and their
employees and invitees, such as landscaped outdoor areas, sidewalks, walkways
and parking lots.
(c) "Premises" shall mean the portion of the Project Leased to Tenant
hereunder, as outlined on the diagram attached hereto as Exhibit A. Subject to
measurement pursuant to BOMA standards, Landlord and Tenant stipulate that for
all purposes under this Lease the Premises contain the rentable area specified
in the Basic Lease Information. The exact boundaries of the Premises shall be
constructed and shall extend to the unfinished interior surface of all
perimeter walls, except glazing, which shall be included within the Premises,
the unfinished surface of all floors, and the underside of the structural
concrete slab or other material forming the ceiling of the Premises.
Notwithstanding the foregoing, the Premises shall not be deemed to include any
structural portions of the Project or any utility installations serving other
portions of the Project.
(d) "Project" shall have the meaning set forth on the Basic Lease
Information.
(c) Except as the context otherwise requires, the term "rent" shall mean
and refer to all monetary obligations required to be paid by Tenant to Landlord
under this Lease, the additional expenses for Direct Expenses to be paid
pursuant to Paragraph 6 below.
(f) The term "Rental Space" refers to all portions of the Project (as
defined above) which are leased to tenants or rentable for office use.
(g) "Tenant's Share" shall mean the percentage figure specified in the
Basic Lease Information, which shall be used to calculate Tenant's payments for
a portion of increases in Direct Expenses pursuant to Paragraph 6(b) below.
Landlord and Tenant acknowledge that Tenant's Share has been obtained by
dividing the rentable area of the Premises, as specified in the Basic Lease
Information, by the total rentable floor space and rentable floor occupied by
tenants who are billed for and pay directly any such items of the Direct
Expenses. If either the rentable area of the Premises or the total rentable
area of the Rental Space is changed, Tenant's share shall be appropriately
adjusted, and with respect to the calendar year in which any such change
occurs, for the purposes of Paragraph 6(b), Tenant's Share shall be determined
on the basis of the number of days during such calendar year at each such
percentage share.
2. Term. The terms of this Lease ("Term") shall be for a period of 5
years, commencing on the 1st day of October 1997, and ending 30th of September,
2002, unless sooner terminated as hereinafter provided.
3. Possession. Tenant agrees that if Landlord is unable to deliver
possession of the Premises to Tenant on the date above specified for the
commencement of the Term of this Lease, this Lease shall not be void or
voidable, nor shall the Landlord be liable to Tenant for any loss or damage
resulting therefrom, but the expiration date of the Term shall be extended by
the same number of days that the Tenant's possession of the Premises was
detained by Landlord's ability to deliver possession, and in such event Tenant
shall not be liable for any rent until such time as Landlord tenders delivery
of possession of the Premises to Tenant with Landlord's work therein, if any,
substantially completed. Should Landlord tender possession of the Premises to
Tenant prior to the date specified for commencement of the term hereof, and
Tenant elects to accept such prior tender, such prior occupancy shall be
subject to all of the terms, covenants and conditions of this Lease, including
the payment of rent. In the event that Tenant commences occupancy of the
Premises on any date other than the commencement date of the term pursuant to
this Paragraph 3, Landlord and Tenant shall promptly execute a written
amendment to this Lease setting forth and confirming the date occupancy
commenced. In the event Landlord cannot deliver the Premises within sixty (60)
days after the commencement date, Tenant may elect to terminate the Lease by
providing Landlord written notice.
4. Annual Basic Rent.
(a) Tenant agrees to pay Landlord as annual basic rent ("Annual Basic
Rent") for the premises the sum of See Basic Lease Information for detail
(subject to adjustment as hereinafter provided). Annual Basic Rent shall be
paid in equal monthly installments of See Basic Lease Information for detail
each in advance on the first day of each and every calendar month during the
Term of this Lease, except that the first month's rent shall be paid upon the
execution hereof. If the Term of this Lease commences or ends on a day other
than the first day of a calendar month, then the rental for such periods shall
be prorated in the proportion that the number of days this Lease is in effect
during such period bears to thirty (30), and such rental shall be paid at the
commencement of such periods. In addition to Annual Basic Rent, Tenant agrees to
pay the amount of the increases in direct expenses as and when hereinafter
provided in this Lease. All rental shall be paid to Landlord, without deduction
or offset, in lawful money of the United States of America, which shall be
legal tender at the time of payment, at the office of Landlord or to such person
or persons or at such other places of Landlord may from time to time designate
in writing.
(b) Tenant acknowledges that late payment by Tenant to Landlord of rent or
other sums due hereunder will cause Landlord to incur costs not contemplated by
this Lease, the exact amount of which would be extremely difficult and
impractical to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed on
Landlord by the terms of any mortgage or trust deed covering Premises.
Therefore, if Tenant should fail to pay an installment of rent or
<PAGE> 5
any sum due within five (5) days after such amount is due, Tenant shall pay to
Landlord as additional rent a late charge equal to 5% of each such installment.
Anything herein to contrary notwithstanding, it is understood that Landlord's
right to collect any late charge as additional rent, or Tenant's payment of
such charge, shall not be deemed to limit or impair any other rights or
remedies of Landlord under this Lease or under law, including (without
limitation) the right to collect attorney's fees and costs in accordance with
Paragraph 33 of this Lease.
6. Tenant's Share of Direct Expenses. Tenant shall pay as rent in
addition to the Annual Basic Rent a portion of the Direct Expenses, as
hereinafter defined, in the manner set forth in this Paragraph 6, provided,
however, that Landlord agrees to limit increases to five (5) percent per year
for those direct expenses within the direct control of Landlord. All payments
made under this provision shall be deemed a part of rent and shall be paid
concurrently with regular monthly installments of Annual Basic Rent, and shall
be paid in the manner and at the place designated for payment of Annual Basic
Rent in Paragraph 4(a) above. If the Term of this Lease commences or ends on a
day other than the first day of a calendar month, then the amount to be paid
under this Paragraph 6 for the month during which the Term commences or ends
(as the case may be) shall be prorated in the same manner as the monthly
installments of Annual Basic Rent as set forth in Paragraph 4(a).
(a) Beginning at and as of the beginning of the calendar year immediately
following the Base Year (as defined below), Tenant shall pay as rent in
addition to the Annual Basic Rent the Tenant's Share of any and all increases
in the amount of Direct Expenses, as hereinafter defined, incurred or paid by
Landlord during the then-current calendar year over the amount of Direct
Expenses incurred or paid by Landlord during calendar year 1998 (the "Base
Year"). Tenant's Share of Direct Expenses shall be paid in the manner
hereinafter set forth.
Prior to the beginning of each calendar year after the Base Year (or as
soon as practicable after the commencement of each such calendar year
thereafter), the Landlord shall give Tenant a written estimate of Tenant's
Share of increases in Direct Expenses for the remaining or ensuing calendar
year. Tenant shall pay such estimated amount to Landlord in equal monthly
installments, in advance, as set forth above. Within ninety days after the end
of each calendar year after the Base Year or as soon as practicable thereafter,
Landlord shall furnish to tenant a statement showing in reasonable detail the
increase in the amount of Direct Expenses during the Base Year, and the parties
shall promptly make any payment or allowance necessary to adjust Tenant's
estimated payment to Tenant's actual Share of increases the amount of Direct
Expenses as shown by such annual statement.
The dollar amount of Tenant's Share of increases in the amount of Direct
Expenses as shown by such annual statement shall be conclusive and binding upon
Tenant, unless within forty-five (45) days after receipt of such statement,
Tenant shall notify Landlord that Tenant disputes the correctness of said
statement, specifying the respect in which the statement is claimed to be
incorrect. Unless otherwise mutually agreed, any such dispute shall be
determined by arbitration. The arbitration shall be conducted and determined in
the county in which the Project is located, Arbitration Act, Sections 1280
through 1294.2 of the California Code of Civil Procedure, provided, however,
that the arbitrators shall be selected in the manner provided by the
then-exiting Commercial Rules of the American Arbitration Association. Pending
determination of the dispute, Tenant shall pay any amounts due from Tenant in
accordance with the statement, but such payment shall be without prejudice to
Tenant's position. If it is determined that Tenant has paid more than it was
obligated to under the terms of this Lease, Landlord shall refund to Tenant the
amount of any such overpayment within thirty (30) days of the determination. If
it is determined that Tenant has paid less than it was obligated to under the
terms of this Lease, Tenant shall pay to Landlord the amount of such
underpayment within thirty (30) days of the determination. Landlord shall not
be obligated to proceed with arbitration under this Lease and may proceed with
any remedy at any time Tenant fails to pay amounts required to be paid pending
arbitration pursuant to this Paragraph 6. If the overcharge is greater than 5%,
Landlord will pay Tenant's audit costs.
Even though the Term has expired and Tenant has vacated the Premises, when
the final determination is made of Tenant's Share of increases in Direct
Expenses for the year in which this Lease terminates, Tenant shall promptly pay
any increase due over the estimated expenses paid and, conversely, any
overpayment made shall promptly be rebated by Landlord to Tenant.
(b) "Direct Expenses" as used in this Paragraph 6 shall include all
direct costs of management, operation and maintenance for the Project that are
properly allocable wholly and partly to the Project, as reasonably determined
by Landlord, and shall include the following by way of illustration but not
limitation:
(i) The following taxes, charges and assessments, assessed against
or allocable to the Project, ("Property Taxes"): All real and personal
property taxes and assessments imposed by any governmental agency on the
Project and the land on which the Project is located (including a pro rata
portion of any taxes levied on any common areas); any assessments levied in
lieu of taxes; any non-progressive tax on or measured by gross rentals received
from the rental space in the Project; and any other costs levied or assessed
by, or at the direction of, any federal state, or local government authority in
connection with the use or occupancy of the Project or the parking facilities
serving the Project, including without limitation, transit fees, parking
charges and utility surcharges; and tax on this transaction or any document to
which Tenant is a party creating or transferring an interest in the Premises,
and any expenses, including costs of attorneys or experts, reasonably incurred
by Landlord in seeking reduction by the taxing authority of the
above-referenced taxes, less tax refunds obtained as result of an application
for review thereof; but Property Taxes shall not include any net income,
franchise, capital stock, estate or inheritance taxes.
<PAGE> 6
(ii) Operating costs consisting of costs incurred by Landlord in
maintaining and operating the Project, exclusive of costs required to be
capitalized for federal income tax purposes, and including (without limiting the
generality of the foregoing) costs of the following: (a) maintaining, cleaning
and repairing the floors, windows and other exterior surfaces of all
improvements in or to the Project (including painting and window washing); (b)
janitorial supplies and other supplies, materials, tools and equipment used in
the operation, maintenance and repair of the Project; (c) insurance carried by
Landlord pursuant to Paragraph 22 hereof or otherwise (including the payment of
commercially reasonable deductibles): (d) maintaining, repairing and operating
electrical, plumbing, sewage, HVAC, elevators and other utility services to the
Project, and also costs incurred pursuant to Paragraphs 16 and, 17 and the costs
of supplying utilities, heating, air conditioning and ventilation services; (e)
complying with all laws, ordinances, rules, regulations, judgments and court
orders and the requirements of any recorded easements, covenants, conditions and
restrictions applicable to the Project, which become effective after the
commencement date of this Lease; (f) cleaning, repairing and replacing floor and
wall coverings within the Common Area; (g) maintenance, repair and replacement
of lights, ballasts, and light fixtures; (h) maintenance, repair and replacement
of sidewalks, walkways, driveways, parking lots and signs located within the
Common Area; (i) care, maintenance and replacement of flowers, trees, shrubs and
other plants in the Common Area; (j) providing, maintaining and servicing such
fire protection and security measures as Landlord deems necessary including,
without limitation, security personnel, equipment and alarms; (k) salaries and
other compensation (including employment taxes and fringe benefits) of persons
who perform regular and recurring duties in connection with the operation,
maintenance and repair of the Project;(m) services of independent contractors;
(n) any property management fees paid to Landlord or otherwise to manage the
operation, maintenance and repair of the Project; and (o) the fair rental value
of the Project office.
(iii) Amortization of such capital improvements (including reasonable
interest on costs thereof) as Landlord may have installed: (a) for the purpose
of reducing operating costs (but only to the extent of such savings), (b) to
comply with governmental rules and regulations promulgated, after the
commencement date of this Lease, or (c) are reasonably necessary for the health
and safety of the occupants of the Project.
The above notwithstanding, Direct Expenses shall not include (1)
depreciation on the Project, (2) costs of tenants' improvements; (3) real estate
brokers' commissions; (4) interest and capital items other than those referred
to in subparagraph (iii) above; (5) specific costs which are incurred for the
benefit of or separately billed to and paid by specific tenants; and (6) repairs
and maintenance costs paid by proceeds of insurance or by third parties. Direct
Expenses for each calendar year shall be adjusted to equal Landlord's reasonable
estimate of what such Direct Expenses would have been had the total rentable
area of the Project been occupied.
7. Security Deposit. Upon execution hereof, Tenant has deposited with
Landlord the sum of Sixty Eight Thousand Four Hundred Forty Five Dollars and
60/100 cents, ($68,445.60) for Suite 900. Said sum shall be held by Landlord as
security for the faithful performance by Tenant of all of the terms, covenants
and conditions of this Lease to be kept and performed by Tenant during the term
hereof. If Tenant defaults with respect to any provision of this Lease,
including but not limited to the provisions relating to the payment of rent,
Landlord may (but shall not be required to) use, apply or retain all or any part
of this security deposit for the payment of any rent or any other sum in
default, or for the payment of any other amount which Landlord may spend by
reason of Tenant's default or to compensate Landlord for any other loss or
damage which Landlord may suffer by reason of Tenant's default. If any portion
of the security deposit is so used or applied, Tenant shall, upon demand
therefor, deposit with the Landlord an amount sufficient to restore the security
deposit to its original amount and Tenant's failure to do so shall be a material
breach of this Lease. Landlord shall not be required to keep this security
deposit separate from its general funds, and Tenant shall not be entitled to
interest on such deposit. If Tenant shall fully and faithfully perform every
provision of this Lease to be performed by it, the security deposit or any
balance thereof shall be returned to Tenant (or, at Landlord's option, to the
last assignee of Tenant's interests hereunder) at the expiration of the Term
provided that Landlord may retain the security deposit until such time as any
amount due from Tenant in accordance with Paragraphs 3 and 6 hereof have been
determined and paid in full. *SEE ADDENDUM I TO LEASE.
8. Tenant Improvements. See EXHIBIT D.
9. Use. Tenant shall use the Premises for General Office use and shall not
use or permit the Premises to be used for any other purpose without the prior
written consent of Landlord. Tenant shall not use or occupy the Premises in
violation of law or of the certificate of occupancy issued for the Building or
Project and shall, upon five (5) days written notice from Landlord, discontinue
any use of the Premises which is declared by any governmental authority having
jurisdiction to be a violation of law or of said certificate of occupancy.
Tenant shall comply with any direction of any governmental authority having
jurisdiction as well as the provision of any covenants, conditions and
restrictions or similar recorded documents affecting the Project which shall be
reason of the nature of Tenant's use or occupancy of the Premises, impose any
duty upon Tenant or Landlord with respect to the Premises or with respect to the
use or occupation thereof. Tenant shall not do or permit to be done anything
which will invalidate or increase the cost covering the Project or Premises
and/or property located therein and shall comply with all rules, orders,
regulations and requirements of the Pacific Fire Rating Bureau or any other
organization performing a similar function. Tenant shall promptly upon demand
reimburse Landlord for any additional premium charged for such policy by reason
of Tenant's failure to comply with the provisions of this paragraph. Tenant
shall not do or permit anything to be done in or about the Premises which will
in any way obstruct or interfere with the rights of other tenants or occupants
of the Project, or injure or annoy them, or use or allow the Premises to be used
for any improper, immoral, unlawful purpose, nor shall Tenant cause, maintain or
permit any nuisance in, on or about the Premises. Tenant shall not commit or
suffer to be committed any waste in or upon the Premises.
10. Notices. Any notice required or permitted to be given hereunder must be
in writing and may be given by personal delivery or by mail, and if given by
mail shall be deemed sufficiently given if sent by registered or certified mail
addressed to Tenant at the Building or at the address of Tenant set forth under
the Basic Lease Information, or to Landlord at the address of Landlord set forth
under the Basic Lease Information. Either party may by written notice to the
other specify a different address for notice purposes except that the Landlord
may in any event use the Premises as Tenant's address for notice purposes.
11. Brokers. Tenant warrants that it has had no dealings with any real
estate broker or agent in connection with the negotiation of this Lease,
excepting only the broker(s) identified in the Basic Lease Information, and that
it knows of no other real estate broker or agent who is or might be entitled to
a commission in connection with this Lease. If Tenant has dealt with any other
person or real estate broker with respect to leasing or renting space in the
Project, Tenant shall be solely responsible for the payment of any fee due said
person or firm and Tenant shall hold Landlord free and harmless against any
liability in respect thereto, including attorneys' fees and costs.
12. Holding Over. If Tenant holds over after the expiration or earlier
termination of the Term hereof without the express written consent of Landlord,
Tenant shall become a month-to-month tenant, at a rental rate equal to one
hundred fifty percent (150%) of the rent in effect upon the date of such
expiration and otherwise upon terms, covenants, and conditions herein specified,
so far as applicable. Acceptance by Landlord of rent after such expiration or
earlier termination shall not result in a renewal. The foregoing provisions of
this paragraph are in addition to and do not affect Landlord's right of re-entry
or any other rights of Landlord hereunder or as otherwise provided by law. If
Tenant fails to so surrender the Premises upon expiration of this Lease despite
demand to do so by Landlord, Tenant shall indemnify and hold Landlord harmless
from all loss or liability, including without limitation, any claim made by any
succeeding tenant founded on or resulting from such failure to surrender and
any
<PAGE> 7
attorneys' fees and costs.
13. TAXES ON TENANT'S PROPERTY.
(a) Tenant shall be liable for and shall pay ten (10) days before
delinquency, taxes levied against personal property or trade fixtures placed by
Tenant in the Premises. If any such taxes on Tenant's personal property or
trade fixtures are levied against Landlord or Landlord's property or if the
assessed value of Landlord's Premises is increased by the inclusion therein of
a value placed upon such personal property or trade fixtures of Tenant and if
Landlord, after written notice to Tenant, pays the taxes based on such
increased assessment, which Landlord shall have the right to do regardless of
the validity thereof, but only under property protest if requested by Tenant,
Tenant shall upon demand, as the case may be, repay to Landlord the taxes so
levied against Landlord, or the proportion of such taxes resulting from such
increase in the assessment; provided that in any such event Tenant shall have
the right, in the name of the Landlord and with Landlord's full cooperation, to
bring suit in any court of competent jurisdiction to recover the amount of any
such taxes so paid under protest, any amount so recovered to belong to Tenant.
(b) If the Tenant Improvements in the Premises, whether installed, and/or
paid for by Landlord or Tenant and whether or not affixed to the real property
so as to become a part thereof, are assessed for real property tax purposes at
a valuation higher than the valuation at which Tenant improvements conforming
to Landlord's "Building Standards" in other space in the Building are assessed,
the real property taxes and assessments levied against Landlord or the property
by reason of such excess assessed valuation shall be deemed to be taxes levied
against personal property of Tenant and shall be governed by the provisions of
subparagraph 13(a) above. If the records of the County Assessor are available
and sufficiently detailed to serve as a basis for determining whether said
Tenant improvements are assessed at a higher valuation than Landlord's
"Building Standards", such records shall be binding on both the Landlord and
the Tenant. If the records of the County Assessor are not available or
sufficiently detailed to serve as a basis for making said determination, the
actual cost of construction shall be used.
14. CONDITION OF PREMISES. Tenant acknowledges that neither Landlord nor
any agent of Landlord has made any representation or warranty with respect to
the Premises, the Building or the Project or with respect to the suitability of
either for the conduct of Tenant's business. The taking of possession of the
Premises by Tenant shall conclusively establish that the Premises and the
Building were at such time in satisfactory condition. Landlord represents that
the Building, and the premises in ADA compliance at the time of occupancy.
15. ALTERATIONS. Tenant shall make no alterations, decorations, additions
or improvements in or to the Premises without Landlord's prior written consent,
and then only by contractors or mechanics approved by Landlord. Tenant agrees
that there shall be no construction or partitions or other obstructions which
might interfere with Landlord's free access to mechanical installations or
service facilities of the Project or interfere with the moving of Landlord's
equipment to or from the enclosures containing said installations or
facilities. All such work shall be done at such times and in such manner as
Landlord may from time to time designate. Tenant covenants and agrees that all
work done by Tenant shall be performed in full compliance with all laws, rules,
orders, ordinances, directions, regulations and requirements (including,
without limitation, all those relating to office safety and environmental
quality) of all governmental agencies, offices, departments, bureaus and boards
having jurisdiction and in full compliance with the rules, orders, directions,
regulations and requirements of the Pacific Fire Rating Bureau and of any
similar body. Before commencing any work, Tenant shall give Landlord at least
ten (10) days written notice of the proposed commencement of such work and
shall, if required by Landlord, secure at Tenant's own cost and expense a
completion and lien indemnity bond, satisfactory to Landlord, for such work.
Tenant further covenants and agrees that any mechanic's lien filed against the
Premises or against the Project, or any portion thereof, for work claimed to
have been done for, or materials claimed to have been furnished to Tenant, will
be discharged by Tenant, by bond or otherwise, within ten (10) days after the
filing thereof, at the sole cost and expense of Tenant. All alterations,
decorations, additions or improvements upon the Premises made by either party,
including (without limiting the generality of the foregoing) all wall covering,
built-in cabinet work, paneling and the like, shall, unless Landlord elects
otherwise, become the property of Landlord and shall remain upon, and be
surrendered with the Premises, as a part thereof, at the end of the term
hereof, except that Landlord may, by written notice to Tenant, give at least
thirty (30) days prior to the end of the Term, require Tenant to remove all
partitions, counters, railings and the like installed by Tenant, and Tenant
shall repair or, at Landlord's option, shall pay to the Landlord all costs
arising from such removal.
All personal property, office machinery and equipment, furniture, moveable
partitions and trade fixtures owned by Tenant or installed by Tenant at its
expense in the Premises ("Personal Property") shall be and remain the property
of Tenant and may be removed by Tenant at any time during the Term when Tenant
is not in default hereunder. If Tenant shall fail to remove all of its effects
from said Premises upon termination of this Lease for any cause whatsoever,
Landlord may, at its option, remove the same in any manner that Landlord shall
choose, and store such Personal Property without liability to Tenant for loss
thereof and Tenant agrees to pay Landlord upon demand any and all expenses
incurred in such removal, including court costs and attorneys' fees and storage
charges on such effects for any length of time that the same shall be in
Landlord's possession; or Landlord may, at its option, without notice, sell
Tenant's Personal Property, in accordance with applicable California law at a
private sale and without legal process, for such price as Landlord may obtain
and apply the proceeds of such sale upon any amounts due under this Lease from
Tenant to Landlord and upon the expense incident to the removal and sale of
such Personal Property.
16. REPAIRS. Except as otherwise provided herein, by entry hereunder
Tenant accepts the Premises as being in good, sanitary order, condition and
repair. Tenant shall at Tenant's sole cost and expense keep the Premises and
every part thereof in good condition and repair, damage thereto from causes
beyond the reasonable control of Tenant and ordinary wear and tear excepted.
Tenant shall upon the expiration or sooner termination of the Term surrender the
Premises to Landlord in the same condition as when received, ordinary wear and
tear and damage from causes beyond the reasonable control of Tenant excepted.
Landlord shall have no obligation to alter, remodel, improve, repair, decorate,
or paint the Premises or any part thereof and the parties hereto affirm that
Landlord has made no representations to Tenant respecting the condition of the
Premises or the Project except as specifically herein set forth.
Anything contained in the foregoing subparagraph to the contrary
notwithstanding, Landlord shall repair and maintain the structural portions of
Premises and the Building, including the basic plumbing, air condition and
electrical systems installed or furnished by Landlord, unless such maintenance
and repairs are caused in part or wholly by the act, ordinary wear and tear
excepted, neglect, fault of or omission of any duty by Tenant, its agents,
servants, employees or invitees, in which case Tenant shall pay to Landlord, as
additional rent, the reasonable cost of such maintenance and repairs. Landlord
shall not be liable for any failure to make any such repairs or to perform any
maintenance unless such failure shall persist for an unreasonable time after
written notice of the need of such repairs or maintenance is given to Landlord
by Tenant. Except as provided in Paragraph 23 hereof there shall be no
abatement of rent and no liability of Landlord by reason of any injury or
interference with Tenant's business arising from the making of repairs,
alterations or improvements in or to any portion of the Building or the
Premises or in or to fixtures, appurtenances and equipment therein. Tenant
waives, the right to make repairs at Landlord's expense under Section 1942 of
the California Civic Code, or under any law, statute or ordinance now or
hereafter in effect.
Landlord shall also have the right, but not the obligation, to undertake
any work of repair or maintenance (including cleaning of the Premises) which
Tenant is required to perform hereunder or under any other provisions of this
Lease and which Tenant fails
<PAGE> 8
or refuse to perform in a timely and efficient manner. All such work shall be
subject to a charge established by Landlord, which shall be payable by Tenant to
Landlord promptly upon demand.
17. Liens. Tenant shall keep the Premises, the Building and the Project
free from any liens out of the work performed, materials furnished or
obligations incurred by Tenant. Landlord shall have the right at all reasonable
times to post and keep posted on the Premises any notices which it deems
necessary for protection from such liens. If any such liens are filed, Landlord
may, without waiving its rights and remedies based on such breach by Tenants and
without releasing Tenant from any of its obligations, cause such liens to be
released by any means it shall deem proper, including payments in satisfaction
of the claim giving rise to such lien. Tenant shall pay to Landlord at once,
upon notice by Landlord, any such paid by Landlord to remove such liens together
with interest at the maximum rate per annum permitted by law from the date of
such payment by Landlord.
18. Entry by Landlord. Landlord reserves and shall have the right to
enter the Premises to inspect the same, to supply janitor service and any other
service to be provided by Landlord to Tenant hereunder, to submit the Premises
to prospective purchasers or tenants, to post notices of non-responsibility,
upon reasonable notice, to alter, improve or repair the Premises or any other
portion of the Building, all without being deemed guilty of an eviction of
Tenant and without abatement of rent, and may for that purpose erect scaffolding
and other necessary structures where reasonably required by the character of the
work to be performed, provided that the business of the Tenant shall be
interfered with as little as is reasonably practicable, provided prior written
notice is given, except in the case of emergency or janitorial or similar
services. Tenant hereby waives any claim for damages for any injury or
inconvenience to or interference with Tenant's business, any loss or occupancy
or quiet enjoyment of the Premises, and any other loss occasioned thereby,
except if caused by Landlord's negligence or willful misconduct. For each of the
aforesaid purposes, Landlord shall at all times have and retain a key with which
to unlock all of the doors in, upon and about the Premises, excluding Tenant's
vaults and safes, and Landlord shall have the right to use any and all means
which Landlord may deem proper to open said door in an emergency in order to
obtain entry to the Premises. Any entry to the Premises obtained Landlord by any
of said means, or otherwise, shall not under any circumstances be construed or
deemed to be a forcible or unlawful entry into, or a detainer of, the Premises,
or an eviction of Tenant from the Premises or any portion thereof, and any
damages caused on account thereof shall be paid by Tenant. It is understood and
agreed that no provision within the Lease shall be construed as obligating
Landlord to perform any repairs, alterations or decorations except as otherwise
expressly agreed herein to be performed by Landlord.
19. Utilities and Service. Provided that Tenant is not in default
hereunder, Landlord agrees to furnish to the Premises during reasonable hours of
generally recognized business days, subject to the conditions and in accordance
with the standards set forth in Exhibit B attached hereto and made a part
hereof, the utilities and services described therein. Tenant shall pay directly
to the billing entity for utilities separately to Tenant, and shall reimburse
Landlord within ten (10) days of receipt of a statement for any utilities
submetered to Tenant and billed to Landlord. Landlord shall not be liable for,
and Tenant shall not be entitled to any abatement or reduction of rent by reason
of Landlord's failure to furnish any of the foregoing when such failure is
caused by accident, breakage, repairs, strikes, lockouts or other labor
disturbances or labor disputes of any character, governmental regulation,
moratorium or other governmental action, or for any other causes beyond
Landlord's reasonable control.
(a) Notwithstanding any contrary provisions in this Paragraph, if, after
written notice to Landlord, normal building services required to be provided by
Landlord pursuant to the Paragraph remain interrupted for more than five (5)
consecutive business days or for more than fourteen (14) business days during
any twelve (12) month period, and the interruption materially impairs Tenant's
ability to conduct business, then, except to the extent the negligence,
misconduct or default under this Lease by Tenant or Tenant's employees, agents,
invitees or contractors causes the interruption, rent shall be ratably abated
(bases upon the area of the Premises which Tenant normally uses and which has
been rendered unusable) as of the date the interruption first occurs. The
provisions of this preceding sentence shall not apply to casualty damages
described in Paragraph 23 hereof, it being understood that the rights and
obligations of the parties in the event of a fire or other casualty shall be
governed by the provisions of Paragraph 23.
Landlord shall furnish to the Premises utilities and services in addition
to or in excess of those to be furnished in accordance with the standards set
forth in Exhibit B only upon Tenant's prior written request (except as otherwise
set forth herein) and at Tenant's sole cost and expense. Additional charges
shall be made (by way of illustration only and not limitation) for such services
as (1) providing utilities in excess of the standard set forth in Exhibit B or
at any times other than those set forth therein, (ii) for removal of items from
storage, (iii) for picture hanging or other assistance in furnishing, decorating
or moving into or out of the Building Premises, and (iv) spot carpet cleaning or
other special janitorial services required because of Tenant's failure to keep
and maintain the Premises in the manner required under this Lease or otherwise
in excess of the ordinary janitorial services to be provided in accordance with
Exhibit B hereto. Nothing herein shall be deemed to limit or impair Landlord's
right to make any repairs or to perform any cleaning or maintenance work without
Tenant's request and to charge Tenant therefore, in the manner (and to the
extent) provided in Paragraph 16 or any other provision of this Lease.
20. Indemnification. Tenant shall defend, indemnify, protect and hold
harmless Landlord and from any and all claims arising from Tenant's use of the
Premises or the conduct of its business or from any activity, work done,
permitted or suffered by the Tenant in or about the Premises or the Project.
Tenant shall further defend, indemnify, protect and hold harmless Landlord
against and from any and all claims arising from any breach or default in the
performance of any obligation on Tenant's part to be performed under the terms
of this Lease, or arising from any act, neglect, fault or omission of the
Tenant, or of its agents or employees, and from and against all costs,
attorneys' fees, expenses and liabilities incurred in or resulting from such
claim or any action or proceeding brought thereon. In case any action or
proceeding be brought against Landlord by reason of any such claim, Tenant upon
notice from Landlord shall defend the same at Tenant's expense by counsel
approved in writing by Landlord. Tenant, as a material part of the consideration
to Landlord, hereby assumes all risk of damage to property or injury to person
in, upon or about the Premises or the Project from any cause whatsoever except
that which is caused by the neglect, willful misconduct or failure of the
Landlord to observe any of the terms and conditions to this Lease. Tenant
thereby waives all claims in respect thereof against Landlord.
21. Damage to Tenant's Property. Notwithstanding the provisions of
Paragraph 20 to the contrary, Landlord or its agents shall not be liable for any
damage to property entrusted to employees of the Project, nor for loss of or
damage to any property by theft or otherwise, nor for any injury or damage to
persons or property resulting from fire, explosion, falling plaster, steam, gas,
electricity, water or rain which may leak from any part of the Project or from
any part of the Project or from the pipes, appliances or plumbing works therein
or from the roof, street or sub surface or from any other place or resulting
from dampness or any other cause whatsoever, unless the same is caused by the
negligence or willful misconduct of the Landlord. Landlord or its agents shall
not be liable for interference with the light or other incorporeal
hereditaments, nor shall Landlord be liable for any latent defect in the
Premises, Building or of the Project. Tenant shall give prompt notice to
Landlord in case of fire or accidents in the Premises, Building or Project or of
defects therein or in the fixtures or equipment.
22. Insurance.
(a) Tenant shall, during the Term hereof and any other period of
occupancy, at is sole cost and expense, keep in full force and effect the
following insurance:
<PAGE> 9
(i) Standard form property insurance insuring against the perils of
fire, extended coverage, vandalism, malicious mischief, special extended
coverage ("All Risk") and sprinkler leakage. This insurance policy shall be upon
all property owned by Tenant, for which Tenant is legally liable or that was
installed at Tenant's expense, including without limitation, furniture,
fittings, installations, fixtures (other than the Tenant improvements installed
by Landlord), and any other personal property, in an amount of the full
replacement cost thereof. In the event that there shall be a dispute as to the
amount which comprises full replacement costs, the decision of Landlord or any
mortgagees of Landlord shall be conclusive. This insurance policy shall also be
upon direct or indirect loss of Tenant's earnings attributable to Tenant's
inability to use fully or obtain access to the Premises or Building in an amount
as will properly reimburse Tenant. Such policy shall name Landlord and any
mortgagees of Landlord as insured parties, as their respective interests may
appear.
(ii) Commercial General Liability Insurance insuring Tenant against
any liability arising out of the lease, use, occupancy or maintenance of the
Premises and all areas appurtenant thereto. Such insurance shall be in the
amount of $1,000,000.00. Combined Single Limit for injury to, or death of one or
more persons in an occurrence, and for damage to tangible property (including
loss of use) in an occurrence with such liability amount to be adjusted from
year to year to reflect increases in the Consumer Price Index. The policy shall
insure the hazards of premises and operations, independent contractors,
contractual liability (covering the indemnity contained in Paragraph 20 hereof)
and shall (1) name Landlord as an additional insured, (2) contain a cross
liability provision, and (3) contain a provision that "the insurance provided
the Landlord hereunder shall be primary and noncontributing with any other
insurance available to the Landlord."
(iii) Worker's Compensation and Employer's Liability Insurance as
required by state law.
(iv) Any other form or forms of commercially acceptable insurance as
Landlord or any mortgagees of Landlord may reasonably require from time to time
in form, in amounts and for insurance risks against which a prudent tenant would
protect itself.
(b) All policies required to be carried by Tenant shall be written in a
form satisfactory to Landlord and shall be taken out with insurance companies
holding a General Policyholders Rating of "A" and Financial Rating of "X" or
better, as set forth in the most current issue of Best's Insurance Guide. Within
twenty (20) days after execution of this Lease (and in any event prior to
commencement of the term hereof), Tenant shall deliver to Landlord copies of
policies or certificates evidencing the existence of the amounts and forms of
coverage satisfactory to Landlord. No such policy shall be canceled or reducible
in coverage except after thirty (30) days prior written notice to Landlord.
Tenant shall, within ten (10) days prior to the expiration of such policies,
furnish Landlord with renewals or "binders" thereof, or Landlord may order such
insurance and charge the cost thereof to Tenant as additional rent. If Landlord
obtains any insurance that is the responsibility of Tenant under this section,
Landlord shall deliver to Tenant a written statement setting forth the cost of
any such insurance and showing in reasonable detail the manner in which it has
been computed.
(c) Landlord shall have the right (but not the obligation), during the
Term hereof, to obtain and keep in force such casualty and public liability
insurance as Landlord and Landlord's mortgagees deem appropriate, including (at
Landlord's sole discretion) an insurance policy providing earthquake coverage
for the Project. Landlord may also carry, but shall not be required to carry,
casualty insurance policies on any alteration, addition or improvement which
Tenant may make to the Premises in accordance with the terms of this Lease.
(d) The parties release each other, and their respective authorized
representative, from any claims for injury to any person or damage to the
Premises, fixtures, personal property, Tenant's improvements, and alterations of
either Landlord or Tenant in or on the Premises of the Project that are caused
by or result from risks insured against under any insurance policies carried by
the parties and in force at the time of any such damage.
Each party shall cause each insurance policy obtained by it to provide that
the insurance company waives all rights of recovery by way of subrogation
against either party in connection with any damage by any policy.
23. Destruction.
(a) In the event the Premises suffers (I) an uninsured casualty, or
(ii) a casualty which cannot be repaired within one hundred eighty (180) days
from the date of destruction under the laws and regulations of state, federal,
county or municipal authorities, or other authorities with jurisdiction, either
party may terminate this lease as at the date of the damage upon written notice
to the other party within forty-five (45) days following the casualty.
(b) In the event of a casualty which destroys the Premises or portion
thereof and which may be repaired within ninety (90) days from the date of the
damage, or, in the alternative, in the event Landlord does not elect to
terminate this Lease under the terms of Paragraph 23(a) above, then this Lease
shall continue in full force and effect and the Landlord shall forthwith
undertake to make such repairs to reconstitute the Premises to as near the
condition as existed prior to the casualty as practicable. Such partial
destruction shall in no way annul or void this Lease, except that Tenant shall
be entitled to a proportionate abatement of rent pursuant to Paragraph 23(e)
(provided that the damage is not the result of the negligence or the willful
misconduct of Tenant or Tenant's employees, contractors, licensees or invitees).
(c) In the event of a partial destruction of any portion of the
Building beyond the exterior boundary of the Premises that is necessary for
Tenant's occupancy to an extent not exceeding twenty-five percent (25%) of the
full insurable value thereof and if the damage thereto is such that the
Building may be repaired, reconstructed, or restored within a period of ninety
(90) days from the date of the happening of such casualty and Landlord will
receive insurance proceeds sufficient to cover the cost of such repairs,
Landlord shall commence and proceed diligently with the work of repair,
reconstruction, and restoration and the Lease shall continue in full force and
effect. If such work of repair, reconstruction and restoration is such as to
require a period longer than ninety (90) days or exceeds twenty-five (25%) of
the full insurable value thereof or if said insurance proceeds will not be
sufficient to cover the cost of such repairs, Landlord may either elect to so
repair, reconstruct, and restore and the Lease shall continue in full force and
effect or landlord may elect not to repair, reconstruct and restore and the
Lease shall in such event terminate. Under any of the conditions, Landlord
shall give written notice to Tenant of its intention within the ninety (90) day
period. If Landlord elects not to restore the Building, this Lease shall be
deemed to have terminated as of the date of such partial destruction. At all
events, a total destruction of the Building shall terminate the Lease.
(d) Upon any termination of this Lease under any of the provisions of
this paragraph, the parties shall be released thereby without further
obligation to the other from the date possession of the Premises is surrendered
to Landlord except for items which have theretofore accrued and are then
unpaid.
(c) In the event of repair, reconstruction and restoration as herein
provided, the rental provided to be paid under this Lease shall be abated
proportionately in the ratio which Tenant's use of the Premises is impaired
during the period of such repair, reconstruction or restoration. Tenant shall
not be entitled to any compensation or damages for loss in the use of the whole
or any part of the Premises and/or any inconvenience or annoyance occasioned by
such damage, repair, reconstruction or restoration.
<PAGE> 10
(f) Tenant shall not be released from any of its obligations under
this Lease except to the extent and upon the conditions expressly stated in
this Paragraph 23. Should Landlord be delayed or prevented from repairing or
restoring the damaged Premises within one (1) year after the occurrence of such
damage or destruction by reason of acts of God, war, governmental restrictions,
inability to procure the necessary labor or materials, or other causes beyond
the control of Landlord, Landlord shall be relieved of its obligations to make
such repairs or restoration and Tenant shall be released from its obligations
under this Lease as of the end of such one (1) year period.
(g) It is hereby understood that if Landlord is obligated to or
elects to repair or restore as herein provided, Landlord shall be obligated to
make repairs or restoration only of those portions of the Building and the
Premises which were originally provided at Landlord's expense; and the repair
and restoration of items not provided at Landlord's expense shall be the
obligation of Tenant.
(h) Notwithstanding anything to the contrary contained in this
paragraph, Landlord shall not have any obligation whatsoever to repair,
reconstruct or restore the Premises when the damage resulting from any
casualty covered under this paragraph occurs during the last twelve (12) months
of the Term or any extension thereof, and either party may elect to terminate
the Lease if Landlord cannot complete the repairs with ninety (90) days.
(I) The provisions of Section 1932, Subdivision 2, and Section 1933,
Subdivision 4, of the Civil Code of the State of California which permit
termination of a lease upon destruction of the leased Premises, are hereby
waived by Tenant.
24. Eminent Domain. In case the whole of the Premises, or such part thereof as
shall substantially interfere with Tenant's use and occupancy thereof, shall be
taken for any public or quasi public purpose by any lawful power or authority
by exercise of the right of appropriation, condemnation or eminent domain, or
sold to prevent such taking, either party may at its option terminate this
Lease effective as of the date possession is required to be surrendered to said
authority. Tenant shall not because of such taking assert any claim against the
Landlord or the taking authority for any compensation because of such taking,
and Landlord shall be entitled to receive the entire amount of any award
without deduction for any estate or interest of Tenant, excepting that Tenant
may pursue a separate claim for the bonus value of the Lease after the Landlord
has completed its claim. In the event the amount of property or the type of
estate taken shall not substantially interfere with the conduct of Tenant's
business, Landlord shall be entitled to the entire amount of the award without
deduction for any estate or interest of Tenant, and Landlord at its option may
terminate this Lease. If Landlord does not so elect, Landlord shall promptly
proceed to restore the Premises to substantially their same condition prior to
such partial taking, and a proportionate allowance shall be made to Tenant for
the rent corresponding to the time during which said restoration is being made
and to the part of the Premises of which Tenant shall be so deprived on account
of such taking and restoration. Nothing contained in this paragraph shall be
deemed to give Landlord any interest in any award made to Tenant for the taking
of personal property and fixtures belonging to Tenant. Each party waives the
provisions of Section 1265.130 of the California Code of Civil Procedure
allowing either party to petition the Superior Court to terminate this Lease in
the event of a partial taking of the Premises or Project.
25. Defaults and Remedies. (a) The occurrence of any one or more of the
following events shall constitute a default hereunder by Tenant:
(I) The abandonment of the Premises by Tenant, if Tenant fails to pay
rent. Abandonment is herein defined to include, but is not limited to, any
absence by Tenant from the Premises for five (5) business days or longer while
in default of any provisions of this Lease.
(ii) The failure by Tenant to make any payment of rent or additional rent
required to be made by Tenant hereunder, as and when due.
(iii) The failure by Tenant to observe or perform any of the express or
implied covenants or provisions of this Lease to be observed or performed by
Tenant, other than as specified in (I) or (ii) above, where any such failure
shall continue for a period of ten (10) days after written notice thereof from
Landlord to Tenant, provided however, that any such Notice shall be in lieu of,
and not in addition to, any notice required under California Code of Civil
Procedure 1161; provided, further, that if the nature of Tenant's default is
such that more than ten (10) days are reasonably required for its cure, then
Tenant shall not be deemed to be in default if Tenant shall commence such cure
within said ten (10) day period and thereafter diligently pursue such cure to
completion.
(iv) (1) The making of Tenant of any general assignment for the benefit
of creditors; (2) the appointment of a trustee or receiver to take possession
of substantially all of Tenant's assets located at the Premises or of Tenant's
interest in this Lease, where possession is not restore to Tenant within thirty
(30) days; or (3) the attachment, execution of other judicial seizure of
substantially all of Tenant's assets located at the Premises or of Tenant's
interest in this Lease where such seizure is not discharged within thirty (30)
days.
(b) In the event of such default by Tenant, in addition to other
remedies available to Landlord at law or otherwise provided in this Lease, to
which Landlord may resort cumulatively or in the alternative:
(I) Landlord may continue this lease in full force and effect, and this
Lease shall continue in full force and effect as long as Landlord does not
terminate Tenant's right to possession, and Landlord shall have the right to
collect rent when due as set forth in California Civil Code Section 1951.4.
During the period Tenant is in default, Landlord may enter the Premises and
relet them, or any part of them, to third parties for Tenant's account,
provided that any rental in excess of the monthly rental due hereunder shall be
payable to Landlord. Tenant shall be liable immediately to Landlord for all
costs Landlord incurs in reletting the Premises, including, without limitation,
broker's commissions, expenses of cleaning and redecorating the Premises
required by the reletting and like costs. Reletting may be a period shorter or
longer than the remaining term of this Lease. Tenant shall pay to Landlord the
rent and other sums due under this Lease on the dates the rent is due, less the
rent and other sums Landlord receives from any reletting. No act by Landlord
allowed by this paragraph shall terminate this Lease unless Landlord notifies
Tenant in writing that Landlord elects to terminate this Lease.
(ii) Landlord may terminate Tenant's right to possession of the Premises
at any time by giving written notice to that effect. No act by Landlord other
than giving written notice to Tenant shall terminate this Lease. Acts of
maintenance, efforts to relet the Premises or the appointment of a receiver on
Landlord's initiative to protect Landlord's interest under this Lease shall not
constitute a termination of Tenant's right to possession. On termination,
Landlord has the right to remove all personal property of Tenant and store same
at Tenant's cost and to recover from Tenant as damages:
(a). The worth at the time of award of any unpaid rent which as been
earned at the time of such termination; plus
(b). 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 rental loss Tenant proves could have been reasonably
avoided; plus
<PAGE> 11
award exceeds the amount of such rental loss that Tenant proves could have been
reasonable avoided; plus
(d). 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.
As used in subparagraphs 25(b)(ii)a. and 25(b)(ii)b. above, the "worth at
the time of award" is computed by allowing interest at the then prevailing
discount rate of the Federal Reserve Bank of San Francisco plus five percent
(5%). As used in subparagraph 25(b)(ii)c. above, the "worth at the time of
award" 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%).
No waiver of any default of Tenant hereunder shall be implied from any
acceptance by Landlord of any rent or other payments due hereunder or any
omission by Landlord to take any action on account of such default if such
default persists or is repeated and no express waiver shall affect defaults
other than as specified in said waiver. The consent or approval of Landlord to
or of any act by Tenant requiring Landlord's consent or approval shall not be
deemed to waive or render necessary Landlord's consent or approval to or of
any subsequent similar acts by Tenant.
26. Assignment and Subletting. Tenant shall not voluntarily assign or
encumber its interest in this Lease or in the Premises, or sublease all or any
part of the Premises, or allow any other person or entity to occupy or use all
or any part of the Premises, without first obtaining Landlord's prior written
consent, which consent shall not be unreasonably withheld. Any assignment,
encumbrance or sublease without Landlord's consent shall constitute a default
and at the option of Landlord shall result in a termination of this Lease. No
consent to assignment, encumbrance, or sublease shall constitute a waiver of the
provisions of this paragraph with respect to any subsequent assignment,
encumbrance or sublease. Tenant shall notify Landlord in writing of Tenant's
intent to sublease, encumber or assign this Lease in the manner described in
subparagraph (b) and Landlord shall, within fifteen (15) days of receipt of such
written notice, consent to such proposed assignment, encumbrance or sublease or
refuse such consent, which refusal shall be in writing delivered to Tenant and
on reasonable grounds.
(a) As a condition for granting its consent to any assignment, encumbrance
or sublease, fifteen (15) days prior to any anticipated assignment or sublease
Tenant shall give Landlord written notice (the "Assignment Notice"), which shall
set forth the name, address and business of the proposed assignee or sublessee,
information (including references) concerning the character, ownership, and
financial condition of the proposed assignee or sublessee, the Assignment Date,
any ownership or commercial relationship between Tenant and proposed assignee or
sublessee, and the consideration of all other material terms and conditions of
the proposed assignment or sublease, all in such detail as Landlord shall
reasonably require. If Landlord requests additional detail, the Assignment
Notice shall not be deemed to have been received until Landlord received such
additional detail, and Landlord may withhold consent to any assignment or
sublease until such additional detail is provided to it. Further, Landlord may
require that the sublessee or assignee remit directly to Landlord, on a monthly
basis, all monies due to Tenant by said assignee or sublessee.
(b) The consent by Landlord to any assignment, encumbrance or subletting
shall not be construed as relieving Tenant or any assignee of this Lease or
sublessee of the Premises from obtaining the express written consent of Landlord
to any further assignment, encumbrance or subletting of Tenant or any assignee
or sublessee of Tenant from any liability or obligation hereunder whether or not
then accrued. In the event Landlord shall consent to an assignment, encumbrance
or sublease, Tenant shall pay Landlord as additional rent its reasonable
attorneys' fees incurred in connection with evaluating the Assignment Notice.
This section shall be fully applicable to all further sales, hypothecations,
transfers, assignments and subleases of any portion of the Premises by any
successor or assignee of Tenant, or any sublessee of the Premises.
(c) As used in this section, the subletting of substantially all of the
Premises for substantially all of the remaining term of this Lease shall be
deemed an assignment rather than a sublease.
(d) A further condition to Landlord's consent to any proposed assignment
or sublease shall be delivery by Tenant to Landlord of a true copy of any such
assignment or clearly provide that the assignee or sublessee assumes and agrees
to perform all obligations of this Lease. If for any proposed assignment or
sublease Tenant receives rent or other consideration, either initially or over
the term of the assignment or sublease, in excess of the rent called for
hereunder, or, in case of the sublease of a portion of the Premises, in excess
of such rent fairly allocable to such portion, after appropriate adjustments to
assure that all other payments called for hereunder are taken into account,
Tenant shall pay to Landlord as additional rent hereunder fifty percent (50%)
of the net excess of each such payment of rent or other consideration (after
deducting its costs) received by Tenant promptly after its receipt. Landlord's
waiver or consent to any assignment or subletting shall not relieve Tenant from
any obligation under this Lease. The parties intend that the preceding sentence
shall not apply to any sublease rentals respecting a portion of the Premises
that during the entire term of this Lease was not occupied by Tenant for its
own use, but was always subleased by Tenant and or kept vacant. For the purpose
of this section, the rent for each square foot of floor space in the Premises
shall be deemed equal to the amount set forth in Paragraph 4, as adjusted,
divided by the Rentable Area of the Premises. Tenant shall have the right to
transfer this Lease to an affiliate or successors with written notice to
Landlord.
27. Subordination. This Lease shall be subject and subordinate at all
times to (I) all ground and underlying leases which now exist or may hereafter
be executed affecting the Project or the land upon which the Project is
situated or both, (ii) the lien of any mortgages or deeds of trust in any
amount or amounts whatsoever now or hereafter placed on or against the land and
Project or either thereof, or on Landlord's interest or estate therein, or
portion thereof, or on or against any ground or underlying lease and (iii) any
Declaration of Covenants, Conditions and Restrictions or similar instrument nor
or hereafter recorded affecting the Project, all without the necessity of the
execution and delivery of any further instruments on the part of Tenant to
effectuate such subordination; provided, however, that so long as Tenant is not
in default, the terms of this Lease shall not be affected by termination
proceedings in respect to such ground or underlying lease or foreclosure or
other proceedings under such mortgages or deeds of trust, Tenant hereby
agreeing at the written request of the Landlord under such ground or underlying
lease or the purchaser of the Building in such foreclosure or other
proceedings, to attorn to such Landlord or to such purchaser or, at such
Landlord's or such purchaser's option, to enter into a new lease for the
balance of the Term upon the same terms and provisions as are contained in this
Lease. Notwithstanding the foregoing, Tenant will execute and deliver upon
written demand such further instrument or instruments evidencing such
subordination or mortgages or deeds of trust as may be required by Landlord.
28. Estoppel Certificate.
(a) Tenant shall, at any time and from time to time upon not less than
ten (10) days prior to written notice from Landlord, execute, acknowledge and
deliver to Landlord a statement in writing certifying (I) that this Lease is
unmodified and in full force and effect (or, if modified, stating the nature of
such modification and certifying that this Lease, as so modified, is in full
force and effect), (ii) the dates to which the rental and other charges are
paid in advance, if any, (iii) that there is not to Tenant's knowledge, any
uncured default on the part of the Landlord hereunder, or specifying such
defaults if any are claimed, and (iv) such other matters as Landlord may
specify or request. Any such statement may be relied upon by a prospective
purchaser or encumbrancer of all or any portion of the real property of which
the Premises are a part.
<PAGE> 12
(b) Tenant's failure to deliver the statement described in Paragraph
28(a) above within the time specified shall be conclusive upon Tenant (I) that
this Lease is in full force and effect, without modification except as may be
represented by Landlord, (ii) that there are no uncured defaults in Landlord's
performance, and (iii) that not more than one month's rental has been paid in
advance, except as provided for in Addendum 1.
29. Rules and Regulations. Tenant shall faithfully observe and comply
with the "Rules and Regulations", a copy of which is attached hereto and marked
Exhibit C and all reasonable and nondiscrimination modifications thereof.
Landlord shall not be responsible to Tenant for the violation or nonperformance
by any other tenant or occupant of the Building or Project of any of the Rules
and Regulations.
30. Conflict of Law. This Lease shall be governed by and construed
pursuant to the laws of the State of California.
31. Successors and Assigns. This Lease shall be binding upon and shall
inure to the benefit of the parties hereto and their respective heirs, personal
representative, successors and assigns.
32. Surrender of Premises. The voluntary or other surrender of this Lease
by Tenant, or a mutual cancellation thereof, shall not work a merger, and
shall, at the option of Landlord, operate as an assignment to it of any or all
subleases of subtenancies.
33. Attorneys' Fees. In the event that either party should bring suit or
proceeding under this Lease or because of the breach of any provision of this
Lease or to enforce or protect any rights or remedies hereunder, then all costs
and expenses, including reasonable attorneys' fees, incurred by the prevailing
party therein shall be paid by the other party, which obligation on the part of
the other party shall be deemed to have accrued on the date of the commencement
of action is prosecuted to judgment.
34. Performance by Tenant. All covenants and agreements to be performed by
Tenant under any of the terms of this Lease shall be performed by Tenant at
Tenant's sole cost and expense and without any abatement of rent except as
otherwise provided herein. If Tenant shall fail to pay any sum of money, other
than rent, required to be paid by it hereunder and shall fail to perform any
other act on its part to be performed hereunder, and such failure shall continue
for ten (10) days after notice thereof by Landlord, Landlord may, without
waiving or releasing from any obligations of Tenant, but shall not be obligated
to, make any such payment or perform any other such action on Tenant's part to
be made or performed as in this Lease provided. Any amount due from Tenant to
Landlord hereunder which is not paid when due shall bear interest at an annual
rate of five percent (5%) per annum plus the then prevailing discount rate of
the Federal Reserve Bank of San Francisco (but not more than the maximum rate
permissible by law), until paid, unless otherwise specifically provided herein,
but the payment of such interest shall not excuse or cure any default by Tenant
under this Lease.
35. Mortgagee Protection. In the event of any default on the part of
Landlord, Tenant will give notice by registered or certified mail to any
beneficiary of a deed of trust or mortgagee of a mortgage covering the Premises
whose address shall have been furnished in writing, and shall offer such
beneficiary or mortgagee a reasonable opportunity to cure the default, including
time to obtain possession of the Premises by power of sale or a judicial
foreclosure, if such should prove necessary to effect a cure.
36. Definition of Landlord. The term "Landlord" as used in this Lease, so
far as covenants or obligations on the part of Landlord are concerned, shall be
limited to mean and include only the owner of owners at the time in question of
the fee of the Premises, and in the event of any transfer, assignment or other
conveyance or transfers of such title or leasehold, the Landlord herein named
(and in the case of any subsequent transfers or conveyances, the then grantor)
shall be automatically freed and relieved from and after the date of such
transfer, assignment or conveyance of all liability with respect to the
performance of any covenants or obligations on the part of Landlord contained in
this Lease thereafter to be performed. Without further agreement, the transferee
of such title shall be deemed to have assumed and agreed to observe and perform
any and all obligations of the Landlord hereunder, during its ownership of the
Premises. Landlord may transfer its interest in the Premises without the consent
of Tenant and such transfer or subsequent transfer shall not be deemed a
violation on Landlord's part of any of the terms and conditions of this Lease.
37. Waiver. The waiver by either party of any breach of any term, covenant
or condition herein contained shall not be deemed to be a waiver of any
subsequent breach of the same or any other term, covenant or condition herein
contained nor shall any custom or practice which may grow up between the parties
in the administration of the terms hereof be deemed a waiver of, or in any way
affect the right of Landlord to insist upon the performance by Tenant in strict
accordance with said terms. The subsequent acceptance of rent hereunder by
Landlord shall not be deemed to be a waiver of any preceding breach by Tenant of
any term, covenant or condition of this Lease, other than the failure of Tenant
to pay the particular rent so accepted, regardless of Landlord's knowledge of
such preceding breach at the time of acceptance of such rent.
38. Identification of Tenant. If more than one person executes this Lease
as Tenant,
(a) each of them is jointly and severally liable for the keeping,
observing and performing of all of the terms, covenants, conditions,
provisions, and agreements of this Lease to be kept, observed and performed by
Tenant; and
(b) the term "Tenant" as used in this Lease shall mean and include
each of them jointly and severally. The act of or notice from, or notice or
refund to, or the signature of, any one or more of them, with respect to the
tenancy of this Lease, including, but not limited to, any renewal, extension,
expiration, termination or modification of this Lease, shall be binding upon
each and all of the persons executing this Lease as Tenant with the same force
and effect as if each and all of them had so acted or so given such notice or
refund or so signed.
39. Terms and Headings. The words "Landlord" and "Tenant" shall be used
herein and shall include the plural as well as the singular. Words used in any
gender include other genders. The paragraph headings of this Lease are not a
part of this Lease and shall have no effect upon the construction or
interpretation of any part hereof.
40. Examination of Lease. Submission of this instrument for examination
or signature by Tenant does not constitute a reservation of or option for the
Lease, and it is not effective as a Lease or otherwise until execution by and
delivery to both Landlord and Tenant.
41. Time. Time is of the essence with respect to the performance of every
provision of this Lease in which time or performance is a factor.
42. Prior Agreements; Amendments. This Lease contains all of the
agreements of the parties hereto with respect to any matter covered or
mentioned in this Lease and no prior agreement or understanding pertaining to
any such matter shall be effective for any purpose. No provision of this Lease
may be amended or added to except by an agreement in writing signed by the
parties hereto or their respective successors in interest.
43. Separability. Any provision of this Lease which shall prove to be
invalid, void or illegal in no way affects, impairs or
<PAGE> 13
invalidates any other provision hereof, and such other provisions shall remain
in full force and effect.
44. Recording. Neither Landlord nor Tenant shall record this Lease or a
short form memorandum thereof without the consent of the other.
45. Parking. Tenant shall be permitted to use twenty nine (29) parking
spaces set forth on the Basic Lease Information on a nonexclusive basis and
upon such terms and conditions as may from time to time be imposed by Landlord.
46. Tenant's Remedy. If Landlord shall fail to perform any covenant,
term, or condition of this Lease upon Landlord's part to be performed, Tenant
shall be required to deliver to Landlord written notice of such failure. If, as
a consequence of such failure, Tenant shall recover a money judgment against
Landlord, such judgment shall be satisfied only out of the proceeds of sale
received upon execution of such judgment and levied thereon against the right,
title and interest of Landlord in the Project and out of rents or other income
from such property received by Landlord from the sale or other disposition of
all or any part of Landlord's right, title or interest in the Project, and
neither Landlord nor its partners, subsidiaries, directors, agents, officers,
or employees shall be liable for any deficiency.
47. Modification for Lender. If, in connection with obtaining
construction, interior or permanent financing for the Building or Project the
lender shall request reasonable modifications in this Lease as a condition to
such financing, Tenant will not unreasonably withhold, delay or defer its
consent thereto, provided that such modifications do not adversely affect the
obligations of Tenant hereunder shall not require additional payments or
materially adversely affect the leasehold interest hereby, created or Tenant's
rights hereunder.
48. Substitution of Premises. At any time after the execution of this
Lease, Landlord shall have the right to substitute for the Premises other
premises in the Project (the "New Premises"), provided that:
(a) the New Premises shall be substantially similar in size, but in
no way smaller than, the Premises described herein and shall be reasonably
appropriate for Tenant's use and occupancy.
(b) if Tenant is occupying the Premises at the time of any such
substitution, Landlord shall pay the expense of moving Tenant, its property
and equipment, including relocation of existing phones and reprinting of in
stock stationery, to the New Premises and shall, at its sole cost, improve the
New Premises with improvements substantially similar to those located in the
Premises.
Upon substitution of the New Premises for the Premises described
herein, the New Premises shall be deemed to be the Premises for all purposes
under this Lease, and Landlord and Tenant shall promptly initial, date and
attach to this Lease a substitute Exhibit A showing the New Premises.
49. Survival. Termination of this Lease by expiration otherwise shall
not terminate (i) Tenant's obligations arising from or relating to any
incident, occurrence or activity occurring prior to such termination
(including, without limitation, the obligations set forth in Paragraph 17 and
19) or (ii) any covenants or obligations which, by their terms or nature, are
to be performed after termination of this Lease.
50. Environmental. Tenant acknowledges that Landlord has informed Tenant
that the Building contains asbestos or asbestos-containing materials. At
Tenant's request, Landlord shall make available to Tenant (but without warranty)
at the Project office during normal business hours, copies of any inspection
reports, tests or similar documents in Landlord's possession respecting the
existence and the location of asbestos and the presence (if any) of hazardous
substances in or about the Building. To the extent such reports, tests or other
documents indicate any asbestos or asbestos-containing material in or about the
Building or any release of hazardous materials, this Addendum and such documents
shall constitute notice and disclosure as required under California Health and
Safety Code Sections 25359.7 and 25915.5, as applicable, with respect to the
presence of asbestos or asbestos-containing material or the hazardous substance
disclosed on such documents.
51. Reasonableness. Whenever the consent or approval of either party
hereto is required, such consent or approval shall not be unreasonably withheld
or delayed, and whenever this Lease grants to either party hereto the right to
take action, exercise discretion, make a judgment or other determination, such
party shall act reasonably and in good faith. Any costs, expenses, fees or
charges incurred by one party hereto and to be paid by other party shall be
limited in type and amount to those reasonably incurred.
52. Right of First Offer. During the initial term of the Lease, provided
that Tenant has at no time been in default of the terms and conditions of the
Lease, Tenant shall be provided an on-going Right of First Offer to lease any
office space on the ninth floor of the Building. Landlord shall notify Tenant
in writing of the availability of the office space and the terms of a lease
which are acceptable to Landlord. If Tenant notifies Landlord within five (5)
business days after receipt of said notice that Tenant is willing to lease said
space on the terms contained in the offer, Landlord shall deliver to Tenant for
execution an amendment to this Lease incorporating the terms of the offer,
which Tenant shall execute within five (5) business days after receipt and
Landlord shall execute thereafter. Tenant's failure to timely (a) notify
Landlord of Tenant's election to exercise this right of first offer, or (b)
execute said Lease amendment shall constitute Tenant's waiver of this right of
first offer. However, in the event said space becomes vacant in the future,
this space shall be subject to Right of First Offer terms as provided herein.
In the event Tenant elects not to exercise the Right of First Offer and
Landlord subsequently agrees to term third party that reduces the net rent
received by the Landlord by an amount which is five percent (5%) or greater,
then said offer shall again be presented to Tenant and the terms and conditions
contained herein shall be applicable. This Right of First Offer is personal to
Tenant and may not be assigned, voluntarily or involuntarily, separate from or
as a part of the Lease.
53. Option to Expand. During the initial term of this Lease, provided
that Tenant has not been in default of the terms and conditions of the Lease,
Tenant shall be provided an Option to Expand into Suite 902. Tenant must
provide Landlord written notice of it's intention to exercise it's Option to
Expand. Within one hundred twenty (120) days of the receipt of said notice,
Landlord shall deliver Suite 902, on the same terms and conditions as contained
in this Lease.
<PAGE> 14
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the day
and year first above written.
LANDLORD: PGP-South Bay Office TENANT: CyberSource Corporation,
Tower, Inc., a California a California corporation
Corporation
By: /s/ RAYMOND V. MARINO By: /s/ WILLIAM S. MCKIERNAN
------------------------------------ --------------------------------
Raymond V. Marino William S. McKiernan
------------------------------------ --------------------------------
Printed Name Printed Name
Its: President, C.E.O. Its: President & CEO
----------------------------------- -------------------------------
Date: 9/5/97 Date: 8/27/97
---------------------------------- ------------------------------
By: /s/ CHRISTOPHER WATSON By:
------------------------------------ --------------------------------
Christopher Watson
------------------------------------ --------------------------------
Printed Name Printed Name
Its: Executive Vice President Its:
----------------------------------- -------------------------------
Date: 9/4/97 Date:
---------------------------------- ------------------------------
<PAGE> 15
EXHIBIT "A"
The Project and the Premises
The cross-hatched area represents the leased premises.
[FLOOR PLAN -- CYBERSOURCE]
<PAGE> 16
EXHIBIT B
STANDARDS FOR UTILITIES AND SERVICES
The following Standards for Utilities and Services are in effect. Landlord
reserves the right to adopt nondiscriminatory modifications and additions
hereto:
As long as Tenant is not in default under any of the terms, covenants,
conditions, provisions or agreements of this Lease, Landlord shall:
(a) Provide non-attended automatic elevator facilities (if the Building
contains elevator facilities).
(b) On Monday through Friday, except holidays, from 7:00 A.M. to 6:00 P.M.
(and at other times for a reasonable additional charge to be fixed by
Landlord), ventilate the Premises and furnish air conditioning or heating on
such days and hours, when in the judgment of Landlord it may be required for
the comfortable occupancy of the Premises. Tenant agrees to cooperate fully at
all time with Landlord, and to abide by all regulations and requirements which
Landlord may prescribe for the proper functioning and protection of said air
conditioning system, and acknowledges that Landlord shall not be responsible
for room temperatures if Tenant does not abide by all regulations and
requirements which Landlord may prescribe for the proper functioning and
protection of said air conditioning system, and acknowledges that Landlord
shall not be responsible for room temperatures if Tenant does not keep all
blinds on the Premises closed when reasonable to do so to prevent heat
build-up. Tenant agrees not to connect any apparatus, device, conduit or pipe
to the Building chilled and hot water air conditioning supply lines. Tenant
further agrees that neither Tenant nor its servants, employees, agents,
visitors, licensees or contractors should at any time enter mechanical
installations or facilities of the Building or adjust, tamper with, touch or
otherwise in any manner affect said installation or facilities. The cost of
maintenance and service calls to adjust and regulate the air conditioning
systems shall be charged to Tenant if the need for maintenance work results
from either Tenant's adjustment of room thermostats or Tenant's failure to
comply with its obligations under this section, including keeping window
coverings closed as needed. Such work shall be charged at hourly rates equal to
the then current journeymen's wages for air conditioning mechanics.
(c) Furnish electric current to the Premises during the usual business hours
on business days, in the manner set forth in this paragraph (c). At all times,
Tenant's use of electric current shall never exceed the capacity of the feeders
to the Building or the risers or wiring installation.
(i) At Landlord's option, the Premises shall be provided with a separate
meter, at Tenant's cost, and electric current used in the Premises for above
standard electrical consumption shall be paid for by Tenant directly to the
utility provider.
(ii) If the Premises are not separately metered, then the Landlord shall
furnish to the Premises, during the usual business hours on business days,
electric current as required to provide standard office lighting and fractional
horsepower office business machines in the amount of approximately three (3)
watts per square foot. Tenant agrees, should its electrical installation or
electrical consumption be in excess of the aforesaid quantity or extend beyond
usual business hours, to reimburse Landlord monthly for the measured
consumption on or at the terms, classifications and rates charged to similar
consumers by the public utility serving the neighborhood in which the Building
is located. If a separate meter is not installed at Tenant's cost, such excess
cost will be established by an estimate agreed upon by Landlord and Tenant, and
if the parties fail to agree, by an independent licensed engineer selected by
Landlord and reasonably approved by Tenant. Tenant agrees not to use any
apparatus or device in, about or upon the Premises which may in any way
increase the amount of such services usually furnished or supplied to the
Premises, nor shall Tenant connect any apparatus or device with wires, conduits
or pipes, or other means by which such services and utilities are supplied, for
the purpose of using additional or unusual amounts of utilities or services,
without the prior written consent of the Landlord (which may be withheld at
Landlord's sole discretion).
(d) Water will be available in public areas for drinking and lavatory purposes
only, but if Tenant requires, uses or consumes water for any purpose in
addition to ordinary drinking and lavatory purposes -- of which fact Tenant
constitutes Landlord to be sole judge -- Landlord may install a water meter and
thereby measure Tenant's water consumption for all purposes. Tenant shall pay
Landlord for the cost of the meter and the cost of the installation thereof and
throughout the duration of Tenant's occupancy Tenant shall keep said meter and
installation equipment in good working order and repair at Tenant's own cost
and expense, in default of which Landlord may cause such meter and equipment to
be replaced or repaired to collect the cost thereof from Tenant. Tenant agrees
to pay for water consumed, as shown on said meter, as and when bills are
rendered, and on default in making such payment, Landlord may pay such charges
and collect the same from Tenant. Any such costs or expenses incurred, or
payments made by Landlord for any of the reasons or purposes hereinabove stated
shall be deemed to be additional rent payable by Tenant and collectible by
Landlord as such.
(e) Provide ordinary janitorial services to the Premises, provided the same
are used exclusively as offices and are kept reasonably clean and in order by
Tenant. It is understood that any special janitorial services or specific
services required due to Tenant's failure to keep the Premises reasonably clean
and in order or to maintain the Premises in accordance with the terms of this
Lease (including by way of illustration only, spot carpet cleaning or other
special cleaning) shall be subject to an additional charge to be fixed by
Landlord. If the Premises are not used exclusively as offices, they shall be
kept clean and in order by Tenant, at Tenant's expense, and to the satisfaction
of Landlord (and Landlord shall not be required to provide any janitorial
services), and no one other than persons approved by Landlord shall be
permitted to enter the premises to provide janitorial services. Tenant shall
pay to landlord the cost of removal of any of Tenant's refuse and rubbish, to
the extent that the same exceeds the refuse and rubbish usually attendant upon
the use of the Premises as offices.
(f) After hours HVAC charges are currently assessed at $25.00 per hour. The
after hours HVAC charge is subject to increases as mandated by the public
utility commission. After hours HVAC charges are applicable to use before 7:00
A.M. and after 6:00 P.M. Monday through Friday, and anytime Saturday and Sunday.
Landlord reserves the right after providing notice to Tenant to temporarily
stop service of the elevator, plumbing, ventilation, air conditioning and
electric system, when necessary, by reason or emergency for repairs,
alterations or improvements, in the judgment of Landlord desirable or
necessary to be made, until said repairs, alterations or improvements shall have
been completed, and shall further have no responsibility or liability for
failure to supply elevator facilities, plumbing, ventilating, air conditioning
or electric service, when prevented from so doing by strike or accident or by
any cause beyond Landlord's reasonable control, or by laws, rules, orders,
ordinances, directions, regulations or requirements of any federal, state,
county or municipal authority or failure of gas, oil or other suitable fuel
supply or inability by exercise of reasonable diligence to obtain gas, oil or
other suitable fuel. It is expressly understood and agreed that any covenants
on Landlord's part to furnish any service pursuant to any of the terms,
covenants, conditions, provisions or agreements of this Lease, or to perform
any act or thing for the benefit of Tenant, shall not be deemed breached if
Landlord is unable to furnish or perform the same by virtue of a strike or
labor trouble or any other cause whatsoever beyond Landlord's control.
<PAGE> 17
EXHIBIT C
RULES AND REGULATIONS
1. The sidewalks, entrances, passages, courts, elevators, vestibules,
stairways, shall not be obstructed or used for any purpose other than the
ingress and egress, and are not open to the general public, but are open,
subject to reasonable regulation, to Tenant's business invitees. Landlord shall
in all cases retain the right to control and prevent access thereto of all
persons whose presence in the judgment of Landlord would be prejudicial to the
safety, character, reputation and interest of the Project and its Tenants;
provided that nothing herein contained shall be construed to prevent such
access to persons with whom Tenant normally deals in the ordinary course of its
business, unless such persons are engaged in illegal or unlawful activities.
Neither Tenant nor any employee or invitee of Tenant shall go upon the roof of
the Building.
2. No awnings or other projection shall be attached to the outside walls of
the Building. No curtains, blinds, shades or screens shall be attached to or
hung in, or used in connection with any window or door of the Premises other
than Landlord's standard drapes. All terrace furniture and other items for use
on any exterior terrace areas (including balconies and atrium terraces, if any)
shall be subject to Landlord's prior approval, which may be withheld in
Landlord's sole discretion. All electric ceiling fixtures hung in offices of
spaces along the perimeter of the Building must be fluorescent, of a quality,
type, design and bulb color approved by Landlord. Neither the interior nor
exterior of any windows shall be coated or otherwise sunscreened without the
express written consent of Landlord.
3. No sign, advertisement or notice shall be exhibited, painted, or affixed
by Tenant on any part of the Premises, the Building or the Project without the
prior written consent of the Landlord. In the event of the violation of the
foregoing by Tenant, Landlord may remove same without any liability, and may
charge the expense incurred in such removal to Tenant. Interior signs on doors
and directory tablets shall be inscribed, painted or affixed for Tenant by
Landlord at the expense of Tenant, and shall be of a size, color, and style
acceptable to Landlord. The directory tablet will be provided exclusively for
the display of the name and location of Tenants only and Landlord reserves the
right to exclude any other names therefrom. Nothing may be placed on the
exterior of corridor walls or corridor doors other than Landlord's standard
lettering.
4. The sashes, sash doors, skylights, windows, and doors that reflect or
admit light and air into halls, passageways or other public places in the
Building or Project shall not be covered or obstructed by Tenant. Tenant shall
not place anything against or near glass partitions or doors or windows which
may appear unsightly from outside the Premises.
5. The water and wash closets and other plumbing fixtures shall not be used
for any purpose other than those for which they were constructed, and no
sweepings, rubbish, rags or other substances shall be thrown therein. All
damages resulting from any misuse of the fixtures caused by Tenant, or its
servants, employees, agents, visitors or licensees, shall be paid by Tenant.
6. Tenant shall not make, or permit to be made, any unseemly or disturbing
noises or disturb or interfere with occupants of this or neighboring buildings
or premises or those having business with them, whether by the use of any
musical instrument, radio, phonograph, unusual noise, or any other way. Tenant
shall not throw anything out of doors, windows, skylights, or down the
passageways.
7. No additional locks or bolts of any kind shall be placed upon any of the
doors or windows by Tenant, nor shall any changes be made in existing locks or
the mechanism thereof. Tenant must, upon the termination of his tenancy,
restore to the Landlord all keys of stores, offices, and toilet rooms, either
furnished to, or otherwise procured by, Tenant and in the event of the loss of
any keys so furnished, Tenant shall pay to the Landlord the cost of replacing
the same or of changing the lock or locks opened by such lost key if Landlord
shall deem it necessary to make such change.
8. The Building freight elevator(s) shall be available for use by all Tenants
in the building, subject to such reasonable scheduling as Landlord, in its
discretion, shall deem appropriate. All removals, or the carrying in or out of
any safes, freight, furniture or bulky matter of any description must take
place during the hours which Landlord may determine from time to time. The
moving of safes or other fixtures or bulky matter of any kind must be made
upon previous notice to the superintendent of the Building or Project and under
his supervision, and the persons employed by Tenant for such work must be
acceptable to the Landlord. The Landlord reserves the right to inspect all
safes, freight or other bulky articles to be brought into the Building and to
exclude from the Building all vaults, safes, freight or other bulky articles
which violate any of these Rules and Regulations or the Lease of which these
Rules and Regulations are a part.
9. Tenant shall not purchase spring water, ice, towels, or other like
services, from any company or persons not approved by Landlord, which approval
will not be unreasonably withheld.
10. Landlord shall have the right to prohibit any advertising by Tenant
featuring or referring to the Building which in Landlord's reasonable judgment
tends to impair the reputation of the Building or its desirability as an office
building and upon written notice from Landlord Tenant shall refrain from or
discontinue such advertising.
11. Landlord reserves the right to exclude from the Building between the hours
of 6 P.M. and 7 A.M. and at all hours on Saturdays, Sundays, and legal holidays
all persons who have not received clearance as a result of a written request
from Tenant or who do not present a pass to the Building signed by Landlord.
Landlord will furnish passes or at Landlord's option, clearances, to persons
for whom Tenant requests the same in writing. Tenant shall be responsible for
all persons for whom he requests passes or clearances and shall be liable to
Landlord for all acts of such persons. Landlord shall not be liable for damages
for any error with regard to the admission to or exclusion from the Building of
any person. Landlord reserves the right to prevent access to the Project in
case of an invasion, mob riot, public excitement or other circumstances
rendering such action advisable in Landlord's opinion.
12. All doors opening onto public corridors shall be kept closed, except when
in use for ingress and egress.
13. The requirements of Tenant will be attended to only upon application to
the property management office by an authorized individual, or others in case
of emergency.
14. Canvassing, soliciting and peddling in the Building and Project are
prohibited and Tenant shall not encourage such activities.
15. No air conditioning unit or other similar apparatus shall be installed or
used by Tenant without the written consent of Landlord.
16. There shall not be used in any space, or in the public halls of the
Building or Project, either by Tenant or others, and hand trucks except those
equipped with rubber tires and rubber side guards.
17. Landlord shall have the right exercisable without notice or without
liability to any tenant to change the name and address of the Building or
Project.
18. No vending machine or coin operated machines of any description shall be
installed, maintained or operated upon the Premises without written consent of
Landlord, which consent will not be unreasonably withheld.
19. Tenant agrees to provide carpet shields under all rolling chairs or
otherwise be responsible for wear and tear of the carpet caused by such rolling
chairs if such wear and tear exceeds that caused by normal foot traffic in
surrounding areas. Areas of excessive wear and tear shall be replaced at
Tenant's sole expense upon Lease termination.
20. All cleaning and janitorial services for the Building and the Premises
shall be provided exclusively through Landlord, and except with the written
consent of Landlord, no person or persons other than those approved by Landlord
shall be employed by Tenant or permitted to enter the Building for the purpose
of cleaning the same. Tenant shall not cause any unnecessary labor by
carelessness or indifference to the good order and cleanliness of the Premises.
21. If Tenant requires burglar alarm or similar services, it shall first
obtain, and comply with, Landlord's instructions in their installation.
22. Tenant shall not place a load upon any floor of the Premises which exceeds
the load per square foot which such floor was designed to carry and which is
allowed by law. Landlord shall have the right to prescribe the weight, size and
position of all equipment, materials, furniture,
<PAGE> 18
or other property brought into the Building. Heavy objects shall, if considered
necessary by Landlord, stand on such platforms as determined by Landlord to be
necessary to properly distribute the weight, which platforms shall be provided
at Tenant's expense. Business machines and mechanical equipment belonging to
Tenant which causes noise or vibration shall be equipped with eliminators or
other devices sufficient to eliminate noise or vibration. The persons employed
to move such equipment in or out of the Building must be acceptable to
Landlord. Landlord will not be responsible for loss of, or damage to, any such
equipment or other property from any cause, and all damage done to the Building
by maintaining or moving such equipment or other property shall be repaired at
the expense of Tenant.
23. Tenant shall not use or keep in the Premises any kerosene, gasoline, or
inflammable or combustible fluid or material other than those limited
quantities necessary for the operation or maintenance of office equipment.
Tenant shall not use or permit to be used in the Premises any foul or noxious
gas or substance, or permit or allow the Premises to be occupied or used in a
manner offensive or objectionable to Landlord or other occupants of the
Building or Project by reason of noise, odors or vibrations, nor shall Tenant
bring into or keep in or about the Premises any birds or animals.
24. Tenant shall not waste electricity, water, or air-conditioning and agrees
to cooperate fully with Landlord to assure the most effective operation of the
Building's heating and air-conditioning and to comply with any governmental
energy-saving rules, laws or regulations of which Tenant has actual notice, and
shall refrain from attempting to adjust controls. Tenant shall keep corridor
doors closed, and shall close window coverings at the end of each business day.
25. Tenant shall close and lock the doors of its Premises and entirely shut
off all water faucets or other water apparatus, and electricity, gas or air
outlets before Tenant and its employees leave the Premises. Tenant shall be
responsible for any damage or injuries sustained by other tenants or occupants
of the Building or Project or by Landlord for noncompliance with this rule.
26. Tenant shall not sell, or permit the sale at retail, of newspapers,
magazines, periodicals, theater tickets or any other goods or merchandise to
the general public in or on the Premises (other than a reasonable amount of
directories and other products carried by Tenant). Tenant shall not make any
room-to-room solicitation of business from other tenants in the Building.
Tenant shall not use the Premises for any business or activity other than that
specifically provided for in Tenant's Lease.
27. Tenant shall not install any radio or television antenna, loudspeaker or
other devices on the roof or exterior walls of the Building. Tenant shall not
interfere with radio or television broadcasting or reception from or in the
Building or elsewhere.
28. Tenant shall store all its trash and garbage within its Premises or in
other facilities provided by Landlord. Tenant shall not place in any trash box
or receptacle any material which cannot be disposed of in the ordinary and
customary manner of trash and garbage disposal. All garbage and refuse disposal
shall be made in accordance with directions issued from time to time by
Landlord.
29. The Premises shall not be used for the storage of reasonable merchandise
held for sale to the general public (other than reasonable quantities of
directories and other products carried by Tenant), or for lodging or for
manufacturing of any kind, nor shall the Premises be used for any improper,
immoral or objectional purpose. No cooking shall be done or permitted on the
Premises without Landlord's consent, except that used by Tenant of
Underwriters' Laboratory approved equipment for brewing coffee, tea, hot
chocolate and similar beverages or use of microwave ovens for employee use
shall be permitted, provided that such equipment and use is in accordance with
all applicable federal, state, county and city laws, codes, ordinances, rules
and regulations.
30. Tenant shall comply with all safety, fire protection and evacuation
procedures and regulations established by Landlord or any governmental agency.
31. Landlord may waive any one or more of these Rules and Regulations for the
benefit of Tenant or any other tenant, but no such waiver by Landlord shall be
construed as a waiver of such Rules and Regulations in favor of Tenant or any
other Tenant, nor prevent Landlord from thereafter enforcing any such Rules and
Regulations against any or all of the tenants of the Building.
32. These Rules and Regulations are in addition to, and shall not be construed
to in any way modify or amend, in whole or in part, the terms, covenants,
agreements and conditions of Tenant's lease of its Premises in the Building.
33. Landlord reserves the right to make such other and reasonable Rules and
Regulations as, in its judgment, may from time to time be needed for safety and
security, for care and cleanliness of the Building and for the preservation of
good order therein. Tenant agrees to abide by all such Rules and Regulations
hereinabove stated and any additional rules and regulations which are adopted
and approved by Tenant, which approval will not be unreasonably withheld.
34. Tenant shall use its best efforts to provide for observance of all of the
foregoing rules by Tenant's employees, agents, clients, customers, invitees and
guests.
35. Tenant shall not mark, drive nails, screw or drill into the partitions,
woodwork or plaster or in any way deface the Premises or any part thereof, with
exception of picture hooks and except in accordance with the provisions of the
Lease pertaining to alterations. Landlord reserves the right to direct
electricians as to where and how telephone and other communications system
wires are to be introduced to the Premises. Tenant shall not cut or bore holes
for wires. Tenant shall not affix any floor covering to the floor of the
Premises in any manner except as approved by Landlord. Tenant shall repair any
damage resulting from non-compliance with this rule or any other rule or
provision of the Lease.
36. Tenant assumes any and all responsibility for protecting its Premises and
property from theft, robbery, and pilferage, which includes keeping doors
locked and other means of entry into the Premises closed. Landlord is not
responsible for any theft or damage to property in parking garage L1 and L2.
37. Tenant agrees to remain in compliance with all applicable federal, state
and local laws relating to the protection of the public health, welfare, and
the environment ("Environmental Laws") with respect to the Tenant's use and
occupancy of the Leased Premises. Tenant agrees to cause all of its employees,
agents, contractors, sublessees, assignees, and any other persons occupying or
present on the Leased Premises ("Occupants") to comply with all environmental
Laws applicable to their activities in and around the Leased Premises.
38. Tenant shall not bring onto the Project or the Leased Premises, nor shall
it allow any its employees, agents, contractors, sublessees, assignees, and any
other persons occupying or present on the Leased Premises ("Occupants") to
bring onto the Project or the Leased Premises, any chemical, compound,
material, or substance that is defined or otherwise classified in any
Environmental Laws as a "hazardous substance," "hazardous material," "hazardous
waste," "toxic substance," or "toxic pollutant," except for small quantities of
any such substances that are consistent with ordinary office use of the Leased
Premises. If any quantity of any such substance is brought onto the Project or
the Leased Premises by Tenant or Occupants for ordinary office use, Tenant or
Occupants shall handle, use, and dispose of such substance in a reasonable and
prudent manner and in compliance with all applicable Environmental Laws.
<PAGE> 19
EXHIBIT "D"
WORK LETTER AND CONSTRUCTION AGREEMENT
(Allowance)
This agreement supplements the Lease dated July 8, 1997 executed
concurrently herewith by PGP-South Bay Office Tower, Inc., a California
Corporation as Landlord, and CyberSource Corporation, a California Corporation
as Tenant.
1. Tenant shall devote such time as may be necessary to enable Landlord to
complete the final layout plans and specifications for the Premises
("Construction Drawings") and obtain by Friday July 18, 1997:
a) Tenant's written approval, and approval by appropriate government
authorities of the Construction Drawings, and b) approval by Tenant of the cost
thereof. The Construction Drawings shall include among other things, the
location of all partitions, doors, light fixtures, electrical outlets,
telephone outlets and other standard or special installations required by
Tenant, as well as wall finishes and floor coverings. The Construction
Drawings, as they may be modified as provided herein, shall be prepared by
Landlord in accordance with the design specified by Tenant and reasonably
approved by Landlord. Tenant shall be responsible for the suitability for the
Tenant's needs and business of the design and function of all Tenant
Improvements. All real property improvements to be constructed by Landlord as
shown on the Construction Drawings, standard or special, shall be defined as
"Tenant Improvements".
2. Landlord shall complete the construction of the Exhibit A Tenant
improvements in a good and workmanlike manner, up to a maximum cost to Landlord
of $ Fourteen dollars and fifteen cents ($14.15) per square foot*, ("Landlord's
Maximum Contribution"). Exhibit A, Tenant improvements will not include
carpeting or millwork which will be provided by Tenant. *subject to final
measurement per BOMA standards.
The cost of the Tenant Improvements ("Tenant Improvement Costs") to be
paid by Landlord from said allowance shall include:
(a) The costs of preliminary space planning (including one revision) and
final architectural and engineering plans and specifications (Construction
Drawings) for the Tenant Improvements, and engineering costs associated with
completion of the State of California energy utilization calculations under
Title 24 Legislation;
(b) All costs of obtaining building permits and other necessary
authorizations from the City of San Jose and State of California;
(c) All costs of interior design and finish schedule plans and
specifications including as-built drawings;
(d) All direct and indirect costs or procuring and installing Tenant
Improvements in the premises, including the construction fee for overhead and
profit and the cost of all on-site supervisory and administrative staff,
office, equipment and temporary services rendered by Landlord's contractor in
connection with construction of the Tenant Improvements; and
(e) All fees payable to Landlord's architectural and engineering firm if
it is required by Tenant to redesign any portion of the Tenant Improvements
following Tenant's approval of the Construction Drawings.
In no event shall the Tenant Improvement Costs include any costs of procuring
or installing in the Premises any trade fixtures, equipment, furniture,
furnishings, telephone equipment or other personal property ("Personal
Property") to be used in the Premises by Tenant, and the cost of such Personal
Property shall be paid by Tenant.
3. Promptly upon completion of the Construction Drawings (including
revisions), Landlord shall notify Tenant in writing of the costs to Tenant for
quantities in excess of Landlord's Maximum Contribution. Tenant shall, by
signing the Construction Drawings within the time set forth in Paragraph 1
above, give Landlord authorization to complete the Tenant Improvements in
accordance with such Construction Drawings and plans, and accompany said
authorization with a check made out to Landlord in the amount of the authorized
excess cost of the Tenant Improvements over Landlord's Maximum Contribution or
Tenant may elect to amortize up to an additional $5.00 per square foot in
tenant improvement that exceed Landlords Maximum Contribution over the term of
the Lease at an interest rate equal to 11%. Should tenant elect to amortize
excess Tenant improvement costs, the basic rent will be modified with a first
Amendment to Lease. Tenant may in such authorization delete any or all of such
items of such cost. If such written authorization and check are not received by
Landlord, Landlord shall not be obligated to commence work on the Premises, and
Tenant shall be chargeable with any delay in the completion of the Premises.
4. If Tenant shall request any change, addition or alteration in the approved
Construction Drawings, Landlord shall promptly give Tenant a written estimate
of (a) the final cost of engineering and design services to prepare a change
order (the "Change Order") in accordance with such request, (b) the cost of
work to be performed pursuant to such Change Order, and (c) the time delay
expected because of such requested Change Order. Within three (3) business days
following Tenant's receipt of the foregoing written estimate, Tenant shall
notify Landlord in writing whether it approves such written estimate. If Tenant
approves such
<PAGE> 20
written estimate and if such cost is in excess of Landlord's Maximum
Contribution. Tenant shall accompany such approval with a good check made
payable by Landlord in the amount of the estimated cost of preparing the Change
Order and performing the work thereto, and the foregoing shall constitute
Landlord's authorization to proceed. If such written authorization, and check
if required, are not received by Landlord within such three (3) business day
period, Landlord shall not be obligated to prepare the Change Order or perform
any work in connection therewith. Upon completion of the work of the Change
Order and submission of the final cost thereof by Landlord to Tenant, Tenant
shall promptly pay to Landlord any such additional amounts in excess of
Landlord's Maximum Contribution.
5. If the completion of the Tenant Improvements in the Premises is delayed
(i) at the request of Tenant, (ii) by Tenant's failure to comply with the
foregoing provisions, (iii) by changes in the work ordered by Tenant or by
extra work ordered by Tenant, or (iv) because Tenant chooses to have additional
work performed by Landlord, then Tenant shall be responsible for all costs and
any expenses occasioned by such delay including, without limitation, any costs
and expenses attributable to increases in labor or materials; and there shall
be no delay in the commencement of Tenant's obligation to pay Rent because of
Landlord's failure to complete the Tenant Improvements on time.
<PAGE> 21
or other property brought into the Building. Heavy objects shall, if considered
necessary by Landlord, stand on such platforms as determined by Landlord to be
necessary to properly distribute the weight, which platforms shall be provided
at Tenant's expense. Business machines and mechanical equipment belonging to
Tenant which causes noise or vibration shall be equipped with eliminators or
other devices sufficient to eliminate noise or vibration. The persons employed
to move such equipment in or out of the Building must be acceptable to Landlord.
Landlord will not be responsible for loss of, or damage to, any such equipment
or other property from any cause, and all damage done to the Building by
maintaining or moving such equipment or other property shall be repaired at the
expense of Tenant.
23. Tenant shall not use or keep in the Premises any kerosene, gasoline, or
inflammable or combustible fluid or material other than those limited quantities
necessary for the operation or maintenance of office equipment. Tenant shall not
use or permit to be used in the Premises any foul or noxious gas or substance,
or permit or allow the Premises to be occupied or used in a manner offensive or
objectionable to Landlord or other occupants of the Building or Project by
reason of noise, odors or vibrations, nor shall Tenant bring into or keep in or
about the premises any birds or animals.
24. Tenant shall not waste electricity, water, or air-conditioning and agrees
to cooperate fully with Landlord to assure the most effective operation of the
Building's heating and air-conditioning and to comply with any governmental
energy-saving rules, laws or regulations of which Tenant has actual notice, and
shall refrain from attempting to adjust controls. Tenant shall keep corridor
doors closed, and shall close window coverings at the end of each business day.
25. Tenant shall close and lock the doors of its Premises and entirely shut off
all water faucets or other water apparatus, and electricity, gas or air outlets
before Tenant and its employees leave the Premises. Tenant shall be responsible
for any damage or injuries sustained by other tenants or occupants of the
Building or Project or by Landlord for noncompliance with this rule.
26. Tenant shall not sell, or permit the sale at retail, of newspapers,
magazines, periodicals, theater tickets or any other goods or merchandise to the
general public in or on the Premises (other than a reasonable amount of
directories and other products carried by Tenant). Tenant shall not make any
room-to-room solicitation of business from other tenants in the Building. Tenant
shall not use the Premises for any business or activity other than that
specifically provided for in Tenant's Lease.
27. Tenant shall not install any radio or television antenna, loudspeaker or
other devices on the roof or exterior walls of the Building. Tenant shall not
interfere with radio or television broadcasting or reception from or in the
Building or elsewhere.
28. Tenant shall store all its trash and garbage within its Premises or in
other facilities provided by Landlord. Tenant shall not place in any trash box
or receptacle any material which cannot be disposed of in the ordinary and
customary manner of trash and garbage disposal. All garbage and refuse disposal
shall be made in accordance with directions issued from time to time by
Landlord.
29. The Premises shall not be used for the storage of reasonable merchandise
held for sale to the general public (other than reasonable quantities of
directories and other products carried by Tenant), or for lodging or for
manufacturing of any kind, nor shall the Premises be used for any improper,
immoral or objectional purpose. No cooking shall be done or permitted on the
Premises without Landlord's consent, except that used by Tenant of Underwriter's
Laboratory approved equipment for brewing coffee, tea, hot chocolate and similar
beverages or use of microwave ovens for employee use shall be permitted,
provided that such equipment and use is in accordance with all applicable
federal, state, county and city laws, codes, ordinances, rules and regulations.
30. Tenant shall comply with all safety, fire protection and evacuation
procedures and regulations established by Landlord or any governmental agency.
31. Landlord may waive any one or more of these Rules and Regulations for the
benefit of Tenant or any other tenant, but no such waiver by Landlord shall be
construed as a waiver of such Rules and Regulations in favor of Tenant or any
other Tenant, nor prevent Landlord from thereafter enforcing any such Rules and
Regulations against any or all of the tenants of the Building.
32. These Rules and Regulations are in addition to, and shall not be construed
to in any way modify or amend, in whole or in part, the terms, covenants,
agreements and conditions of Tenant's lease of its Premises in the Building.
33. Landlord reserves the right to make such other and reasonable Rules and
Regulations as, in its judgment, may from time to time be needed for safety and
security, for care and cleanliness of the Building and for the preservation of
good order therein. Tenant agrees to abide by all such Rules and Regulations
hereinabove stated and any additional rules and regulations which are adopted
and approved by Tenant, which approval will not be unreasonably withheld.
34. Tenant shall use its best efforts to provide for observance of all of the
foregoing rules by Tenant's employees, agents, clients, customers, invitees and
guests.
35. Tenant shall not mark, drive nails, screw or drill into the partitions,
woodwork or plaster or in any way deface the Premises or any part thereof, with
exception of picture hooks and except in accordance with the provisions of the
Lease pertaining to alterations. Landlord reserves the right to direct
electricians as to where and how telephone and other communications system wires
are to be introduced to the Premises. Tenant shall not cut or bore holes for
wires. Tenant shall not affix any floor covering to the floor of the Premises in
any manner except as approved by Landlord. Tenant shall repair any damage
resulting from non-compliance with this rule or any other rule or provision of
the Lease.
36. Tenant assumes any and all responsibility for protecting its Premises and
property from theft, robbery, and pilferage, which includes keeping doors locked
and other means of entry into the Premises closed. Landlord is not responsible
for any theft or damage to property in parking garage L1 and L2.
37. Tenant agrees to remain in compliance with all applicable federal, state
and local laws relating to the protection of the public health, welfare, and the
environment ("Environmental Laws") with respect to the Tenant's use and
occupancy of the Leased Premises. Tenant agrees to cause all of its employees,
agents, contractors, sublessees, assignees, and any other persons occupying or
present on the Leased Premises ("Occupants") to comply with all environmental
Laws applicable to their activities in and around the Leased Premises.
38. Tenant shall not bring onto the Project or the Leased Premises, nor shall
it allow any its employees, agents, contractors, sublessees, assignees, and any
other persons occupying or present on the Leased Premises ("Occupants") to bring
onto the Project or the Leased Premises, any chemical, compound, material, or
substance that is defined or otherwise classified in any Environmental Laws as a
"hazardous substance," "hazardous material," "hazardous waste," "toxic
substance," or "toxic pollutant," except for small quantities of any such
substances that are consistent with ordinary office use of the Leased Premises.
If any quantity of any such substance is brought onto the Project or the Leased
premises by Tenant or Occupants for ordinary office use, Tenant or Occupants
shall handle, use and dispose of such substance in a reasonable and prudent
manner and in compliance with all applicable Environmental Laws.
<PAGE> 22
EXHIBIT "D"
WORK LETTER AND CONSTRUCTION AGREEMENT
(Allowance)
This agreement supplements the Lease dated July 8, 1997 executed
concurrently herewith by PGP-South Bay Office Tower, Inc., a California
Corporation as Landlord, and CyberSource Corporation, a California Corporation
as Tenant.
1. Tenant shall devote such time as may be necessary to enable Landlord to
complete the final layout plans and specifications for the Premises
("Construction Drawings") and obtain by Friday July 18, 1997:
a) Tenant's written approval, and approval by appropriate government
authorities of the Construction Drawings, and b) approval by Tenant of the cost
thereof. The Construction Drawings shall include among other things, the
location of all partitions, doors, light fixtures, electrical outlets,
telephone outlets and other standard or special installations required by
Tenant, as well as wall finishes and floor coverings. The Construction
Drawings, as they may be modified as provided herein, shall be prepared by
Landlord in accordance with the design specified by Tenant and reasonably
approved by Landlord. Tenant shall be responsible for the suitability for the
Tenants' needs and business of the design and function of all Tenant
Improvements. All real property improvements to be constructed by Landlord as
shown on the Construction Drawings, standard or special, shall be defined as
"Tenant Improvements".
2. Landlord shall complete the construction of the Exhibit A Tenant
improvements in good and workmanlike manner, up to a maximum cost to Landlord
of $ Fourteen dollars and fifteen cents ($14.15) per square foot*, ("Landlord's
Maximum Contribution"). Exhibit A, Tenant improvements will not include
carpeting or millwork which will be provided and installed by Tenant. *subject
to final measurement per BOMA standards.
The cost of the Tenant Improvements ("Tenant Improvement Costs") to be
paid by Landlord from said allowance shall include:
(a) The costs of preliminary space planning (including one revision) and
final architectural and engineering plans and specifications (Construction
Drawings) for the Tenant Improvements, and engineering costs associated with
completion of the State of California energy utilization calculations under
Title 24 Legislation;
(b) All costs of obtaining building permits and other necessary
authorizations from the City of San Jose and State of California;
(c) All costs of interior design and finish schedule plans and
specifications including as-built drawings;
(d) All direct and indirect costs of procuring and installing Tenant
Improvements in the premises, including the construction fee for overhead and
profit and the cost of all on-site supervisory and administrative staff,
office, equipment and temporary services rendered by Landlord's contractor in
connection with construction of the Tenant Improvements; and
(e) All fees payable to Landlord's architectural and engineering firm if
it is required by Tenant to redesign any portion of the Tenant improvements
following Tenant's approval of the Construction Drawings.
In no event shall the Tenant Improvement Costs include any costs of procuring
or installing in the Premises any trade fixtures, equipment, furniture,
furnishings, telephone equipment or other personal property ("Personal
Property") to be used in the Premises by Tenant, and the cost of such Personal
Property shall be paid by Tenant.
3. Promptly upon completion of the Construction Drawings (including
revisions), Landlord shall notify Tenant in writing of the costs to Tenant for
quantities in excess of Landlord's Maximum Contribution. Tenant shall, by
signing the Construction Drawings within the time set forth in Paragraph 1
above, give Landlord authorization to complete the Tenant Improvements in
accordance with such Construction Drawings and plans, and accompany said
authorization with a check made out to Landlord in the amount of the authorized
excess cost of the Tenant Improvements over Landlord's Maximum Contribution or
Tenant may elect to amortize up to an additional $5.00 per square foot in
tenant improvement that exceed Landlords Maximum Contribution over the term of
the Lease at an interest rate equal to 11%. Should tenant elect to amortize
excess Tenant improvement costs, the basic rent will be modified with a first
Amendment to Lease. Tenant may in such authorization delete any or all of such
items of such cost. If such written authorization and check are not received by
Landlord, Landlord shall not be obligated to commence work on the Premises, and
Tenant shall be chargeable with any delay in the completion of the Premises.
4. If Tenant shall request any change, addition or alteration in the approved
Construction Drawings, Landlord shall promptly give Tenant a written estimate
(a) the final cost of engineering and design services to prepare a change order
(the "Change Order") in accordance with such request, (b) the cost of work to
be performed pursuant to such Change Order, and (c) the time delay expected
because of such requested Change Order. Within three (3) business days
following Tenant's receipt of the foregoing written estimate, Tenant shall
notify Landlord in writing whether it approves such written estimate. If Tenant
approves such
<PAGE> 23
written estimate and if such cost is in excess of Landlord's Maximum
Contribution, Tenant shall accompany such approval with a good check made
payable by Landlord in the amount of the estimated cost of preparing the Change
Order and performing the work thereto, and the foregoing shall constitute
Landlord's authorization to proceed. If such written authorization, and check
if required, are not received by Landlord within such three (3) business day
period, Landlord shall not be obligated to prepare the Change Order or perform
any work in connection therewith. Upon completion of the work of the Change
Order and submission of the final cost thereof by Landlord to Tenant, Tenant
shall promptly pay to Landlord any such additional amounts in excess of
Landlord's Maximum Contribution.
5. If the completion of the Tenant Improvements in the Premises is delayed
(i) at the request of Tenant (ii) by Tenant's failure to comply with the
foregoing provisions, (iii) by changes in the work ordered by Tenant or by
extra work ordered by Tenant, or (iv) because Tenant chooses to have additional
work performed by Landlord, then Tenant shall be responsible for all costs and
any expenses occasioned by such delay including, without limitation, any costs
and expenses attributable to increases in labor or materials; and there shall
be no delay in the commencement of Tenant's obligation to pay Rent because of
Landlord's failure to complete the Tenant Improvements on time.
<PAGE> 24
EXHIBIT E
COMMENCEMENT DATE MEMORANDUM
Landlord: PGP-South Bay Office Tower, Inc.,
a California Corporation
3031 Tisch Way Suite 07PW
San Jose, CA 95128
Tenant: CyberSource Corporation
a California Corporation
550 South Winchester Blvd. Suite 301
San Jose, CA 95128
Premises: Approximately 7,505 Rentable Square Feet (known as Suite 900) of
the building located at 3031 Tisch Way, Suite 900 San Jose, CA
95128. *Subject to final measurement Per BOMA standards.
1) Tenant hereby accepts the premises as having been completed in conformation
with the Tenants Improvement Agreement attached to the Lease as Exhibit D.
2) Pursuant to Paragraph 2 of the above referenced Lease, the undersigned
hereby agree that the Commencement Date of the Lease is hereby established
as _________________.
Landlord: PGP-South Bay Office Tenant: CyberSource Corporation
Tower, Inc. a California Corporation
a California Corporation
/s/ R. V. MARINO /s/ W. S. McKIERNAN
- ----------------------------------- -----------------------------------
By By
Raymond V. Marino William S. McKiernan
- ----------------------------------- -----------------------------------
Printed Name Printed Name
President, C.E.O. President & CEO
- ----------------------------------- -----------------------------------
Its Its
9/5/97 8/27/97
- ----------------------------------- -----------------------------------
Dated Dated
/s/ CHRISTOPHER WATSON
- ----------------------------------- -----------------------------------
By By
Christopher Watson
- ----------------------------------- -----------------------------------
Printed Name Printed Name
Executive Vice President
- ----------------------------------- -----------------------------------
Its Its
9/4/97
- ----------------------------------- -----------------------------------
Dated Dated
<PAGE> 25
ADDENDUM I TO LEASE
SECURITY DEPOSIT
This Addendum to Lease Agreement dated July 8, 1997, ("Addendum I") is made as
of July 8, 1997, by and between PGP-South Bay Office Tower, Inc., a California
Corporation, ("Landlord") and CyberSource Corporation, a California Corporation
("Tenant"), with reference to the following:
PGP-South Bay Office Tower, Inc. ("Landlord") shall retain from CyberSource,
Inc. ("Tenant") four months rent for security deposit in the amount of
$68,445.60 within 20 days of execution of this Lease. This deposit shall be
held in an interest bearing account in the Tenants name, with Landlord as the
sole signatory on the account. If the Tenant has not been in default of any
Lease obligations at anytime, Landlord shall refund two months security
deposit in the amount of $34,227.80 plus interest earned after twelve (12)
months. After Eighteen (18) months the remaining security deposit amount of
$34,227.80 will be subject to review by Landlord and Tenant. If Tenant proves
six months profitability, the deposit will be reduced to one months rent in the
amount of $17,111.40, and will be placed in Landlord's general fund. If at
anytime after the initial year period Tenant is in default of their Lease
obligation, Landlord can require the additional security deposit back from
Tenant to be held in Landlord's general funds.
Landlord: PGG-South Bay Office Tower, Inc. Tenant: CyberSource Corporation
a California Corporation a California Corporation
/s/ RAYMOND V. MARINO /s/ W.S. McKIERNAN
- ------------------------------------------- ---------------------------------
By By
Raymond V. Marino William S. McKiernan
- ------------------------------------------- ---------------------------------
Printed Name Printed Name
President, C.E.O. President & CEO
- ------------------------------------------- ---------------------------------
Its Its
9/5/97 8/27/97
- ------------------------------------------- ---------------------------------
Dated Dated
By /s/ CHRISTOPHER WATSON
- -------------------------------------------
Christopher Watson
- -------------------------------------------
Printed Name
Executive Vice President
- -------------------------------------------
Its
9/4/97
- -------------------------------------------
Dated
<PAGE> 26
AMENDMENT I
This First Amendment of Lease ("First Amendment") is made as of December 7,
1997 to the Lease dated July 8, 1997, by and between PGP-South Bay Office
Tower, Inc., (Landlord) and CyberSource Corporation, ("Tenant"), and shall
modify as follows:
RECITALS
A. Landlord and Tenant entered into that certain office building lease dated
July 8, 1997 (the "Lease") for the Premises commonly known as 3031 Tisch
Way, Suite 900, San Jose, California 95128 in a development known as South
Bay Office Tower.
B. Landlord and Tenant now desire to expand the premises to include Suite 902
of approximately 1,545 square feet. Suite 900 (7,424 rsf) and Suite 902
(1,545 rsf) consisting of approximately 8,969 rentable square feet will be
combined as new Suite #900. Total Building Square Footage revised to be
168,094 square feet.
NOW THEREFORE, Landlord and Tenant agree that the Lease shall be amended as set
forth below:
1. LANDLORD: PGP-South Bay Office Tower, Inc., a California Corporation.
2. TENANT: CyberSource Corporation, a California Corporation.
3. PREMISES: Suite 900 consisting of approximately 8,969 rentable square
feet.
4. TERM: Five (5) years.
5. RENT:
<TABLE>
<CAPTION>
MONTHS SQ.FT. RATE MONTHLY RENT
------ ------ ------ ------------
<S> <C> <C> <C>
02/01/98 - 10/31/98 8,969 $2.28 $20,449.32
11/01/98 - 10/31/99 8,969 $2.38 $21,346.22
11/01/99 - 10/31/00 8,969 $2.48 $22,243.12
11/01/00 - 10/31/01 8,969 $2.58 $23,140.02
11/01/01 - 10/31/02 8,969 $2.68 $24,036.92
</TABLE>
*Occupancy date of 2/1/98 pending completion of tenant improvements.
6. TENANT'S PRO-RATA SHARE: .0534/100 PERCENT (5.34%)
<PAGE> 27
7. DIRECT EXPENSES:
After calendar year 1998, the Tenant will be responsible to pay its
proportional share of the increase in Direct Expenses over the 1998 base
year.
8. TENANT IMPROVEMENTS:
Landlord will contribute $14.15 per square foot of that portion of 1,545
square feet originally known as Suite 902, based on building standards.
Excess over the tenant improvement allowance will be paid by Tenant upon
execution of Lease.
9. PARKING: The number of allowed parking spaces will be thirty-six (36)
spaces.
All other terms, conditions, provisions, and covenants of the Lease shall
remain unchanged and in full force and effect.
LANDLORD: TENANT:
PGP-SOUTH BAY OFFICE TOWER, INC. CyberSource Corporation
a California Corporation a California Corporation
By: /s/ R. V. MARINO By: /s/ BLAKE BURKE
-------------------------------- -------------------------------
Ray Marino Blake Burke
President Controller
Date: 01/15/98 Date: 12/18/97
------------------------------ -----------------------------
By: /s/ CHRISTOPHER WATSON
--------------------------------
Christopher Watson
Executive Vice President
Date: 1/14/98
------------------------------
<PAGE> 1
Exhibit 10.26
<TABLE>
<CAPTION>
<S> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
SOLICITATION/CONTRACT 1. THIS CONTRACT IS RATED ORDER UNDER RATING PAGE 1 OF
BIDDER/OFFEROR TO COMPLETE BLOCKS 11, 13, 15, 21, 22 & 27 OF AS (CFR 250)
- ----------------------------------------------------------------------------------------------------------------------------------
2. CONTRACT NO. 3. AWARD EFFECTIVE DATE 4. SOLICITATION NO.: 5. SOLICITATION TYPE 6. SOLICITATION ISSUE DATE
N00140-96-G-D115 19 Dec. 95 [] SEALED [] NEGOTIATED
BIDS
- ------------------------------------------------------------------------------------------------------------------------------------
7. ISSUED BY CODE N00140 8. THIS ACQUISITION IS
FISC DETACHED PHILADELPHIA
700 ROBBINS AVENUE, BLDG 2B [] UNRESTRICTED [] LABOR SURPLUS AREA CONCERNS
PHILADELPHIA, PA 19111-5083 [] SET ASIDE % FOR [] COMBINED SMALL BUSINESS & LABOR SURPLUS
0211A: M.D. Byrne (215) 697-9601 [] SMALL BUSINESS [] AREA CONCERNS
SIC [] OTHER
SIZE STANDARD
- ----------------------------------------------------------------------------------------------------------------------------------
9. SOLICITATION BIDDER/OFFERORS SHALL INSURE THAT SEALED BIDS/PROPOSALS (AN ORIGINAL AND ONE COPY) SHALL BE RECEIVED IN THE BID
ROOM OR IF THE DEPOSITORY LOCATED IN THE BID ROOM FSC NORFOLK DETACHMENT PHILADELPHIA BUILDING 2B. 700 ROBBINS AVENUE,
PHILADELPHIA, PA 19111-5083 NO LATER THAN 4:00 P.M. (LOCAL TIME PHILADELPHIA, PA) on
LATE OFFERS ARE SUBJECT TO THE LATE BID OR PROPOSAL PROVISIONS INCORPORATED HEREIN. ALL OFFER ARE SUBJECT TO SUCH PROVISIONS,
REPRESENTATIONS, CERTIFICATIONS AND SPECIFICATIONS AS ARE ATTACHED OR INCORPORATED HEREIN BY REFERENCE.
- ----------------------------------------------------------------------------------------------------------------------------------
10. ITEMS TO BE PURCHASED (BRIEF DESCRIPTION)
[X] SUPPLIES [] SERVICES Software Licenses
- ----------------------------------------------------------------------------------------------------------------------------------
11. IF OFFER IS ACCEPTED BY THE GOVERNMENT WITHIN 180 CALENDAR DAYS (UNLESS OFFEROR 12. ADMINISTERED BY CODE S0507A
INSERTS A DIFFERENT PERIOD) FROM THE DATE SET FOR IN BLOCK 9 ABOVE THE CONTRACTOR DCMAO San Francisco
AGREES TO HOLD ITS OFFERED PRICES FIRM FOR THE ITEMS SOLICITED HEREIN AND TO 1265 Borregas Ave
ACCEPT ANY RESULTING CONTRACT SUBJECT TO THE TERMS AND CONDITIONS STATED HEREIN: SUNNYVALE, CA 94088
- ----------------------------------------------------------------------------------------------------------------------------------
13. contractor/ CODE 04AE6 FACILITY CODE 14. PAYMENT WILL BE MADE BY: Code SC1008
OFFEROR DFAS-Columbus Center
CYBERSOURCE Corporation DFAS-CO-JWS San Francisco
1050 Chestnut St., Suite 201 P.O. Box 182380
Menlo Park, CA 94025 Columbus, OH 43218-2380
[] TELEPHONE NO. 415-462-5522 DUNS NO. 87-703-2409
CHECK IF REMITTANCE IS DIFFERENT AND PUT SUCH ADDRESS IN OFFER
- ----------------------------------------------------------------------------------------------------------------------------------
15. PROMPT PAY DISCOUNT 16. AUTHORITY FOR USING OTHER THAN FULL
AND OPEN COMPETITION
[] 10 USC?? [] 41 USC 233(C)
(C)
- ----------------------------------------------------------------------------------------------------------------------------------
17 18 19 20 21 22
ITEM NO. SCHEDULE OF SUPPLIES/SERVICES QUANTITY UNIT UNIT PRICE AMOUNT
- ----------------------------------------------------------------------------------------------------------------------------------
SEE ATTACHED 1 FOR PRICING SCHEDULE OF SUPPLIES
Sections K and L are incorporated by reference
- ----------------------------------------------------------------------------------------------------------------------------------
23 ACCOUNTING & APPROPRIATION DATA 24 TOTAL AWARD AMOUNT (FOR
GOVT USE ONLY)
Funding to be provided on resultant delivery orders.
- ----------------------------------------------------------------------------------------------------------------------------------
25 CONTRACTOR IS REQUIRED TO SHOW THIS DOCUMENT AND RETURN TWO COPIES TO [] 26 AWARD OF CONTRACT. YOUR OFFER ON SOLICITATION
ISSUING OFFICE. CONTRACTOR AGREES TO FURNISH AND DELIVER ALL ITEMS SET NUMBER SHOWN IN BLOCK 4 INCLUDING ANY ADDITIONS
FORTH HEREIN OR OTHERWISE IDENTIFIED ABOVE AND OR ANY CONTINUATION OR CHANGES WHICH ARE SET FORTH HEREIN IS
SHEETS SUBJECT TO THE TERMS AND CONDITIONS SPECIFIED HEREIN ACCEPTED AS TO ITEM.
- ----------------------------------------------------------------------------------------------------------------------------------
27 SIGNATURE OF OFFEROR/CONTRACTOR 28 UNITED STATES OF AMERICA (SIGNATURE OF CONTRACTING OFFICER)
/s/ W.S. MCKIERNAN /s/ J.J. SWIZEWSKI
- ----------------------------------------------------------------------------------------------------------------------------------
NAME AND TITLE OF SIGNER (TYPE OR PRINT) DATE SIGNED NAME OF CONTRACTING OFFICER DATE SIGNED
William S. McKiernan 12/15/95 J.J. Swizewski 12/19/95
</TABLE>
<PAGE> 2
SECTION B PRICING
B.1 PRICING STRUCTURE
Prices shall be provided for the following items.
B.1.1 DISTRIBUTION OF SOFTWARE PRODUCTS ON PHYSICAL ELECTRONIC MEDIA. Prices
shall be provided for the following physical electronic media and in the
quantities indicated. All prices for distribution shall include all
distribution functions (i.e. copying, packaging, shipping, etc.) media, and
shipping charges FOB destination needed to deliver products to end user
destinations.
Complete a pricing chart for each product or combination of products provided
as a "Bundled Product". Offerors may provide volume price breaks at any quantity
listed on the Pricing Chart. Prices shall be given as dollars and not
percentages, and shall be equal to or lower than each preceding Quantity
discount provided in the Pricing Chart.
SOFTWARE PACKAGE AND DOCUMENTATION PRICING CHART
Quantity
CLIN 0001
<TABLE>
<CAPTION>
SLIN A B C D E
Electronic Media 1-10 11-100 101-500 501-1K 1K+
---------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
A 360 Kb diskettes
------- ------- ------- ------- -------
B 1.2 Mb diskettes
------- ------- ------- ------- -------
C 700 Kb diskettes
------- ------- ------- ------- -------
D 1.4 Mb diskettes .69 .65 .59 .49 .49
------- ------- ------- ------- -------
E CD ROM
------- ------- ------- ------- -------
F Electronic (BBS)
------- ------- ------- ------- -------
</TABLE>
Pricing for Electronic media and Documentation is discounted by volume on an
order by order basis.
Note: The first order for 12 1.4MB diskettes will reference:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
CLIN QTY UNIT UNIT Iss. PRICE TOTAL
XX0001DA 12 Diskette Ea. $.69 $7.80
</TABLE>
The second order for 103 1.4Mb diskettes will be:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
CLIN QTY UNIT UNIT Iss. PRICE TOTAL
XX0001DB 103 Diskette Ea. $.65 $60.77
</TABLE>
2
<PAGE> 3
B.1.2 DISTRIBUTION OF ORIGINAL EQUIPMENT MANUFACTURER (OEM) DOCUMENTATION ON
PAPER MEDIA. Documentation shall be provided in identical format to the
Publishers/Manufacturer regular commercial version. All prices for distribution
of paper products shall be FOB destination.
CLIN 0002 PRODUCT NAME(S):
------------------------------------------
------------------------------------------
------------------------------------------
------------------------------------------
------------------------------------------
<TABLE>
<CAPTION>
A B C D E
Quantity
<S> <C> <C> <C> <C> <C>
OEM Documentation 1-10 11-100 101-500 501-1K 1K+
------- ------- ------- ------- -------
A *User Manual
------- ------- ------- ------- -------
B *Operators Manual
------- ------- ------- ------- -------
C *Other Manual
------- ------- ------- ------- -------
D *Other Manual
------- ------- ------- ------- -------
E *Other Manual
------- ------- ------- ------- -------
</TABLE>
*Note: Replace generic title of documentation with actual product name when
proposing.
3
<PAGE> 4
SECTION B PRICING
B.1.3 VOLUME DISCOUNT FEES. Prices shall be based upon accumulated discounts
for the life of the contract. For client server software, prices shall be
submitted for the server, individual users, annual maintenance, and if offered,
distribution. For desktop software prices shall be submitted for one-time
perpetual licenses, annual maintenance, and if offered, distribution. If prices
differ for Legacy Users License (Users of the software purchased by other than
this agreement) and Level I Maintenance then two columns shall be completed. If
the prices are identical then only the level I Maintenance pricing column need
be completed, AND Legacy Users Licenses shall be priced as Level I maintenance.
PRICING CHART FOR CLIENT/SERVER PRODUCTS
CLIN 0003A SERVER PRODUCT NAME(S):
---------------------------------
Version -------------------------------------
Platform ------------------------------------
Oper. Sys. ----------------------------------
FEES
<TABLE>
<CAPTION>
Server Server New Legacy Server Annual Maintenance
Server Annual Support
Quantity Users Users Level I Level II Level III Level I Level II Level III SLIN
A B C D E F G
H
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1-3
--------- ---------- ---------- ---------- ---------- ---------- --------- ---------
4-10
--------- ---------- ---------- ---------- ---------- ---------- --------- ---------
11-30
--------- ---------- ---------- ---------- ---------- ---------- --------- ---------
31-100
--------- ---------- ---------- ---------- ---------- ---------- --------- ---------
101-300
--------- ---------- ---------- ---------- ---------- ---------- --------- ---------
301-1000
--------- ---------- ---------- ---------- ---------- ---------- --------- ---------
1001-3000
--------- ---------- ---------- ---------- ---------- ---------- --------- ---------
3001-10000
--------- ---------- ---------- ---------- ---------- ---------- --------- ---------
10001-30000
--------- ---------- ---------- ---------- ---------- ---------- --------- ---------
30001-100000
--------- ---------- ---------- ---------- ---------- ---------- --------- ---------
100001-300000
--------- ---------- ---------- ---------- ---------- ---------- --------- ---------
300001-1000000
--------- ---------- ---------- ---------- ---------- ---------- --------- ---------
1000000+
--------- ---------- ---------- ---------- ---------- ---------- --------- ---------
</TABLE>
4
<PAGE> 5
PRICING CHART FOR CLIENT/SERVER PRODUCTS
CLIN 0003B SERVER PRODUCT NAME(S):
---------------------------------
Version -------------------------------------
Platform ------------------------------------
Oper. Sys. ----------------------------------
FEES
<TABLE>
<CAPTION>
Server Server
New Legacy Client Annual Maintenance Client Annual Support
Quantity Users Users Level I Level II Level III Level I Level II Level III
SLIN A B C D E F G H
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1-3
--------- ---------- ---------- ---------- ---------- ---------- --------- ---------
4-10
--------- ---------- ---------- ---------- ---------- ---------- --------- ---------
11-30
--------- ---------- ---------- ---------- ---------- ---------- --------- ---------
31-100
--------- ---------- ---------- ---------- ---------- ---------- --------- ---------
101-300
--------- ---------- ---------- ---------- ---------- ---------- --------- ---------
301-1000
--------- ---------- ---------- ---------- ---------- ---------- --------- ---------
1001-3000
--------- ---------- ---------- ---------- ---------- ---------- --------- ---------
3001-10000
--------- ---------- ---------- ---------- ---------- ---------- --------- ---------
10001-30000
--------- ---------- ---------- ---------- ---------- ---------- --------- ---------
30001-100000
--------- ---------- ---------- ---------- ---------- ---------- --------- ---------
100001-300000
--------- ---------- ---------- ---------- ---------- ---------- --------- ---------
300001-1000000
--------- ---------- ---------- ---------- ---------- ---------- --------- ---------
1000000+
--------- ---------- ---------- ---------- ---------- ---------- --------- ---------
</TABLE>
5
<PAGE> 6
PRICING CHART FOR DESKTOP PRODUCTS
CLIN 0004 PRODUCT NAME(S):
---------------------------------
---------------------------------
---------------------------------
---------------------------------
FEES
<TABLE>
<CAPTION>
New Legacy Annual Maintenance Annual Support
Quantity Users Users Level I Level II Level II Level I Level II Level III
CLIN A B C D E F G H
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1-3
--------- ---------- ---------- ---------- ---------- ---------- --------- ---------
4-10
--------- ---------- ---------- ---------- ---------- ---------- --------- ---------
11-30
--------- ---------- ---------- ---------- ---------- ---------- --------- ---------
31-100
--------- ---------- ---------- ---------- ---------- ---------- --------- ---------
101-300
--------- ---------- ---------- ---------- ---------- ---------- --------- ---------
301-1000
--------- ---------- ---------- ---------- ---------- ---------- --------- ---------
1001-3000
--------- ---------- ---------- ---------- ---------- ---------- --------- ---------
3001-10000
--------- ---------- ---------- ---------- ---------- ---------- --------- ---------
10001-30000
--------- ---------- ---------- ---------- ---------- ---------- --------- ---------
30001-100000
--------- ---------- ---------- ---------- ---------- ---------- --------- ---------
100001-300000
--------- ---------- ---------- ---------- ---------- ---------- --------- ---------
300001-1000000
--------- ---------- ---------- ---------- ---------- ---------- --------- ---------
1000000+
--------- ---------- ---------- ---------- ---------- ---------- --------- ---------
</TABLE>
6
<PAGE> 7
Pricing for software is based upon accumulated discounts across ALL orders.
Once a discount plateau has been passed all orders will be priced at the next
plateau. Not all plateaus need have new prices.
Order Number NXXX-9500001
Note: First order for 100 New User Licenses and 300 Legacy Users will be priced
at:
CLIN 0004A (New Users - 3 @ $100, 7 @ $95, 70 @ $90 and 20 @ $85) Total New
Users $8,765
CLIN 0004B (Legacy Users - 3 @ $65 and 297 $ $50) Total Legacy
$15,045
Total Order:
$23,810
DFAS pays $23,810 for Order Number: NXXX-9500001
Order Number NXXX-9500002
Note: Second order for 150 New User Licenses, 50 Legacy User Licenses and 400
Level I
Maintenance:
CLIN 0004A (New Users - 150 @ $80) Total New Users $12,000
CLIN 0004B (Legacy Users - 50 @ $50) Total Legacy $2,500
CLIN 0004C (Level I Maintenance - 3 @ $55,
397 @ $50) Total Lev. I Maint. $20,015
Total Order $34,515
DFAS pays $34,515 for Order Number: NXXX-95000002
7
<PAGE> 8
SECTION C DESCRIPTION/SPECIFICATION
STATEMENT OF WORK FOR
DEPARTMENT OF DEFENSE (DoD)
ENTERPRISE SOFTWARE LICENSES
1.0 INTRODUCTION
1.1 PURPOSE. This acquisition will establish Basic Ordering Agreement (BOAs)
for Enterprise Software Licenses which provide DoD the rights to copy,
distribute, and use multiple copies of in-production Commercial-Off-The-Shelf
(COTS) computer software products at any location.
It is part of a larger program aimed at managing DoD's Information
Technology (IT) assets. Initially, orders from BOAs established from this
acquisition may be supported by traditional paper-based processes. These BOAs
are being established to test the enterprise licenses concept, act as an
Electronic Commerce/Electronic Data Interchange (EC/EDI) prototype, and position
DoD for Software Asset Management on its inventory and investment of COTS
software. As an EC/EDI initiative, the BOAs will be supported, as soon as the
mechanism(s) can be created, with an automated/electronic distribution, and
tracking infrastructure.
1.2 OBJECTIVES. This requirement supports a DoD program with the following
objectives:
a. Reduce the DoD's inventory of unused COTS software and
documentation.
b. Decouple DoD's COTS software needs from traditional shrinkwrap
marketing strategies so that DoD users can acquire COTS software packages and
documentation on the media, quantity, and delivery response time required.
Delivers only the number of physical products needed, and supports the purchase
of shrink-wrapped products only where needed.
c. Provide the rights to distribute software to implement Electronic
Software Distribution.
d. Improve DoD's COTS software inventory and investment tracking.
e. Prepare DoD to manage COTS software by usage, and make
unused/seldom used COTS products available within the organization, Agency or
DoD.
f. Provide COTS software products which are undergoing normal market
driven forces, (i.e. user driven upgrade, packaging, platform, and conformance
with standards, etc.)
g. Maintain decision making for budgeting, and identification of
requirements at the local level.
8
<PAGE> 9
h. Establish a standard infrastructure for ordering from users to
vendors, minimize the numbers of ordering offices to the users and vendors, and
provide the tools for notifying Users of changes, upgrades, versions, fixes,
etc., and make those tools available to vendors for marketing or management
purposes.
1.3 BACKGROUND. The Defense Information Systems Agency (DISA) acquires,
manages, operates, and maintains many of the DoD Information Technology (IT)
resources. DISA is tasked to sustain the war-fighting capabilities of the DoD
through information technology service and support, and to design and develop
the Defense Information Infrastructure (DII). Over many years, the Military
Departments (MILDEPs) and Defense Agencies have acquired and accumulated a
large base of COTS software packages from a number of vendors through various
procurement means. The need to consolidate and downsize has forced the DoD to
consider innovative ways to improve the flexibility of its software licenses,
eliminate cumbersome contract vehicles, reduce procurement overhead, and make
more effective use of the installed base.
1.4 BOA GOALS. Goals of the program are to maintain the technical level of
already installed products as the products are upgraded. New requirements,
except those determined to be substantially equal to an upgrade, will be
directed to competitive acquisitions. Those new requirement exceptions deemed
appropriate for this program will be handled either by: 1) award to the lowest
priced offeror in the same functional area, or 2) treated as an upgrade to an
existing installed base of product(s) if adequately documented to conform with
then existing "Brand Name" or "Sole Source" documentation requirements.
Additionally, DOD's goal is to implement flexible, concurrent usage licensing
for COTS products which provides the capability for DOD to share usage on a
time or location/machine basis, and reuse licenses by distributing unused or
inactive licenses to active users. This capability requires the licenses to be
fungible, and that DOD have the capability to add and pay for new licenses in
an on-demand mode.
2.0 SCOPE. The scope of any BOAs awarded resulting from this acquisition is
for ALL of the Federal Government. This acquisition supports all COTS software
currently in DoD's inventory, and provides a vehicle for access to
vendor-developed competitive software (i.e. updates, versions, modifications,
enhancements, improvements, additions, and new releases, etc.) to a COTS
software product. DOD may choose to limit use to DOD and its community as a
"Proof of Concept", and then open ordering to all Federal Agencies.
3.0 GENERAL REQUIREMENTS. This BOA grants DoD a license to copy and
distribute computer software products to users within the Federal Government.
Deliverables include computer software, documentation, and maintenance for the
projected system life of five (5) years, a base year plus four (4) one-year
options to extend.
4.0 TERM. This "Agreement" shall commence on the date upon which the BOA is
executed by
9
<PAGE> 10
both parties ("Effective Date"), and will continue for a period of five years
from the Effective date; provided, however, that this Agreement shall be
reviewed annually prior to the anniversary of the Effective Date and revised to
conform with all requirements of statutes, Executive Orders, FARs, and DFARs.
5.0 DELIVERY OF MASTER COPIES. The contractor shall deliver Master Copies of
software and documentation in the quantity and media described below. Master
Copies will be used by the DoD to distribute products on media, quantities and
delivery schedule requested by the user. In the event distribution is by other
than DoD/Government facility, then copies of the Master Copies shall be
provided to the distribution facility for distribution limited to specific DoD
orders and users.
5.1 SOFTWARE. The Vendor shall provide three copies of its COTS software
offered. Copies shall be provided on Compact Disk Read Only Memory (CDROM). If
CDROM is NOT a normal delivery media for the product, then a mutually agreed to
alternative media shall be used.
5.2 DOCUMENTATION. The Vendor shall provide three copies of user documentation
for each product offered. One copy of documentation shall be delivered on CDROM
for electronic distribution, camera-ready media for preparation for printing,
and on print-ready media (i.e. plates, camera output, etc.)
6.0 LICENSE REQUIREMENT
6.1 GENERAL TERMS. This acquisition grants DOD a license to copy and distribute
computer software products to users within the Federal Government. The offeror
shall grant the DOD a license restricted for use within the DOD and its
community of support, the software furnished in its form/structure (i.e. object
code, mixed object and source, etc.) normally provided in the offeror's COTS
marketplace, documentation and related materials, and a one-year warranty to
include all enhancements, improvements, modifications, updates, versions,
additions, releases, (e.g. any derivative works competitive with the original
software offered.)
6.1.1 REUSABLE/TRANSFERRABLE LICENSES. Individual licenses shall be granted to
the Department of Defense for general use within the Department and its
community of interest. These individual licenses shall be transferrable within
that community of interest for use by an individual client or server.
Transference of the license(s) already paid for shall be without express
offeror's consent, and cost to the Department. DOD will ensure that only one
user will use a license at any given time, or that there are sufficient paid
licenses for its average user load. Use in excess of this average load shall
require separately paid licenses.
6.1.2 ALTERNATIVE COPY USE. Individual users may use the licensed software on a
second computer, when away from user's normal duty station, and for Government
business only, provided the software is not used on more than one computer at a
time.
10
<PAGE> 11
6.2 RIGHT TO COPY AND DISTRIBUTE. This BOA gives to the DoD the right to copy,
distribute, and use multiple copies of one or more in-production computer
software products at any of its operational locations for a specified period of
time. DoD intends to distribute copies of the computer software and
documentation using multiple media. Internal distribution within the DoD will be
accomplished by the DoD Software Distribution Center and its designated support
activities. The DoD reserves the right to use in perpetuity and
out-of-production version of the computer software offered and the right to copy
any or all portions of the computer software.
6.3 FEES. Three prices shall be submitted for each product. For client server
software, prices shall be submitted for the server, individual users, and annual
maintenance. For desktop, software two prices shall be submitted, one-time
perpetual licenses, and annual maintenance. If credit is provided for legacy
purchases then a separate pricing chart shall be submitted for each product for
which legacy credit is offered.
6.3.1 INITIAL FEES. All fees shall be based as discounts upon an initial fee
("Basis fee shall be equal to or lower than the fees offered under a GSA
Schedule or other DoD sponsored contract. The prices offered under the BOA shall
reflect equal or lower prices when compared to the Basis Fee source for an
essentially equal order.
6.3.2 CREDIT FOR LEGACY COPIES. Offerors are encouraged to offer credit for
copies of the software already purchased (legacy software). Credit for legacy
software may be given as a fixed maximum or provided as a rolling total based
upon user certification. Legacy software allowed credit shall be priced at the
Maintenance/Upgrade Fee. Offerors providing credit for legacy (previous/current
versions) may indicate by setting discounted prices for the quantity of copies
offerors wishes to provide credit.
6.3.3 PRICING OF FOLLOW-ON UPGRADES. All software ordered from a BOA resulting
from this acquisition shall be allowed credit as legacy software and future
priced as Maintenance.
6.3.4 PRICING OF DOCUMENTATION. The Contractor shall provide a separate fee for
documentation. Distribution of documentation shall be fulfilled by ordering
directly from offerors or by DoD via its electronic distribution (BBS) as
defined in specific user order requirement(s).
6.4 PAYMENT OF FEES. For the first year of this BOA, DoD will consolidate
ordering information and pay quarterly for the products delivered during the
quarter. For all option years, only New user fees will be consolidated and paid
quarterly. Orders for annual maintenance will be consolidated and paid annually.
6.5 DOCUMENTATION OF PAYMENT (PERIODIC REPORTING). Payment will be accompanied
with a report containing the following information:
a. What was ordered (fee and/or product type);
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b. Quantities ordered;
c. Ordering Organization and name of point of contact;
d. Delivery locations/address
e. Warranty start date (per product and order);
f. When order was submitted and processed;
h. When order was received by the user or receiving office.
i. Assigned License Identification/Serial number
6.6 LENGTH OF AGREEMENT. This agreement is for five (5) years.
7.0 OPTIONAL SOFTWARE DISTRIBUTION REQUIREMENT
In the event the Government is not able to distribute products, the contractor
is encouraged to offer distribution services. The contractor shall provide all
facilities needed to support reproduction, shipping, and tracking of the ordered
products. Distribution shall be for any of the modes or media listed below.
7.1 COPYING (MACHINE READABLE). The contractor shall provide copies of the COTS
software in the following minimum machine readable formats:
5 1/4 inch 360 Kb diskettes
5 1/4 inch 1.2 Mb diskettes
3 1/2 inch 700 Kb diskettes
3 1/2 inch 1.4 Mb diskettes
CD ROM
Electronic Bulletin Board (or Other Electronic Communications)
7.2 PAPER COPIES OF DOCUMENTATION. Documentation shall be available and
separately orderable from the software. All documentation shall be the latest
version available for the specific software offering. The contractor shall
provide all facilities to reproduce and ship. All requests for documentation
will be bound before distribution. Format and form of documentation shall be the
responsibility of the contractor to maximize savings.
7.3 SHIPPING OF HARDCOPY. The offeror shall deliver products within 14 calendar
days from receipt of an order for shipments within Continental US (CONUS).
Completion of shipping shall be determined by whichever date is earliest: date
invoice is signed by recipient, or date shown by shipper's records as received.
All shipping shall be FOB destination. Outside CONUS shall be
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delivered to a CONUS transhipment point identified in the order if not otherwise
identified herein.
7.4 SHIPMENT TRACKING. The contractor shall provide a mechanism and all
facilities necessary for the tracking of product shipments. Tracking information
shall be provided to FISC Philadelphia and DISA/JIEO/CFS/TXIU 5600 Columbia
Pike, Suite 800, Falls Church VA 22041, in an electronic and paper format.
Additional details on format and locations at FISC Philadelphia will be
confirmed at award. Details on date, Times report media and report frequency to
be mutually agreed to at award. At a minimum, the contractor shall provide:
a. What was ordered (fee and/or product type);
b. Quantities ordered;
c. Ordering Organization and name of point of contact;
d. Delivery locations/address;
e. License Number(s) associated with products for each order;
f. Warranty start date (per product and order);
g. When order was submitted and processed;
h. When order was received by the user or receiving office.
7.5 CORRECTIVE SHIPMENTS. The offeror shall provide a mechanism and all
facilities necessary to follow-up and correct all late deliveries. Corrective
shipments shall be completed within 30 calendar days of notification of problem.
The offeror shall correct errors caused by media quality, copying errors, damage
in shipping, and incorrect locations and quantities within seven calendar days
after notification (e.g., phone or written). All products shall be warranted for
these errors for one year from receipt by the Government.
7.6 QUALITY ASSURANCE. The contractor shall provide a mechanism and all
facilities necessary to correct errors caused by media quality, copying errors,
damage in shipping, and incorrect locations and quantities within 14 calendar
days. All products shall be warranted for these errors for one year from receipt
by the Government.
8.0 WARRANTY AND MAINTENANCE. The Offeror shall provide a one-year warranty at
no charge to the Government for software products ordered from an award
resulting from this acquisition. The Warranty shall provide users access to bug
fixes, revisions, new releases, versions, and upgrades of a product. The
warranty period shall apply to products resulting from specific orders, and
begin with DoD acceptance of the product. At the close of the one year warranty
period, the offeror shall provide extended warranty services for the Government
to order at its
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option via Annual Maintenance charges. For products delivered under the DOD
distribution, fulfillment of the Warranty and Maintenance requirements shall
consist of delivery of revised Product Masters to the DOD defined distribution
hub.
This warranty does not guarantee that the computer software will meet DOD's
requirements, that the software will operate in the combinations which DOD may
select for use, that the operation of the software will be uninterrupted or
error-free, or that all software errors will be corrected. Except for the media
warranty contained herein, if DOD does not obtain Maintenance, the software is
delivered "as is".
8.1 ANNUAL MAINTENANCE. All software shall be offered with prices for Annual
Maintenance. Annual maintenance shall consist of that service normally provided
by the offeror Pricing for this maintenance can be in several different levels,
depending on the offeror's normal pricing and service. Level I maintenance shall
provide users of a product purchased under this agreement or a legacy user the
right to access to bug fixes, revisions, new releases, versions, and upgrade of
a product for one year. Maintenance charges shall be allowed starting after the
one year warranty period, or at any time for a legacy user.
8.2 SOFTWARE PRODUCTS COVERED. Products covered under this warranty and any
ensuing maintenance orders are all offeror developed competitive software (i.e.
updates, bug fixes, modifications, enhancements, improvements, additions,
versions, and new releases, etc.) to a COTS software product already offered
under this agreement.
8.3 TELEPHONE HOT LINE SUPPORT. In the event offeror provides Telephone Hot
Line Support, then this support shall be included in the one year Warranty
maintenance, and Level I maintenance for ensuing years.
8.4 REMEDIES. For any breach of the warranties. DOD's remedy shall be:
8.4.1 FOR COMPUTER SOFTWARE. The correction of computer software that cause
breach of the warranty, or if the contractor is unable to make the computer
software operate as warranted, DOD shall be entitled to recover the fees paid to
contractor for the computer software license Maintenance, as applicable.
8.4.2 FOR MEDIA. The replacement of defective media within 14 calendar days of
notification to the contractor.
8.4.3 FOR SERVICES. The reperformance of the services, or if contractor is
unable to perform the services as warranted, DOD shall be entitled to recover
the fees paid to contractor for the deficient services.
9.0 UPDATE AND MAINTENANCE OF ELECTRONIC CATALOGS. The offeror shall provide
contract Clin
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description, pricing information for use in Electronics Catalogs. Offerors
shall translate the data into an ANSII X.12 and DOD convention for an EDI 832
transaction format, and transmit the data to the DOD catalog management
facility which will be defined at execution. In the event EDI capability is not
available to the offeror, then a mutually agreed to alternative method shall be
used. Data shall be submitted for each product and/or price change proposed
throughout the life of the contract.
10.0 ELECTRONIC DATA
DoD will use an electronic system to process requisitions, create orders, and
present products and prices to customers. To support this Electronic Shopping
System, contractors shall provide product description and pricing data in the
electronic format provided in Attachment XX to Naval Computer and
Telecommunications Station - Jacksonville (NCTS-JAX) (address to follow).
Delivery of the electronic data is mandatory before electronic orders may be
processed. In the event the contractor does not have electronic order processing
capability, then the Government shall process orders in accordance with
Section H.
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EXPLANATION OF TERMS
"COMMERCIAL CONTRACTOR" shall mean commercial business concerns, under contract
with any DoD Military Department or Defense Agency, who furnish to the
Contractor written evidence that the military department or agency has
authorized them to procure from this BOA.
"COMPUTER SOFTWARE" shall mean a licensed proprietary computer software program
in machine readable object code from the Contractor.
"CONCURRENT USAGE LICENSE/SEAT" shall mean a software license with multiple
users, but no more than one user at any given time.
"DATA PROCESSING CENTER" shall mean a facility that includes people, hardware,
and software organized to provided information processing services. Also
synonymous with Computer Center (CC), Data Processing Installation (DPI), and
Information Processing Center (IPC).
"DOCUMENTATION" shall mean a computer program systems, user, and installation
manuals.
"DoD SUPPORT COMMUNITY" shall mean the community of organizations for which DoD
provides direct support (i.e. North Atlantic Treaty Organization, joint
operations in multinational tactical operations.
"ENTERPRISE SOFTWARE LICENSE" shall mean a license that allows the designee
licensee to copy, distribute, and use multiple copies of one or more
in-production computer software products at any of its operational locations
for a specified period of time.
"IN-PRODUCTION" shall mean a computer program for which the Contractor
currently offers licenses and maintenance to its general commercial customers.
"MAINTENANCE" shall mean maintenance and support for a computer program to
include telephone assistance in the operation of the computer program,
verification of existing errors and malfunctions, and the provision of any
existing detours, fixes, corrections, or modifications for such errors and
malfunctions.
"NETWORK" shall mean multiple workstations accessing a single mass storage
device, file server, or mainframe computer.
"NETWORK PERFORMANCE" shall mean a process that examines the balance between
network response time and throughput, and how it affects overall systems
performance.
"OPERATIONAL LOCATION" shall mean where the user performs mission functions.
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"OUT-OF-PRODUCTION" shall mean a computer program for which licenses are no
longer available and for which the Contractor no longer offers maintenance to
its general commercial customers.
"SEAT/CONCURRENT USAGE LICENSE" shall mean a software license for a client/seat
with multiple users, but no more than one user at any given time.
"UPDATE" shall mean a change in the machine readable object code of the
licensed proprietary computer software program provided by the Contractor.
"USER" shall mean any employee of DoD cabinet level, independent agency,
military department or any subdivision thereof. The computer program software
may be used by any of the users defined above; as well as, Commercial
Contractors, and hardware when intra-interapplication unattended functions are
performed.
"CONTRACTOR" shall mean any offeror proposing as a prime contractor or
subcontractor to this acquisition.
"VERSION" shall mean computer software compiled or assembled to operate on a
unique computer hardware architecture.
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REQUIRED STANDARD OF WORKMANSHIP (FISC DET PHILA)(OCT 1992)
Unless otherwise specifically provided in this contract, the quality of all
services rendered hereunder shall conform to the highest standards in the
relevant profession, trade or field of endeavor. All services shall be rendered
by or supervised by individuals fully qualified in the relevant profession,
trade or field, and holding any licenses required by law.
SECTION D MARKING AND PACKING
MARKING OF SHIPMENTS (COMMERCIALLY PACKAGED ITEMS) (FISC DET PHILA)(OCT 1992)
Marking shall be in accordance with ASTM D-3951-90 "Standard Practice for
Commercial Packaging".
PROHIBITED PACKING/PACKAGING MATERIALS (FISC DET PHILA)(OCT 1992)
The use of asbestos, excelsior, newspaper or shredded paper (all types
including waxed paper, computer paper and similar hydroscopic or non-neutral
material) is prohibited. In addition, loose fill polystyrene is prohibited for
shipboard use.
SECTION E INSPECTION AND ACCEPTANCE
The following clauses are hereby incorporated into section E by reference:
52.246.2 Inspection of Supplies - Fixed Price (JUL 1985)
52.246.4 Inspection of Services - Fixed Price (FEB 1992)
INSPECTION AND ACCEPTANCE (DESTINATION) (NAVSUP) (JAN 1992)
(a) Inspection and acceptance of the supplies or services to be furnished
hereunder shall be performed at destination by ___*___
__________________________.
TO BE DESIGNATED ON INDIVIDUAL TASK ORDERS.
INSPECTION AND ACCEPTANCE (SERVICES) (FISC DET PHILA)(OCT 1992)
Inspection and acceptance of services to be furnished hereunder shall be
made, upon completion of the services, by _______*_____________________.
TO BE DESIGNATED ON INDIVIDUAL TASK ORDERS
SECTION F DELIVERIES OR PERFORMANCE
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The following clauses are hereby incorporated into section F by reference:
<TABLE>
<CAPTION>
Clause No. Title
<S> <C>
52.212-13 Stop Work Order (AUG 1989)
52.212-15 Government Delay of Work (APR 1984)
52.247-34 F.O.B. Destination (JAN 1991)
</TABLE>
TRANSPORTATION OF SUPPLIES BY SEA (DFARS 252.247-7023) (DEC 1991)
(a) Definitions. As used in this clause--
(1) Components means articles, materials, and supplies incorporated
directly into end products at any level of manufacture, fabrication, or
assembly by the Contractor or any subcontractor.
(2) Department of Defense (DoD) means the Army, Navy, Air Force, Marine
Corps, and defense agencies.
(3) Foreign flag vessel means any vessel that is not a U.S.-flag vessel.
(4) Ocean transportation means any transportation aboard a ship, vessel,
boat, barge, or ferry through international waters.
(5) Subcontractor means a supplier, materialman, distributor, or vendor
at any level below the prime contractor whose contractual obligation to perform
results from, or is conditioned upon, award of the prime contract and who is
performing any part of the work or other requirement of the prime contract.
(6) Supplies means all property, except land and interests in land, that
is clearly identifiable for eventual use by or owned by the DoD at the time of
transportation by sea.
(i) An item is clearly identifiable for eventual use by the DoD if,
for example, the contract documentation contains a reference to a DoD contract
number or a military destination.
(ii) Supplies includes (but is not limited to) public works;
buildings and facilities; ships; floating equipment and vessels of every
character, type, and description, with parts, subassemblies, accessories, and
equipment; machine tools; material; equipment; stores of all kinds; end items;
construction materials; and components of the foregoing.
(7) U.S.-flag vessel means a vessel of the United States or belonging to
the United States, including any vessel registered or having national status
under the laws of the United States.
(b) The Contractor shall employ U.S.-flag vessels in the transportation by
sea of any supplies to be furnished in the performance of this contract. The
Contractor and its subcontractors may
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request that the Contracting Officer authorize in foreign-flag vessels, or
designate available U.S.-flag vessels, if the Contractor or a subcontractor
believes that-
(1) U.S.-flag vessels are not available for timely shipment;
(2) The freight charges are inordinately excessive or unreasonable; or
(3) Freight charges are higher than charges to private persons for
transportation of like goods.
(c) The Contractor must submit any request for use of other than U.S.-flag
vessels in writing to the Contracting Officer at least 45 days prior to the
sailing date necessary to meet its delivery schedules. The Contracting Officer
will process requests submitted after such date(s) as expeditiously as
possible, but the Contracting Officer's failure to grant approvals to meet the
shipper's sailing date will not of itself constitute a compensable delay under
this or any other clause of this contract. Requests shall contain at a minimum--
(1) Type, weight, and cube of cargo;
(2) Required shipping date;
(3) Special handling and discharge requirements;
(4) Loading and discharge points;
(5) Name of shipper and consignee;
(6) Prime contract number; and
(7) A documented description of efforts made to secure U.S.-flag
vessels, including points of contact (with names and telephone numbers) with at
least two U.S.-flag carriers contacted. Copies of telephone notes, telegraphic
and facsimile message or letters will be sufficient for this purpose.
(d) The Contractor shall, within 30 days after each shipment covered by this
clause, provide the Contracting Officer and the Division of National Cargo,
Office of Market Development, Maritime Administration, U.S. Department of
Transportation, Washington, DC 20590, one copy of the rated on board vessel
operating carrier's ocean bill of lading, which shall contain the following
information--
(1) Prime contract number;
(2) Name of vessel;
(3) Vessel flag of registry;
(4) Date of loading;
(5) Port of loading;
(6) Port of final discharge;
(7) Description of commodity;
(8) Gross weight in pounds and cubic feet if available;
(9) Total ocean freight in U.S. dollars; and
(10) Name of the steamship company.
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(e) The Contractor agrees to provide with its final invoice under this
contract a representation that to the best of its knowledge and belief--
(1) No ocean transportation was used in the performance of this contract;
(2) Ocean transportation was used and only U.S.-flag vessels were used
for all ocean shipments under the contract;
(3) Ocean transportation was used, and the Contractor had the written
consent of the Contracting Officer for all non-U.S.-flag ocean transportation;
or
(4) Ocean transportation was used and some or all of the shipments were
made on non-U.S.-flag vessels without the written consent of the Contracting
Officer. The Contractor shall describe these shipments in the following format:
Item Contract
Description Line Items Quantity
Total
(f) If the final invoice does not include the required representation, the
Government will reject and return it to the Contractor as an improper invoice
for the purposes of the Prompt Payment clause of this contract. In the event
there has been unauthorized use of non-U.S.-flag vessels in the performance of
this contract, the Contracting Officer is entitled to equitably adjust the
contract, based on the unauthorized use.
(g) The Contractor shall include this clause, including this paragraph (g) in
all subcontracts under this contract, which exceed the small purchase
limitation of section 13.000 of the Federal Acquisition Regulation.
TIME OF DELIVERY (AFTER EFFECTIVE DATE) (FISC DET PHILA) (OCT 1992)
Delivery is required by the Government as follows:
Within * days after the effective date of contract.
--- ---
TO BE DESIGNATED ON INDIVIDUAL TASK ORDERS
PLACE OF DELIVERY: DESIGNATION (FISC DET PHILA) (OCT 1992)
(a) The articles to be furnished hereunder shall be delivered all
transportation charges paid by the contractor to:
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TO BE DESIGNATED ON INDIVIDUAL DELIVERY ORDERS
- -------------------------------------------------------------------
- -------------------------------------------------------------------
(b) Bids submitted on a basis other than F.O.B. destination will be rejected as
nonresponsive and offers may be deemed unacceptable.
DURATION OF CONTRACT PERIOD (FISC DET PHILA)(JUN 1993)
This contract shall become effective on * or date of award whichever is later
and shall continue in effect during the period ending * unless extended
through exercise of an option or termination in accordance with other provisions
herein. Additionally the Government may reduce the basic performance period to
reflect any delay in the actual contract award date at the unit prices specified
in Section B without further discussion.
* TO BE DESIGNATED ON INDIVIDUAL DELIVERY ORDERS
SECTION G CONTRACT ADMINISTRATION DATA
SUBMISSION OF INVOICES IN CONTRACTS FOR ACQUISITION OF FEDERAL INFORMATION
PROCESSING (FIP) RESOURCES, INCLUDING LEASE, MAINTENANCE, RENTAL AND/OR SUPPORT
SERVICES (NAPS 5252.232-9003) (JULY 1992)
(a) The contractor shall submit original invoices with 4 copies to the address
identified on the solicitation/contract award form (SF 26-Block 10; SF 33-Block
23; SF 1447-Block 14) unless delivery orders are applicable, in which case
invoices will be segregated by individual order and submitted to the address
specified in the delivery order, including a named individual if applicable,
for certification prior to payment.
(b) In addition to the information identified in the clause entitled "Prompt
Payment" herein, invoices shall include the following information:
(1) Contract line item number (CLIN)
(2) Contract subline item number (SLIN), if applicable
(3) Accounting classification reference number (ACRN)
(4) Payment terms
(5) Name and serial number of equipment provided or serviced (6) Total
charges and, if applicable, the prompt payment discount
(C) The contractor shall submit invoices for basic monthly charges in the month
following the month for which the charges accrue and not more than on a monthly
basis. Payment for rental or services of less than one month's duration shall
be prorated at 1/30th of the basic monthly charges for each calendar day.
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CONTACT POINT (FISC DET PHILA)(OCT 1992)
For information regarding this document, please contact Mr. M.D. Byrne, Code
0211, at the Fleet Industrial and Supply Center Norfolk Detachment
Philadelphia, Naval ICP, Bldg. 2B, 700 Robbins Ave., Phila, PA 19111. Tel.
215-697-9601.
SUBCONTRACTING PLAN - INCORPORATED (FISC DET PHILA)
(OCT 1992)
In accordance with FAR 19.702, the contractor has submitted a subcontracting
plan which has been reviewed and approved by the contracting officer. The plan
is hereby incorporated into this award as attachment I. The ACO is hereby
delegated authority to monitor implementation of The Small Business and Small
Disadvantaged Business Subcontracting Plan.
The Contractor shall provide a copy of all SF 294s, Subcontracting Reports for
Individual Contracts, and SF 295s, Summary Subcontracting Reports, associated
with the contract the NAVREGCONTCEN, U.S. Naval Base, Bldg 600, Philadelphia,
PA 19112-5082.
FOR ALL ORDERS OVER $500,000
COMMUNICATIONS (FISC DET PHILA)(OCT 1992)
(a) Except as specified in paragraph (b) below, no order, statement, or
conduct of Government personnel who visit the Contractor's facilities or in any
other manner communicates with Contractor personnel during the performance of
this contract shall constitute a change under the "Changes" clause of this
contract.
(b) The Contractor shall not comply with any order, direction or request of
Government personnel unless it is issued in writing and signed by the
Contracting Officer, or is pursuant to specific authority otherwise included as
a part of this contract.
(c) The Contracting Officer is the only person authorized to approve changes
in any of the requirements of this contract and, notwithstanding provisions
contained elsewhere in this contract, the said authority remains solely the
Contracting Officer's. In the event the contractor effects any change at the
direction of any person other than the Contracting Officer, the change will be
considered to have been made without authority and no adjustment will be made
in the contract price to cover any increase in charges incurred as a result
thereof. The address and telephone number of the Principal Contracting Officer
is:
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James Swizewski
Fleet Industrial and Supply Center
Norfolk Detachment Philadelphia
Naval ICP
Bldg. 2B
700 Robbins Ave.
Phila., PA 19111
Tel. 215-697-9630
TECHNICAL POINT OF CONTACT (FISC DET PHILA)(JUN 1993)
The following person is hereby designated the technical point of contact for
this contract:
NAME: Mr. Don Black CODE: TXIU
ACTIVITY: Defense Information Systems Agency
ADDRESS:
The above named individual is responsible for the following:
1. Alerting the contractor of any maintenance required outside the Principal
Period of Maintenance (PPM) in Section B.
2. Alerting the contractor of any remedial maintenance required during the PPM.
3. Alerting the contractor in writing, with a copy to the Contracting Officer,
of any configuration reductions.
4. Verification/Certification of contractor invoices with special emphasis
being placed on the amount and duration of any service calls which are charged
by the length of hours worked i.e. maintenance outside the PPM.
5. Maintain a record of all credits due to the Government through the
contractor's poor performance in responding to the service calls placed within
the timeframes established herein.
6. Maintain a file on all correspondence relating to the contractor's
performance, whether satisfactory or unsatisfactory.
7. The technical point of contact will not instruct the contractor on how to
perform maintenance services.
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The technical point of contact cannot give contractual direction to the
contractor. This type of direction or change to the provisions of the contract
may only be authorized by the Contracting Officer.
SECTION H SPECIAL CONTRACT REQUIREMENTS
AUTHORITY TO ISSUE ORDERS
All Procuring Contracting Officers (PCO) within the Government are authorized
to issue orders hereunder.
(Applicable to all orders)
ORDERING
Upon acceptance by the contractor as described below, each order becomes a
separate contract for the supplies or services specified.
All orders issued hereunder are subject to the terms and conditions of the
Basic Ordering Agreement, which shall control in the event of conflict with any
order.
ORDERING PERIOD
The Government from time to time during the ordering period of this Basic
Ordering Agreement, may place orders for services or supplies for delivery
herein. Each order placed under this Basic Ordering Agreement shall be issued
and processed in the manner provided herein.
PROCEDURES FOR ISSUING ORDERS
MANUAL ORDERS: The parties agree that orders issued under this BOA shall become
binding when;
a) the Procuring Contracting Officer issues a unilateral order and the
Contractor fails to reject, by telephone within 2 calendar hours, followed up
in writing following the issuance of the order; or
b) the Contractor indicates his acceptance of the order by letter, telegram or
signature on the contractual ordering form issued by the Procuring Contracting
Officer.
(Applicable to all manual orders)
ELECTRONIC ORDERS: The parties agree that orders issued under this BOA shall
become binding when;
a) the Procuring Contracting Officer issues an order using the appropriate
electronic data interchange transaction.
b) the Contractor indicates receipt and acceptance of the appropriate
electronic data interchange transactions within 24 hours.
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TYPE OF ORDERS
Priced Orders will be issued under this when the parties have agreed upon all
the terms of the order before issuance. Priced Orders shall describe the
supplies and services being ordered, prices, delivery schedule, place of
inspection and acceptance, preservation, packaging, together with such other
specifics not covered in this BOA which are required to complete the order. The
terms of orders so issued shall be complete and shall be binding obligations of
the parties.
TERMS OF AGREEMENT
a) Orders may be issued hereunder for a period of one years beginning on the
effective date shown on the cover page of this BOA, provided however, this
agreement shall be reviewed as a minimum, annually, before the anniversary of
its effective date, and revised to conform with all requirements of statutes.
Executive Orders, FAR, DFAR, NAPS or the NAVSUPINST.
b) Orders issued during the effective period of this agreement and not
completed with that time frame shall be completed by the Contractor within the
time frame specified in the order and the rights and obligations of the
Contractor and the Government respecting those orders shall be governed by the
terms of this BOA to the same extent as if completed during the effective
period of this BOA.
SECTION 1 CLAUSES AND PROVISIONS
CLAUSES AND PROVISIONS - FIXED-PRICE SUPPLY
a. The following solicitation provisions and/or contract clauses are hereby
incorporated by reference:
<TABLE>
<CAPTION>
Clause No. Title
<S> <C>
52.202-1 Definitions (SEP 1991)
52.203-5 Covenant Against Contingent Fees (APR 1984)
52.203-6 Restrictions on Subcontractor Sales to the
Government (JUL 1985)
52.203-7 Anti-Kickback Procedures (OCT 1988)
52.232-1 Payments (APR 1984)
52.233-3 Protest After Award (AUG 1989)
52.243-1 Changes - Fixed Price (AUG 1987)
252.203-7001 Special Prohibition on Employment (APR 1993)
252.219-7009 Certificate of Competency (APR 1993)
252.225-7031 Secondary Arab Boycott of Israel (JUN 1992)
252.231-7000 Supplemental Cost Principles (DEC 1991)
252-232-7006 Reduction or Suspension of Contract Payments
Upon Finding of Fraud (AUG 1992)
52.203-1 Officials Not to Benefit (APR 1984)
</TABLE>
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52.203-3 Gratuities (APR 1984)
52.203-10 Price or Fee Adjustment for Illegal or
Improper Activity (SEP 1990)
52.203-12 Limitation on Payments to Influence Certain
Federal Transactions (JAN 1990)
52.203-13 Procurement Integrity - Service Contracting
(SEP 1990)
52.204-1 Approval of Contract (DEC 1989)
52.204-2 Security Requirements (APR 1984)
52.209-6 Protecting the Government Interest when
Subcontracting with Contractors Debarred,
Suspended, or Proposed for Debarment
(NOV 1992)
52.215-1 Examination of Records by Comptroller General
(FEB 1993)
52.215-2 Audit-Negotiations (FEB 1993)
52.215-21 Changes or Additions to Make-or-Buy Program
(APR 1984)
52.215-21 ALTERNATE I (APR 1984)
52.215-22 Price Reduction for Defective Cost of Pricing
Data (JAN 1991)
52.215-23 Price Reduction for Defective Cost or Pricing
Data Modifications (NOV 1994)
52.215-24 Subcontractor Cost or Pricing Data (NOV 1994)
52.215-25 Subcontractor Cost or Pricing Data -
Modifications (NOV 1994)
52.215-26 Integrity of Unit Prices (APR 1991)
52.215-33 Order of Precedence (JAN 1986)
52.219-8 Utilization of Small Business Concerns and
Small Disadvantaged Business Concerns
(FEB 1990)
52.219-9 Small Business and Small Disadvantaged
Business Subcontracting Plan (FEB 1995)
52.219-13 Utilization of Women-Owned Small Businesses
(AUG 1986)
52.220-3 Utilization of Labor Surplus Area Concerns
(APR 1984)
52.220-4 Labor Surplus Area Subcontracting Program
(APR 1984)
52.222-20 Walsh-Healy Public Contracts Act (APR 1984)
52.222-26 Equal Opportunity (APR 1984)
52.222-28 Equal Opportunity Preaward Clearance of
Subcontracts (APR 1984)
52.222-35 Affirmative Action for Special Disabled and
27
<PAGE> 28
Vietnam Era Veterans (APR 1984)
52.222-36 Affirmative Action for Handicapped Workers
(APR 1984)
52.222-37 Employment Reports for Special Disabled
Veterans and Veterans in the Vietnam Era
(JAN 1998)
52.223-2 Clean Air and Water (APR 1984)
52.223-6 Drug-Free Workplace (JUL 1990)
52.225-10 Duty-Free Entry (APR 1984)
52.225-11 Restrictions on Certain Foreign Purchases
(MAY 1992)
52.225-16 Buy American Act -- Supplies Under European
Community Agreement Certificate (JAN 1994)
52.225-17 Buy American Act -- Supplies Under European
Community Agreement (JAN 1994)
52.225-18 European Community Sanction for End Products
(JAN 1994)
52.226-1 Utilization of Indian Organizations and
Indian-Owned Economic Enterprises (AUG 1991)
52.227-1 Authorization & Consent (APR 1984)
52.227-2 Notice & Assistance Regarding Patent and
Copyright Infringement (APR 1984)
52.227-19 Commercial Computer Software -- Restricted
Rights (JUN 1987)
(c)(4)
---------------------------
52.229-5 Taxes-Contracts Performed in U.S. Possessions
or Puerto Rico (APR 1984)
52.229-6 Taxes-Foreign Fixed-Price Contracts
(JAN 1991)
52.232-8 Discounts for Prompt Payment (APR 1989)
52.232-11 Extras (APR 1984)
52.232-17 Interest (JAN 1991)
52.232-23 Assignment of Claims (JAN 1986)
52.232-25 Prompt Payment (SEP 1992)
(a)(6)(I)30 DAYS
(b)(2) n/a
52.232-28 Electronic Funds Transfer Payment Methods
(APR 1989)
52.233-1 Disputes (DEC 1991)
52.233-1 ALTERNATE I (DEC 1991)
52-242-13 Bankruptcy (APR 1991)
52.243-6 Change Order Accounting (APR 1984)
52.243-7 Notification of Changes (APR 1984)
52-248-1 Value Engineering (MAR 1989)
28
<PAGE> 29
52.249-1 Termination for Convenience of the Government
(Fixed-Price) (Short Form) APR 1984)
52-249-2 Termination for Convenience of the Government
(Fixed-Price) (APR 1998)
52.249.8 Default (Fixed-Price Supply and Service)
(APR 1984)
252.203-7000 Statutory Prohibitions on Compensation to
Former Department of Defense Employees
(DEC 1991)
252-203-7002 Display of DoD Hotline Poster (DEC 1991)
252-219-7003 Small Business and Small Disadvantaged Business
Subcontracting Plan (DoD Contracts)
(MAY 1994)
252.225-7005 Identification of Expenditures in the United
States (DEC 1991)
252.225-7007 Trade Agreements Act (JAN 1994)
252.225-7009 Duty-Free Entry-Qualifying Country End Products
and Supplies (DEC 1991)
252.225-7010 Duty-Free Entry - Additional Provisions
(JAN 1994)
252.225-7012 Preference for Certain Domestic Commodities
(MAY 1994)
252.227-7013 Rights To Technical Data and Computer Software
(OCT 1988)
252.243-7000 Engineering Change Proposals (MAY 1994)
252.243-7000 ALTERNATE I (MAY 1994)
252.246-7000 Material Inspection and Receiving Report
CLAUSES AND PROVISIONS - FIXED PRICE SERVICE
The following solicitation provisions and/or contract clauses are hereby
incorporated by reference:
Clause No. Title
52.202-1 Definitions (SEP 1991)
52.203-5 Covenant Against Contingent Fees (APR 1984)
52.203.6 Restrictions on Subcontractor Sales to the
Government (JUL 1985)
52.203-7 Anti-Kickback Procedures (OCT 1988)
52.232-1 Payments (APR 1984)
52.233-3 Protest After Award (AUG 1989)
29
<PAGE> 30
252.203-7001 Special Prohibition on Employment (APR 1993)
252.209-7009 Certificate of Competency (APR 1993)
252.225-7031 Secondary Arab Boycott of Israel (JUN 1992)
252.231-7000 Supplemental Cost Principles (DEC 1991)
252.232-7006 Reduction or Suspension of Contract Payments
Upon Finding of Fraud (AUG 1992)
52.203-1 Officials Not to Benefit (APR 1984)
52.203-3 Gratuities (APR 1984)
52.203-10 Price or Fee Adjustment for Illegal or Improper
Activity (SEP 1990)
52.203-12 Limitation on Payments to Influence Certain
Federal Transactions (JAN 1990)
52.203-13 Procurement Integrity - Service Contracting
(SEP 1990)
52.204-1 Approval of Contract (DEC 1989)
52.204-2 Security Requirements (APR 1984)
52.207-3 Right of First Refusal of Employment (NOV 1991)
52.209-6 Protecting the Government's Interest when
Subcontracting with Contractors Debarred,
Suspended, or Proposed for Debarment (NOV 1992)
52.215-1 Examination of Records by Comptroller General
(FEB 1993)
52.215-2 Audit-Negotiation (FEB 1993)
52.215-22 Price Reduction for Defective Cost or Pricing
Data (JAN 1991)
52.215-23 Price Reduction for Defective Cost of Pricing
Data-Modifications (NOV 1994)
52.215-24 Subcontractor Cost or Pricing Data (NOV 1994)
52.215-25 Subcontractor Cost or Pricing Data
Modifications (NOV 1994)
52.215-26 Integrity of Unit Prices (APR 1991)
52.215-33 Order of Precedence (JAN 1986)
52.219-8 Utilization of Small Business Concerns and Small
Disadvantaged Business Concerns (FEB 1990)
52.219-9 Small Business and Small Disadvantaged Business
Subcontracting Plan (FEB 1995)
52.219-13 Utilization of Women-Owned Small Business
(AUG 1986)
52.220-3 Utilization of Labor Surplus Area Concerns
(APR 1984)
52.222-3 Convict Labor (APR 1984)
52.222-20 Walsh-Healey Public Contracts Act (APR 1984)
30
<PAGE> 31
52.222-26 Equal Opportunity (APR 1984)
52.222-28 Equal Opportunity Preaward Clearance of Subcontracts (APR 1984)
52.222-35 Affirmative Action for Special Disabled and Vietnam Era Veterans
(APR 1984)
52.222-36 Affirmative Action for Handicapped Workers (APR 1984)
52.222-37 Employment Reports for Special Disabled Veterans and
Veterans of the Vietnam Era (JAN 1988)
52.223-2 Clean Air and Water (APR 1984)
52.223-6 Drug-Free Workplace (JUL 1990)
52.225-10 Duty-Free Entry (APR 1984)
52.225-11 Restrictions on Certain Foreign Purchases (MAY 1992)
52.225-16 Buy American Act - Supplies Under European Community Agreement
Certificate (JAN 1994)
52.225-17 Buy American Act - Supplies Under European Community Agreement
Certificate (JAN 1994)
52.225-19 European Community Sanction for Services (JAN 1994)
52.226-1 Utilization of Indian Organizations and Indian-Owned Economic
Enterprises (AUG 1991)
52.227-1 Authorization and Consent (APR 1984)
52.227-19 Commercial Computer Software - Restricted Rights (JUN 1987)
52.228-5 Insurance - Work on a Government Installation (SEP 1989)
52.229-3 Federal, State, and Local Taxes (JAN 1991)
52.229-4 Federal, State, and Local Taxes (Noncompetitive Contract)
(JAN 1991)
52.229-5 Taxes - Contracts Performed in U.S. Possessions or Puerto Rico
(APR 1984)
52.229-6 Taxes - Foreign Fixed-Price Contracts (JAN 1991)
52.232-8 Discounts for Prompt Payment (APR 1989)
52.232-11 Extras (APR 1984)
52.232-17 Interest (JAN 1991)
52.232-23 Assignment of Claims (JAN 1986)
52.232-25 Prompt Payment (SEP 1992)
(a)(6)(I)30 DAYS
(2) n/a
52.232-28 Electronic Funds Transfer Payment Methods (APR 1989)
52.233-1 Disputes (DEC 1991)
52.233-1 ALTERNATE I (DEC 1991)
31
<PAGE> 32
52.237-2 Protection of Government Buildings, Equipment,
and Vegetation (APR 1984)
52.237-3 Continuity of Services (JAN 1991)
52.237-7 Indemnification and Medical Liability Insurance
(SEP 1989)
(a) per occurrence: _________________________
52.243-1 Changes - Fixed-Price (AUG 1987) - ALTERNATE I
(APR 1984)
52.243-1 Changes - Fixed-Price (AUG 1987) - ALTERNATE II
(APR 1984)
52.243-7 Notification of Changes (APR 1984)
52.248-1 Value Engineering (MAR 1989)
52.249-1 Termination for Convenience of the Government
(Fixed-Price)(Short Form)(APR 1984)
52.249-2 Termination for Convenience of the Government
(Fixed-Price)(APR 1984)
52.249-2 ALTERNATE II (APR 1984)
52.249-8 Default (Fixed-Price Supply and Service)
(APR 1984)
252.203-7000 Statutory Prohibitions on Compensation to
Former Department of Defense Employees
(DEC 1991)
252.203-7002 Display of DoD Hotline Poster (DEC 1991)
252.205-7000 Provision of Information to Cooperative
Agreement Holders (DEC 1991)
252.215-7000 Pricing Adjustments (DEC 1991)
252.215-7002 Cost Estimating System Requirements (DEC 1991)
252.225-7001 Buy American Act and Balance of Payments
Program
(JAN 1994)
252.225-7002 Qualifying Country Sources as Subcontractors
(DEC 1991)
252.225-7005 Identification of Expenditures in the United
States (DEC 1991)
252.225-7007 Trade Agreements Act (JAN 1994)
252.225-7009 Duty-Free Entry--Qualifying Country End
Products and Supplies (DEC 1991)
252.225-7010 Duty-Free Entry--Additional Provisions
(JAN 1994)
252.227-7013 Rights To Technical Data and Computer Software
(OCT 1988)
252.227-7018 Restrictive Markings on Technical Data
32
<PAGE> 33
<TABLE>
<S> <C>
(OCT 1988)
252.227-7027 Deferred Ordering of Technical Data or Computer
Software (APR 1988)
252.227-7029 Identification of Technical Data (APR 1988)
252.227-7030 Technical Data - Withholding of Payment
(OCT 1988)
252.227-7031 Data Requirements (OCT 1988)
252.227-7036 Certification of Technical Data Conformity
(MAY 1987)
252.227-7037 Validation of Restrictive Markings on Technical
Data (APR 1988)
252.243-7000 Engineering Change Proposals (MAY 1994)
252.243-7000 ALTERNATE I (MAY 1994)
252.243-7001 Pricing of Contract Modifications (DEC 1991)
252.246-7000 Material Inspection and Receiving Report
(DEC 1991)
</TABLE>
REQUIREMENT FOR CERTIFICATE OF PROCUREMENT INTEGRITY --
MODIFICATION (FAR 52.203-9)(NOV 1990)
(a) Definitions. The definitions set forth in FAR 3.104-4 are hereby
incorporated in this clause.
(b) The Contractor agrees that it will execute the certification set forth in
paragraph (c) of this clause when requested by the Contracting Officer in
connection with the execution of any modification of this contract.
(c) Certification. As required in paragraph (b) of this clause, the officer or
employee responsible for the modification proposal shall execute the following
certification:
REQUIREMENT FOR CERTIFICATE OF PROCUREMENT INTEGRITY --
MODIFICATION (NOV 1990)
(1) I, [Name of certifier] am the officer or employee responsible for the
preparation of this modification proposal and hereby certify that, to the best
of my knowledge and belief, with the exception of any information described in
this certification, I have no information concerning a violation or possible
violation of subsection 27(a), (b), (d), or (f) of the Office of Federal
Procurement Policy Act, as amended* (41 U.S.C. 423), (hereinafter referred to
as "the Act"), as implemented in the FAR, occurring during the conduct of this
procurement (contract and modification number).
(2) As required by subsection 27(e)(1)(B) of the Act, I further certify
that to the best of my knowledge and belief, each officer, employee, agent,
representative, and consultant of [Name of Offeror who has participated
personally and substantially in the preparation or submission of this
33
<PAGE> 34
proposal has certified that he or she is familiar with, and will comply with
the requirements of subsection 27(a) of the Act, as implemented in the FAR, and
will report immediately to me any information concerning a violation or
possible violation of subsections 27(a), (b), (d), or (f) of the Act, as
implemented in the FAR, pertaining to this procurement.
(3) Violations or possible violations: (Continue on plain bond paper if
necessary and label Certificate of Procurement Integrity - Modification
(Continuation Sheet), ENTER "NONE" IF NONE EXISTS)
---------------
- ---------------------
- ---------------------
------------------------------
[Signature of the officer or employee responsible for the modification proposal
and date]
[Typed name of the officer or employee
- -----------------------------------
responsible for the modification proposal]
*Subsections 27(a), (b) and (d) are effective on December 1, 1990. Subsection
27(f) is effective on June 1, 1991.
THIS CERTIFICATION CONCERNS a MATTER WITHIN THE JURISDICTION OF AN AGENCY OF
THE UNITED STATES AND THE MAKING OF a FALSE, FICTITIOUS, OR FRAUDULENT
CERTIFICATION MAY RENDER THE MAKER SUBJECT TO PROSECUTION UNDER TITLE 18,
UNITED STATES CODE, SECTION 1001.
(End of Certification)
(d) In making the certification in paragraph (2) of the certificate, the
officer or employee of the competing Contractor responsible for the offer or
bid, may rely upon a one-time certification from each individual required to
submit a certification to the competing Contractor, supplemented by periodic
training. These certifications shall be obtained at the earliest possible date
after an individual required to certify begins employment or association with
the contractor. If a contractor decides to rely on a certification executed
prior to the suspension of section 27 (i.e., prior to December 1, 1989), the
Contractor shall ensure that an individual who has so certified is notified
that section 27 has been reinstated. These certifications shall be maintained
by the Contractor for a period of 6 years from the date a certifying employee's
employment with the company ends or for an agency, representative, or
consultant, 6 years from the date such individual ceases to act on behalf of
the contractor.
(e) The certification required by paragraph (c) of this clause is a material
representation of fact upon which reliance will be placed in executing this
modification.
PROCUREMENT AUTHORITY (FIRMR 201-39.5202-3)(OCT 90 FIRMR)
This acquisition is being conducted under * delegation of GSA's exclusive
procurement
34
<PAGE> 35
authority for FIP resources. The specific GSA DPA case number is ** .
TO BE DESIGNATED ON INDIVIDUAL DELIVERY ORDERS
SECTION J LIST OF EXHIBITS, ATTACHMENTS AND OTHER DOCUMENTS
Cybersource Price List
35
<PAGE> 36
Here is a list of electronically delivered products as of 11/30/95. Prices and
products subject to change without prior notice.
ADOBE SYSTEMS
ACROBAT READER........................................ (MACNET) $FREE
ACROBAT READER........................................ (WINNET) $FREE
ASSET INC.
ASSET DOCPARTS V1.0................................... (WINDOWNET) $124.99
(VENDOR SUPPLIED DOC)
BLUE RIBBON SOFTWARE
CHRISTMAS BETWEEN FRIENDS DEMO V2.1................... (WINDOWNET) $FREE
(ONLINE DOC INCLUDED SINGLE)
CHRISTMAS BETWEEN FRIENDS DEMO V2.1................... (WINDOWNET) $16.95
(ONLINE DOC INCLUDED SINGLE)
JUST BETWEEN FRIENDS DEMO V2.1........................ (WINDOWNET) $FREE
(ONLINE DOC INCLUDED SINGLE)
JUST BETWEEN FRIENDS DEMO V2.1........................ (WINDOWNET) $25.99
(ONLINE DOC INCLUDED SINGLE)
BONZI SOFTWARE
MERGEFAX FOR WINFAX PRO V3.0.......................... (WINDOWNET) $54.95
(SINGLE, ONLINE DOC)
VOICE E-MAIL FOR AOL V3.0............................. (WINDOWNET) $29.95
(SINGLE, ONLINE DOC)
VOICE E-MAIL FOR EUDORA V3............................ (WINDOWNET) $29.95
(SINGLE, ONLINE DOC)
VOICE E-MAIL FOR NETSCAPE V3.0........................ (WINDOWNET) $29.95
(SINGLE, ONLINE DOC)
VOICE E-MAIL FOR WINCIM V3.0.......................... (WINDOWNET) $29.95
(SINGLE, ONLINE DOC)
VOICE E-MAIL PLAYER V3.0.............................. (WINDOWNET) $FREE
(SINGLE, ONLINE DOC)
CHECKFREE
CHECKFREE FOR WINDOWS V1.OR2.......................... (WINDOWNET) $FREE
(UPDATED FILES FREE SOFTWARE)
Attachment I
<PAGE> 37
CLARIS
CLARIS ORGANIZER V1.O SINGLE..................................(PWRMACNET) $47.00
(FOR MAC AND POWERMAC)
COGNITIVE TECHNOLOGY CORP.
CUNEIFORM PRO V. 1.21..........................................(WINDOWNET) $FREE
(15 Day FREE TRIAL)
COMMON GROUND SOFTWARE
COMMON GROUND V2.2.............................................(WINDOWNET) $FREE
(30 DAY TRIAL SINGLE NO-DOC)
COMMON GROUND V2.0...........................................(WINDOWNET) $139.95
(SINGLE NO-DOC)
DATA-TRAK INC.
ATLAS EQUIPMENT MANAGER CLASSIC V3.0.........................(WINDOWNET) $445.50
(ON-LINE DOC AVAILABLE)
ATLAS EQUIPMENT MANAGER DEMO V3.0..............................(WINDOWNET) $FREE
(ON-LINE DOC AVAIL., SAVE DISABLED)
ATLAS EQUIPMENT MANAGER LITE V3.0............................(WINDOWNET) $133.99
(ON-LINE DOC AVAILABLE)
ATLAS EQUIPMENT MANAGER PR V3.0.............................(WINDOWNET) $1344.99
(ON-LINE DOC AVAILABLE)
ESPRIT SOFTWARE CORPORATION
MONEYFIND FOR SMALL BUSINESSES................................(WINDOWNET) $31.95
(NO-DOC)
SCHOLARSHIPS FOR WINDOWS V95.2................................(WINDOWNET) $31.95
(NO-DOC)
EXCELLER SOFTWARE CORPORATION
GILBERT'S DICT. OF LEGAL TERMS V4.0...........................(WINDOWNET) $34.97
(SINGLE NO-DOC)
FARALLON
<PAGE> 38
<TABLE>
<S> <C> <C>
SW400P TIMBUKTU PRO V1.0 ....................... (MACNET) $FREE
(DEMO)
FINGERTIP SOFTWARE
3-D KEYBOARD V2.4 .............................. (WINDOWNET) $15.99
(ON-LINE DOC)
FRACTAL DESIGN
PAINTER DEMO V3.0 .............................. (WINDOWNET) $FREE
(NO-DOC (SAVE DISABLED))
FTP
EXPLORE INTERNET 1 USER V2.0 ................... (WINDOWNET) $36.00
(SINGLE NO-DOC)
EXPLORE INTERNET 10 USER V2.0 .................. (WINDOWNET) $294.39
(SINGLE NO-DOC)
EXPLORE INTERNET 5 USER V2.0 ................... (WINDOWNET) $163.18
(SINGLE NO-DOC)
INTERDRIVE 95 V1.0 ............................. (WIN-32NET) $172.65
(NO-DOC SINGLE)
KEYVIEW FOR WINDOWS ............................ (WINDOWNET) $FREE
(DEMO COPY)
KEYVIEW FOR WINDOWS ............................ (WINDOWNET) $75.20
(SINGLE USER LICENSE)
KEYVIEW FOR WINDOWS DEMO V4.1A ................. (WINDOWNET) $FREE
(NO-DOC (30-DAY TRIAL))
ONNET FOR WINDOWS V2.0 ......................... (WINDOWNET) $304.95
(NO-DOC)
PC/TCP ONNET KERNEL V2.0 ....................... (DOSWINNET) $138.39
(FOR DOS/WINDOWS SINGLE NO DOC)
FUNDAMENTAL OBJECTS INC
FOCOACH V1.0 ................................... (WINDOWNET) $69.00
(ON LINE HELP AND SAMPLES)
GRYPHON SOFTWARE CORP.
MORPH DEMO V2.5 ................................ (WINDOWNET) $FREE
</TABLE>
<PAGE> 39
<TABLE>
<S> <C> <C>
HATTERAS SOFTWARE INC.
CONVERSIONWIDGETS$V1.0........................... (OS/2NET) $300.00
(SINGLE ON-LINE DOC)
CONVERSIONWIDGETS$V1.0........................... (WINDOWNET) $300.00
(SINGLE ON-LINE DOC)
HAWKNET
NETREPORT........................................ (WINDOWNET) $495.00
(NETWARE)
NETREPORT PRO.................................... (WINDOWNET) $895.00
(NETWARE)
IBM
LANGUAGEWARE PARTS 1 USER V1.0................... (OS/2NET) $199.00
(SINGLE, ON-LINE DOC)
LANGUAGEWARE PARTS 10 USER V1.0.................. (OS/2NET) $450.00
(SINGLE + 9 LICENSES ON-LINE DOC)
LANGUAGEWARE PARTS 100 USER V1.0................. (OS/2NET) $2000.00
(SINGLE + 99 LICENSES ON-LINE DOC)
LANGUAGEWARE PARTS 1000 USER V1.0................ (OS/2NET) $8500.00
(SINGLE + 999 LICENSES ON-LINE DOC)
LANGUAGEWARE PARTS INTL PACK V1.0................ (OS/2NET) $675.00
(10 USR (SINGLE + 9 LIC) ON-LINE DOC)
LANGUAGEWARE PARTS INTL PACK V1.0................ (OS/2NET) $3000.00
(100 USR (SINGLE + 99 LIC) ON-LINE DOC)
LANGUAGEWARE PARTS INTL PACK V1.0................ (OS/2NET) $12750.00
(1000 USR (SINGLE + 999 LIC) ON-LINE DOC)
LANGUAGEWARE PARTS INTL PACK V1.0................ (OS/2NET) $299.00
ICL
EMBLA - PC MAIL MANAGER DEMO V1.1C............... (WINDOWNET) $FREE
(SINGLE ON LINE DOC)
EMBLA - PC MAIL MANAGER V1.1C.................... (WINDOWNET) $99.00
(1 USER ON LINE DOC)
EMBLA - PC MAIL MANAGER V1.1C.................... (WINDOWNET) $699.00
(10 USE ON LINE DOC)
EMBLA - PC MAIL MANAGER V1.1C.................... (WINDOWNET) $4999.00
(100 USER ON LINE DOC)
</TABLE>
<PAGE> 40
EMBLA - PC MAIL MANAGER V1.1C ............................ (WINDOWNET) $1649.00
(25 USER ON LINE DOC)
EMBLA - PC MAIL MANAGER V1.1C ............................ (WINDOWNET) $399.00
(5 USER ON LINE DOC)
EMBLA - PC MAIL MANAGER V1.1C ............................ (WINDOWNET) $2999.00
(50 USER ON LINE DOC)
EMBLA - the PC Mail Manager 10 User ...................... (WINDOWNET) $699.00
(IMAP Mail Client for Windows)
EMBLA - the PC Mail Manager DEMO ......................... (WINDOWNET) $FREE
(IMAP Mail Client for Windows)
EMBLA LITE - PC MAIL MANAGER V1.1C ....................... (WINDOWNET) $38.95
(POP MAIL CLIENT 1 USER ON LINE DOC)
EMBLA LITE - PC MAIL MNGR DEMO V1.1C ..................... (WINDOWNET) $FREE
(SINGLE ON LINE DOC)
EMBLA lite - 30 day trial ............................... (WINDOWNET) $FREE
(POP Mail Client for Windows)
IMAGES OF NATURE
IMAGES OF NATURE SCREEN SAVER V2.0 ....................... (WINDOWNET) $29.95
(NO-DOC)
IMAGINATION NETWORK
FULL PACKAGE ............................................. (DOSNET) $FREE
(15 MB download - 10 free hours)
STARTER KIT .............................................. (DOSNET) $FREE
(1.5 MB download - 5 free hours)
INTERCON
Interprint ............................................... (MAC/PMNET) $149.00
Interprint DEMO .......................................... (MAC/PMNET) $FREE
NFS/Share ................................................ (MAC/PMNET) $229.00
NFS/Share DEMO ........................................... (MAC/PMNET) $FREE
TCP/Connect II v2.1.2 Extended ........................... (MAC/PMNET) $375.00
TCP/Connect II v2.1.2 Extended ........................... (MAC/PMNET) $FREE
(DEMO)
TCP/Connect II v2.1.2 Remote ............................. (MAC/PMNET) $149.00
<PAGE> 41
<TABLE>
<S> <C> <C>
INTERGRAPH
PC-NFS FOR WIN-NT V2.1 ................................... (WIN-32NET) $310.00
(NO-DOC SINGLE)
IS INTERNATIONAL INC
VISIIPARTS - DEMO ........................................ (OS/2NET) $FREE
(SINGLE ON-LINE DOC)
VISIIPARTS - OS/2 TEAM V2.0 .............................. (OS/2NET) $595.00
(SINGLE ON-LINE DOC-HARDCOPY OPTION)
VISIIPARTS - WIN SINGLE USER V2.0 ........................ (WINDOWNET) $395.00
(SINGLE ON-LINE DOC-HARDCOPY OPTION)
VISIIPARTS - WINDOWS TEAM V2.0 ........................... (WINDOWNET) $595.00
(SINGLE ON-LINE DOC-HARDCOPY OPTION)
VISIIPARTS OS2 SINGLE USER V2.0 .......................... (OS/2NET) $300.00
(SINGLE ON-LINE DOC-HARDCOPY OPTION)
LPS CONSULTING SERVICES
ODBTALK FOR VISUAL SMALLTALK V2.2A ....................... (WINDOWNET) $399.00
(SINGLE ON-LINE DOC)
ODBTALK FOR VISUALAGE 2.5 ................................ (OS/2NET) $399.00
(SINGLE ON-LINE DOC)
ODBTALK FOR VISUALAGE DEMO ............................... (OS/2NET) $FREE
(SINGLE ON-LINE DOC)
ODBTALK FOR VISUALAGE DEMO ............................... (WINDOWNET) $FREE
(SINGLE ON-LINE DOC)
ODBTALK FOR VISUALAGE V2.5 ............................... (OS/2NET) $399.00
(SINGLE ON-LINE DOC)
ODBTALK FOR VISUALSMALLTALK DEMO ......................... (WINDOWNET) $FREE
(SINGLE ON-LINE DOC)
ODBTALK FOR VISUALWORKS DEMO ............................. (WINDOWNET) $FREE
(SINGLE ON-LINE DOC)
ODBTALK FOR VISUALWORKS V2.5A ............................ (WINDOWNET) $399.00
(SINGLE ON-LINE DOC)
MICROSOFT CONSUMER PRODUCTS
GOLF CHAMPIONSHIP COURSE V1.0 ............................ (WINDOWNET) $23.57
(SINGLE 1-DOC BANFF SPRINGS)
GOLF CHAMPIONSHIP COURSE V1.0 ............................ (WINDOWNET) $23.41
(SINGLE 1-DOC MAUNA KEA)
GOLF CHAMPIONSHIP COURSE V1.0 ............................ (WINDOWNET) $23.57
(SINGLE 1-DOC PINEHURST)
</TABLE>
<PAGE> 42
<TABLE>
<S> <C>
WINDOWS ENTERTAINMENT PK V1.0 ............................. (WINDOWNET) $22.99
(SINGLE 1-DOC BEST OF WIN ENT PK)
MICROSOFT CORPORATION
UPGRD VISUAL FOXPRO V3.0 .................................. (WINDOWNET) $91.64
(SINGLE, ON-LINE HELP)
VISUAL FOXPRO FOR WIN V3.0 ................................ (WINDOWNET) $179.05
(SINGLE, ON-LINE HELP)
MICROSOFT WINDOWS 95
EXCEL FOR WINDOWS 95 V7.0 ................................. (WIN-32NET) ??????8
(SINGLE, SERVER NO-DOC)
OFFICE PRO FOR WINDOWS 95 V7.0 ............................ (WIN-32NET) ?????25
(SINGLE, SERVER NO-DOC)
PLUS! FOR WINDOWS 95 V1.0 ................................. (WIN-32NET) ??????8
(SINGLE, SERVER NO-DOC)
POWERPOINT FOR WINDOWS 95 V7.0 ............................ (WIN-32NET) $286.58
(SINGLE, SERVER NO-DOC)
SCHEDULE + 32 BIT SINGLE V7.0 ............................. (WIN-32NET) $87.82
(SINGLE, SERVER NO-DOC)
UPDATE DRIVER FOR MICROSOFT NETWORKS....................... (WIN-32NET) $FREE
(FOR FILE AND PRINTER SHARING)
UPDATE DRIVER FOR NETWARE NETWORKS......................... (WIN-32NET) $FREE
(FOR FILE AND PRINTER SHARING)
UPGRD EXCEL FOR WINDOWS 95 V7.0............................ (WIN-32NET) $91.67
(SINGLE, SERVER NO-DOC)
UPGRD OFFICE PRO FOR WINDOWS 95 V7.0 ...................... (WIN-32NET) $303.54
(SINGLE, SERVER NO-DOC)
UPGRD POWERPOINT FOR WINDOWS 95 V7.0 ...................... (WIN-32NET) $91.67
(SINGLE, SERVER NO-DOC)
UPGRD WORD FOR WINDOW 95 V7.0 ............................. (WIN-32NET) $91.67
(SINGLE, SERVER NO-DOC)
WORD FOR WINDOWS 95 V7.0 .................................. (WIN-32NET) $286.58
(SINGLE, SERVER NO-DOC)
WORKS FOR WINDOWS 95 V4.0 ................................. (WIN-32NET) $46.20
(SINGLE, SERVER NO-DOC)
NBNSOFT CORPORATION
NBNSOFT YOUR INTERNET ENCYCLOPEDIA VOLUM .................. (WINDOWNET) $6.49
(NO-DOC (INTERNET SERVICE REQUIRED))
NETMANAGE
WINDOWS ENTERTAINMENT PK V1.0 ............................. (WINDOWNET) $22.99
(SINGLE 1-DOC BEST OF WIN ENT PK)
MICROSOFT CORPORATION
UPGRD VISUAL FOXPRO V3.0 .................................. (WINDOWNET) $91.64
(SINGLE, ON0LINE HELP)
VISUAL FOXPRO FOR WIN V3.0 ................................ (WINDOWNET) $179.05
(SINGLE, ON-LINE HELP)
MICROSOFT WINDOWS 95
EXCEL FOR WINDOWS 95 V7.0 ................................. (WIN-32NET) $286.58
(SINGLE, SERVER NO-DOC)
OFFICE PRO FOR WINDOWS 95 V7.0 ............................ (WIN-32NET) $521.28
(SINGLE, SERVER NO-DOC)
PLUS! FOR WINDOWS 95 V1.0 ................................. (WIN-32NET) $45.58
(SINGLE, SERVER NO-DOC)
POWERPOINT FOR WINDOWS 95 V7.0 ............................ (WIN-32NET) $286.58
(SINGLE, SERVER NO-DOC)
SCHEDULE + 32 BIT SINGLE V7.0 ............................. (WIN-32NET) $87.82
(SINGLE, SERVER NO-DOC)
UPDATE DRIVER FOR MICROSOFT NETWORKS ...................... (WIN-32NET) $FREE
(FOR FILE AND PRINTER SHARING)
UPDATE DRIVER FOR NETWARE NETWORKS ........................ (WIN-32NET) $FREE
(FOR FILE AND PRINTER SHARING)
UPGRD EXCEL FOR WINDOWS 95 V7.0 ........................... (WIN-32NET) $91.67
(SINGLE, SERVER NO-DOC)
UPGRD OFFICE PRO FOR WINDOWS 95 V7.0 ...................... (WIN-32NET) $303.54
(SINGLE, SERVER NO-DOC)
UPGRD POWERPOINT FOR WINDOWS 95 V7.0 ...................... (WIN-32NET) $91.67
(SINGLE, SERVER NO-DOC)
UPGRD WORD FOR WINDOW 95 V7.0 ............................. (WIN-32NET) $91.67
(SINGLE, SERVER NO-DOC)
WORD FOR WINDOWS 95 V7.0 .................................. (WIN-32NET) $286.58
(SINGLE, SERVER NO-DOC)
WORKS FOR WINDOWS 95 V4.0 ................................. (WIN-32NET) $46.20
(SINGLE NO-DOC)
NBNSOFT CORPORATION
NBNSOFT YOUR INTERNET ENCYCLOPEDIA VOLUM .................. (WINDOWNET) $6.49
(NO-DOC (INTERNET SERVICE REQUIRED))
NETMANAGE
</TABLE>
<PAGE> 43
[SEAL]
INTERNET CHAMELEON V4.5................................. (WINDOWNET) $72.95
(NO-DOC)
NOW SOFTWARE
NOW CONTACT V3.0 DEMO................................... (MAC/PMNET) $FREE
NOW CONTACT V3.5 10-USER................................ (MAC/PMNET) $475.00
NOW CONTACT V3.5 5-USER................................. (MAC/PMNET) $240.00
NOW CONTACT V3.5 DEMO................................... (MAC/PMNET) $FREE
NOW CONTACT V3.5 SINGLE NO-DOC.......................... (MAC/PMNET) $49.95
NOW CONTACT/UP-TO-DATE BUNDLE........................... (MAC/PMNET) $79.95
(Version 3.5)
NOW CONTACT/UP-TO-DATE BUNDLE 10-USER................... (MAC/PMNET) $759.00
(Version 3.5)
NOW CONTACT/UP-TO-DATE BUNDLE 5-USER.................... (MAC/PMNET) $389.00
(Version 3.5)
NOW CONTACT/UP-TO-DATE BUNDLE UPGRADE................... (MAC/PMNET $45.49
(Version 3.5 (must have prior version))
NOW UP TO DATE V3.0 DEMO................................ (MAC/PMNET) $FREE
NOW UP TO DATE V3.0 DEMO................................ (MAC/PMNET) $FREE
NOW UP TO DATE V3.5 10-USER............................. (MAC/PMNET) $475.00
NOW UP TO DATE V3.5 5-USER.............................. (MAC/PMNET) $240.00
NOW UP TO DATE V3.5 SINGLE.............................. (MAC/PMNET) $49.95
NOW UTILITIES V5.0.1 10-USER............................ (MAC/PMNET) $749.00
NOW UTILITIES V5.0.1 50-USER............................ (MAC/PMNET) $3149.00
NOW UTILITIES V5.0.1 DEMO............................... (MAC/PMNET) $FREE
NOW UTILITIES V5.0.1 UPDATE............................. (MAC/PMNET) $FREE
(REQUIRES NOW UTILITIES V5.0)
NOW UTILITIES V5.01 SINGLE.............................. (MAC/PMNET) $45.49
(upgrade must have prior version)
ON TECHNOLOGY
AUDIT TRACK NLM......................................... (IBM-PCNET) $FREE
(30 DAY TRIAL)
<PAGE> 44
[SEAL]
SOFTRACK....................................... (IBM-PCNET) $FREE
(30 DAY TRIAL)
QUARTERDECK OFFICE SYSTEMS
CLEANSWEEP 95 DEMO V2.0........................ (WIN-32NET) $FREE
(SINGLE NO-DOC (BUILT-IN HELP AVAILABLE))
CLEANSWEEP TRIAL VERSION V1.0.................. (WINDOWNET) $FREE
(NO-DOC)
CLEANSWEEP V1.0................................ (WINDOWNET) $22.69
(NO-DOC (BUILT-IN HELP AVAILABLE))
QUARTERDECK INTERNETSUITE V1.0................. (WINDOWNET) $31.79
(NO-DOC (BUILT-IN HELP AVAILABLE))
QUARTERDECK MOSAIC DEMO V1.0................... (WINDOWNET) $FREE
(NO-DOC 30-DAY TRIAL)
QUARTERDECK MOSAIC V1.0........................ (WINDOWNET) $13.95
(NO-DOC (BUILT-IN HELP AVAILABLE))
QUARTERDECK WEBSERVER DEMO V1.0................ (WINDOWNET) $FREE
(30 DAY TRIAL NO-DOC (BUILT-IN HELP AVAILABLE))
QUARTERDECK WEBSERVER V1.0..................... (WINDOWNET) $113.69
(NO-DOC (BUILT-IN HELP AVAILABLE))
WEBAUTH0R DEMO V1.0............................ (WINDOWNET) $FREE
(30 DAY TRIAL NO-DOC (BUILT-IN HELP AVAILABLE))
WEBAUTHOR V1.0................................. (WINDOWNET) $40.89
(NO-DOC (BUILT-IN HELP AVAILABLE))
SOFTWARE PUBLISHING CORP. (SPC)
ASAP TRIAL VERSION V1.0........................ (WINDOWNET) $FREE
(NO-DOC)
ASAP V1.0...................................... (WINDOWNET) $99.95
(NO-DOC)
ONFILE FOR WINDOWS V1.0........................ (WINDOWNET) $52.95
(SINGLE, NO-DOC)
SOFTWARE PUBLISHING CORPORATION
ONFILE TRIAL VERSION V1.0........................(WINDOWNET) $FREE
(NO-DOC (30-DAY TRIAL))
SOFTWARE.NET
POWERPOINT PRESENTATION.........................(WINDOWNET) $FREE
((REQUIRES POWERPOINT 4.x))
<PAGE> 45
(NO-DOC)
CLICK ART EXPRESS BIRTHDAYS V1.0 ......................... (WINDOWNET) $13.99
(NO-DOC)
CLICK ART EXPRESS BORDERS V1.0 ........................... (WINDOWNET) $13.99
(FRAMERS & BURSTS NO-DOC)
CLICK ART EXPRESS BUSINESS V1.0 .......................... (WINDOWNET) $13.99
(NO-DOC)
CLICK ART EXPRESS EDUCATION V1.0 ......................... (WINDOWNET) $13.99
(NO-DOC)
CLICK ART EXPRESS FOOD & BEV V1.0 ........................ (WINDOWNET) $13.99
(NO-DOC)
CLICK ART EXPRESS HOLIDAYS V1.0 .......................... (WINDOWNET) $13.99
(NO-DOC)
CLICK ART EXPRESS ICNS & SYMBLS V1.0 ..................... (WINDOWNET) $13.99
(NO-DOC)
CLICK ART EXPRESS KID'S ART V1.0 ......................... (WINDOWNET) $13.99
(NO-DOC)
CLICK ART EXPRESS PEOPLE V1.0 ............................ (WINDOWNET) $13.99
(NO-DOC)
CLICK ART EXPRESS PLNTS & FLWRS V1.0 ..................... (WINDOWNET) $13.99
(NO-DOC)
CLICK ART EXPRESS REAL ESTATE V1.0 ....................... (WINDOWNET) $13.99
(NO-DOC)
CLICK ART EXPRESS SPORTS & REC V1.0 ...................... (WINDOWNET) $13.99
(NO-DOC)
CLICK ART EXPRESS TRNSPRTATION V1.0 ...................... (WINDOWNET) $13.99
(NO-DOC)
CLICK ART EXPRESS VAC & TRAVEL V1.0 ...................... (WINDOWNET) $13.99
(NO-DOC)
CLICK ART EXPRESS WEDDINGS V1.0 .......................... (WINDOWNET) $13.99
(NO-DOC)
CLICK ART SAMPLER V1.0 ................................... (WINDOWNET) $FREE
(NO-DOC)
WORLD'S EASIEST ANNOUNCEMENTS V1.0 ....................... (WINDOWNET) $13.99
(NO-DOC)
WORLD'S EASIEST BUSINESS CARDS V1.0 ...................... (WINDOWNET) $13.99
(NO-DOC)
WORLD'S EASIEST CERTIFICATES V1.0 ........................ (WINDOWNET) $13.99
(NO-DOC)
WORLD'S EASIEST INVITATIONS V1.0 ......................... (WINDOWNET) $13.99
(NO-DOC)
WORLD'S EASIEST POST-IT NOTES V1.0 ....................... (WINDOWNET) $13.99
(NO-DOC)
WORLD'S EASIEST STATIONARY V1.0 .......................... (WINDOWNET) $13.99
(NO-DOC)
TEACHERSOFT
INTERGO BETA DEMO V.BETA ................................. (WIN-32NET) $FREE
(BETA VERSION FOR WIN-95)
<PAGE> 46
[SEAL]
STARFISH SOFTWARE
DASHBOARD 95 V1.0.............................................(WIN-32NET) $39.95
(SINGLE NO-DOC)
DASHBOARD FOR WINDOWS V3.0....................................(WINDOWNET) $29.95
(NET NO-DOC)
SIDEKICK 95 V1.0..............................................(WIN-32NET) $39.95
(SINGLE NO-DOC)
SIDEKICK FOR WINDOWS V2.0.....................................(WINDOWNET) $29.95
(SINGLE NO-DOC)
SYMANTEC
ACT! V2.0 FOR WINDOWS SINGLE.................................(WINDOWNET) $161.99
(NO-DOC)
MACTOOLS PRO V4.0 SINGLE.........................................(MACNET) $79.99
NORTON ANTIVIRUS SCAN ONLY.....................................(IBM-PCNET) $FREE
(FREE TRIAL COPY)
NORTON ANTIVIRUS V3.0 SINGLE..................................(DOSWINNET) $79.99
(SUPPORTS DOS AND WINDOWS)
NORTON ANTIVIRUS WIN '95......................................(WIN-32NET) $69.95
(SINGLE)
NORTON ANTIVIRUS WIN '95 DEMO V1.0.............................(WIN-32NET) %FREE
(SINGLE NO-DOC)
NORTON NAVIGATOR WIN '95......................................(WIN-32NET) $89.95
(SINGLE)
NORTON NAVIGATOR WIN '95 DEMO V1.0.............................(WIN-32NET) $FREE
(SINGLE NO-DOC)
NORTON UTILITIES FOR MAC V3.1.................................(MAC/PMNET) $79.99
(SINGLE)
NORTON UTILITIES V8.0 SINGLE..................................(IBM-PMNET) $99.99
(NO-DOC)
NORTON UTILITIES WIN '95 SINGLE..............................(WIN-32NET) $105.95
NORTON UTILITIES WIN '95 DEMO V1.0.............................(WIN-32NET) $FREE
(SINGLE NO-DOC)
PCANYWHERE V2.0 FOR WINDOWS..................................(WINDOWNET) $106.99
(HOST REMOTE LAN SERVER NO-DOC)
PCANYWHERE V5.0 FOR DOS......................................(IBM-PCNET) $106.99
(HOST REMOTE LAN SERVER NO-DOC)
SAM V4.0 SINGLE...............................................(MAC/PMNET) $55.99
(SYMANTEC ANTIVIRUS MAC)
T/MAKER
CLICK ART EXPRESS ANIMALS V1.0................................(WINDOWNET) $13.99
<PAGE> 47
[SEAL]
VITA (VITAL INFO TRUSTEES OF AMER)
PERS RECRD ORGANIZER -- PROFILE V2.3..........................(WINDOWNET) $29.95
(SINGLE ON-LINE DOC)
<PAGE> 1
EXHIBIT 10.27
CONFIDENTIAL
[LOGISTIX LETTERHEAD]
LOGISTIX
CALL CENTER AGREEMENT
This Call Center Agreement is made the 13th day of October, 1997 between
SOFTWARE LOGISTICS CORPORATION, D.B.A. LOGISTIX, having its principal place of
business at 48021 Warm Springs Boulevard, California 94539 (hereinafter,
"Logistix"), and software.net, having its principal place of business at 550
South Winchester Blvd., Suite 301, San Jose, CA 95128, (hereinafter,
"Customer").
A. WHEREAS Logistix is a turnkey software manufacturer and integrated supply
chain management company; and
B. WHEREAS Customer wishes to purchase call center services (including, but
not limited to, inbound and outbound telesales, and electronic order entry
services) more particularly described in the Purchasing Directions, as
defined below and as amended from time to time, (hereinafter, "the
Services") from Logistix.
NOW, THEREFORE, Customer and Logistix agree as follows:
1. PURCHASING DIRECTIONS. Customer shall deliver to Logistix a written order,
consistent with each of Logistix' final quotations, describing the Services
to be provided hereunder, and the quantities, pricing and schedule for
such Services (hereinafter, a "Purchasing Direction"), for Call Center
Services, beginning with the first day on which Logistix is expected to
deliver such Services to Customer. Logistix' acceptance of any Purchasing
Directions is expressly subject to the terms and conditions stated in this
Agreement.
2. SERVICE SPECIFICATIONS. Customer agrees to provide Logistix with written
specifications (Exhibit "A"), pertaining to each of the requested Call
Center Services which are acceptable to Logistix (hereinafter, the
"Specifications"), along with the Purchasing Directions for such Services.
No Specifications shall be binding on Logistix unless and until Logistix
approves such Specifications in writing. To the extent Customer does not
provide the specifications with respect to any of the Services, Logistix
will provide such Services in accordance with generally accepted industry
practices.
3. CHANGES TO SERVICES SCHEDULE. Customer may reschedule the Services upon
reasonable prior notice to Logistix and with Logistix' consent. It is
understood that Logistix may charge additionally for such rescheduling. In
the event any of the Services are rescheduled for a date beyond the
period described in Section 1 above, Logistix shall have the right to
invoice Customer as if such Services were delivered on the last day of
such period.
4. SPECIFICATION CHANGES. Customer understands that requests for revisions in
the Specifications may result in changes to the pricing, quantities and/or
Services schedule set forth in the Purchasing Directions for such
Services, and Logistix will have the right to reprice any of the Services
for which changes in the Specifications are being made in accordance with
any such revisions. Customer will notify Logistix of all impending
revisions to the Specifications including, but not limited to, changes to
performance requirements, configuration, design or function, with
sufficient lead time to permit Logistix to implement the requested changes
without incurring unnecessary expenses. However, Logistix will invoice
Customer for all costs associated with such
<PAGE> 2
CONFIDENTIAL
changes to the Specifications (including, but not limited to, obsoleting
equipment or material, pod reconfigurations, and redeployment of labor) at
customary and reasonable industry rates.
5. START-UP COSTS. Customer may require Logistix to incur certain program
start-up or ramp-up costs relating to, and prior to commencement of, the
Services. It is mutually understood that each of the parties shall bear its
own such costs in connection with the terms and conditions of this
Agreement. Such costs are exclusive of any pricing contained in the
accompanying Statement of Work (Exhibit A). However, the parties agree that
should this Agreement terminate pursuant to Section 13 within four (4)
months following execution of this Agreement, Customer shall be liable for,
and shall compensate Logistix for, up to $10,000 of such costs, such amount
to be determined at Logistix' sole discretion.
6. INVOICES. Logistix' invoices shall contain the following information:
Service number, description of Services, quantities, unit prices, extended
totals and applicable taxes in addition to any other information mutually
agreed to by both parties. Bills of lading, express receipts, or other proof
of delivery shall be furnished upon Customer's request. Any charges for
setup, expedits or rush charges, or other costs not ordinarily included in
the Services pricing, will be invoiced separately. Logistix shall invoice
Customer for the Services at agreed-to intervals. Payment of invoices in
full will be due net thirty (30) days from date of Logistix' invoice.
7. CREDIT. Customer's credit limit and any credit conditions will be set forth
in a separate letter from Logistix, which shall be deemed to be incorporated
herein by this reference, and will cover in the aggregate, the open orders
from Customer for Services ordered throughout the then applicable period and
all unpaid receivables from Customer. Logistix shall have the right to
reduce Customer's credit limit, in its sole and absolute discretion,
effective upon Customer's receipt of written notice of such reduction;
provided, however, that a reduction of the credit limit below Customer's
then outstanding obligations to Logistix shall not cause Customer to be in
default hereunder.
8. LATE FEES. No invoice discounts are authorized. Logistix shall have the
right to charge interest on all past due amounts at a rate not to exceed the
maximum rate permitted by applicable law. These rights are in addition to
any other remedies Logistix may have as the result of a late payment.
9. NO OFFSETS. Customer shall pay Logistix' invoices in full and on time
without offset for any amount claimed to be owed by Logistix to Customer. In
the event Customer disputes any amount of any of Logistix' invoices,
Customer shall nevertheless pay the balance of such invoice and any other
invoice.
10. TAXES. Unless otherwise specified, the prices set forth in the Purchasing
Directions do not include applicable Federal, state and local taxes. If
taxes do apply, all such taxes shall be stated separately on Logistix'
invoice and paid by Customer. If Customer claims that certain taxes are not
payable, Customer will provide Logistix with a tax exemption certificate,
with respect to such taxes, acceptable to the taxing authorities.
11. CUSTOMER PROPERTY. Logistix will use reasonable care to protect, in
accordance with normal industry standards, all property of Customer in
Logistix' facilities.
2
<PAGE> 3
CONFIDENTIAL
12. LIMITED WARRANTY. Logistix warrants that the Services sold hereunder, at
the time of completion, will conform, in all material respects, to the
Specifications.
NOTHING HEREIN SHALL BE CONSTRUED AS PASSING OR INTENDING TO PASS
LOGISTIX' WARRANTY TO ANY CUSTOMER(S) OF CUSTOMER.
THIS WARRANTY IS EXCLUSIVE AND IN LIEU OF ALL OTHER WARRANTIES EXPRESS OR
IMPLIED, INCLUDING, BUT NOT LIMITED TO, ANY IMPLIED WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, WHICH ARE HEREBY
EXPRESSLY DISCLAIMED. ANY ACTION FOR BREACH OF WARRANTY MUST BE SERVED ON
LOGISTIX WITHIN ONE YEAR AFTER COMPLETION OF THE SERVICES, WITH RESPECT TO
WHICH THE BREACH IS CLAIMED.
CUSTOMER'S ONLY REMEDIES FOR BREACH OF THIS AGREEMENT BY LOGISTIX ARE SET
FORTH IN THIS WARRANTY PROVISION AND THE TERMINATION PROVISIONS OF THIS
AGREEMENT.
13. TERMINATION.
13.1. Termination in Default. In the event Customer does not make a
payment to Logistix which Customer is required to make pursuant to
this Agreement, and fails to cure such breach within ten (10)
calendar days of receiving written notice from Logistix of such
failure, Logistix may terminate this Agreement immediately, in its
entirety or with respect to any of the Services subject to one or
more Purchasing Directions, by sending Customer a notice of
termination.
13.2. Termination of Purchase Order. Either party hereto may terminate
the Agreement, in its entirety or as it relates to any of the
Services subject to one or more Purchasing Directions, by providing
the other party with written notice of such termination, if the
other party:
(a) breaches any of its covenants under the Agreement and fails to
cure such breach within fifteen (15) days of receiving written
notice, specifying such breach, from the other party;
(b) becomes insolvent, makes an assignment for the benefit of its
creditors or generally fails to pay its debts as they become
due;
(c) is the subject of any proceeding, commenced by or against it,
under any bankruptcy, reorganization or similar law; or
(d) makes any representation or warranty that proves to be, in any
material respect, false or misleading to the other party in
order to induce the other party to enter into the Agreement.
13.3. Voluntary Termination. Both Logistix and Customer shall have the
right to terminate the Agreement without cause, in its entirety or
as it relates to any of the Services subject to one or more
Purchasing Directions, upon sixty (60) days prior written notice to
the other party (the "Notice Period").
13.4 Payment on Termination. Customer shall pay, by cashier's check,
invoices furnished by Logistix under this Section 13 within ten
(10) calendar days of its receipt thereof.
14. PATENT INDEMNITY. Customer shall indemnify Logistix, and hold it harmless,
from and against any loss, damage, liability, costs or expense (including,
without limitation, court costs and attorneys' fees), and any claim,
action or proceeding in connection therewith, which Logistix may incur or
suffer, resulting or arising from:
3
<PAGE> 4
CONFIDENTIAL
(a) any alleged or actual infringement of any patent, trademark
or copyright, or misuse of any trade secret, of any third
party which results from Logistix' compliance with any of
the Specifications or Customer's instructions with respect
to any of the Services, including, without limitation, any
instructions of Customer with respect to:
(i) copying of master data; or
(ii) disk duplication, (collectively, "Customer
Instructions"); and
(b) any injury to any person or property which is alleged to
have been caused, or is caused, in whole or in part, by any
of the Services performed by Logistix in compliance with the
Specifications or Customer's Instructions.
Customer shall defend Logistix, at Customer's sole expense, with counsel of
its own selection (but which counsel is reasonably acceptable to Logistix)
against any such claim, action or proceeding if Logistix gives Customer
written notice of any such claim, action or proceeding promptly after
becoming aware of such claim, action or proceeding; provided, however, that
Logistix shall also have the right to participate in such defense, at its
own expense, with counsel of its selection. Customer shall have no right to
settle such claim, action or proceeding unless, upon such settlement,
Logistix is released from any obligation or liability with respect to such
claim or the allegations in such action or proceeding, as the case may be.
15. COMPLIANCE WITH LAWS. Each party will defend and hold each other harmless
from any claim, loss, cost, liability, or damage incurred as a result of
the violation by the other of any law, rule or regulation of the United
States or any state of any governmental agency.
16. CONFIDENTIALITY. Each party may disclose to the other information
concerning its business, product development, inventories, know-how, or
trade secrets ("Confidential Information") as may be necessary to further
the performance of the Agreement. All Confidential Information, disclosed
during the performance of this Agreement, shall remain the sole property of
the party disclosing same, and the receiving party shall receive no rights
with respect to such Confidential Information except as set forth in this
Agreement. Each party agrees to maintain the Confidential Information of
the other party in confidence and further agrees to take all reasonable
precautions to prevent any unauthorized disclosure of such Confidential
Information by its employees or independent contractors. This Section shall
impose no obligation upon the receiving party with respect to any portion
of any Confidential Information which:
(a) was known to the receiving party at the time of its disclosure;
(b) through no act or failure to act on the part of the receiving
party, becomes generally known or available;
(c) is, or has been, furnished to others by the disclosing party,
without restriction on disclosure; or
(d) has been furnished to the receiving party by a third party as a
matter of right and without restriction on disclosure.
17. RECRUITMENT OF LOGISTIX' EMPLOYEES. Customer and Logistix shall not recruit
or offer employment to each other's employees, or persons who had been
employed by the other party within 180 days prior to any such recruiting or
the making of any such offer of employment by the other party, while the
Agreement is in effect or for the period of one year following the
termination of the Agreement.
18. MISCELLANEOUS.
4
<PAGE> 5
CONFIDENTIAL
18.1 Force Majeure. Logistix shall not be liable for any failure to complete,
or any delay in the completion of, the Services, due to any cause beyond
its reasonable control, including, but not limited to, acts of God, acts
of civil or military authority, fires, epidemics, floods, earthquakes,
riots, wars, sabotage, labor shortages or disputes, vendor or
subcontractor defaults, materials shortages and governmental actions. In
the event such a failure or delay results from such an event, Logistix
will notify Customer of the causes of such failure or delay and the
period of performance shall be extended by a period equal to the delay
caused by such event.
18.2 Waiver. No waiver of any right or obligation of either party under this
Agreement shall be effective unless in writing, specifying such waiver,
executed by the party against which such waiver is being enforced. A
waiver by either party of any of its rights under this Agreement on any
occasion shall not be a bar to the exercise of the same right on any
subsequent occasion or of any other right at any time.
18.3 Cumulative Remedies. A termination of the Agreement, or any portion
thereof, by either party hereto shall not preclude such party from
exercising any other right, power or remedy, at law or in equity, which
it may have hereunder or otherwise, all of which are cumulative and not
exclusive.
18.4 Headings. The section headings in the Agreement are provided for
reference only and shall not affect the interpretation of the Agreement.
18.5 Entire Agreement, Exhibits and Amendments. The Agreement and the
attachments thereto are the exclusive understanding between Customer and
Logistix with respect to the Services for Customer by Logistix. Any and
all prior or contemporaneous agreements concerning such matters, whether
written or oral, are null and void. This Agreement may be amended,
altered or modified only by a writing, specifying such amendment,
alteration or modification, executed by an authorized officer of each
party.
18.6 Notices. All notices and other communications related to the Agreement
shall be in writing and will be effective when actually received, or, if
earlier, one day after being sent by facsimile or overnight air freight
or express mail, or five days after being sent certified mail, return
receipt requested, addressed to the intended party at the address set
forth on the Agreement or such other address with respect to which such
party shall give the other written notice.
18.7 Assignment. No rights or obligations under this Agreement shall be
assigned by either party, except as specifically permitted herein,
without the prior written consent of the other party.
18.8 Applicable Law. The validity, performance, and construction of this
Agreement shall be governed by the laws of the State of California with
respect to the contracts entered into, and to be performed in,
California.
18.9 Jurisdiction and Venue. The parties hereto consent to the jurisdiction
of all Federal and state courts in California, and agree that venue
shall lie exclusively in Santa Clara County, California.
18.10 Additional Actions and Documents. The parties shall execute and deliver
such further documents and instruments and shall take such other further
actions as may be required or appropriate to carry out the intents and
purposes of this Agreement.
18.11 General Limitations of Liability. IN NO EVENT, WHETHER AS A RESULT OF
BREACH OF CONTRACT, WARRANTY, TORT (INCLUDING NEGLIGENCE), STRICT
LIABILITY, A FAILURE OF ANY SERVICE TO MEET SPECIFICATIONS, OR
OTHERWISE, SHALL LOGISTIX BE LIABLE FOR LOSS OF PROFITS OR REVENUES,
LOSS OF GOODWILL, CLAIMS OF CUSTOMER'S CUSTOMERS OR SPECIAL, INCIDENTAL,
CONSEQUENTIAL
5
<PAGE> 6
OR PUNITIVE DAMAGES OF ANY NATURE.
18.12 Attorney's Fees. In the event of a dispute between the parties, the
prevailing party's attorney's fees shall be paid by the other.
18.13 Term. Subject to Section 13, the initial term of this Agreement shall
be for one (1) year. The Agreement commences on the date on which it
is made as set forth at the top of the first page and shall be renewed
automatically annually, on its anniversary date, for successive one
year terms unless sooner terminated.
IN WITNESS WHEREOF, the Parties hereto have caused this instrument to be duly
executed as of the day and year first above written.
software.net LOGISTIX
By: [SIG] By: [SIG]
------------------------------ ------------------------------
Name: William S. McKiernan Name: /s/ Murrali Rangarajan
---------------------------- ----------------------------
Title: CEO Title: President
--------------------------- ---------------------------
Date: 10/24/89 Date: 10/17/97
---------------------------- ----------------------------
6
<PAGE> 7
software.net STATEMENT OF WORK*
SCOPE OF WORK
The below items represent Logistix' understanding of the business requirements
and/or services requested to support the business objectives of software.net.
1. CALL CENTER
- Provide Communication Center Services to handle inbound and outbound
customer service calls to and from software.net customers for the
following activities - based in pre-approved scripts from
software.net and Logistix:
- Inquiry Handling by phone and email
- Referrals of escalation calls back to software.net
- Basic Telephone Services (does not include Upselling,
Cross-selling or Outbound Telephone Sales).
- Assist in the unlocking of keys
- Outbound Customer Service Call backs
- Convert Inquiries to Orders
- Utilize software.net systems for order entry and customer service
- Language: English only - USA and Canada
- Volume: Telephone 1,000 monthly
- E-Mails 3,000 monthly
- 50% post order follow-up
- Based on above Volume - Logistix will provide Customer Service Reps
with the following skill sets: Self motivated, eager to learn, team
player, interest in technology, good verbal skills, internet
knowledge, problem solving skills. Based on the above volume,
Logistix estimates the use of 3 CSRs and 1 Lead.
- The line(s) communication between software.net and Logistix will be
the sole responsibility (set-up and financial) of software.net
- Call Center Metrics:
- Hours of operations: 7am-6pm, Monday thru Friday, PST (excludes
Logistix holidays)
- Service Level Targets:
- Telephone: 85% and answered within 60 sec
3% abandonment
- Email: same day response, 24 hr resolution (during
business - hours and days)
- NOTE: software.net will handle all technical support and training
issues with software.net's system. Logistix will be responsible for
maintaining only Logistix owned systems and applications.
2. ORDER ENTRY
Page 1
<PAGE> 8
o Project Management fee of $5000 will be billed if volume activity is 80%
or less of forecasted inbound call and email volumes (as stated in this
document) in addition to the talk time and email billings. The first 60
days from Go Live Date will not be counted in the activity volume and
therefore not subjected to the Project Management fee.
o If Transactions (calls and emails) increase to a combined volume of
8000/month - Pricing will be revisited.
o Additional fees may apply if other services are required.
o The parties understand that the Statement of Work is a living document and
is subject to change and/or modification until finalized at time of
contract signing.
/s/ W. S. MCKIERNAN
- --------------------------------------
software.net (signature) Date
/s/ WILLIAM S. MCKIERNAN
- --------------------------------------
please spell name Date
/s/ C. LEVINE 9/10
- --------------------------------------
Logistix (signature) Date
/s/ CAROLE LEVINE 9/10
- --------------------------------------
please spell name Date
Page 4
<PAGE> 9
software.net STATEMENT OF WORK
The below items represent Logistix' understanding of the business requirements
and/or services requested to support the business objectives of software.net.
1. CALL CENTER
Provide Communication Center Services to handle customer service
transactions to and from software.net customers for the following
activities - based in pre-approved scripts from software.net and
Logistix:
- Inquiry Handling by phone and email
- Referrals of escalation calls back to software.net
- Basic Telephone Services (does not include Upselling,
Cross-selling or Outbound Telephone Sales).
- Assist in the unlocking of keys
- Outbound Customer Service Call backs
- Convert Inquiries to Orders
- Utilize software.net systems for order entry and customer
service
- Language: English only - USA and Canada
- Logistix will monitor calls and emails up to 4 times daily,
and will provide software.net with the capability for remote
monitoring
- Current Business Volume:
- Telephone-Minimum 1,000 monthly
- E-Mails-Minimum 3,000 monthly
- 50% post order follow-up
- Additional Business Volume:
- 800 inquiries daily (approx 24,000 monthly)
- 50% telephone, 50% email
- Based on above volumes:
o Logistix will provide Customer Service Reps with the following
skill sets: Self motivated, eager to learn, team player,
interest in technology, good verbal skills, internet knowledge,
problem solving skills.
a) Per software.net's request, Logistix will evaluate and
adjust staffing requirements of Customer Service Reps and
Leads
b) In addition, Logistix will provide Level I technical
support via the Lead and one Customer Service Rep.
software.net will provide detailed requirements and all
necessary training (Lgx to provide quote for training).**
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<PAGE> 10
c) The communication lines between software.net and Logistix
will be the sole responsibility (set-up and financial) of
software.net. (This does not address the new 800# line
that is being established.)
o CALL CENTER METRICS:
- Hours of operations: 5am-9pm, Monday thru Friday; 10am-6pm Saturday &
Sunday PST (excludes Logistix holidays)*
- Service Level Targets:
- Telephone: 85% and answered within 60 sec
3% abandonment
- Email: Response within 2 hours of receipt and resolution within
24 hours
- Discount: 30 days from the go live date, Logistix will offer a 10%
discount on emails not responded to within 2 hours.
- NOTE: software.net will handle all technical support and training issues
with software.net's system. Logistix will be responsible for maintaining
only Logistix owned systems and applications.
2. ORDER ENTRY
We will utilize software.net's system to convert inquiries received by
phone and email into orders as required.
3. REPORTING
- Standard Call Center Reports will be provided daily, weekly, and
monthly, to include productivity reports for telephone and email
processing.
- Logistix will monitor telephone and email processing for quality a
minimum of 4 times daily (randomly selected CSR's), and will provide
related reporting
- Custom reports will be priced separately and provided on request.
- Logistix will categorize all calls with a wrap up code as defined by
software.net
- Tracking, management, and reporting of Emails will also require a custom
database for which will be covered under the Project Design/Setup fee of
$125/per hr.
Page 2
<PAGE> 11
4. QUALITY
- Logistix standard Corrective Action and quality monitoring processes
will be utilized to identify and resolve service and other
operational issues.
- Logistix and software.net will exchange disaster recovery plans.
5. VOICE MAIL SUPPORT
- Logistix will provide optional voicemail support during
business/operational hours for calls that exceed hold time of 1 minute
- Logistix will provide voicemail support for calls received after
business/operational hours
6. LETTERS OF DESTRUCTION (LOD'S)
- LOGISTIX WILL ISSUE A "LETTER OF DESTRUCTION" FORM TO THE ENDUSER, AS
PROVIDED BY SOFTWARE.NET, TO PROCESS LETTERS OF DESTRUCTION
7. VOLUNTARY TERMINATION
- With 30 days written notice, either party has the right to terminate
the 'Logistix Call Center Agreement' dated 10-16-97.
TIMELINE
PROJECT PLAN FOR AOL DEPOT
Project Analysis/Design 3/2/98-3/15/98
Project development 3/9/98-3/15/98
Trainer Training 3/9/98-3/15/98
Customer Service Rep Training 3/9/98-3/15/98
Project testing/revision 3/9/98-3/15/98
GO LIVE** 3/16/98
* LOGISTIX HOLIDAY SCHEDULE FOR 1998
1) New Years Day-Thursday, January 1
2) Floating Holiday-Friday, January 2
3) President's Day-Monday, February 16
4) Memorial Day-Monday, May 25
5) Independence Day-Friday, July 3
6) Labor Day-Monday-Monday, September 7
7) Thanksgiving Day-Thurdays, November 26
8) Day After Thanksgiving-Friday, November 27
9) Christmas Eve-Thursday, December 24
10) Christmas Day-Friday, December 25
Page 3
<PAGE> 12
**Logistix will provide a subsequent proposal and pricing for extended technical
support (Levels II-IV)
***Logistix proposed Statement of Work and Price Quote 10399-Rev 10 (dated
3/11/98) must be approved in writing by software.net by 3/13/98.
THE PARTIES UNDERSTAND THAT THE STATEMENT OF WORK IS A LIVING DOCUMENT AND IS
SUBJECT TO CHANGE AND/OR MODIFICATION.
/s/ JOANNA ADLER 3/24/98 Joanna Adler
- --------------------------------------- -----------------------------
software.net (signature) Date Please spell name
/s/ CAROLE LEVINE 3/19/98 Carole Levine
- --------------------------------------- -----------------------------
software.net (signature) Date Please spell name
Page 4
<PAGE> 13
LOGISTIX
PRELIMINARY PRICE QUOTATION
Client: Software.Net Quote: 18399 rev 10
Product: Call Center Services Date: 3/11/98
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
SERVICE DESCRIPTION UNIT PRICE UNIT PRICE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Customer Service Response -- option 1
5:00 AM - 7:00 PM Mon-Friday Only 501-5000 calls per month 5001-7000 calls per month
- ---------------------------------------------------------------------------------------------------------------------------------
Inbound/Outbound Talk Time $0.85 per minute $0.76 per minute
800# Line Charge (for Logistix owned lines only, i.e, $0.15 per minute for USA calls $0.15 per minute for USA calls
Netscape program only)
E-mail Response (see Notes below) $3.00 per response $2.60 per response
<500 calls e/mails per month MINIMUM $5800.00 per month
Charge
- ---------------------------------------------------------------------------------------------------------------------------------
Customer Service Response - option 1
7:00 PM - 9:00 PM Mon-Friday and 10:00 AM to
6:00 PM Saturday & Sunday
- -----------------------------------------------------------
Dedicated CSR/TSR (labor only) $38.00 per hour per /person $38.00 per hour per /person
800# Line Charge (for Logistix owned lines only, i.e, $0.15 per minute for USA calls $0.15 per minute for USA calls
Netscape program only)
- ---------------------------------------------------------------------------------------------------------------------------------
Customer Service Response - option 1
6:00 PM - 5:00 AM Mon-Friday and 6:00 PM to
10:00 AM Saturday and Logistix Holidays
- -----------------------------------------------------------
Dedicated CSR/TSR (labor only) $45.00 per hour per /person $45.00 per hour per /person
800# Line Charge (for Logistix owned lines only, i.e, $0.15 per minute for USA calls $0.15 per minute for USA calls
Netscape program only)
- ---------------------------------------------------------------------------------------------------------------------------------
Customer Service Response - option 2 (includes Tech support Level 1) (includes Tech support Level 1)
5:00 AM - 8:00 PM Mon-Friday and 10:00 AM to
6:00 PM Saturday & Sunday
- -----------------------------------------------------------
Dedicated CSR/TSR (labor only) $38.00 per hour per /person $38.00 per hour per /person
800# Line Charge (for Logistix owned lines only, i.e, $0.15 per minute for USA calls $0.15 per minute for USA calls
Netscape program only)
- ---------------------------------------------------------------------------------------------------------------------------------
Customer Service Response - option 2
9:00 PM - 5:00 PM Mon-Friday and 6:00 PM to
10:00 AM Saturday and Logistix Holidays
- -----------------------------------------------------------
Dedicated CSR/TSR (labor only) $45.00 per hour per /person $45.00 per hour per /person
800# Line Charge (for Logistix owned lines only, i.e,
Netscape program only) $0.15 per minute for USA calls $0.15 per minute for USA calls
- ---------------------------------------------------------------------------------------------------------------------------------
OTHER SERVICE CHARGES
- ---------------------------------------------------------------------------------------------------------------------------------
IVR Voice Messaging $0.75 per message $0.75 per message
Inbound/Outbound line charge (CANADA) $0.25 per minute $0.25 per minute
International Calls (Inbound Line Charge) Toll Line/No Charge Toll Line/No Charge
Transfer/Connect Fee (line charge only) $0.35 per minute $0.35 per minute
Project Design/Development Setup $125 per hour $125 per hour
Agent Training $21 per hour/person $21 per hour/person
Custom Report Extractions $10.00 per report $10 per report
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
SERVICE DESCRIPTION UNIT PRICE UNIT PRICE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Customer Service Response -- option 1
5:00 AM - 7:00 PM Mon-Friday Only 7001-10000 calls per month 10000+ calls per month
- ---------------------------------------------------------------------------------------------------------------------------------
Inbound/Outbound Talk Time $0.68 per minute $0.65 per minute
800# Line Charge (for Logistix owned lines only, i.e, $0.15 per minute for USA calls $0.15 per minute for USA calls
Netscape program only)
E-mail Response (see Notes below) $2.40 per response $2.30 per response
<500 calls e/mails per month MINIMUM
Charge
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
1
<PAGE> 1
EXHIBIT 10.29
IBM ASSISTANCE AGREEMENT
NUMBER: CAR-C95635-00
Dated
OCTOBER 13, 1995
between
IBM CORPORATION
3039 CORNWALLIS RD.
RTP, NC 27709-2195
and
CYBERSOURCE CORPORATION
1050 CHESTNUT STREET
SUITE 202
MENLO PARK, CA 94025
<PAGE> 2
- ---------
CONTENTS
<TABLE>
<S> <C>
IBM ASSISTANCE AGREEMENT ............................................ 3
1.0 PURPOSE ......................................................... 3
2.0 STRUCTURE ....................................................... 3
3.0 MARKETING ....................................................... 3
4.0 INFORMATION ..................................................... 3
5.0 RIGHTS .......................................................... 4
5.1 Ownership ..................................................... 4
5.2 Copyrights .................................................... 4
5.3 Feedback ...................................................... 4
5.4 Marketing ..................................................... 4
6.0 INDEMNIFICATION ................................................. 4
7.0 WARRANTY ........................................................ 4
8.0 TERM AND TERMINATION ............................................ 5
8.1 Term .......................................................... 5
8.2 Termination ................................................... 5
8.3 Survival ...................................................... 5
9.0 INSURANCE ....................................................... 5
10.0 GENERAL ........................................................ 6
10.1 Notices ...................................................... 6
10.2 Limitations .................................................. 6
10.3 Freedom of Action ............................................ 6
10.4 Trademarks ................................................... 6
10.5 Expenses ..................................................... 6
10.6 Assignment ................................................... 6
10.7 Governing Law ................................................ 6
10.8 Jury Trial ................................................... 7
10.9 Subsidiary ................................................... 7
10.10 Entire Agreement ............................................ 7
ATTACHMENT - STATEMENT OF WORK (SOW) NUMBER 01 ...................... 8
1.0 SCOPE ........................................................... 8
2.0 TECHNICAL COORDINATORS .......................................... 8
3.0 DEFINITIONS ..................................................... 8
3.1 Component ..................................................... 8
3.2 Component Product ............................................. 8
3.3 Distributor Materials ......................................... 8
3.4 Documentation ................................................. 8
3.5 End User ...................................................... 8
3.6 End-User Agreement ............................................ 9
3.7 IBM Trademarks ................................................ 9
3.8 Territory ..................................................... 9
4.0 TASKS ........................................................... 9
4.1 Description and Schedule ...................................... 9
5.0 FEES ............................................................ 11
5.1 Production Fee ................................................ 11
5.2 Vendor Software Development Kit (VSDK) License Fee ............ 12
5.3 Transaction Fee ............................................... 12
6.0 REPORTING REQUIREMENTS .......................................... 12
6.1 Monthly Sales Activity Report ................................ 12
6.2 Remittance Statement ......................................... 12
7.0 IBM ASSISTANCE .................................................. 13
7.1 IBM Technical Assistance ...................................... 13
7.2 Development Funds ............................................. 13
7.3 Market Development Activity - IBM ............................. 13
7.4 Market Development Reimbursement .............................. 14
8.0 PAYMENT TO IBM .................................................. 14
8.1 Payments ...................................................... 14
8.2 Audit ......................................................... 14
9.0 TERM AND TERMINATION ............................................ 14
SOW 01 EXHIBIT QUARTERLY REMITTANCE STATEMENT ....................... 16
SOW 01 EXHIBIT - MONTHLY ELECTRONIC SALES SUMMARY ................... 18
</TABLE>
Page 2 of 18
<PAGE> 3
IBM ASSISTANCE AGREEMENT
This is an Agreement between IBM Corporation ("IBM"), with an address for
purposes of this Agreement at 3039 Cornwallis Rd., RTP, NC 27709-2195, and
CyberSource Corporation ("you"), with an address at 1050 Chestnut Street, Suite
202, Menlo Park, CA 94025.
You and IBM hereby agree as follows:
1.0 PURPOSE
IBM will provide you with certain assistance and you will perform certain tasks
under the terms of this IBM Assistance Agreement (IAA) and its applicable
attachments and attachment exhibits (collectively, "Agreement"). The purpose is
to have you implement an electronic distribution channel for Component software
products. The responsibilities of each party are identified in a Statement(s) of
Work to this Agreement. The electronic distribution channel, related data,
documentation and other copyrightable materials, and derivative works and
enhancements to them are referred to in this Agreement as "Component Channel."
You will be solely responsible for the accomplishment and direction of your
activities under this Agreement.
2.0 STRUCTURE
This IBM Assistance Agreement establishes the basic terms and conditions
applicable to this relationship. Attached is a Statement of Work which sets out
the assistance IBM will provide ("Assistance") and the tasks you will perform
("Tasks"). The Statement of Work may also include additional terms and
conditions and/or exhibits. From time to time, we may, by written agreement, add
additional Statements of Work, or amend the terms of this Agreement.
3.0 MARKETING
You agree to use commercially reasonable efforts to market and support the
Component Channel resulting from your activities under this Agreement in a
manner substantially similar to that used for your other electronic distribution
channel.
IBM's marketing efforts in relation to the Component Channel are outlined in the
Statement of Work.
4.0 INFORMATION
You will not provide IBM with any information, including that incorporated in
the Component Channel, that is confidential to you or any third party. Any
notice, legend, or label to the contrary contained in the Component Channel or
with any information provided by you to IBM will be without effect. If, during
the course of this Agreement, either party elects to provide the other with
products and/or information which the provider considers to be confidential, it
will be under the
Page 3 of 18
<PAGE> 4
terms of the Agreement for Exchange of Confidential Information (AECI),
CAR-C95552-00, with a Supplement describing the information to be exchanged.
You agree not to disclose the terms of this Agreement to any third party without
IBM's prior written consent.
5.0 RIGHTS
5.1 OWNERSHIP The Component Channel you develop to meet the terms of this
Agreement shall be the exclusive property of CyberSource. Terms of use of the
Component Channel for distribution of IBM and IBM-sponsored vendor Component
Products will be governed by a Service Provider Agreement entered into between
IBM and CyberSource and IBM-sponsored vendors and CyberSource.
5.2 COPYRIGHTS Except as may be expressly provided in an attachment, this
Agreement does not grant IBM a license to any of your copyrights in the
Component Channel. This Agreement does not grant you a license to any of IBM's
copyrights, patents or other intellectual property rights in any materials
provided to you by IBM.
5.3 FEEDBACK For materials, suggestions, aggregate sales information, gross
sales, unit sales, product breakdown, customer profile lists and vendor profile
lists (collectively called "Feedback") related to the Component Channel which
you provide to IBM during the course of this Agreement, you grant to IBM a fully
paid-up, exclusive license to use such Feedback in any manner whatsoever and
without accounting to you.
5.4 MARKETING You grant IBM the right to list the Component Channel in IBM's
marketing programs, to refer potential customers of the Component Channel to you
and advise them that the Component Channel makes available for sale and
distribution, IBM Component Products and Component Products of other vendors.
6.0 INDEMNIFICATION
You agree to fully indemnify, defend, and hold IBM harmless against any claim
that the Feedback and Component Channel, or any preexisting work from which the
Component Channel is prepared, infringes any intellectual property right of any
third party or any other claims arising from the Component Channel.
7.0 WARRANTY
Neither party makes any warranty in connection with this Agreement. IBM does not
represent or commit that any future IBM announcements or products related to
this effort, including interface data related to a product, will be made
available. Any planned or existing IBM products or announcements are subject to
change without notice. ALL information, materials, and services furnished by
either party under this Agreement will be on an "AS IS" basis. THE PARTIES
EXPRESSLY DISCLAIM THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE.
Page 4 of 18
<PAGE> 5
8.0 TERM AND TERMINATION
8.1 TERM This Agreement will be effective on the date signed by authorized
representatives of both parties and will remain in effect for a period of one
(1) year and is automatically renewed annually thereafter unless terminated.
8.2 TERMINATION This Agreement and the Statement of Work may be terminated on
thirty (30) days written notice:
a) by either party without cause,
b) by either party if IBM establishes a competing Component Channel,
c) by IBM with written notice of your default, including without limitation
any failure to complete the Tasks in the Statement of Work,
d) by you with written notice to IBM on the default of IBM, or
e) by mutual written agreement of the parties.
The effective date of termination by mutual written agreement shall be the date
of mutual agreement of the parties.
In the event of termination by the provisions of Subsection 8.2.b, 8.2.d, the
reports specified in Subsection 6.1 of the Statement of Work and the
reimbursements in Subsection 7.4 cease on the effective date of the termination.
In the event of termination by CyberSource under the provisions of Subsection
8.2.a, or termination by IBM under the provisions of Subsection 8.2.c, the
following will apply:
a) CyberSource will continue to comply with the provisions of Subsections
6.1 and 7.4 of the Statement of Work up to the end of the third year
after the execution of this Agreement, at which time those obligations
shall cease, and
b) Further, if such termination is within eighteen (18) months of the
effective date of this Agreement, CyberSource shall pay IBM a
termination fee of One Hundred Fifty Thousand ($150,000) within thirty
(30) days of such termination.
8.3 SURVIVAL Sections entitled "INFORMATION," "RIGHTS," "INDEMNIFICATION,"
"WARRANTY," and "GENERAL"
Additionally, should CyberSource terminate the Agreement under the provisions of
Subsection 8.2.a or should IBM terminate the Agreement under the provisions of
Subsection 8.2.c, CyberSource's responsibilities under Subsections 6.1 and 7.4
of the Statement of Work will survive beyond the termination or expiration of
this Agreement, up to the end of the third year after the execution of this
Agreement.
9.0 INSURANCE
You will maintain the following minimal insurance coverage at your own expense:
Commercial General Liability for two years following expiration or
termination of the IAA in the amount of $1,000,000 per event.
Page 5 of 18
<PAGE> 6
You remain liable for any damages above the stated minimums.
10.0 GENERAL
10.1 NOTICES Any notice required or permitted under this Agreement will be sent
to the applicable Coordinator at the address specified below:
Contract Coordinators:
FOR IBM: FOR YOU:
Name: Robert E. Holtzclaw Name: James A. Hogan
Company: IBM Corporation Company: CyberSource Corporation
Address: P. 0. Box 12195 Address: 1050 Chestnut Street
3039 Cornwallis Rd Suite 202
RTP, NC 27709-2195 Menlo Park, CA 94025
Phone: (919) 254-1320 Phone: (415) 462-5524
Facsimile: (919) 254-0205 Facsimile: (415) 473-3066
E-Mail: [email protected] E-Mail: [email protected]
Either party may change their Contract Coordinator upon written notice to the
other party.
10.2 LIMITATIONS Except for claims arising under the Section entitled
"INDEMNIFICATION," neither party will be liable for any lost profits, lost
savings, incidental or other consequential damages, even if advised of the
possibility of such damages. In no event will IBM be liable to you for amounts
in excess of the amounts payable (if any) and unpaid in accordance with the
terms of this Agreement.
10.3 FREEDOM OF ACTION This Agreement will not restrict either party from
developing, acquiring, and marketing products, services, and materials that are
competitive with the Component Channel irrespective of any similarities that may
exist.
10.4 TRADEMARKS This Agreement grants either party the right to use trademarks,
trade names or service marks of the other in connection with the Component
Channel.
10.5 EXPENSES Except as may be expressly provided in an attachment, each party
will bear its own expenses in connection with the Agreement and the activities
hereunder.
10.6 ASSIGNMENT This Agreement is not assignable without the prior written
consent of the other party, except that IBM may at its option assign this
Agreement to IBM Subsidiaries. Should CyberSource request assignment for sound
business reasons, such approval will not be unreasonably withheld by IBM.
10.7 GOVERNING LAW New York laws govern the terms of this Agreement.
Page 6 of 18
<PAGE> 7
10.8 JURY TRIAL Each party hereby waives a jury trial with respect to any
action arising out of the transactions governed by this Agreement.
10.9 SUBSIDIARY Subsidiary shall mean a corporation, company or other entity
1) 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, or 2) 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 exits.
10.10 ENTIRE AGREEMENT This IBM Assistance Agreement, its attachments,
attachment exhibits, and the agreements expressly referenced are the complete
and exclusive agreement between the parties relating to the subject matter. In
the event of a conflict, the following order of precedence will govern: 1) the
attachment exhibits; 2) the attachments; 3) this IBM Assistance Agreement; and,
4) the agreements expressly referenced.
If you agree, please indicate so by signing the two originals of this IBM
Assistance Agreement and returning one to the IBM Contract Coordinator. By
signing this IBM Assistance Agreement, you agree to be bound by the terms of the
attached initial Statement of Work; no additional signature on it is required.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective authorized representatives.
ACCEPTED AND AGREED TO: ACCEPTED AND AGREED TO:
IBM Corporation CyberSource Corporation
By: [SIG] By: [SIG]
------------------------------- -------------------------------
R.E. (Robert) Holtzclaw William S. McKiernan
------------------------------- -------------------------------
Print Name Print Name
Contract Administrator President & CEO
------------------------------- -------------------------------
Title Title
10-13-95 10/16/95
------------------------------- -------------------------------
Date Date
Page 7 of 18
<PAGE> 8
ATTACHMENT - STATEMENT OF WORK (SOW) NUMBER 01
1.0 SCOPE
This Statement of Work defines the initial development and on-going
responsibilities of IBM and CyberSource for you to implement an electronic
distribution channel for Component Products. Such Component Channel, when
completed, will provide services under a separate Service Provider Agreement for
enrollment of IBM and IBM-sponsored vendor Component Product(s).
2.0 TECHNICAL COORDINATORS
FOR IBM: FOR YOU:
Name: Ken M. Lorensen Name: John P. Pettitt
Company: IBM Corporation Company: CyberSource Corporation
Address: P. 0. Box 12195 Address: 1050 Chestnut Street
3039 Cornwallis Rd Suite 202
RTP, NC 27709-2195 Menlo Park, CA 94025
Phone: (919) 254-0675 Phone: (415) 473-3065
Facsimile: (919) 254-0472 Facsimile: (415) 473-3066
E-Mail: [email protected] E-Mail: [email protected]
3.0 DEFINITIONS
Capitalized terms in this Statement of Work have the following meanings:.
3.1 COMPONENT is software which is designed in such a manner that it can be
linked or imbedded into an application using a visual builder tool or a
compiler, or via runtime library services. To be eligible for registration,
cataloging, and distribution through the Component Channel, a Component Product
must fit into this description.
3.2 COMPONENT PRODUCT means the executable object code, Documentation, End-User
Agreement, and Distributor Materials, if any, packaged in computer readable form
together for electronic delivery on software.net(TM) in accordance with this
Agreement.
3.3 DISTRIBUTOR MATERIALS means computer readable materials provided by you for
inclusion in an electronic package containing the Component Product,
Documentation, and End-User Agreement.
3.4 DOCUMENTATION means all computer readable collateral materials normally
provided from time to time to End Users for use of the Component Channel.
3.5 END USER means a person or entity that acquires a Component Product through
the Component Channel.
Page 8 of 18
<PAGE> 9
3.6 END-USER AGREEMENT means the computer readable license agreement that
governs the use of the Component Product by End Users, and that will be included
with each copy of the Component Product sold by you through the Component
Channel.
3.7 IBM TRADEMARKS means the trademarks, trade names, and logos used by IBM in
the marketing of the Component Product(s).
3.8 TERRITORY means all countries in the world except (i) countries to which
export or re-export of any Component Product, or the direct products of any
Component Product is prohibited by United States law without first obtaining the
permission of the United States Office of Export Administration or its
successor, and, (ii) countries that may be hereafter excluded pursuant to the
terms of this Agreement.
4.0 TASKS
4.1 DESCRIPTION AND SCHEDULE You will perform the Tasks related to the Component
Channel described below by the Completion Date specified. Completion of a Task
will occur when you demonstrate to IBMs reasonable satisfaction that the Task
has been completed. The Tasks shall meet the following minimum requirements:
a) INDEPENDENCE. The Component Channel must support any Component vendor.
b) HOSTING. The Component Channel shall be designed to operate within the
software.net domain under a unique identifying address (such as
http://components.software.net/components) with cross references as
appropriate.
c) OPEN STANDARDS COMPLIANCE. The Component Channel must use the open
Hyper-Text Transfer Protocal (http) and Hyper-Text Markup Language
(html) standards. Further, the system must utilize a general taxonomy,
to be provided by IBM, to catalog Component Products.
d) SECURITY. The Component Channel must provide a secure infrastructure for
cataloging, storage, sale and electronic delivery of products. Security
standards shall, at minimum, meet standards currently deployed in
CyberSource's software.net(TM) distribution program.
e) ACCESS CONTROL. The Component Channel must provide access control at the
product level during the transaction process.
f) TRANSACTION SUPPORT. The Component Channel must provide a process for
generating and completing a sales transaction.
g) TERRITORY. The Component Channel will support worldwide electronic
distribution of Component Products when appropriate.
h) PERFORMANCE. The Component Channel must be able to handle a minimum of
120 user instructions per minute.
i) DOCUMENTATION. The Component Channel must provide on line assistance to
customers.
Page 9 of 18
<PAGE> 10
j) Reporting. The Component Channel database shall be designed to
accommodate compilation of statistical transaction and licensing
information, product sales profiles, customer, and vendor profiles.
k) Service Level. The Component Channel must be capable of providing
uninterrupted service in order to provide 7X24 support for customers.
1) Hyper-Text Links. The parties shall develop, implement and maintain
hyper links between the Component Channel and an IBM world wide web
site.
<TABLE>
<CAPTION>
TASK TASK DESCRIPTION COMPLETION
# DATE
DEVELOPMENT
<S> <C> <C>
1 Complete functional specifications for database layout and 10/31/95
loading process to populate the Component Channel.
2. Accept Component Products from any vendor for incorporation in 11/06/95
the loading process to populate the Component Channel.
3. Assist IBM with presentation of a demonstration planned for the 11/13/95
Comdex exposition.
4. Use existing software.net(TM) technology to build the Component 11/30/95
Product database using the taxonomy to be provided by IBM to CyberSource
prior to the execution of this Agreement. Such database will contain, at
a minimum, all of the features and functions described in specifications
completed in Task 1.
Complete development of server software, html content, graphics, and
security validation.
Support electronic downloading for DOS, Windows 3.X, Windows 95, Windows
NT, Macintosh, Power Macintosh, Sun and HP-UX platforms.
5. Perform the packaging services required to catalog, display and 11/30/95
deliver Component Product(s) into the Component Channel.
6. Develop the full function process to accept and process customer
transactions in a secure environment, licensing Component Products
according to the terms of an End User Agreement, capturing history and
statistical information to provide reports as defined in Subsection 6.1 11/30/95
"Monthly Sales Activity Reporting" on an on-going basis.
</TABLE>
Page 10 of 18
<PAGE> 11
<TABLE>
<CAPTION>
TASK TASK DESCRIPTION COMPLETION
# DATE
DEVELOPMENT
<S> <C> <C>
7. Develop and deliver a Vendors Software Development Kit (VSDK) to 02/29/96
automate packaging and uploading of products to the server supporting
the Component Channel. Ensure that the automation of the packaging
process maintains security standards and shortens the cycle time for
delivery of new products.
Port the secure packaging technology to support OS/2 and AIX in addition
to the platforms initially supported (see Task 4).
OPERATIONS
- - Host a branded domain with a unique URL (Example: On-Going
http://components.software.net/components) through
Term of
- - Maintain online catalog(s) Agreement
- - Maintain secure transaction processing
- - Provide electronic delivery of Component Products
- - Provide transaction reporting and payment to vendors for vendor
Component Products
- - Provide transaction reporting and payment to IBM for IBM Component
Products
_ Provide exclusive aggregated transaction information reports to IBM
covering the complete Component Channel
- - Provide exclusive customer profile information reports to IBM. (Note:
customer will be offered option to specify whether they would like to be
contacted with sales information)
- - Provide exclusive vendor profile information reports to IBM
MARKETING
- - Advertising On-Going
through
- - Hyper text links Term of
Agreement
</TABLE>
5.0 FEES
Certain fees will be charged to IBM and IBM-sponsored vendors for Component
Products submitted for delivery through the Component Channel.
5.1 PRODUCTION FEE
Your production fee of $99.00 per Component Product will be waived for
the first 400 Component Products submitted to the Component Channel by
IBM and IBM-sponsored vendors This waiver is in the form of "credits".
IBM and
Page 11 of 18
<PAGE> 12
IBM-sponsored vendors may utilize the "credits" for individual Component
Product registrations, or may exchange the credits, in lots of 10, for
VSDK's when they are available 1096.
5.2 VENDOR SOFTWARE DEVELOPMENT KIT (VSDK) LICENSE FEE
VSDK's will be offered to IBM and IBM-sponsored vendors at a fee of
$999.00, beginning in 1096. Each VSDK's license entitles the licensee to
enroll an unlimited number of Product Components in the Component
Channel. Production fee "credits" (identified above) may be exchanged,
in lots of 10, for a VSDK license at IBM's or the IBM-sponsored vendors'
discretion.
5.3 TRANSACTION FEE
You will charge IBM and IBM-sponsored vendors a transaction fee for
sales made through the Component Channel. Such fee shall be 30% of the
Component Product revenue generated by the sale, or $5.00, whichever is
greater.
If you offer another party lower rates or prices for an equivalent service to
those described above during the term of this Agreement, you will offer the same
to IBM and IBM-sponsored vendors.
6.0 REPORTING REQUIREMENTS
6.1 MONTHLY SALES ACTIVITY REPORT You will provide IBM, on a monthly basis, an
"ELECTRONIC SALES SUMMARY REPORT" which includes the following information for
the complete Component Channel
- gross sales in units and dollars
- product sales in units and dollars
- customer profile lists (with no product information)
- vendor profile lists (with product information)
Additionally, for IBM Component Products customer profile will include all
information reflected on the Electronic Sales Summary sample enclosed as an
exhibit to this SOW.
The ELECTRONIC SALES SUMMARY REPORT shall be sent to the IBM Technical
Coordinator and the IBM Contract Coordinator no later than the fifth workday of
the month following the period reported.
6.2 REMITTANCE STATEMENT Payment to IBM for IBM Component Product sales will be
made under the provisions of the Service Provider Agreement between IBM and
CyberSource.
Payment to IBM for Market Development Reimbursement described in the Subsection
7.4 "Market Development Reimbursement," will be sent to IBM, on a Quarterly
basis in a format consistent with that outlined in the exhibit entitled
Page 12 of 18
<PAGE> 13
"REMITTANCE STATEMENT." Such REMITTANCE STATEMENT will accompany any payments to
IBM as set forth in the Subsection entitled "Payments."
7.0 IBM ASSISTANCE
7.1 IBM TECHNICAL ASSISTANCE IBM will, as it deems appropriate, provide you with
the following technical assistance:
- - Taxonomy provided by IBM
- - General expertise in object componentry
- - Enrollment in the IBM Solution Development Vendor Program.
Identification number i5911 has been assigned for your access.
7.2 DEVELOPMENT FUNDS IBM will provide you with payments ("Funds") in the
aggregate amount of $150,000 in the amounts set out in the following schedule,
provided you submit invoices in accordance with the Subsection below entitled
"INVOICES."
<TABLE>
<CAPTION>
EVENT AMOUNT
<S> <C>
1 . Contract Signing $ 100,000.00
2. Task 6 Completion (Estimated 11/30/95) $ 25,000.00
3. Task 7 Completion (Estimated 02/29/96) $ 25,000.00
</TABLE>
7.2.1 INVOICES You will send your invoice for the Funds owing to the following
address:
IBM Corporation
Accounts Payable
P. 0. Box 8099
Endicott, NY13761
Each invoice will identify this Agreement Number CAR-C95635-00, the IBM purchase
order number (provided after the Agreement is signed), invoice amount, and a
description of the event, Task completed, and/or delivery of item(s) applicable
to your receipt of such Funds. By submitting your invoice to IBM, you hereby
certify that you have demonstrated to IBM's reasonable satisfaction that such
event has occurred, Task has been completed, and/or item(s) have been delivered
to IBM.
Invoices will be paid by IBM within ten (10) days after receipt of an acceptable
invoice from you.
7.3 MARKET DEVELOPMENT ACTIVITY - IBM IBM is currently planning the following
types of Market Development to promote the Component Channel:
- - Prospect source identification
- - Direct mail solicitation
- - Business shows
Page 13 of 18
<PAGE> 14
- - Prospect seminars and briefings
- - Brochures
- - Demonstrations
- - Trade show promotional materials
- - Demonstration diskettes or CD's
- - Internal IBM field announcements
- - Press releases and external announcements
- - Trade press advertising
- - Inclusion in related product advertisements
Though these activities are planned, IBM does not guarantee that all will occur
during the period of this Agreement. IBM reserves the right to add, change, or
delete items from this list.
IBM will provide to CyberSource quarterly a written summary of IBM marketing
activity during the period. The first such report is due January 15, 1996,
reflecting activity for 4Q95. Subsequent reports will be due on the 15th of the
month following the quarter-end.
IBM will work with you to coordinate your marketing activity with ours.
7.4 MARKET DEVELOPMENT REIMBURSEMENT In exchange for initial development funding
(Funds) and on-going Market Development by IBM, you will pay IBM ten percent
(10%) of all transaction fee revenue CyberSource generates through the Component
Channel. Payment will accrue when you recognize the revenue. Payment is to be
made quarterly as provided in Subsection "PAYMENT TO IBM." The first such
payment is due January 15, 1996, reflecting activity for 4Q95.
8.0 PAYMENT TO IBM
8.1 PAYMENTS All payments owing to IBM will be made to IBM Corporation at the
following address:
IBM Corporation
SVO SUPPORT OPERATIONS Control Desk - H09R1
P.O. Box 2150
Atlanta, GA 30301-2150
8.2 AUDIT You will maintain complete and accurate records for one (1) year
following the termination or expiration of this Agreement which an accounting
organization selected by IBM will have access to, upon reasonable notice, for
the purposes of audit and verification of amounts owing to IBM.
9.0 TERM AND TERMINATION
This Statement of Work will become effective on the date this Agreement is
signed by both parties; it will remain in effect for the same period as the
Agreement.
Page 14 of 18
<PAGE> 15
In the event of termination by IBM without cause, or by you for default by IBM,
IBM shall pay you all Funds due through the effective date of termination. In
the event of termination by IBM for default by you, no further Funds will be
owing to you by IBM.
This Statement of Work and its exhibits are incorporated by reference in the IBM
Assistance Agreement Number CAR-C95635-00.
By signing this Statement of Work, the parties agree to be bound by the terms of
the IBM Assistance Agreement Number CAR-C95635-00, and by the terms of the
exhibits to this Statement of Work; no additional signature on the exhibits is
required.
IN WITNESS WHEREOF, the parties hereto have caused this Statement of Work to be
executed by their respective authorized representatives.
ACCEPTED AND AGREED TO: ACCEPTED AND AGREED TO:
IBM Corporation CyberSource Corporation
By: /s/ R.E. HOLTZCLAW By: /s/ W.S. MCKIERNAN
------------------------------- -------------------------------
R.E. (Robert) Holtzclaw William S. McKiernan
------------------------------- -------------------------------
Print Name Print Name
Contract Administrator President & CEO
------------------------------- -------------------------------
Title Title
10-13-95 10/16/95
------------------------------- -------------------------------
Date Date
Page 15 of 18
<PAGE> 16
SOW 01 EXHIBIT QUARTERLY REMITTANCE STATEMENT
COMPANY NAME & ADDRESS: CyberSource Corporation, 1050 Chestnut Street,
Suite 202, Menlo Park, CA 94025
IBM AGREEMENT NUMBER: CAR-C95635-00, dated October 13, 1995
IBM ACCOUNT CODE:
IBM CONTRACT COORDINATOR: R.E. (Robert) Holtzclaw
PAYMENT PERIOD ENDING: Quarter Ending ________, 19__. (CHECK one and enter YEAR)
___ March 31, 19__ (Report due to IBM by APRIL 15)
___ June 30, 19__ (Report due TO IBM by July 15)
___ September 30, 19__ (Report due TO IBM by October 15)
___ December 31, 19__ (REPORT due to IBM by January 15)
TOTAL QUARTERLY REMITTANCE AMOUNT DUE: ___
SALES ACTIVITY DURING PERIOD:
COMPONENT PRODUCT NAME NUMBER OF TRANSACTION IBM PAYMENT
LICENSES SALES
REVENUE
Prepared by:
-------------------------------
Name
-------------------------------
Title
-------------------------------
Date
PLEASE MAIL THIS STATEMENT ALONG WITH YOUR REMITTANCE CHECK TO THE REMITTANCE
ADDRESS BELOW. AT THE SAME TIME FAX A COPY TO THE IBM CONTRACT COORDINATOR.
Page 16 of 18
<PAGE> 17
IBM Corporation
SVO SUPPORT OPERATIONS Control Desk - H09R1
P.O. Box 2150
Atlanta, GA 30301-2150
Page 17 of 18
<PAGE> 18
SOW 01 EXHIBIT - MONTHLY ELECTRONIC SALES SUMMARY
COMPANY NAME & ADDRESS: CYBERSOURCE CORPORATION, 1050 CHESTNUT STREET, SUITE
202, MENLO PARK, CA 94025.
IBM AGREEMENT NUMBER: CAR-C95635-00, DATED OCTOBER 13, 1995
IBM CONTRACT COORDINATOR: R.E. (ROBERT) HOLTZCLAW
REPORT PERIOD ENDING: MONTH ENDING ____________ , 19__.
SUBMIT REPORT AS PER ATTACHED SAMPLE.
THE FILE CONTAINING THE REPORT INFORMATION SHALL BE IN ASCII FORMAT THAT
CONTAINS ROWS OF DATA WITH DELIMITERS. A DELLIMITER IS A COMMA (,), SPACE, COLON
(:), OR SEMICOLON (;) ENTERED BETWEEN NUMBERS AND LABELS In EACH ROW. EACH ROW
MUST END WITH A CARRIAGE RETURN. ALL LABELS MUST BE ENCLOSED In QUOTATION MARKS
(").
FOR EXAMPLE,
"Stolper", "Boston", 1400,1300,2800
IS A LINE FROM A DELIMITED TEXT FILE.
PLEASE TRANSMIT THIS REPORT VIA E-MAIL TO: [email protected]
PREPARED BY:
- -------------------------------
NAME
- -------------------------------
TITLE
- -------------------------------
DATE
Page 18 of 18
<PAGE> 19
[SAMPLE]
CyberSource Corporation
Electronic Sales Summary
Jun 01 - Jun 30 1995
Supplier
IBM SOFTWARE
<TABLE>
<CAPTION>
Part Number Description
PKIN711498 OS/2 LAN SERVER V4.0 REQUESTER SINGLE 1-DOC W/CERTIFICATE
<S> <C> <C> <C> <C> <C> <C> <C>
First, City / St,
Order Date Order / ID Serial Number / Platform Last / Company Address Zip, Cntry Phone / Fax Price
- ---------- ---------- ------------------------ -------------- ------------------ --------------- ------------ ------
Jun 1 1995 O00028449 John Benton 2549 West Golf Rd. Hoffman Estates 708-736-0190 37.18
OS/2 LICS B&B Computing Ste. 338 IL 60194 USA 708-736-0191
Inc.
Sub-Total 37.18
Part Number Description
PKIN711476 OS/2 LAN SERVER ENTRY V4.0 SINGLE 1-DOC
First, City / St,
Order Date Order / ID Serial Number / Platform Last / Company Address Zip, Cntry Phone / Fax Price
- ---------- ---------- ------------------------ -------------- ------------------ --------------- ------------ ------
Jun 1 1995 O00028448 John Benton 2549 West Golf Rd. Hoffman Estates 708-736-0190 556.16
OS/2 CROM B&B Computing Ste. 338 IL 60194 USA 708-736-0191
Inc.
Sub-Total 556.16
Part Number Description
PKIN393114 C SET++ V2.1 OS/2 WARP SINGLE 1-DOC
First, City / St,
Order Date Order / ID Serial Number / Platform Last / Company Address Zip, Cntry Phone / Fax Price
- ---------- ---------- ------------------------ -------------- ------------------ --------------- ------------ ------
Jun 4 1995 O00028785 Joe Liemandt 6034 West Courtyard Austin 512-794-5900 400.64
OS/2 CROM Trilogy TX 78730 USA 512-794-8900
Sub-Total 400.64
Total for period Jun 01 - Jun 30 1995 993.98
</TABLE>
<PAGE> 20
[IBM LETTERHEAD]
William S. Kiernan, President & CEO
CyberSource Corporation
1050 Chestnut Street, Suite 201
Menlo Park, CA 94025
SUBJECT: Agreement Modifications
REFERENCE: software.net(TM) Service Agreement (IBM Reference CAR-C95734-00)
Dear Mr. McKiernan:
CyberSource Corporation and IBM Corporation have entered into the referenced
Agreement whereby CyberSource will package and electronically distribute IBM
Software Component Products to End User customers via CyberSource's Reusable
Software Component Market.
This letter serves as an attachment to the Agreement as follows:
Modify "Section 11. Confidentiality" to read as follows for all IBM
Products entered into CyberSource's Reusable Software Market under the
software.net(TM) Service Agreement:
"Notwithstanding the terms in Section 11, Confidentiality, of the
software.net(TM) Service Agreement, the terms and conditions of the
Agreement for Exchange of Confidential Information (AECI), between
IBM and CyberSource, number CAR-C95552-00, dated August 30, 1995,
will prevail."
PLEASE INDICATE AGREEMENT TO THE FORGOING BY SIGNING AND DATING BOTH COPIES OF
THIS LETTER, RETURNING ONE (1) ORIGINAL TO IBM AT THE ABOVE ADDRESS AND
RETAINING THE SECOND ORIGINAL FOR YOUR RECORDS.
ACCEPTED AND AGREED TO:
INTERNATIONAL BUSINESS CYBERSOURCE CORPORATION
MACHINES CORPORATION
BY: /s/ ROBERT HOLTZCLAW BY: /S/ WILLIAM S. MCKIERNAN
------------------------------- ----------------------------------
NAME: R.E. (ROBERT) HOLTZCLAW NAME: William S. McKiernan
--------------------------------
PRINT NAME
TITLE: CONTRACT RELATIONS TITLE: President & CEO
-------------------------------
DATE: 11-10-95 DATE: 11/12/95
---------------------------- --------------------------------
Page 1 of 1
<PAGE> 21
IBM Reference Number:
CAR-C95734-00
SOFTWARE.NET(TM) SERVICE AGREEMENT
REUSABLE SOFTWARE COMPONENT MARKET
This Agreement is made and entered into on November 10, 1995 by and between
CyberSource Corporation, a United States Corporation located at 1050 Chestnut
Street, Suite 200, Menlo Park, California, 94025 ("Service Provider") and
International Business Machines Corporation (IBM Corp.) located at 3039
Cornwallis Rd., Research Triangle Park, NC, 27709-2195 a Delaware, United States
Corporation ("Vendor").
BACKGROUND
a. Vendor is the Developer and Owner of all rights to the Software identified
in Exhibit A.
b. Vendor desires to enter into a Service Agreement with Service Provider
whereby Service Provider will be responsible for packaging Vendor's Software and
associated Documentation, and electronically distributing such packaged Software
Products to End User customers in accordance with the terms and conditions of
this Agreement.
c. Service Provider desires to obtain the right to package Vendor's Software
and Documentation, and to electronically distribute same in accordance with the
terms of this Agreement.
NOW THEREFORE, the parties hereby agree as follows:
1. DEFINITIONS.
a. SOFTWARE means the executable object code for Vendor's software identified
on Exhibit A, including all subsequent versions thereof provided to Service
Provider pursuant to this Agreement.
b. DOCUMENTATION means all computer readable collateral materials normally
provided from time to time by Vendor to End Users for use of the Software, that
are identified in Exhibit A, and all subsequent versions thereof provided to
service Provider pursuant to this Agreement.
c. END USER AGREEMENT means the computer readable license agreement attached
hereto as Exhibit B that governs the use of the Software by End Users, and which
is to be included with each copy of the Product sold by the Service Provider
hereunder.
d. SERVICE PROVIDER MATERIALS means computer readable materials
provided by Service Provider for inclusion in an electronic package containing
the Software, Documentation, and End User Agreement, which materials have been
approved in advance, in writing, by Vendor.
e. PRODUCT means a copy of the Software, Documentation, End User Agreement
and Service Provider Materials, if any, packaged in computer readable form
together for electronic delivery on software.net in accordance with this
Agreement.
f. END USER means a person or entity that acquires a Product for it's own use
rather than resale or distribution.
g. RETAIL SALES PRICE means the price paid by the End User for the Product.
h. VENDOR TRADEMARKS means the trademarks, trade names, and logos used by
Vendor and identified on Exhibit A.
1
<PAGE> 22
IBM Reference Number:
CAR-C95734-00
i. TERRITORY means all countries in the world except (i) countries to which
export or re-export of any Product, or the direct products of any Product is
prohibited by United States law without first obtaining the permission of the
United States Office of Export Administration or its successor, and (ii)
countries that may be hereafter excluded pursuant to the terms of this
Agreement.
j. PRODUCTION FEE means the fee charged by Service Provider to Vendor for
packaging of Software in a secure package acceptable for electronic delivery.
k. TRANSACTION FEE means the fee charged by Service Provider, equal to 30% of
the Retail Sales Price, to Vendor for marketing, transaction processing and
electronic delivery of Product.
2. LICENSE.
a. RIGHTS GRANTED TO SERVICE PROVIDER. Vendor grants Service Provider a
non-exclusive license and right to:
1. reproduce the Software, Documentation, and the End User Agreement in
computer readable form;
2. to incorporate Service Provider's name and/or logo in the Documentation,
subject to prior approval of Vendor;
3. package the Software, Documentation, Service Provider Materials and the
End User Agreement in a computer readable manner specified by Vendor;
4. utilize the Vendor Trademarks in connection with the replication of the
Software, packaging and distribution of the Products, in manner specified by
Vendor; and
5. deliver the Products to End Users in the Territory, subject to the
restrictions set forth in this Agreement.
b. RIGHTS RESERVED TO VENDOR. Service Provider acknowledges that the Software
and Documentation are the property of Vendor it its licensors and that Service
Provider has no rights in the foregoing except those expressly granted by this
Agreement. Nothing herein shall be construed as restricting Vendor's right to
sell, lease, license modify, publish or otherwise distribute the Software or
Documentation, in whole or in part, to any other person.
3. REPRODUCTION BY SERVICE PROVIDER.
a. REPRODUCTION AND PACKAGING. Service Provider agrees to accurately
replicate the Software, Documentation and End-User Agreement provided by the
Vendor in computer readable form, and to package these items as specified by the
Vendor.
b. VENDOR TRADEMARKS AND LEGENDS. Service Provider shall include copies of
the Vendor Trademarks, copyright notices and other proprietary rights legends,
on all copies of the Documentation and Software that it packages in computer
readable form, in the manner specified by the Vendor.
4. DISTRIBUTION BY SERVICE PROVIDER.
a. INVENTORY. Service Provider will maintain access to software.net
sufficient to serve adequately the needs of End User Customers.
2
<PAGE> 23
IBM Reference Number:
CAR-C95734-00
b. PACKAGING. Service Provider will distribute the Products only as packaged
in accordance with this Agreement, with all packaging, warranties, disclaimers
and End User Agreements intact. Service Provider will make copies of the
current End User Agreement available to End User customers in computer readable
form.
c. PRODUCT RETURNS. Service Provider agrees to honor any refund requests
received from End User customers pursuant to the terms of the End User
Agreement relating to products distributed by Service Provider.
d. COST OF DISTRIBUTION. Costs relating to evaluation, packaging and delivery
of the Software and Documentation shall be borne by the Service Provider except
as provided for in Exhibit C.
5. SERVICE PROVIDER MARKETING OBLIGATIONS.
a. MARKETING EFFORTS. Service Provider agrees to use its best efforts to
market, promote and electronically deliver the most current version of the
Product.
6. VENDOR'S DELIVERY OBLIGATIONS.
a. INITIAL DELIVERABLES. Vendor shall deliver the current version of the
Software and Documentation to Service Provider immediately following execution
of this Agreement. Vendor will provide Service Provider with (i) copies of the
Software on master diskettes, (ii) product specification information in HTML
format, or in another mutually agreeable computer readable form that can be
reproduced by the Service Provider, (iii) product documentation in a computer
readable form mutually agreeable to the parties that can be reproduced by the
Service Provider, (iv) at Vendor's discretion, press releases and announcements
in a computer readable form mutually agreeable to the parties that can be
reproduced by the Service Provider, and (v) advertisement in Vendor's World
Wide Web home page with hypertext link to software net's home page if Vendor
maintains a home page.
b. COMPLETENESS AND ACCURACY. Vendor is responsible for the completeness and
accuracy of the Initial Deliverables.
c. NEW VERSIONS. Vendor shall provide Service Provider with computer readable
copies of all new releases, updates, or revisions of the Software and
Documentation within a reasonable time after each such release is made
generally available by Vendor. Vendor will notify Service Provider of its plans
for each new release, update or revision of the Software or Documentation within
a reasonable period of time prior to such release.
d. NEW PRODUCTS. Service Provider understands and acknowledges that vendor
continually reviews software products available on the market and conducts its
own research and development activities with respect to the internal
development of such new products. Vendor makes no representations or warranties
with respect to continued availability of any of the Software covered by this
Agreement, or the nature of availability of any future modifications, updates,
of enhancements thereto. Similarly, Vendor makes no representations with
respect to any new product offerings it may make in the future, the
compatibility of such products with the Software covered by this Agreement, or
the availability of such new products to the Service Provider.
e. RETAIL SALES PRICE. Vendor shall have the sole discretion to set the price
charged to End Users for the Product.
3
<PAGE> 24
7. VENDOR'S SUPPORT OBLIGATIONS.
a. SUPPORT FOR END USERS. Vendor will provide support to End Users of the
Software to be distributed hereunder, in accordance with its then-current
published software support policy if any.
b. SUPPORT FOR SERVICE PROVIDER. Vendor will provide Service Provider,
without charge, such technical information, current maintenance documentation,
and telephone assistance as is necessary to enable Service Provider to
effectively reproduce, package and distribute the Software. Service Provider is
not entitled to source code for the Software.
8. VENDOR'S WARRANTIES.
a. AUTHORITY. Vendor represents that it has the right and authority to enter
into this Agreement and to grant Service Provider the rights to the Software
and Documentation granted in this Agreement.
b. MEDIA. Vendor warrants to Service Provider that the media on which the
Software is delivered to Service Provider is free from defects in material and
workmanship. Vendor agrees to replace any media delivered to Service Provider
that proves defective.
c. NON-INFRINGEMENT. Vendor warrants to Service Provider that the
reproduction and distribution of the Software, Documentation and End User
Agreement by Service Provider and the use of Vendor Trademarks in connection
therewith, will not infringe upon the statutory copyrights and valid
proprietary rights of any third party.
d. END USER WARRANTIES. To the extent Vendor may provide a warranty for the
End Users of the Software, its provisions are set forth in the End User
Agreement attached as Exhibit B. Service Provider is not authorized to make any
other warranties on Vendor's behalf.
9. SERVICE PROVIDER WARRANTIES.
a. AUTHORITY. Service Provider represents that it has the right and authority
to enter into this Agreement.
b. REPLICATION. Service Provider represents and warrants that it will
accurately replicate the Software and Documentation, and that all Software
distributed by the Service Provider will not contain any viruses, worms, date
bombs, or other code that is specifically designed to cause the Software to
cease operating, or to damage, interrupt, or interfere with any End User's
software or data.
c. DISTRIBUTION. Service Provider represents that Product distribution will
be made only as authorized by Vendor in Exhibit A.
10. PAYMENTS.
a. TAXES. Service Provider will pay, or require its End User customers to
pay, all federal, state and local taxes designated, levied, or based upon the
sale of Products by Service Provider.
<PAGE> 25
b. PAYMENT AND REPORTS. Service Provider will pay Vendor the Retail Sales
Price less the Transaction Fee in accordance with the Schedule attached hereto
as Exhibit C, for each copy of a Product delivered to an End User by Service
Provider. However, no payment shall be due the Vendor for copies of Products
where a refund is provided to an End User in accordance with the terms of the
End User Agreement and accompanied by an executed Letter of Destruction from
the End User, or because of defects or errors, regardless of source. Service
Provider will provide Vendor with a written report (the "Report"), specifying
the number of copies of Products that Service Provider has electronically
shipped during the immediately prior month, and the calculation of the amounts
due to Vendor in connection therewith.
c. END USER INFORMATION. Service Provider will provide to Vendor within
thirty (30) days after the end of each month, a report for the immediately
prior month showing (i) the name and address of each End User that purchased
the Product from Service Provider, and (ii) the name and quantity of the
Product purchased by the End User.
d. BOOK AND RECORDS. Service Provider agrees to maintain adequate books and
records relating to the distribution of Products to End User Customers. Such
books and records shall be available at their place of keeping for inspection
by Vendor or its representative, for the purpose of determining whether the
correct fees have been paid to Vendor in accordance with the terms of this
Agreement, and whether Service Provider has otherwise complied with the terms
of this Agreement. Vendor shall have the right to conduct such an audit upon
ten (10) days advance notice twice each year. In the event that such an audit
discloses an underpayment of more than five percent (5%), then Service Provider
shall pay the costs of such audit.
e. FAILURE TO PAY. Any sales fee payment or part of a payment that is not
paid when due shall bear interest at the rate of 1.5% per month from its due
date until paid. Failure of Service Provider to pay any fees or other charges
when due shall constitute sufficient cause for Vendor to immediately suspend
its performance hereunder and/or to terminate this Agreement.
11. CONFIDENTIALITY.
Service Provider and Vendor acknowledge that, from time-to-time, they may be
exposed to certain information concerning the Products, Services, Business
Plans and other information not generally known to the public ("Confidential
Information"). Service Provider and Vendor agree to take appropriate steps to
protect such Confidential Information for unauthorized disclosure, that they
will not disclose such Information to any third party, and that they will not
use any Confidential Information (other than as authorized by this Agreement)
without the prior written consent of the other party. The parties' obligations
with respect to Confidential Information shall continue for the shorter of
three (3) years from the date of termination of this Agreement, or until such
Information becomes publicly known other than by breach of this Agreement.
5
<PAGE> 26
12. VENDOR TRADEMARKS.
a. USE. Service Provider acknowledges that the Vendor Trademarks are
trademarks owned solely and exclusively by Vendor, and agrees to use the Vendor
Trademarks only in the form and manner and with the appropriate legends as
prescribed by Vendor. Service Provider agrees not to use any other trademark or
service mark in connection with any of the Vendor Trademarks without prior
written approval of Vendor. All use of Vendor Trademarks shall inure to the
benefit of Vendor.
b. NOTICES. Service Provider shall not remove, alter, cover or obfuscate any
copyright notice or other proprietary rights notice placed in or on the
Software or Documentation by Vendor.
13. INDEMNIFICATION.
a. BY VENDOR. Vendor will defend, indemnify and hold Service Provider
harmless from and against any and all liabilities, losses, damages, costs and
expenses (including legal fees and expenses) associated with any claim or
action brought against Service Provider for actual or alleged infringement of
any US patent, copyright, trademark, service mark, trade secret, or other
proprietary rights based upon the duplication, sale, license, or use of the
Software or Documentation by Service Provider in accordance with this
Agreement, provided that Service Provider promptly notifies Vendor in writing
of the claim and allows vendor to control, and fully cooperates with vendor in,
the defense and all related settlement negotiations. Vendor shall have no
liability for any settlement or compromise made without its consent. Upon
notice of an alleged infringement, or if in the Vendor's opinion such a claim
is likely, Vendor shall have the right, at its option, to obtain the right for
Service Provider to continue to exercise the rights granted under this
Agreement, substitute other software with similar operating capabilities, or
modify the Software so that it is no longer infringing. In event that none of
the above options are reasonably available, in Vendor's sole opinion, Vendor
may terminate this Agreement.
b. BY SERVICE PROVIDER. Service Provider shall indemnify and hold Vendor
harmless from and against any and all liabilities, losses, damages, costs and
expenses (including legal fees and expenses) associated with any claim or
action brought against Vendor that may arise from Service Provider's improper
or unauthorized replication, packaging, marketing, distribution, or
installation of the Software, including claims based on representations,
warranties, or misrepresentations made by Service Provider, or any other
improper or unauthorized act or failure to act on the part of Service Provider.
14. LIMITATION OF LIABILITY. BOTH PARTIES LIABILITY SHALL BE LIMITED TO
DIRECT DAMAGES AND, EXCEPT AS PROVIDED IN THE SECTION ENTITLED
"INDEMNIFICATION," SHALL NOT EXCEED THE TOTAL AMOUNT OF THE TRANSACTION FEES
PAID BY SERVICE PROVIDER TO VENDOR HEREUNDER. IN NO EVENT WILL EITHER PARTY BE
LIABLE FOR INCIDENTAL, SPECIAL, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST
PROFITS) SUFFERED BY THE OTHER PARTY, EVEN IF IT HAS PREVIOUSLY BEEN ADVISED OF
THE POSSIBILITY OF SUCH DAMAGES.
6
<PAGE> 27
15. TERM AND TERMINATION.
a. TERM. This Agreement will continue in effect for two (2) years from the
date hereof ("Initial Term"). Upon expiration of the Initial Term and each
Renewal Term thereafter, this Agreement will be automatically renewed for an
additional one (1) year term ("Renewal Term") unless terminated by either party
upon ninety (90) days' notice prior to the expiration of the Initial Term or
any Renewal Term.
b. TERMINATION FOR CONVENIENCE. Either party may terminate this Agreement for
convenience by giving the other party ninety (90) days written notice of the
intent to terminate the Agreement.
c. TERMINATION FOR BREACH. Either party may terminate this Agreement prior to
the expiration of any Term in the event of a material breach of the terms or
conditions of this Agreement by the other party which breach is not cured
within thirty (30) days of written notice from the party not in breach. In
addition to these rights of termination, each party will have the right, in the
event of an uncured breach by the other party, to avail itself of all remedies
or causes of action, in law or equity, for damages as a result of such breach.
d. EFFECT OF TERMINATION. Upon termination of this Agreement for any reason,
Service Provider will immediately cease distribution of the Software and
Documentation. Service Provider shall remit all Royalties and other fees due to
Vendor within twenty (20) days of such termination.
e. EFFECT ON END USERS. Termination by either party will not affect the
rights of any End User under the terms of the End User Agreement.
16. GENERAL PROVISIONS.
a. ASSIGNMENT. This Agreement may not be assigned by Service Provider or by
operation of law to any other person, persons, firms, or corporations without
the express written approval of Vendor.
b. NOTICES. All notices and demands hereunder shall be in writing and shall
be served by personal service or by mail at the address of the receiving party
set forth in this Agreement (or at such different address as may be designated
by such party by written notice to the other party). All notices and demands by
mail shall be certified or registered mail, return receipt requested, or by
nationally-recognized private express courier, and shall be deemed complete
upon receipt.
c. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the substantive laws of the State of California.
d. WAIVER OF RIGHT TO JURY TRIAL. Both parties agree to waive any right to a
jury trial in any case arising out of or in conjunction with this Agreement.
e. RELATIONSHIP OF THE PARTIES. Each party is acting as an independent
contractor and not as an agent, partner, or joint venturer with the other party
for any purpose. Except as provided in this Agreement, neither party shall have
the right, power, or authority to act or to create any obligation, express or
implied, on behalf of the other.
f. SURVIVAL OF CERTAIN PROVISIONS. The confidentiality (Section 11),
indemnification (Section 13), liability limitation (Section 14), governing law
(Section 16 C) and waiver of right to jury trial (Section 16 D) obligations set
forth in the Agreement shall survive the termination of the agreement by either
party for any reason.
7
<PAGE> 28
g. HEADINGS. The titles and headings of the various sections and paragraphs
in this Agreement are intended solely for convenience of reference an are not
intended for any other purpose whatsoever, or to explain, modify or place any
construction upon or on any of the provisions of this Agreement.
h. ALL AMENDMENTS IN WRITING. No provisions in either party's purchase
orders, or in any other business forms employed by either party will supersede
the terms and conditions of this Agreement, and no supplement, modification, or
amendment of this Agreement shall be binding, unless executed in writing by a
duly authorized representative of each party to this Agreement.
i. ENTIRE AGREEMENT. The parties have read this Agreement and agree to be
bound by its terms, and further agree that this Agreement and its Exhibits
constitute the complete and entire agreement of the parties and supersedes all
previous communications, oral or written, and all other communications between
them relating to the subject hereof and to the subject hereof. No
representations or statements of any kind made by either party, which are not
expressly stated herein, shall be binding on such party.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date set
forth above.
CYBERSOURCE CORPORATION VENDOR IBM Corporation
By: /s/ WILLIAM S. MCKIERNAN By: /s/ R. E. HOLTZCLAW
----------------------------- -----------------------------
Name: William S. McKiernan Name: R. E. Hotzclaw
Title: President & CEO Title: Contract Relations
<PAGE> 29
EXHIBIT A
I. SOFTWARE PRODUCTS
IBM LanguageWare Dictionary, Spell Check, and Thesaurus Parts
II. REQUIREMENTS CHECKLIST
The "checklist" of things needed to complete the process are:
1) Executed Service Provider Agreement.
2) Master copy of the Software. Please see Technical Specifications for
Submission of Software Products for more details.
3) Computer-readable electronic End User license (.txt file).
4) A range of 100 license numbers (if the Product is serialized).
5) Computer-readable product documentation (html or .txt file).
6) Computer-readable product specification sheet, collateral, or other
information (html or .txt file).
7) Trademarks/logos (.gif file).
8) Trial, demonstration or free versions of the Products if available.
III. VENDORS APPROVED TERRITORY
Provide description of Territory where Service Provider may electronically
deliver Product.
Software Product may be distributed in Territory as defined in Section 1,
Definitions, subsection i. Territory in the base Agreement.
9
<PAGE> 30
EXHIBIT A
I. SOFTWARE PRODUCTS
IBM LanguageWare Dictionary, Spell Check, and Thesaurus Parts, International
Pack
II. REQUIREMENTS CHECKLIST
The "checklist" of things needed to complete the process are:
1) Executed Service Provider Agreement.
2) Master copy of the Software. Please see Technical Specifications for
Submission of Software Products for more details.
3) Computer-readable electronic End User license (.txt file).
4) A range of 100 license numbers (if the Product is serialized).
5) Computer-readable product documentation (html or .txt file).
6) Computer-readable product specification sheet, collateral, or other
information (html or .txt file).
7) Trademarks/logos (.gif file).
8) Trial, demonstration or free versions of the Products if available.
III. VENDORS APPROVED TERRITORY
Provide description of Territory where Service Provider may electronically
deliver Product.
Software Product may be distributed in Territory as defined in Section 1,
Definitions, subsection i. Territory in the base Agreement.
9
<PAGE> 31
EXHIBIT B
END USER AGREEMENT
(insert copy of End User Agreement to be furnished in computer-readable form,
HTML, to Service Provider)
10
<PAGE> 32
[LOGO] INTERNATIONAL SOFTWARE COMPONENT LICENSE AGREEMENT
PART 1 - GENERAL TERMS
________________________________________________________________________________
YOU MUST READ AND ACCEPT THIS AGREEMENT BEFORE USING OR INSTALLING THE SOFTWARE
COMPONENT. TO ACCEPT THE TERMS OF THIS AGREEMENT, PRESS THE "ACCEPT" BUTTON AT
THE END OF THIS LICENSE. IF YOU DO NOT AGREE TO THE TERMS OF THIS AGREEMENT,
PRESS THE "REJECT" BUTTON AT THE END OF THIS LICENSE AND YOUR ORDER FOR THIS
PRODUCT WILL BE TERMINATED.
The Software Component is owned by International Business Machines Corporation
or one of its subsidiaries (IBM) or an IBM supplier, and is copyrighted and
licensed, not sold.
IBM grants you a nonexclusive license for the Software Component. If IBM grants
you multiple licenses for the Software Component, the terms of this Agreement
apply to each license. The term "Software Component" means the original
Software Component and all whole or partial copies of it, including portions
merged into programs. A Software Component consists of machine-readable
instructions, audio/visual content (such as images, text, recordings, or
pictures), and related licensed materials.
THIS AGREEMENT INCLUDES PART 1 - GENERAL TERMS, PART 2 - COUNTRY UNIQUE TERMS,
AND PART 3 - DISTRIBUTION INFORMATION. THE TERMS OF PARTS 2 AND 3 MAY REPLACE
OR MODIFY THOSE OF PART 1. ANY SUCH ADDITIONAL TERMS ARE PART OF THIS AGREEMENT.
1. LICENSE
LICENSE OPTIONS
IBM established prices for Software Components based on the number of licenses
you acquire. You are licensed to use the Software Component based on the option
you select.
If you select a SINGLE LICENSE OPTION, you may:
1. use the Software Component only on one machine at a time and make a
single copy for backup, and
2. use the Software Component to create a derivative work and make a
single copy for backup.
If you select a MULTIPLE LICENSE OPTION, you may:
1. make additional copies of the Software Component to be redistributed
by you within your enterprise, or distribute to machines within your
enterprise via a network distribution-only server, up to the total
number of licenses you are granted, and/or
2. create a derivative work and make copies for redistribution up to the
total number of licenses you are granted, and
3. grant a sublicense to allow a sublicensee to make a single copy of
your derivative work for backup.
All license usage for the multiple license option is cumulative. Part 3 -
Distribution Information sets forth the distribution license provisions
governing the multiple license option.
USE OF THE SOFTWARE COMPONENT
You agree to ensure that anyone who uses the Software Component (accessed
either locally or remotely) does so only in accordance with the terms of the
Agreement.
A Software Component is considered to be in use when it resides in memory or
is otherwise stored on a machine. A Software Component stored on a network
solely for the purpose of being distributed to other machines is not considered
to be in use.
For a Software Component managed by a license management tool, copies may be
made and stored on machines under control of that tool, but your use may not
exceed the total number of distribution licenses you have been granted under
this Agreement.
Each Software Component may be stored on a primary and another machine,
provided the Software Component is not in active use on both machines at the
same time.
You may not 1) use, copy, merge, transfer, sublicense, rent or lease the
Software Component except as provided in this Agreement, or 2) reverse
assemble, reverse compile, or otherwise translate the Software Component except
as specifically permitted by law without the possibility of contractual waiver.
You may 1) copy the Software Component for backup and 2) merge the Software
Component into another program. You must reproduce the copyright notice and any
other legend of ownership on each copy, or partial copy, of the Software
Component.
TRANSFER OF RIGHTS AND OBLIGATIONS
You may transfer all your rights and obligations under a license for a Software
Component to another party.
To transfer such rights and obligations, you must transfer a copy of this
Agreement and all other documentation (including proof of entitlement), and at
least one complete, unaltered copy of the Software Component to the other
party. Your license is then terminated.
Page 1 of 4
<PAGE> 33
2. CHARGES, PAYMENT, TAXES, AND REFUND
Payment must be made to the party from whom you acquire the Software Component.
If you change the number of users or exceed the distribution authorized by the
type of license option you initially select, you agree to pay the applicable
charges for the additional licenses.
In the event you are dissatisfied with the Software Component for any reason,
you may obtain a refund within 15 days of initial purchase by notification to
the party from whom you acquired the Software Component. A refund will be made
upon receipt of certification that you have destroyed all copies of the
Software Component to which you have been granted a license, and any derivative
works thereof.
3. DISCLAIMER OF WARRANTY
IBM does not warrant uninterrupted or error-free operation of the Software
Component.
THE SOFTWARE COMPONENT IS PROVIDED "AS-IS." IBM MAKES NO WARRANTIES EXPRESS OR
IMPLIED INCLUDING THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE. THE ENTIRE RISK RISING OUT OF USE OR PERFORMANCE OF THE
SOFTWARE COMPONENT REMAINS WITH YOU.
Some jurisdictions do not allow the exclusion or limitation of implied
warranties so the above provision relating thereto may not apply to you.
4. COPYRIGHTS
If a third party claims that a Software Component IBM provides to you infringes
that party's copyright, IBM will, at its expense, defend you against that claim
and pay all costs, damages, and attorney's fees that a court finally awards,
provided that you 1) promptly notify IBM in writing of the claim and 2) allow
IBM to control, and cooperate with IBM in, the defense and any related
settlement negotiations. If such a claim is made or appears likely to be made,
you agree to permit IBM to enable you to continue to use the Software
Component, or to modify it, or replace it with one that is at least
functionally equivalent. If IBM determines that none of these alternatives is
reasonably available, you agree to return the Software Component to IBM on
IBM's written request. IBM will then give you a credit for a one-time charge
Software Component, provided its total charges have been fully paid. This is
IBM's entire obligation to you regarding any claim of infringement. IBM has no
obligation regarding any claim based on any of the following: 1) your
modification of a Software Component; 2) the combination, operating, or use of
a Software Component with any programs, data, or apparatus that IBM did not
provide; or 3) infringement by a non-IBM Software Component.
5. LIMITATION OF LIABILITY
Regardless of the basis on which you may be entitled to recover damages from
IBM, for any claim (including fundamental breach, negligence, misrepresentation
or other tort), IBM's liability will only be for 1) payments referred to in the
copyright terms described above; 2) bodily injury (including death), and damage
to real property and intangible personal property; and 3) the amount of any
other actual direct damages or loss, up to IBM's then generally available
license charge for the Software Component.
IBM WILL NOT BE LIABLE FOR ANY SPECIAL, INCIDENTAL, OR INDIRECT DAMAGES OR FOR
ANY ECONOMIC CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS OR SAVINGS), EVEN IF
IBM, OR THE PARTY FROM WHOM YOU ACQUIRED THE SOFTWARE COMPONENT HAS BEEN ADVISED
OF THE POSSIBILITY OF SUCH DAMAGES. SOME JURISDICTIONS DO NOT ALLOW THE
EXCLUSION OR LIMITATION OF INCIDENTAL OR CONSEQUENTIAL DAMAGES, SO THE ABOVE
LIMITATION OR EXCLUSION MAY NOT APPLY TO YOU.
IBM will not be liable for 1) loss of, or damage to, your records or data or 2)
any damages claimed by you based on any third party claim.
This limitation of liability also applies to any developer of a Software
Component supplied to IBM. It is the maximum for which we are collectively
responsible.
6. GENERAL
You may terminate your license at any time. If you do so, all your license
rights to the Software Component are terminated. You may keep a copy of the
Software Component in your archives.
IBM may terminate your license if you fail to comply with the terms of this
Agreement. If IBM does so, all your license rights to the Software Component
are terminated and you must destroy all your copies and/or derivative works of
it.
You agree to comply with all applicable export laws and regulations.
Neither party may bring a legal action under this Agreement more than two years
after the cause of action arose.
This license is governed by the laws of the country in which you use the
Software Component.
Page 2 of 4
<PAGE> 34
[IBM LOGO] INTERNATIONAL SOFTWARE COMPONENT LICENSE AGREEMENT
PART 2 -- COUNTRY UNIQUE TERMS
- --------------------------------------------------------------------------------
AUSTRALIA: DISCLAIMER OF WARRANTY (SECTION 3): The warranties specified this
Section are in addition to any rights you may have under the Trade Practices
Act or other legislation and are only limited to the extent permitted by the
applicable legislation.
LIMITATION OF LIABILITY (SECTION 5): The following paragraph is added to this
Section:
Where IBM is in breach of a condition or warranty implied by the Trade Practices
Act of 1974, IBM's liability is limited to: (a) where IBM supplied services -
the cost of having the services supplied again; or (b) where IBM supplied goods
- - the repair or replacement of the goods, or the supply of equivalent goods.
Where that condition or warranty relates to right to sell, quiet possession or
clear title, or the goods are of a kind ordinarily acquired for personal,
domestic or household use or consumption, then none of the limitations in this
paragraph apply.
CANADA: GENERAL (SECTION 6): This agreement is governed by the laws of the
Province of Ontario.
CENTRAL EUROPE & RUSSIA: GENERAL (SECTION 6): This Agreement is governed by the
material laws of Austria. All disputes and controversies between the parties
arising out of, or in connection with, this Agreement or its implementation,
performance or interpretation, shall be finally settled under the Rules of
Arbitration and Reconciliation of the Arbitral Centre of the Federal Economic
Chamber in Vienna (Vienna Rules), by three arbitrators appointed in accordance
with said Rules. The arbitration shall be held in Vienna, Austria. The official
language of the proceedings shall be English. The decision of the arbitrators
shall be final and binding upon both parties and therefore, the parties
pursuant to paragraph 598(2) of the Austrian Code of Civil Procedure, expressly
waive the application of paragraph 595(1), figure 7 of said Code. The clauses
set forth above shall, however, in no way limit our right to institute
proceedings in any competent court.
ESTONIA, LATVIA, LITHUANIA: GENERAL (SECTION 6): All disputes arising in
connection with the present Agreement shall be finally settled in Arbitration.
Each party shall appoint one arbitrator and they shall jointly appoint the
chairman. If they cannot agree on the chairman, then the chairman shall be
appointed by the Central Chamber of Commerce in Helsinki. In the Arbitration
the law on Arbitration will be adhered to. Finnish law shall apply. The
arbitrators shall come together in Helsinki.
GERMANY, AUSTRIA, SWITZERLAND: DISCLAIMER OF WARRANTY (SECTION 3): The warranty
for an IBM Program covers the functionality of the Software Component for its
normal use. In case a Software Component is delivered without specifications,
IBM will only warrant that the Software Component information correctly
describes the Software Component, and that the Software Component can be used
according to the Software Component information. In case non-IBM Software
Components are contracted by IBM and delivered by IBM, the warranty for IBM
Software Components is applicable unless otherwise agreed in a transaction
document. Warranty service for non-IBM Software Components may be performed by
non-IBM manufacturers.
LIMITATION OF LIABILITY (SECTION 5): The limitations and exclusions specified
in the Agreement will not apply to damages caused by us with intention or gross
negligence. IBM is liable for assured characteristics.
GENERAL (SECTION 5): The limitation on bringing a legal action is not
applicable in case of tort by either IBM or you, or our agents.
ISRAEL: GENERAL (SECTION 6): The limitation on bringing a legal action will be
according to the law of limitation provided a notification concerning the cause
of action was sent no more than two years after the cause of action arose or
became known to plaintiff.
IRELAND: DISCLAIMER OF WARRANTY (SECTION 3): No statement in this Agreement
shall affect the statutory rights of consumers.
MIDDLE EASTERN COUNTRIES: ABU-DHABI (UAE), BAHRAIN, DUBAI (UAE), OMAN, KUWAIT,
QATAR
GENERAL (SECTION 6): This Agreement is governed by the law and jurisdiction of
Bahrain.
NEW ZEALAND: DISCLAIMER OF WARRANTY (SECTION 3): The warranties specified in
this Section are in addition to any rights you may have under the Consumers
Guarantee Act of 1993 or other legislation which cannot be excluded or limited.
The Consumer Guarantees Act of 1993 will not apply in respect of any goods or
services which IBM provides, if you require the goods or services for the
purposes of a business as defined in that Act.
LIMITATION OF LIABILITY (SECTION 5): The following paragraph should be added to
this Section:
Where products or services are not acquired for the purposes of a
business as defined in the Consumer Guarantees Act 1993, the limitations in
this Section are subject to the limitations in that Act.
PEOPLE'S REPUBLIC OF CHINA: CHARGES, PAYMENT, AND TAXES (SECTION 2): All
banking charges incurred in the People's Republic of China shall be borne by
you and those incurred outside the People's Republic of China shall be borne by
us.
GENERAL (SECTION 6): The laws of the State of New York govern this Agreement.
Any dispute concerning this Agreement may be settled by arbitration. The
arbitration will take place in Stockholm, Sweden, under the auspices of the
International Arbitration Center in English in accordance with the rules then
in effect under the United Nations Commission on International Trade Law
(UNCITRAL). The arbitration award will be final and binding on both parties and
both parties shall act accordingly. The arbitration fee shall be borne by the
losing party.
UNITED KINGDOM: LIMITATION OF LIABILITY (SECTION 5): Add the following
paragraph at the end of the first paragraph:
The limitation of liability shall not apply to any breach of IBM's obligations
implied by Section 12 of the Sales of Goods Act 1979 or Section 2 of the Supply
of Goods and Services Act 1982.
UNITED STATES OF AMERICA: General (Section 6): This Agreement is governed by
the laws of the State of New York.
Page 3 of 4
<PAGE> 35
[IBM logo] INTERNATIONAL SOFTWARE COMPONENT LICENSE AGREEMENT
PART 3 - DISTRIBUTION INFORMATION
- --------------------------------------------------------------------------------
1. DISTRIBUTION LICENSE
The following license terms apply to distribution when you select the multiple
license option in Part 1.
IBM grants to you a world-wide, nonexclusive, nontransferable copyright license
to integrate the parts and files supplied with the Software Component in and
distribute as part of your program, provided 1) they are an integral part of
your program; 2) your program is dependent upon them; 3) your program is not
merely a set or subset of the Software Component; and 4) that you abide by the
following:
You reproduce and distribute the parts and files in object code format only.
You place an adequate copyright notice on all copies of your program. Each copy
of your program must be labeled as follows:
"Portions of this product are copyrighted materials of International
Business Machines Corporation and are reproduced with permission."
You remain solely responsible to anyone receiving your program for any support,
service, upgrades, or technical or other assistance.
You indemnify and hold IBM harmless from and against any claims or liabilities
arising out of the use, reproduction, or distribution of your program.
You agree not to use IBM's name or trademark in connection with the marketing
of your program without IBM's prior written consent.
You distribute your program pursuant to a license agreement which prohibits the
recipient from copyright (except for backup purposes), transferring reverse
assembling, reverse compiling, or otherwise translating the program.
- --------------------------------------------------------------------------------
Page 4 of 4
<PAGE> 36
IBM Reference Number:
CAR-C95734-00
EXHIBIT C
PRODUCTION, RETAIL SALES PRICE AND TRANSACTION FEES
Product: IBM LanguageWare Dictionary, Spell Check, and Thesaurus Parts
I. PRODUCTION FEE----------------------WAIVED-----------------------
The Production Fee shall be $99.00 per Product payable to Service Provider upon
submission of product. This production fee is subject to change without notice.
II. RETAIL SALES PRICE AND TRANSACTION FEE SCHEDULE
<TABLE>
<CAPTION>
Retail Transaction Net Due
Product Name Sales Price Fee Vendor
- ------------ ----------- --- ------
<S> <C> <C> <C>
IBM LanguageWare Dictionary, 30%
Spell Check, and Thesaurus Parts
Quantity (1) $ 199.00
Quantity (10) $ 450.00
Quantity (100) $2,000.00
Quantity (1000) $8,500.00
</TABLE>
NOTE: Quantity of licenses in parenthesis
The Net Due Vendor is calculated by subtracting 30% of the Retail Sales Price
from the Retail Sales Price.
<PAGE> 37
IBM Reference Number:
CAR-C95734-00
EXHIBIT C
PRODUCTION, RETAIL SALES PRICE AND TRANSACTION FEES
Product: IBM LanguageWare Dictionary, Spell Check, and Thesaurus Parts,
International Pack
I. PRODUCTION FEE--------WAIVED--------
The Production Fee shall be $99.00 per Product payable to Service Provider upon
submission of product. This production fee is subject to change without notice.
II. RETAIL SALES PRICE AND TRANSACTION FEE SCHEDULE
<TABLE>
<CAPTION>
Retail Transaction Net Due
Product Name Sales Price Fee Vendor
- ------------ ----------- --- ------
<S> <C> <C> <C>
IBM LanguageWare Dictionary, 30%
Spell Check, and Thesaurus Parts,
International Pack
Quantity (1) $ 299.00
Quantity (10) $ 675.00
Quantity (100) $ 3,000.00
Quantity (1000) $12,750.00
</TABLE>
NOTE: Quantity of licenses in parenthesis
The Net Due Vendor is calculated by subtracting 30% of the Retail Sales Price
from the Retail Sales Price.
<PAGE> 38
[IBM LETTERHEAD]
November 10, 1995
William S. Kiernan, President & CEO AMENDMENT CAR-C95635-01
CyberSource Corporation
1050 Chestnut Street, Suite 201
Menlo Park, CA 94025
Dear Mr. Kiernan:
We appreciate your past efforts in working with IBM, and your continued
participation in our projects.
Your signature below will indicate your agreement to this letter as Amendment
Number One to the IBM Assistance Agreement between International Business
Machines Corporation and CyberSource Corporation Number C95635.
International Business Machines Corporation (hereinafter called "IBM") and
CyberSource Corporation (hereinafter called "CyberSource") agree as follows:
1. Modify Attachment 1 - Statement of Work (SOW) Number 1, Section 7.3
"Market Development Activity - IBM", and the following paragraph:
"CyberSource hereby grants to IBM a royalty-free, world-wide,
nonexclusive copyright license to reproduce and distribute,
internally and externally, excerpts and quotations from
CyberSource's copyrighted materials subject to CyberSource's
approval, which will not be unreasonably withheld. Additionally
CyberSource grants to IBM a world-wide, nonexclusive license to
use the logo of CyberSource and trade name The Reusable Software
Component Market in marketing and sales promotion activities".
subject to CyberSource's approval which will not be unreasonably
withheld./WSM
2. Modify Attachment 1 - Statement of work (SOW) Number 1, Section 7.2
"Development Funds", to add the following paragraph:
IBM will provide $60,000 for advertising the Component Channel
in the Netscape Electronic Advertising "Platinum Program" for a
period of two months, beginning November 15, 1995. CyberSource
will provide funding for an additional one-half month, in the
amount of $15,000.00.
All other terms and conditions of Agreement Number C95635, which are not
expressly altered by this Amendment Number One shall remain in full force
and effect.
===============================================================================
Page 1 of 2
<PAGE> 39
Agreement: C95635
Amendment: One
PLEASE INDICATE YOUR UNDERSTANDING AND ACCEPTANCE OF THIS AMENDMENT NUMBER ONE
BY SIGNING AND RETURNING ONE (1) ORIGINAL OF THIS AMENDMENT AND RETAINING THE
SECOND ORIGINAL FOR YOUR RECORDS.
ACCEPTED AND AGREED TO:
INTERNATIONAL BUSINESS
MACHINES CORPORATION CYBERSOURCE CORPORATION
By: /s/ R. E. HOLTZCLAW By: /s/ WILLIAM S. MCKIERNAN
----------------------------- -----------------------------
R. E. Holtzclaw William S. McKiernan
- -------------------------------- --------------------------------
Print Name Print Name
Contract Relations President & CEO
- -------------------------------- --------------------------------
Title Title
11-10-95 11/12/95
- -------------------------------- --------------------------------
Date Date
================================================================================
Page 2 of 2
<PAGE> 40
[IBM LETTERHEAD]
May 13, 1996
William S. McKiernan
CyberSource Corporation
1050 Chestnut Street, Suite 201 AMENDMENT CAR-C95734-03
Menlo Park, CA 94025
Dear Mr. McKiernan
We appreciates your past efforts in working with IBM, and your continued
participation in our development projects. We look forward to working with you
on the current projects defined in this Amendment.
Your signature below will indicate your agreement to this letter as Amendment
Number CAR-C95734-03 to the Software.net Service Agreement for Reusable
Software Component Market between International Business Machines Corporation
and CyberSource Corporation Number C95734.
IBM and CyberSource Corporation ("CyberSource Corporation") agree as follows:
1. Modify the Agreement attachments to add the following:
o Exhibit A, IBM Language Ware/C++ Dictionary Manager
o Exhibit B, IBM Language Ware/C++ Dictionary Manager
o Exhibit C, IBM Language Ware/C++ Dictionary Manager
All other terms and conditions of Agrement Number C95734 not expressly altered
by this Amendment Number CAR-C95734-03 shall remain in full force and effect.
PLEASE INDICATE YOUR UNDERSTANDING AND ACCEPTANCE OF THIS AMENDMENT NUMBER
CAR-C95734-03 BY SIGNING AND RETURNING ONE (1) ORIGINAL OF THIS AMENDMENT AND
RETAINING THE SECOND ORIGINAL FOR YOUR RECORDS. ONCE SIGNED, ANY REPRODUCTION
OF THIS AMENDMENT BY RELIABLE MEANS (FOR EXAMPLE, PHOTOCOPY OR FACSIMILE) WILL
BE CONSIDERED AN ORIGINAL UNLESS PROHIBITED BY LOCAL LAW.
ACCEPTED AND AGREED TO:
INTERNATIONAL BUSINESS CYBERSOURCE CORPORATION
MACHINES CORPORATION
By: /s/ H. C. ROBBINS By: /s/ WILLIAM S. MCKIERNAN
---------------------------- -----------------------------
H. C. Robbins William S. McKiernan
- -------------------------------- ---------------------------------
Print Name Print Name
Contract Relations CEO
- -------------------------------- ---------------------------------
Title Title
May 14, 1996 5/17/96
- -------------------------------- ---------------------------------
Date Date
Page 1 of 1
<PAGE> 41
IBM REFERENCE NUMBER:
CAR-C95734-00
AMENDMENT NUMBER: 03
EXHIBIT A
I. SOFTWARE PRODUCTS
IBM LanguageWare/C++ Dictionary Manager
II. REQUIREMENTS CHECKLIST
The "checklist" of things needed to complete the process are:
1) Executed Service Provider Agreement Amendment Cover Letter.
2) Master copy of the Software. Please see Technical Specifications for
Submission of Software Products for more details.
3) Computer-readable electronic End User license (.txt file).
4) A range of 100 license numbers (if the Product is serialized).
5) Computer-readable product documentation (html or .txt file).
6) Computer-readable product specification sheet, collateral, or other
information (html or .txt file).
7) Trademarks/logos (.gif file).
8) Trial, demonstration or free versions of the Products if available.
III. VENDORS APPROVED TERRITORY
Provide description of Territory where Service Provider may electronically
deliver Product.
Software product may be distributed in Territory as defined in Section 1,
Definitions, Subsection 1, Territory in the base Agreement.
<PAGE> 42
IBM REFERENCE NUMBER:
CAR-C95734-00
AMENDMENT NUMBER: 03
EXHIBIT B
END-USER AGREEMENT
II. PRODUCT(S):
IBM LanguageWare/C++ Dictionary Manager
(Insert copy of End-User Agreement to be furnished in computer-readable form,
HTML, to Service Provider)
Attached International Software Component License Agreement ISCLA SWS-RTP 12/95.
<PAGE> 43
[IBM LOGO] INTERNATIONAL SOFTWARE COMPONENT LICENSE AGREEMENT
PART 1 -- GENERAL TERMS
- --------------------------------------------------------------------------------
YOU MUST READ AND ACCEPT THIS AGREEMENT BEFORE USING OR INSTALLING THE SOFTWARE
COMPONENT. TO ACCEPT THE TERMS OF THIS AGREEMENT, PRESS THE "ACCEPT" BUTTON AT
THE END OF THIS LICENSE. IF YOU DO NOT AGREE TO THE TERMS OF THIS AGREEMENT,
PRESS THE "REJECT" BUTTON AT THE END OF THIS LICENSE AND YOUR ORDER FOR THIS
PRODUCT WILL BE TERMINATED.
The Software Component is owned by International Business Machines Corporation
or one of its subsidiaries (IBM) or an IBM supplier, and is copyrighted and
licensed, not sold.
IBM grants you a nonexclusive license for the Software Component. If IBM grants
you multiple licenses for the Software Component, the terms of this Agreement
apply to each license. The term "Software Component" means the original
Software Component and all whole or partial copies of it, including portions
merged into programs. A Software Component consists of machine-readable
instructions, audio/visual content (such as images, text, recordings, or
pictures), and related licensed materials.
THIS AGREEMENT INCLUDES PART 1 -- GENERAL TERMS, PART 2 -- COUNTRY UNIQUE
TERMS, AND PART 3 -- DISTRIBUTION INFORMATION. THE TERMS OF PARTS 2 AND 3 MAY
REPLACE OR MODIFY THOSE OF PART 1. ANY SUCH ADDITIONAL TERMS ARE PART OF THIS
AGREEMENT.
1. LICENSE
LICENSE OPTIONS
IBM establishes prices for Software Components based on the type of license you
purchase. You are licensed to use the Software Component based on the license
option listed below which you purchase.
If you purchase a SINGLE LICENSE OPTION, you may:
1. use the Software Component only on one machine at a time and make a single
copy for backup; and
2. use the Software Component to create a derivative work and make a single
copy for backup for your internal use only.
If you purchase a MULTIPLE LICENSE OPTION, you may:
1. make copies of the Software Component, up to the total number of licenses
you purchased, for internal distribution by you within your enterprise, or
distribute copies of the Software Component, up to the total number of
licenses you purchased, via a network distribution-only server within your
enterprise; and
2. create a derivative work of the Software Component and make copies of the
derivative work of the Software Component, up to the total number of
licenses you have purchased for the Software Component; and
3. distribute, internally or externally, the copies of the derivative work of
the Software Component as permitted in 2 above; and
4. grant sublicenses to your licensees of the copies of the derivative work
of the Software Component which you distribute externally to permit them to
make single copy backups of your derivative work.
All license usage for the multiple license option is cumulative. Part 3 --
Distribution information sets forth the distribution license provisions
governing the multiple license option.
USE OF THE SOFTWARE COMPONENT
You agree to ensure that anyone who uses the Software Component (accessed
either locally or remotely) does so only in accordance with the terms of this
Agreement.
A Software Component is considered to be in use when it resides in memory or is
otherwise stored on a machine. A Software Component stored on a network server
solely for the purpose of being distributed to other machines is not considered
to be in use.
For a Software Component managed by a license management tool, copies may be
made and stored on machines under control of that tool, but the total number of
Software Components in use may not exceed the total number of licenses you have
purchased under this Agreement.
Each Software Component may be stored on a primary and another machine,
provided the Software Component is not in active use on both machines at the
same time.
You may not 1) use, copy, merge, transfer, sublicense, rent or lease the
Software Component except as provided in this Agreement, or 2) reverse
assemble, reverse compile, or otherwise translate the Software Component except
as specifically permitted by law without the possibility of contractual waiver.
You may 1) copy the Software Component for backup and 2) merge the Software
Component into another program. You must reproduce the copyright notice and any
other legend of ownership on each copy, or partial copy, of the Software
Component.
TRANSFER OF RIGHTS AND OBLIGATIONS
You may transfer all your rights and obligations under a license for a Software
Component to another party.
To transfer such rights and obligations, you must transfer a copy of this
Agreement and all other documentation (including proof of entitlement), and
at least one complete, unaltered copy of the Software Component to the other
party. Your license is then terminated.
<PAGE> 44
2. CHARGES, PAYMENT, TAXES AND REFUND
Payment must be made to the party from whom you acquire the Software Component.
If you change the number of users or exceed the distribution authorized by the
type of license option you initially select, you agree to pay the applicable
charges for the additional licenses.
In the event you are dissatisfied with the Software Component for any reason,
you may obtain a refund within 15 days of initial purchase by notification to
the party from whom you acquired the Software Component. A refund will be made
upon receipt of certification that you have destroyed all copies of the
Software Component and any derivative works thereof.
3. DISCLAIMER OF WARRANTY
IBM does not warrant uninterrupted or error-free operation of the Software
Component.
THE SOFTWARE COMPONENT IS PROVIDED "AS-IS". IBM MAKES NO WARRANTIES EXPRESS OR
IMPLIED INCLUDING THE IMPLIED WARRANTIES OR MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE. THE ENTIRE RISK RISING OUT OF USE OR PERFORMANCE OF THE
SOFTWARE COMPONENT REMAINS WITH YOU.
Some jurisdictions do not allow the exclusion or limitation of implied
warranties so the above provision relating thereto may not apply to you.
4. COPYRIGHTS
If a third party claims that a Software Component IBM provides to you infringes
that party's copyright, IBM will, at its expense, defend you against that claim
and pay all costs, damages, and attorney's fees that a court finally awards,
provided that you 1) promptly notify IBM in writing of the claim and 2) allow
IBM to control, and cooperate with IBM in, the defense and any related
settlement negotiations. If such a claim is made or appears likely to be made,
you agree to permit IBM to enable you to continue to use the Software
Component, or to modify it, or replace it with one that is at least
functionally equivalent. If IBM determines that none of these alternatives is
reasonably available, you agree to return the Software Component to IBM on
IBM's written request. IBM will then give you a credit for a one-time charge
Software Component, provided its total charges have been fully paid. This is
IBM's entire obligation to you regarding any claim of infringement. IBM has no
obligation regarding any claim based on any of the following: 1) your
modification of a Software Component; 2) the combination, operation, or use of
a Software Component with any programs, data, or apparatus that IBM did not
provide; or 3) infringement by a non-IBM Software Component.
5. LIMITATION OF LIABILITY
Regardless of the basis on which you may be entitled to recover damages from
IBM, for any claim (including fundamental breach, negligence, misrepresentation
or other tort), IBM's liability will only be for 1) payments referred to in the
copyrights terms described above; 2) bodily injury (including death), and
damage to real property and tangible personal property; and 3) the amount of
any other actual direct damages or loss, up to IBM's then generally available
license charge for the Software Component.
IBM WILL NOT BE LIABLE FOR ANY SPECIAL, INCIDENTAL, OR INDIRECT DAMAGES OR FOR
ANY ECONOMIC CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS OR SAVINGS), EVEN IF
IBM, OR THE PARTY FROM WHOM YOU ACQUIRED THE SOFTWARE COMPONENT HAS BEEN
ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. SOME JURISDICTIONS DO NOT ALLOW THE
EXCLUSION OR LIMITATION OF INCIDENTAL OR CONSEQUENTIAL DAMAGES, SO THE ABOVE
LIMITATION OR EXCLUSION MAY NOT APPLY TO YOU.
IBM will not be liable for 1) loss of, damage to, your records or data or 2) any
damages claimed by you based on any third party claim.
This limitation of liability also applies to any developer of a Software
Component supplied to IBM. It is the maximum for which we are collectively
responsible.
6. GENERAL
You may terminate your licenses at any time. If you do so, all your license
rights to the Software Component are terminated. You may keep a copy of the
Software Component in your archives.
IBM may terminate your license if you fail to comply with the terms of this
Agreement. If IBM does so, all your license rights to the Software Component
are terminated and you must destroy all your copies and/or derivative works of
it.
You agree to comply with all applicable export laws and regulations.
Neither party may bring a legal action under this Agreement more than two years
after the cause of action arose.
This license is governed by the laws of the country in which you use the
Software Component.
<PAGE> 45
[IBM LOGO] INTERNATIONAL SOFTWARE COMPONENT LICENSE AGREEMENT
PART 2 - COUNTRY UNIQUE TERMS
________________________________________________________________________________
AUSTRALIA: DISCLAIMER OF WARRANTY (SECTION 3): The warranties specified in this
Section are in addition to any rights you may have under the Trade Practices
Act or other legislation and are only limited to the extent permitted by the
applicable legislation.
LIMITATION OF LIABILITY (SECTION 5): The following paragraph is added to this
Section:
Where IBM is in breach of a condition or warranty implied by the Trade
Practices Act of 1974, IBM's liability is limited to: (a) where IBM supplied
services - the cost of having the services supplied again; or (b) where IBM
supplied goods - the repair or replacement of the goods, or the supply of
equivalent goods. Where that condition or warranty relates to right to sell,
quiet possession or clear title, or the goods are of a kind ordinarily acquired
for personal, domestic or household use or consumption, then none of the
limitations in this paragraph apply.
CANADA: GENERAL (SECTION 6): This Agreement is governed by the laws of the
Province of Ontario.
CENTRAL EUROPE & RUSSIA: GENERAL (SECTION 6): This Agreement is governed by the
material laws of Austria. All disputes and controversies between the parties
arising out of, or in connection with, this Agreement or its implementation,
performance or interpretation, shall be finally settled under the Rules of
Arbitration and Reconciliation of the Arbitral Centre of the Federal Economic
Chamber in Vienna (Vienna Rules), by three arbitrators appointed in accordance
with said Rules. The arbitration shall be held in Vienna, Austria. The official
language of the proceedings shall be English. The decision of the arbitrators
shall be final and binding upon both parties and therefore, the parties
pursuant to paragraph 598(2) of the Austrian Code of Civil Procedure, expressly
waive the application of paragraph 595(1), figure 7 of said Code. The clauses
set forth above shall, however, in no way limit our right to institute
proceedings in any competent court.
ESTONIA, LATVIA, LITHUANIA: GENERAL (SECTION 6): All disputes arising in
connection with the present Agreement shall be finally settled in Arbitration.
Each party shall appoint one arbitrator and they shall jointly appoint the
chairman. If they cannot agree on the chairman, then the chairman shall be
appointed by the Central Chamber of Commerce in Helsinki. In the Arbitration
the law on Arbitration will be adhered to. Finnish law shall apply. The
arbitrators shall come together in Helsinki.
GERMANY, AUSTRIA, SWITZERLAND: DISCLAIMER OF WARRANTY (SECTION 3): The warranty
for an IBM Program covers the functionality of the Software Component for its
normal use. In case a Software Component is delivered without specifications,
arbitrators will only warrant that the Software Component information correctly
describes the Software Component and that the Software Component can be used
according to the Software Component information. In case non-IBM Software
Components are contracted by IBM and delivered by IBM, the warranty for IBM
Software Components is applicable unless otherwise agreed in a transaction
document. Warranty service for non-IBM Software Components may be performed by
non-IBM manufacturers.
LIMITATION OF LIABILITY (SECTION 5): The limitations and exclusions specified
in the Agreement will not apply to damages caused by us with intention or
gross negligence. IBM is liable for assured characteristics.
GENERAL (SECTION 6): The limitations on bringing a legal action is not
applicable in case of tort by either IBM or you, or our agents.
ISRAEL: GENERAL (SECTION 6): The limitation on bringing a legal action will be
according to the law of limitation provided a notification concerning the cause
of action was sent no more than two years after the cause of action arose or
became known to plaintiff.
IRELAND: DISCLAIMER OF WARRANTY (SECTION 3): No statement in this Agreement
shall affect the statutory rights of consumers.
MIDDLE EASTERN COUNTRIES: ABU-DHABI(UAE), BAHRAIN, DUBAI(UAE), OMAN, KUWAIT,
QATAR
GENERAL (SECTION 6): This Agreement is governed by the law and jurisdiction of
Bahrain.
NEW ZEALAND: DISCLAIMER OF WARRANTY (SECTION 3): The warranties specified in
this Section are in addition to any rights you may have under the Consumers
Guarantees Act 1993 or other legislation which cannot be excluded or limited.
The Consumer Guarantee Act 1993 will not apply in respect of any goods or
services which IBM provides, if you require the goods or services for the
purposes of business as defined in that Act.
LIMITATION OF LIABILITY (SECTION 5): The following paragraph should be added to
this Section:
Where products or services are not acquired for the purposes of a business as
defined in the Consumer Guarantees Act 1993, the limitations in this Section
are subject to the limitations in that Act.
PEOPLE'S REPUBLIC OF CHINA: CHARGES, PAYMENT, AND TAXES (SECTION 2): All
banking charges incurred in the People's Republic of China shall be borne by
you and those incurred outside the People's Republic of China shall be borne by
us.
GENERAL (SECTION 6): The laws of the State of New York govern this Agreement.
Any dispute concerning this Agreement may be settled by arbitration. The
arbitration will take place in Stockholm, Sweden, under the auspices of the
International Arbitration Center in English in accordance with the rules then in
effect under the United Nations Commission on International Trade Law
(UNCITRAL). The arbitration award will be final and binding on both parties
shall act accordingly. The arbitration fee shall be borne by the losing party.
UNITED KINGDOM: LIMITATION OF LIABILITY (SECTION 5): Add the following
paragraph at the end of the first paragraph:
The limitation of liability shall not apply to any breach of IBM's obligations
implied by Section 12 of the Sales of Goods Act 1979 or Section 2 of the Supply
of Goods and Services Act 1982.
UNITED STATES OF AMERICA: GENERAL (SECTION 6): This Agreement is governed by
the laws of the State of New York.
<PAGE> 46
IBM INTERNATIONAL SOFTWARE COMPONENT LICENSE AGREEMENT
PART 3 - DISTRIBUTION AGREEMENT
- -------------------------------------------------------------------------------
1. DISTRIBUTION LICENSE
The following license terms apply to distribution when you select the multiple
license option in Part 1.
IBM grants to you a world-wide, nonexclusive, nontransferable copyright license
to integrate the parts and files supplied with the Software Component in and
distribute as part of your program, provided 1) they are an integral part of
your program; 2) your program is dependent upon them; 3) your program is not
merely a set or subset of the Software Component and 4) that you abide by the
following:
You reproduce and distribute the parts and files in object code format only.
You place an adequate copyright notice on all copies of your program. Each copy
of your program must labeled as follows:
"Portions of this product are copyrighted materials of International
Business Machines Corporation and are reproduced with permission."
You remain solely responsible to anyone receiving your program for any support,
service, upgrades, or technical or other assistance.
You indemnify and hold IBM harmless from and against any claims or liabilities
arising out of the use, reproduction, or distribution of your program.
You agree not to use IBM's name or trademark in connection with the marketing of
your program without IBM's prior written consent.
You distribute your program pursuant to a license agreement which prohibits the
recipient from copying (except for backup purposes), transferring, reverse
assembling, reverse compiling, or otherwise translating the program.
- -------------------------------------------------------------------------------
<PAGE> 47
IBM REFERENCE NUMBER:
CAR-C95734-00
AMENDMENT NUMBER: 03
EXHIBIT C
PRODUCTION, RETAIL SALES PRICE AND TRANSACTION FEES
Product(s): IBM LanguageWare/C++ Dictionary Manager
I. PRODUCTION FEE--------------WAIVED---------------------------------
The production Fee shall be $99.00 per Product payable to Service Provider upon
submission of product. This production fee is subject to change without notice.
II. RETAIL SALES PRICE AND TRANSACTION FEE SCHEDULE
<TABLE>
<CAPTION>
RETAIL TRANSACTION NET DUE
PRODUCT NAME QUANTITY SALES PRICE FEE VENDOR
- ------------ -------- ----------- --- ------
<S> <C> <C> <C> <C>
LanguageWare/C++ 30%
DictionaryManager V1.0 (1 users) $ 59.00
DictionaryManager V1.0 (10 users) $ 139.00
DictionaryManager V1.0 (100 users) $ 595.00
DictionaryManager V1.0 (1000 users) $2520.00
</TABLE>
The Net Due Vendor is calculated by subtracting 30% of the Retail Sales Price
from the Retail Sales Price.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 MAR-31-1998
<CASH> 2,571 2,232
<SECURITIES> 0 0
<RECEIVABLES> 1,456 2,185
<ALLOWANCES> 275 400
<INVENTORY> 0 0
<CURRENT-ASSETS> 9,206 7,459
<PP&E> 478 643
<DEPRECIATION> (98) (139)
<TOTAL-ASSETS> 9,586 8,388
<CURRENT-LIABILITIES> 8,113 6,541
<BONDS> 0 0
12,565 15,257
0 0
<COMMON> 47 47
<OTHER-SE> (11,238) (13,490)
<TOTAL-LIABILITY-AND-EQUITY> 9,586 8,388
<SALES> 16,806 6,192
<TOTAL-REVENUES> 16,806 6,192
<CGS> 14,873 5,254
<TOTAL-COSTS> 14,873 5,254
<OTHER-EXPENSES> 3,843 3,190
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (6) (2)
<INCOME-PRETAX> (1,743) (2,227)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1,743) (2,227)
<DISCONTINUED> (3,616) 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (5,359) (2,227)
<EPS-PRIMARY> (.30) (0.11)
<EPS-DILUTED> (.30) (0.11)
</TABLE>
