<PAGE>
As filed with the Securities and Exchange Commission on January 29, 1999
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
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CRITICAL PATH, INC.
(Exact name of registrant as specified in its charter)
California 7389 91-1788300
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification No.)
organization)
320 1st Street
San Francisco, California 94105
(415) 808-8800
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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DOUGLAS T. HICKEY
President and Chief Executive Officer
CRITICAL PATH, INC.
320 1st Street
San Francisco, California 94105
(415) 808-8800
(Name, address, including zip code, and telephone number, including area code,
of agent for service of process)
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Copies to:
Jorge del Calvo, Esq. Alan K. Austin, Esq.
Stanley F. Pierson, Esq. Mark L. Reinstra, Esq.
Davina K. Kaile, Esq. Susan L. Stapleton, Esq.
James J. Masetti, Esq. Clay B. Simpson, Esq.
Pillsbury Madison & Sutro LLP Wilson Sonsini Goodrich & Rosati
2550 Hanover Street 650 Page Mill Road
Palo Alto, CA 94304 Palo Alto, CA 94304
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after the Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement numbers of the earlier
effective registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to 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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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Proposed
Class of Securities Maximum Aggregate Amount of
To Be Registered Offering Price(1) Registration Fee
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<S> <C> <C>
Common Stock, $.001 par value............... $51,750,000 $14,387
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</TABLE>
(1) Estimated solely for the purpose of computing the registration fee pursuant
to Rule 457(o) under the Securities Act of 1933, as amended.
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>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell securities, and we are not soliciting offers to buy these +
+securities, in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JANUARY 29, 1999
(logo)
CRITICAL PATH, INC.
Shares
Common Stock
Critical Path, Inc. is offering shares of its common stock. This
is Critical Path's initial public offering and no public market currently
exists for its shares. We have applied for approval for quotation on the Nasdaq
National Market under the symbol "CPTH" for the shares we are offering. We
anticipate that the initial public offering price will be between $
and $ per share.
---------------
Investing in the common stock involves risks.
See "Risk Factors" beginning on page 5.
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<TABLE>
<CAPTION>
Per Share Total
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<S> <C> <C>
Public Offering Price........................................... $ $
Underwriting Discounts and Commissions.......................... $ $
Proceeds to Critical Path....................................... $ $
</TABLE>
The Securities and Exchange Commission and state securities regulators have
not approved or disapproved these securities, or determined if this prospectus
is truthful or complete. Any representation to the contrary is a criminal
offense.
Critical Path has granted the underwriters a 30-day option to purchase up to
an additional shares of common stock to cover over-allotments.
---------------
BancBoston Robertson Stephens Hambrecht & Quist
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Dain Rauscher Wessels FAC/Equities
a division of Dain Rauscher Incorporated
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The date of this prospectus is , 1999.
<PAGE>
INSIDE FRONT COVER
EMAIL
Questions
Need
Answers
is your email always up
and running?
Can you upgrade your
email quickly and easily
to support additional users?
is your email operation the
most cost-effective?
Will you be able to keep up
with the internet messaging
demands of tomorrow?
[Logos of Strategic
partners appear here]
<PAGE>
GATEFOLD
Critical Path The email messaging service enterprise services
Software Solution future capabilities
including
Branding Service basic secure ecommerce unified messaging
email email services directions
24x7 hosting hosting
Scalable calendaring
spam SSL-based future
blocking messaging capabilities
including
anti-virus billing transactions
security
<PAGE>
You should rely only on the information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of our common stock. In this prospectus, the
"Company," "Critical Path," "we," "us," and "our" refer to Critical Path, Inc.,
a California company (unless the context otherwise requires).
Until , 1999, all dealers that buy, sell or trade our common stock,
whether or not participating in this offering, may be required to deliver a
prospectus. This requirement is in addition to the dealers' obligation to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
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TABLE OF CONTENTS
<TABLE>
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Page
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<S> <C>
Summary................................................................. 3
Risk Factors............................................................ 5
Use of Proceeds......................................................... 16
Dividend Policy......................................................... 16
Capitalization.......................................................... 17
Dilution................................................................ 18
Selected Consolidated Financial Information............................. 19
Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... 20
Business................................................................ 27
Management.............................................................. 45
Certain Transactions.................................................... 54
Principal Shareholders.................................................. 56
Description of Capital Stock............................................ 58
Shares Eligible for Future Sale......................................... 61
Underwriting............................................................ 63
Legal Matters........................................................... 66
Experts................................................................. 66
Where You Can Find More Information..................................... 66
Index to Consolidated Financial Statements.............................. F-1
</TABLE>
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This prospectus contains trademarks and trade names of other companies.
2
<PAGE>
SUMMARY
This summary highlights information contained elsewhere in this prospectus.
You should read the entire prospectus carefully. Unless otherwise indicated,
all information contained in this prospectus assumes that all of the
outstanding preferred stock of Critical Path will be converted into common
stock after this offering and that the underwriters will not exercise their
over-allotment option. This prospectus contains forward-looking statements that
involve risks and uncertainties. Critical Path's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of many factors, including those set forth under "Risk Factors" and
elsewhere in this prospectus.
The Company
We are a leading provider of advanced email hosting services. Our email
services are designed to allow a wide range of organizations, including
Internet service providers, web hosting companies, web portals and
corporations, to reduce costs and improve customer service by outsourcing their
email systems. Our services are designed to facilitate scalability and
reliability, allow access to advanced technologies and provide greater access
with high levels of security. In addition, our service is designed so that our
customers can enhance their brand recognition by maintaining their existing
"look and feel" while improving the functionality of their email service. We
intend to build on our expertise in email services to provide additional
Internet messaging services in the future. At December 31, 1998, we had over
100 customers. Our strategic partners include E*TRADE Group, Inc., Network
Solutions, Inc., Sprint Communications Company L.P. and US West Communications
Services, Inc.
The Internet is experiencing rapid growth. Email, one of the most popular
Internet applications, has broadened from a simple messaging tool to a widely
accepted form of communication for both personal and business use.
International Data Corporation estimates that the number of electronic
mailboxes in the United States was 150 million in 1998 and will increase to
nearly a quarter billion in the United States by 2002, and that the number of
messages sent over the Internet will increase to 7.9 billion per day by 2002.
In addition, the complexity of the individual messages is increasing, allowing
email to become a more functional communications tool for both personal and
business use. At the same time, customers are increasingly expecting the same
reliability from their email service that they are accustomed to receiving from
their telephone service, commonly referred to as web-tone reliability. Due to
this expectation and the expense and expertise required to maintain a reliable
email system, organizations are increasingly seeking to outsource their email
systems.
Our services provide the following benefits to our customers:
. reduced costs associated with acquiring and maintaining hardware and
software and with recruiting and retaining systems engineering and
administrative support;
. a scalable and reliable system architecture designed to support global
service over hundreds of millions of mailboxes across millions of domains
with web-tone reliability;
. access to advanced technologies based on our expertise in rapidly
deploying new technologies, combating system failures and maintaining
network and system security;
. easy access by customers and end-users by designing our services on open
Internet-based standards;
. enhanced security through our custom firewall solution; and
. control over their own brand and desired functionality through fully
customized web-based email interfaces.
Our goal is to become the leading provider of Internet messaging services. We
intend to achieve this goal by extending our technology leadership in email
messaging, developing and leveraging our strategic relationships to expand our
distribution channels and our service development activities, increasing our
sales and marketing efforts primarily through the expansion of our direct sales
force, developing value-added services and expanding our international
presence, beginning with Europe and Asia.
Our headquarters are located at 320 1st Street, San Francisco, California
94105 and our telephone number is (415) 808-8800. Our website address is
www.cp.net. The information on our website is not a part of this prospectus.
3
<PAGE>
The Offering
<TABLE>
<C> <S>
Common stock offered by Critical Path.............. shares
Common stock to be outstanding after the offering.. shares(1)
Use of proceeds.................................... Expand sales and marketing
activities, open
additional data centers,
expand international
operations and for general
corporate purposes and
working capital.
Proposed Nasdaq National Market symbol............. CPTH
</TABLE>
Summary Consolidated Financial Data
(in thousands, except per share data)
<TABLE>
<CAPTION>
Period from
February 19,
1997
(Inception) to Year Ended
December 31, December 31,
1997 1998
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<S> <C> <C>
Consolidated Statement of Operations Data:
Net revenues...................................... $ -- $ 897
Loss from operations.............................. (1,056) (11,448)
Net loss.......................................... (1,074) (11,461)
Basic and diluted net loss per share(2)........... $ (0.24) $ (1.34)
Shares used in computing basic and diluted net
loss per share(2)................................ 4,386 8,576
Pro forma net loss per share(2)................... $ (0.37)
Shares used in computing pro forma net loss per
share(2)......................................... 31,217
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998
----------------------
Actual As Adjusted(3)
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<S> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents................................ $14,791
Working capital.......................................... 12,524
Total assets............................................. 20,663
Capital lease obligations, less current portion.......... 2,454
Shareholders' equity..................................... 15,358
</TABLE>
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(1) The number of shares of common stock to be outstanding after this offering
is based on the number of shares outstanding as of December 31, 1998 and
does not include the following:
. 16,955,757 shares subject to options outstanding as of December 31, 1998
at a weighted average exercise price of $0.39 per share;
. 5,845,056 additional shares that could be issued under Critical Path's
1998 Stock Plan;
. 2,392,432 shares that could be issued upon exercise of outstanding
warrants and stock purchase rights; and
. 1,500,000 shares that could be issued under Critical Path's Employee
Stock Purchase Plan.
(2) See Note 1 of Notes to Consolidated Financial Statements for an explanation
of the determination of the number of shares used in computing per share
data.
(3) Adjusted to reflect the sale by Critical Path of shares of
common stock at an assumed initial public offering price of $ per
share and the application of the estimated net proceeds after deducting the
underwriting discounts and commissions and our estimated offering expenses.
See "Use of Proceeds" and "Capitalization."
4
<PAGE>
RISK FACTORS
This offering involves a high degree of risk. You should carefully consider
the risks described below and the other information in this prospectus before
deciding to invest in shares of our common stock. The risks described below are
not the only ones that we face. Additional risks that generally apply to
publicly traded companies, that are not yet identified or that we currently
think are immaterial, may also impair our business operations. Our business,
operating results and financial condition could be adversely affected by any of
the following risks. The trading price of our common stock could decline due to
any of these risks, and you could lose all or part of your investment. You
should also refer to the other information set forth in this prospectus,
including our financial statements and the related notes.
This prospectus also contains certain forward-looking statements that involve
risks and uncertainties. These statements relate to our future plans,
objectives, expectations and intentions. These statements may be identified by
the use of words such as "expects," "anticipates," "intends," and "plans" and
similar expressions. Our actual results could differ materially from those
discussed in these statements. Factors that could contribute to such
differences include, but are not limited to, those discussed below and
elsewhere in this prospectus.
Because We Have a Limited Operating History, it is Difficult to Evaluate Our
Business
We were incorporated in February 1997 and have only a limited operating
history upon which you can evaluate our business and prospects. When making
your investment decision, you should consider the risks, expenses and
difficulties that we may encounter. These risks include our ability to:
. expand our sales and marketing activities;
. create and maintain strategic relationships;
. expand our customer base and retain key clients;
. introduce new services;
. manage growing operations;
. compete in a highly competitive market;
. upgrade our systems and infrastructure to handle any increases in
messaging traffic;
. reduce service interruptions; and
. recruit and retain key personnel.
We also depend on the growing use of the Internet for communication and
commerce, and specifically on the use of email messaging to communicate, and on
general economic conditions. We cannot be certain that our business strategy
will be successful or that we will successfully address these risks.
We Expect Future Losses and Have a History of Losses
We have spent heavily on technology and infrastructure development. We expect
to continue to spend substantial financial and other resources on developing
and introducing new service offerings, and expanding our sales and marketing
organizations, strategic relationships and operating infrastructure. We expect
that our cost of revenues, sales and marketing expenses, general and
administrative expenses, operations and customer support expenses, and
depreciation and amortization expenses will continue to increase in absolute
dollars and may increase as a percent of revenues.
5
<PAGE>
We incurred net losses of approximately $1.1 million for the period from
February 19, 1997 (inception) through December 31, 1997 and $11.5 million for
the year ended December 31, 1998. As of December 31, 1998, we had an
accumulated deficit of approximately $12.5 million. We have not achieved
profitability in any period, and we expect to continue to incur net losses for
the foreseeable future. We may never obtain sufficient revenues to achieve
profitability. If we do achieve profitability, we may not sustain or increase
profitability in the future.
Our Future Revenues are Unpredictable; Our Quarterly Operating Results May
Fluctuate
We cannot accurately forecast our revenues as a result of our limited
operating history and the emerging nature of the markets in which we compete.
Our revenues could fall short of our expectations if we experience delays or
cancellations of even a small number of orders. We often offer volume-based
pricing, which may affect our operating margins. A number of factors are likely
to cause fluctuations in our operating results, including, but not limited to:
. continued growth of the Internet in general and of email usage in
particular;
. demand for outsourced email services;
. our ability to attract and retain customers and maintain customer
satisfaction;
. our ability to upgrade, develop and maintain our systems and
infrastructure;
. the amount and timing of operating costs and capital expenditures
relating to expansion of our business and infrastructure;
. technical difficulties or system outages;
. the announcement or introduction of new or enhanced services by our
competitors;
. our ability to attract and retain qualified personnel with Internet
industry expertise, particularly sales and marketing personnel;
. the pricing policies of our competitors;
. failure to increase our international sales; and
. governmental regulation surrounding the Internet and email in particular.
Due to lead times required to purchase, install and test equipment, we
typically need to purchase equipment well in advance of the receipt of any
expected revenues. Delays in obtaining this equipment could result in
unexpected revenue shortfalls. Small variations in the timing of the
recognition of specific revenues could cause significant variations in
operating results from quarter to quarter.
Period-to-period comparisons of our operating results are not a good
indication of our future performance. It is likely that our operating results
in some quarters will be below market expectations. In this event, the price of
our common stock is likely to decline.
We Need to Expand Our Sales and Marketing Activities
Our ability to increase our revenues will depend on our ability to
successfully recruit, train and retain sales and marketing personnel. As of
January 15, 1999, we had 30 sales and marketing personnel. We plan to continue
to invest significant resources to expand our sales and marketing
organizations. Competition for additional qualified personnel is intense and we
may not be able to hire and retain personnel with relevant experience. We have
recently hired most of our sales and marketing personnel, including our Vice
President of Sales, who joined us in November 1998.
6
<PAGE>
The complexity and implementation of our Internet messaging services require
highly trained sales and marketing personnel to educate prospective customers
regarding the use and benefits of our services. Our current and prospective
customers, in turn, must be able to educate their end-users. Because the
majority of our sales and marketing personnel have recently joined Critical
Path and have limited experience working together, our sales and marketing
organizations may not be able to compete successfully against bigger and more
experienced sales and marketing organizations of our competitors.
We Have Risks of Unplanned System Interruptions and Capacity Constraints
Our customers have in the past experienced some interruptions in our email
service. We believe that these interruptions will continue to occur from time
to time. These interruptions are due to hardware failures, unsolicited bulk
email, or "spam," attacks and operating system failures. For example, in
October 1998, our customers experienced a four-hour service interruption due to
an operating system failure. Our revenues depend on the number of end-users who
use our email services. Our business will suffer if we experience frequent or
long system interruptions that result in the unavailability or reduced
performance of our systems or networks or reduce our ability to provide email
services. We expect to experience occasional temporary capacity constraints due
to sharply increased traffic, which may cause unanticipated system disruptions,
slower response times, impaired quality and degradation in levels of customer
service. If this were to continue to happen, our business and reputation could
suffer dramatically.
We have entered into service agreements with some of our customers that
require certain minimum performance standards, including standards regarding
the availability and response time of our email services. If we fail to meet
these standards, our customers could terminate their relationships with us and
we could be subject to contractual monetary penalties. Any unplanned
interruption of services may adversely affect our ability to attract and retain
customers.
We Depend on Strategic Relationships and Other Sales Channels
We depend on our strategic relationships to expand our distribution channels
and to undertake joint product development and marketing efforts. Our ability
to increase revenues depends upon marketing our services through new and
existing strategic relationships. We have entered into business and strategic
relationships with E*TRADE Group, Inc., Network Solutions, Inc., Sprint
Communications Company L.P. and US West Communications Services, Inc., among
others. We depend on a broad acceptance of outsourced email services on the
part of potential partners, and acceptance of Critical Path as the outsource
supplier. We also depend on joint marketing and product development with our
strategic partners to achieve market acceptance and brand recognition. For
example, through our relationship with E*TRADE, we can conduct shared
advertising campaigns and include our messaging services in E*TRADE's
international strategic relationships. Our agreements with our strategic
partners typically do not restrict them from introducing competing services and
may be terminated by either party without cause. Distribution partners may
choose not to renew existing arrangements on commercially acceptable terms, or
at all. If we fail to renew these agreements or relationships or fail to
develop new strategic relationships, our business will suffer. In addition to
our strategic relationships, we also depend on the ability of our customers to
sell and market our services to their end-users.
We Must Manage Our Growth
We recently began to expand our operations rapidly and intend to continue
this expansion. The number of our employees increased from 17 on December 31,
1997 to 93 on December 31, 1998.
7
<PAGE>
This expansion has placed, and is expected to continue to place, a significant
strain on our managerial, operational and financial resources. To manage any
further growth, we will need to improve or replace our existing operational,
customer service and financial systems, procedures and controls. We will also
need to continue the expansion of our operations and employee base. Our
management may not be able to hire, train, retain, motivate and manage required
personnel. In addition, our management may not be able to successfully
identify, manage and exploit existing and potential market opportunities. If we
cannot manage growth effectively, our business and operating results could
suffer.
We Face Risks Associated with Rapid Technological Change
The Internet messaging industry is characterized by rapid technological
change, changes in user and customer requirements and preferences and the
emergence of new industry standards and practices that could render our
existing services, proprietary technology and systems obsolete. We must
continually improve the performance, features and reliability of our services,
particularly in response to competitive offerings. Our success depends, in
part, on our ability to enhance our existing email and messaging services and
to develop new services, functionality and technology that address the
increasingly sophisticated and varied needs of our prospective customers. The
development of proprietary technology and necessary service enhancements entail
significant technical and business risks and requires substantial expenditures
and lead-time and we may not be able to keep pace with the latest technological
developments. We may not be able to use new technologies effectively or adapt
our services to customer requirements or emerging industry standards. If we
cannot, for technical, legal, financial or other reasons, adapt or respond in a
cost-effective and timely manner to changing market conditions or customer
requirements, our business and operating results would suffer.
We Have Risks Associated with Online Communication and System Security
A fundamental requirement for online communications is the secure
transmission of confidential information over public networks. Third parties
may attempt to breach our security or that of our customers. If they are
successful, they could obtain our customers' confidential information,
including our customers' profiles, passwords, financial account information,
credit card numbers or other personal information. We may be liable to our
customers for any breach in our security and any breach could harm our
reputation. We rely on encryption technology licensed from third parties.
Despite our implementation of network security measures, our servers are
vulnerable to computer viruses, physical or electronic break-ins and similar
disruptions, which could lead to interruptions, delays or loss of data. We may
be required to expend significant capital and other resources to license
encryption technology and additional technologies to protect against security
breaches or to alleviate problems caused by any breach. Our failure to prevent
security breaches may have a material adverse effect on our business and
operating results. See "Business--Technology."
We Depend on Broad Market Acceptance for Outsourced Internet-based Email
Service
The market for outsourced Internet-based email service is new and rapidly
evolving. Concerns over the security of online services and the privacy of
users may inhibit the growth of the Internet and commercial online services. We
cannot estimate the size or growth rate of the potential market for our service
offerings, and we do not know whether our service will achieve broad market
acceptance. To date, substantially all of our revenues have been derived from
sales of our email service offerings and we currently expect that our email
service offerings will account for
8
<PAGE>
substantially all of our revenues for the foreseeable future. We depend on the
widespread acceptance and use of outsourcing as an effective solution for
email. If the market for outsourced email fails to grow or grows more slowly
than we currently anticipate, our business would suffer dramatically.
We Face Significant Competition
We expect that the market for Internet-based email service will be intensely
competitive. In addition to competing with companies that develop and maintain
in-house solutions, we compete with email service providers, such as USA.NET,
Inc., and iName, and with product-based companies, such as Software.com, Inc.
and Lotus Development Corporation. We believe that competition will increase
and that companies such as Microsoft Corporation and Netscape Communications
Corp., which currently offer email products primarily to Internet Service
Providers, or ISPs, web hosting companies, web portals and corporations, may
leverage their existing relationships and capabilities to offer email services.
We believe competition will increase as our current competitors increase the
sophistication of their offerings and as new participants enter the market.
Many of our current and potential competitors have longer operating histories,
larger customer bases, greater brand recognition and significantly greater
financial, marketing and other resources than we do and may enter into
strategic or commercial relationships with larger, more established and better-
financed companies. Increased competition could result in pricing pressures,
reduced operating margins and loss of market share, any of which could cause
our business to suffer. See "Business--Competition."
A Limited Number of Customers Account for a High Percentage of Our Revenues
In 1998, E*TRADE accounted for approximately 62%, and TABNet, a wholly owned
subsidiary of Verio, accounted for approximately 30%, of our revenues,
excluding warrant discounts. We expect that sales of our services to a limited
number of customers will continue to account for a high percentage of our
revenue for the foreseeable future. Our future success depends on our ability
to retain our current customers and attract new customers in our target
markets. The loss of a major customer or our inability to attract new customers
could have a material adverse effect on our business.
We May Encounter Service Design Risks
We must accurately forecast the features and functionality required by target
customers. In addition, we must design and implement service enhancements that
meet customer requirements in a timely and efficient manner. We may not
successfully determine customer requirements and we may be unable to satisfy
customer demands. Furthermore, we may not be able to design and implement a
service incorporating desired features in a timely and efficient manner. In
addition, if any new service we launch is not favorably received by customers
and end-users, our reputation could be damaged. If we fail to accurately
determine customer feature requirements or service enhancements or to market
services containing such features or enhancements in a timely and efficient
manner, our business and operating results could suffer materially.
We Need to Upgrade Our Systems and Infrastructure to Accommodate Increases in
Email Traffic
We must continue to expand and adapt our network infrastructure as the number
of users and the amount of information they wish to transmit increases, and as
their requirements change. The expansion and adaptation of our network
infrastructure will require substantial financial, operational
9
<PAGE>
and management resources. Due to the limited deployment of our services to
date, the ability of our network to connect and manage a substantially larger
number of customers at high transmission speeds is unknown, and we face risks
related to the network's ability to operate with higher customer levels while
maintaining expected performance.
As the frequency and complexity of messaging increases, we will need to make
additional investments in our infrastructure, which may be expensive. In
addition, we may not be able to accurately project the rate or timing of email
traffic increases or upgrade our systems and infrastructure to accommodate
future traffic levels. We may also not be able to achieve or maintain a
sufficiently high capacity of data transmission as customer usage increases.
Customer demand for our services could be greatly reduced if we fail to
maintain high capacity data transmission. In addition, as we upgrade our
network infrastructure to increase capacity available to our customers, we are
likely to encounter equipment or software incompatibility which may cause
delays in implementations. We may not be able to expand or adapt our network
infrastructure to meet additional demand or our customers' changing
requirements in a timely manner or at all. If we fail to do so, our business
and operating results could suffer materially. See "Business--Technology."
We Face Risks Associated with International Operations
We intend to continue to expand into international markets and to spend
significant financial and managerial resources to do so. If our revenues from
international operations do not exceed the expense of establishing and
maintaining these operations, our business, financial condition and operating
results will suffer. We have limited experience in international operations and
may not be able to compete effectively in international markets. We face
certain risks inherent in conducting business internationally, such as:
. unexpected changes in regulatory requirements;
. difficulties and costs of staffing and managing international operations;
. differing technology standards;
. difficulties in collecting accounts receivable and longer collection
periods;
. political and economic instability;
. fluctuations in currency exchange rates;
. imposition of currency exchange controls;
. potentially adverse tax consequences; and
. reduced protection for intellectual property rights in certain countries.
Any of these factors could adversely affect our international operations and,
consequently, our business and operating results.
We Depend on the Efficient Transmission of Data Over the Internet
The recent growth in the use of the Internet has caused frequent
interruptions and delays in accessing the Internet and transmitting data over
the Internet. Any deterioration in the performance of the Internet as a whole
could undermine the benefits of our services. We rely on the speed and
reliability of the networks operated by third parties. Therefore, our market
depends on improvements being made to the entire Internet infrastructure to
alleviate overloading and congestion.
10
<PAGE>
We depend on telecommunications network suppliers such as MCI WorldCom and
Sprint to transmit email messages across their networks. In addition, to
deliver our services, we rely on a number of public and private peering
interconnections, which are arrangements among access providers to carry
traffic of each other. If these providers were to discontinue these
arrangements, and alternative providers did not emerge or were to increase the
cost of providing access, our ability to transmit our email traffic would be
reduced. In addition, if we fail to pass through any additional costs of
utilizing these networks to our customers, our business and operating results
could suffer. Furthermore, if additional capacity is not added as traffic
increases, our ability to distribute content rapidly and reliably through these
networks will be adversely affected.
We Have Risks Associated with System Failure
Our ability to successfully receive and send email messages and provide
acceptable levels of customer service largely depends on the efficient and
uninterrupted operation of our computer and communications hardware and network
systems. Substantially all of our computer and communications systems are
located in Palo Alto and San Francisco, California and Laurel, Maryland. Our
systems and operations are vulnerable to damage or interruption from fire,
flood, earthquake, power loss, telecommunications failure and similar events.
The occurrence of any of the foregoing risks could subject us to contractual
monetary penalties if we fail to meet our minimum performance standards, and
could have a material adverse effect on our business and operating results and
damage our reputation.
We Depend on Recruiting and Retaining Key Employees
Our success depends on the skills, experience and performance of our senior
management and certain other key personnel, many of whom have worked together
for only a short period of time. For example, our Chief Executive Officer,
Chief Financial Officer, Vice President of Sales and Vice President and Chief
Information Officer have joined us within the past six months. The loss of the
services of any of our senior management or other key personnel, including our
founder, David Hayden, and our President and Chief Executive Officer, Douglas
Hickey, could materially and adversely affect our business. We do not have
long-term employment agreements with any of our senior management and other key
personnel. Our success also depends on our ability to recruit, retain and
motivate other highly skilled sales and marketing, technical and managerial
personnel. Competition for these people is intense, and we may not be able to
successfully recruit, train or retain qualified personnel. In particular, we
may not be able to hire a sufficient number of qualified software developers
for our email services. If we fail to retain and recruit necessary sales and
marketing, technical and managerial personnel, our business and our ability to
develop new services and to provide acceptable levels of customer service could
suffer.
Our Services May Be Affected by Unknown Software Defects
Our service offerings depend on complex software, both internally developed
and licensed from third parties. Complex software often contains defects,
particularly when first introduced or when new versions are released. Although
we conduct extensive testing, we may not discover software defects that affect
our new or current services or enhancements until after they are deployed.
Although we have not experienced any material software defects to date, it is
possible that, despite testing by us, defects may occur in the software. These
defects could cause service interruptions, which could damage our reputation or
increase our service costs, cause us to lose revenue, delay market acceptance
or divert our development resources, any of which could cause our business to
suffer.
11
<PAGE>
We May Need Additional Capital
We believe that our existing capital resources, including the anticipated
proceeds of this offering, will enable us to maintain our current and planned
operations for at least the next 12 months. However, we may be required to
raise additional funds due to unforeseen circumstances. If our capital
requirements vary materially from those currently planned, we may require
additional financing sooner than anticipated. Such financing may not be
available in sufficient amounts or on terms acceptable to us and may be
dilutive to existing shareholders.
We May Face Risks Associated with Potential Acquisitions
We may acquire businesses, products and technologies that complement or
augment our existing businesses, services and technologies. Integrating any
newly acquired businesses or technologies may be expensive and time-consuming.
We do not know if we will be able to complete any future acquisitions or that
we will be able to successfully integrate any acquired business. To finance any
acquisitions, it may be necessary for us to raise additional funds through
public or private financings. Any equity or debt financings, if available at
all, may be on terms that are not favorable to us and, in the case of equity
financings, may result in dilution to our shareholders. We may not be able to
operate any acquired businesses profitably or otherwise implement our growth
strategy successfully. If we are unable to integrate any newly acquired
entities or technologies effectively, our results of operations could suffer.
We Have Limited Protection of Our Intellectual Property and Proprietary Rights
We regard our copyrights, service marks, trademarks, trade secrets and
similar intellectual property as critical to our success, and rely on trademark
and copyright law, trade secret protection and confidentiality and/or license
agreements with our employees, customers, partners and others to protect our
proprietary rights. Despite our precautions, unauthorized third parties may
copy certain portions of our services or reverse engineer or obtain and use
information that we regard as proprietary. End-user license provisions
protecting against unauthorized use, copying, transfer and disclosure of the
licensed program may be unenforceable under the laws of certain jurisdictions
and foreign countries. The status of United States patent protection in the
software industry is not well defined and will evolve as the U.S. Patent and
Trademark Office grants additional patents. While we do not have any patents
pending, we may seek to patent certain software in the future. We do not know
if any of our future patent applications will be issued with the scope of the
claims we seek, if at all. In addition, the laws of some foreign countries do
not protect proprietary rights to the same extent as do the laws of the United
States. Our means of protecting our proprietary rights in the United States or
abroad may not be adequate and competitors may independently develop similar
technology.
Third parties may infringe or misappropriate our copyrights, trademarks and
similar proprietary rights. In addition, other parties may assert infringement
claims against us. Although we have not received notice of any alleged
infringement, we cannot be certain that our products do not infringe issued
patents that may relate to our products. In addition, because patent
applications in the United States are not publicly disclosed until the patent
is issued, applications may have been filed which relate to our software
products. We may be subject to legal proceedings and claims from time to time
in the ordinary course of our business, including claims of alleged
infringement of the trademarks and other intellectual property rights of third
parties. Intellectual property litigation is expensive and time-consuming and
could divert management's attention away from running our business.
We also intend to continue to license certain technology from third parties,
including our web server and encryption technology. The market is evolving and
we may need to license additional
12
<PAGE>
technologies to remain competitive. We may not be able to license these
technologies on commercially reasonable terms or at all. In addition, we may
fail to successfully integrate any licensed technology into our services. These
third-party in-licenses may expose us to increased risks, including risks with
the integration of new technology, the diversion of resources from the
development of our own proprietary technology, our inability to generate
revenues from new technology sufficient to offset associated acquisition and
maintenance costs. Our inability to obtain any of these licenses could delay
product and service development until equivalent technology can be identified,
licensed and integrated. Any such delays in services could cause our business
and operating results to suffer.
We May Face Risks Associated with Governmental Regulation and Legal
Uncertainties
Although there are currently few laws and regulations directly applicable to
the Internet and commercial email services, a number of laws have been proposed
involving the Internet, including laws addressing user privacy, pricing,
content, copyrights, distribution, antitrust and characteristics and quality of
products and services. Further, the growth and development of the market for
online email may prompt calls for more stringent consumer protection laws that
may impose additional burdens on those companies conducting business online.
The adoption of any additional laws or regulations may impair the growth of the
Internet or commercial online services which could decrease the demand for our
services and increase our cost of doing business, or otherwise have a material
adverse effect on our business and operating results. Moreover, the
applicability to the Internet of existing laws in various jurisdictions
governing issues such as property ownership, sales and other taxes, libel and
personal privacy is uncertain and may take years to resolve.
We Face Year 2000 Risks
The Year 2000 issue is the result of computer programs and embedded hardware
systems having been developed using two digits rather than four to define the
applicable year. These computer programs or hardware that have date-sensitive
software or embedded chips may recognize a date using "00" as the year 1900
rather than the year 2000. 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 normal business activities. As a result, many companies' computer systems
may need to be upgraded or replaced in order to comply with the "Year 2000." We
are in the process of testing our internally developed software. Many of our
customers maintain their Internet operations on commercially available
operating systems, which may be impacted by Year 2000 complications. In
addition, we rely on third-party vendors for certain software and hardware
included within our services, which may not be Year 2000 compliant. Failure of
our internal computer systems or third-party equipment or software, or of
systems maintained by our suppliers, to operate properly with regard to the
year 2000 and thereafter could require us to incur significant unanticipated
expenses to remedy any problems and could cause system interruptions and loss
of data. Any of these events could harm our reputation, business and operating
results. We have not yet developed a comprehensive contingency plan to address
the issues that could result from Year 2000 complications. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--Year
2000 Issues."
We May Have Liability for Internet Content
As a provider of email services, we face potential liability for defamation,
negligence, copyright, patent or trademark infringement and other claims based
on the nature and content of the materials
13
<PAGE>
transmitted via email. We do not and cannot screen all of the content generated
by our users, and we could be exposed to liability with respect to this
content. Furthermore, certain foreign governments, such as Germany, have
enforced laws and regulations related to content distributed over the Internet
that are more strict than those currently in place in the United States.
Although we carry general liability insurance, our insurance may not cover
claims of these types, or may not be adequate to indemnify us 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 our reputation and our business and operating
results, or could result in the imposition of criminal penalties.
Our Stock Has Not Been Publicly Traded Before This Offering and Our Stock Price
May Be Volatile
Our common stock has not been publicly traded, and an active trading market
may not develop or be sustained after this offering. Critical Path and the
underwriters will determine the initial public offering price. The price at
which our common stock will trade after this offering is likely to be highly
volatile and may fluctuate substantially due to factors such as:
. actual or anticipated fluctuations in our results of operations;
. changes in or failure by us to meet securities analysts' expectations;
. announcements of technological innovations;
. introduction of new services by us or our competitors;
. developments with respect to intellectual property rights;
. conditions and trends in the Internet and other technology industries;
and
. general market conditions.
In addition, the stock market has from time to time experienced significant
price and volume fluctuations that have affected the market prices for the
common stocks of technology companies, particularly Internet companies. These
broad market fluctuations may result in a material decline in the market price
of our common stock. In the past, following periods of volatility in the market
price of a particular company's securities, securities class action litigation
has often been brought against that company. We may become involved in this
type of litigation in the future. Litigation is often expensive and diverts
management's attention and resources, which could have a material adverse
effect upon our business and operating results.
Future Sales of Our Common Stock May Depress Our Stock Price.
After this offering, we will have shares of common stock outstanding.
Sales of a substantial number of shares of common stock in the public market
following this offering could cause the market price of our common stock to
decline. All the shares sold in this offering will be freely tradable. The
remaining 65,903,242 shares of common stock outstanding after this offering are
subject to lock-up agreements that prohibit the sale of the shares for 180 days
after the date of this prospectus. Beginning, , 1999 (181 days after the
date of this prospectus), shares will become available for sale. The
remaining shares will become available at various times thereafter upon
the expiration of one-year holding periods. See "Shares Eligible for Future
Sale" and "Underwriting."
14
<PAGE>
Purchasers Will Have Immediate and Substantial Dilution; Our Dividend Policy
The initial public offering price is expected to be substantially higher than
the book value per share of our common stock. Purchasers of our common stock in
this offering will experience immediate dilution of $ in the pro forma net
tangible book value per share of common stock (assuming a public offering price
of $ per share). Purchasers will also experience additional dilution upon
the exercise of outstanding stock options. See "Dilution."
We have never paid or declared any cash dividends on our common stock or
other securities and intend to retain any future earnings to finance the
development and expansion of our business. We do not anticipate paying any cash
dividends on our common stock in the foreseeable future. See "Dividend Policy."
Control by Directors, Executive Officers and Principal Shareholders
After this offering, our directors, executive officers and certain
shareholders will beneficially own approximately % of our outstanding common
stock. These shareholders, if they vote together, will be able to exercise
significant influence over all matters requiring shareholder approval,
including the election of directors and approval of significant corporate
transactions. This concentration of ownership may also delay or prevent a
change in control of Critical Path. See "Principal Shareholders" and
"Description of Capital Stock."
Antitakeover Provisions of Our Articles of Incorporation and Bylaws
Our articles of incorporation and bylaws will contain certain provisions that
could have the effect of delaying or preventing a change in control of Critical
Path. These provisions could limit the price that certain investors might be
willing to pay in the future for shares of our common stock. Certain of these
provisions:
. authorize the issuance of "blank check" preferred stock (preferred stock
which can be created and issued by the board of directors without prior
shareholder approval) with rights senior to those of common stock;
. prohibit shareholder action by written consent; and
. establish advance notice requirements for submitting nominations for
election to the board of directors and for proposing matters that can be
acted upon by shareholders at a meeting.
See "Description of Capital Stock" for additional discussion of these
provisions.
We Will Have Discretion as to Use of Proceeds
We intend to use the net proceeds from this offering to expand our sales and
marketing activities, open additional data centers, expand our international
operations and for general corporate purposes, including working capital and
strategic investments. We are not required to use the net proceeds for the
purposes described above. Depending on future developments and circumstances,
we may use some of the proceeds for uses other than those described above. Our
management will therefore have significant flexibility in applying the net
proceeds of this offering. See "Use of Proceeds."
15
<PAGE>
USE OF PROCEEDS
The net proceeds we will receive from the sale of the shares of
common stock offered by us are estimated to be $ after deducting the
underwriting discounts and commissions and the estimated offering expenses
payable by us and assuming a public offering price of $ per share.
We intend to use the proceeds of this offering for the following:
. expansion of our sales and marketing activities;
. opening of additional data centers;
. expansion of our international operations; and
. working capital and other general corporate purposes.
In addition, we may use a portion of the net proceeds of this offering to
acquire or invest in businesses, products, services or technologies
complementary to our current business, through mergers, acquisitions, joint
ventures or otherwise. However, we have no specific agreements or commitments
and are not currently engaged in any negotiations with respect to these
transactions. Accordingly, our management will retain broad discretion as to
the allocation of the net proceeds of this offering. We intend to invest the
net proceeds of this offering in short-term, interest-bearing investment grade
securities pending the above uses.
The principal purposes of this offering are: to create a public market for
our common stock, to increase our visibility and credibility, to facilitate
future access to the public capital markets and to obtain additional capital.
DIVIDEND POLICY
We have never declared or paid dividends on our capital stock and do not
anticipate paying any dividends in the foreseeable future. We currently intend
to retain any future earnings for the expansion and operation of our business.
Furthermore, our line of credit agreement with Silicon Valley Bank prohibits
the payment of dividends.
16
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of Critical Path as of
December 31, 1998: (i) on an actual basis; (ii) on a pro forma basis after
giving effect to the conversion of all outstanding shares of preferred stock
into common stock upon completion of this offering; and (iii) and on a pro
forma basis as adjusted to reflect the sale by Critical Path of shares of
common stock offered hereby at an assumed initial public offering price of
$ per share and the receipt of the estimated net proceeds therefrom after
deducting underwriting discounts and commissions and estimated offering
expenses payable by Critical Path. See "Use of Proceeds."
<TABLE>
<CAPTION>
December 31, 1998
--------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
(in thousands)
<S> <C> <C> <C>
Capital lease obligations, less current
portion....................................... $ 2,454 $ 2,454
-------- -------- ---
Shareholders' equity:
Series A Convertible Preferred Stock, $0.001
par value; 29,234,743 shares authorized,
27,996,949 shares issued and outstanding, no
shares pro forma as adjusted................ 28 --
Series B Convertible Preferred Stock, $0.001
par value; 22,000,000 shares authorized,
8,000,827 shares issued and outstanding, no
shares issued and outstanding pro forma as
adjusted.................................... 8 --
Common stock, $0.001 par value; authorized
85,000,000 shares; issued and outstanding
18,247,577 shares actual; shares issued and
outstanding, pro forma; shares issued and
outstanding, as adjusted(1)................. 18 54
Additional paid-in capital................... 41,872 41,872
Notes receivable from shareholders........... (1,151) (1,151)
Unearned compensation........................ (12,882) (12,882)
Accumulated deficit.......................... (12,535) (12,535)
-------- -------- ---
Total shareholders' equity................. 15,358 15,358
-------- -------- ---
Total capitalization..................... $ 17,812 $ 17,812
======== ======== ===
</TABLE>
- --------
(1) The number of shares of common stock to be outstanding after this offering
is based on the number of shares outstanding as of December 31, 1998 and
does not include the following:
. 16,955,757 shares subject to options outstanding as of December 31, 1998
at a weighted average exercise price of $0.39 per share;
. 5,845,056 shares that could be issued under Critical Path's 1998 Stock
Plan;
. 2,392,432 shares that could be issued upon exercise of outstanding
warrants and stock purchase rights; and
. 1,500,000 shares that could be issued under Critical Path's Employee
Stock Purchase Plan.
17
<PAGE>
DILUTION
Our pro forma net tangible book value as of December 31, 1998 was
$15,358,000, or $0.28 per share of common stock. Pro forma net tangible book
value per share is determined by dividing the amount of our total tangible
assets less total liabilities by the number of shares of common stock
outstanding at that date, assuming conversion of all outstanding shares of
preferred stock. Dilution in net tangible book value per share represents the
difference between the amount per share paid by purchasers of shares of common
stock in the offering made hereby and the net tangible book value per share of
common stock immediately after the completion of this offering. After giving
effect to the sale of the shares of common stock offered by Critical
Path hereby (at an assumed public offering price of $ per share and after
deducting the underwriting discounts and commissions and our estimated offering
expenses), our pro forma net tangible book value of Critical Path at December
31, 1998 would have been $ , or $ per share. This represents an
immediate increase in pro forma net tangible book value of $ per share to
the existing shareholder and an immediate dilution of $ per share to new
investors purchasing shares in this offering. The following table illustrates
this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................... $
----
Pro forma net tangible book value per share as of December 31,
1998.............................................................. $0.28
Increase in pro forma net tangible book value per share
attributable to this offering.....................................
-----
Pro forma net tangible book value per share after the offering.....
----
Dilution per share to new investors................................ $
====
</TABLE>
The following table summarizes, on a pro forma basis as of December 31, 1998,
the total number of shares of common stock purchased from Critical Path, the
total consideration paid to Critical Path and the average price per share paid
by existing shareholders and by new investors purchasing shares in this
offering (based upon an assumed initial public offering price of $ per
share and before deducting the underwriting discounts and commissions and our
estimated offering expenses):
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------ ------------------- Average Price
Number Percent Amount Percent Per Share
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders...... 54,245,353 % $25,856,000 % $0.48
New investors.............. % %
---------- --- ----------- ---
Total.................... 100% $ 100%
========== === =========== ===
</TABLE>
The foregoing table assumes no exercise of the underwriters' over-allotment
option or of any outstanding stock options or warrants after December 31, 1998.
As of December 31, 1998, there were outstanding options to purchase an
aggregate of 16,955,757 shares of common stock at a weighted average exercise
price of $0.39 per share and warrants and stock purchase rights to purchase an
aggregate of 2,392,432 shares at a weighted average purchase price of $1.11 per
share. To the extent any of these options or warrants are exercised, there will
be further dilution to new investors. See "Management--1998 Stock Plan" and
Notes 6, 7 and 8 of the Notes to Consolidated Financial Statements.
18
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The selected consolidated balance sheet data as of December 31, 1997 and 1998
and the selected consolidated statement of operations data for the period from
February 19, 1997 (Inception) to December 31, 1997 and for the year ended
December 31, 1998 have been derived from the Consolidated Financial Statements
of Critical Path, Inc., included elsewhere in this prospectus. The data set
forth below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Consolidated
Financial Statements and the Notes thereto included elsewhere in this
prospectus (in thousands, except per share data).
<TABLE>
<CAPTION>
Period from
February 19, 1997 Year Ended
(Inception) to December 31,
December 31, 1997 1998
----------------- ------------
<S> <C> <C>
Consolidated Statement of Operations Data:
Net revenues................................... $ -- $ 897
Cost of net revenues........................... -- (2,346)
------- --------
Gross profit (loss).......................... -- (1,449)
------- --------
Operating expenses:
Research and development...................... 454 2,246
Sales and marketing........................... 244 2,318
General and administrative.................... 358 5,435
------- --------
Total operating expenses..................... 1,056 9,999
------- --------
Loss from operations........................... (1,056) (11,448)
Interest and other income...................... -- 375
Interest expense............................... (18) (388)
------- --------
Net loss....................................... $(1,074) $(11,461)
======= ========
Basic and diluted net loss per share........... $(0.24) $ (1.34)
======= ========
Weighted average shares--basic and diluted(1).. 4,386 8,576
======= ========
Pro forma basic and diluted net loss per
share......................................... $ (0.37)
========
Pro forma weighted average shares--basic and
diluted(1).................................... 31,217
========
</TABLE>
<TABLE>
<CAPTION>
December 31,
----------------
1997 1998
------- -------
<S> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents..................................... $ 1 $14,791
Working capital (deficit)..................................... (1,524) 12,524
Total assets.................................................. 550 20,663
Long-term obligations......................................... 42 2,454
Shareholders' equity (deficit)................................ (1,021) 15,358
</TABLE>
- --------
(1) Computed on the basis described in Note 1 of Notes to Consolidated
Financial Statements.
19
<PAGE>
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 Notes thereto appearing elsewhere in this prospectus.
The following discussion contains forward-looking statements. Critical Path's
actual results may differ significantly from those projected in the forward-
looking statements. Factors that might cause future results to differ
materially from those projected in the forward-looking statements include, but
are not limited to, those discussed in "Risk Factors" and elsewhere in this
prospectus.
Overview
Critical Path was founded in February 1997 to deliver advanced email hosting
solutions to ISPs, web hosting companies, web portals and corporations. From
its inception to October 1997, Critical Path's operating activities related
primarily to the planning and developing of our proprietary technological
solution, recruiting personnel, raising capital and purchasing operating
assets. Critical Path initiated service in October 1997. We have since
continued making investments to improve the quality of our services. In
December 1997, we enhanced our initial POP3-based service offering (a hosting
service focused on the ISP market) with the addition of a web mail interface (a
hosting service focused primarily on the web portal market). More recently, in
January 1999, we enhanced service with the addition of an LDAP (directory
services) offering. At December 31, 1998, Critical Path had over 100 customers.
In early 1999, we intend to further enhance our service offering with the
inclusion of IMAP4, a new hosting service focused on the enterprise network.
We derive substantially all of our revenues through the sale of email hosting
services. Our service revenues are derived from contractual relationships
providing revenues on a per mailbox basis. These contracts are typically one to
two years in length. Agreements with some of our customers require minimum
performance standards regarding the availability and response time of our email
services. If we fail to meet these standards, our customers could terminate
their relationships with us and we could be subject to contractual monetary
penalties. Service revenues are recognized and billed on a monthly basis as the
service is performed.
We expect to expand our operations and employee base, including our sales,
marketing, technical, operational and customer support resources. In
particular, we intend to expand our sales force to deliver our email
outsourcing services to customers in our four target markets: ISPs, web hosting
companies, web portals and corporations. We also intend to further develop new
and existing strategic relationships to expand our distribution channels and to
undertake joint product development and marketing efforts. See "Business--
Strategy--Develop and Leverage Strategic Relationships."
We intend to develop worldwide sales offices and data centers. We currently
have sales offices in the United States and Germany and expect to open
additional data centers in the United States, Europe and Asia.
Future investments in technology may involve the development, acquisition or
licensing of technologies that complement or augment our existing services and
technologies. See "Business-- Strategy--Develop Value-Added Services."
20
<PAGE>
During 1998, the Company recorded aggregate unearned compensation totaling
approximately $15.4 million in connection with the certain sales of stock and
the grant of certain options, which amount is being amortized over the four-
year vesting period of such options. Of the total unearned compensation,
approximately $366,000, $217,000, $269,000 and $1.7 million were amortized in
the quarters ended March 31, June 30, September 30, and December 31, 1998,
respectively. In January 1999, the Company granted options resulting in an
additional $2.9 million of unearned compensation. The Company expects per
quarter amortization related to unearned compensation of between $2.2 million
and $1.6 million during 1999, between $1.2 million and $820,000 during 2000,
between $620,000 and $390,000 during 2001, and between $200,000 and $45,000
during 2002. These amortization amounts were allocated among the operating
expense categories based upon the primary activity of the related employee.
We have incurred significant losses since our inception, and as of December
31, 1998 had an accumulated deficit of approximately $12.5 million. We intend
to invest heavily in sales and marketing, continued development of our network
infrastructure and continued technology developments. We expect to continue to
incur substantial operating losses for the foreseeable future.
In view of the rapidly evolving nature of our business and our limited
operating history, we believe that period-to-period comparisons of our revenues
and operating results, including our gross profit margin and operating expenses
as a percentage of total net revenues, are not meaningful and should not be
relied upon as indications of future performance. We do not believe that our
historical growth rates are indicative of future results.
Results of Operations
The following table sets forth financial data for the year ended December 31,
1998. Data for the inception period are not presented as Critical Path had no
revenues in that period. Further, amounts from the inception period are not
comparable to those for the year ended December 31, 1998 due to the different
duration of the periods and the acceleration of Critical Path's activities and
related expenses throughout 1998. We believe that operating expenses will
continue to increase in the future as we continue to expand our operations.
<TABLE>
<CAPTION>
Year Ended
December 31, 1998
----------------------
(dollars in
thousands)
% of
$ net revenues
-------- ------------
<S> <C> <C>
Net Revenues.......................................... $ 897 100.0%
Cost of revenues...................................... (2,346) (261.5)
-------- --------
Gross profit......................................... (1,449) (161.5)
-------- --------
Operating expenses:
Research and development............................. 2,246 250.4
Sales and marketing.................................. 2,318 258.4
General and administrative........................... 5,435 605.9
-------- --------
Total operating expenses............................ 9,999 1,114.7
-------- --------
Loss from operations.................................. (11,448) (1,276.2)
Interest and other income............................. 375 41.8
Interest expense...................................... (388) (43.3)
-------- --------
Net loss.............................................. $(11,461) (1,277.7%)
======== ========
</TABLE>
21
<PAGE>
Net Revenues
Net revenues include charges relating to the amortization of fair value of
warrants issued to customers. In January 1998, we began to recognize revenues
from the sale of our email hosting services. Net revenues for 1998 were
$897,000. In early 1998, we executed agreements with E*TRADE, an on-line
brokerage services company, and Verio, a web hosting organization, pursuant to
which we began to derive revenue for providing email services. For 1998,
E*TRADE and Verio accounted for approximately 62% and 30%, respectively, of our
revenues, excluding warrant discounts. A substantial portion of those revenues
occurred during the quarter ended December 31, 1998. Net revenues during the
quarter ended December 31, 1998, were $605,000, or 68% of net revenues for
1998.
Cost of Net Revenues
Cost of net revenues consists primarily of costs incurred in the delivery and
support of our email services, including depreciation of capital equipment used
in our network infrastructure and personnel costs in our operations and
customer support functions. During 1998, these costs were approximately $2.3
million, or 261.5% of net revenues. We made significant acquisitions of
equipment for our data centers at the beginning of the quarter ended September
30, 1998, and, as a result, our depreciation expense increased significantly in
the final two quarters of 1998. Additionally, we significantly increased our
headcount in operations and customer support throughout the year. From January
1, 1998 to December 31, 1998, operations and customer support personnel
increased from zero to 25.
Operating Expenses
Research and Development. Our research and development expenses consist
primarily of compensation for our technical staff, payments to outside
contractors, and, to a lesser extent, allocated occupancy costs and related
overhead. We expense research and development expenses as they are incurred.
Research and development expenses amounted to $2.2 million, or 250.4% of net
revenues, during 1998, and increased substantially each quarter throughout the
year as we increased personnel and our use of outside contractors. From January
1, 1998 to December 31, 1998, our research and development personnel increased
from 11 to 27.
Sales and Marketing. Our sales and marketing expenses consist primarily of
compensation for our sales and marketing personnel, advertising, trade show and
other promotional costs, and, to a lesser extent, allocated occupancy costs and
related overhead. Sales and marketing expenses amounted to $2.3 million or
258.4% of net revenue during 1998, and increased substantially in the final two
quarters of the year as we expanded our sales force and significantly increased
the promotion of our email hosting services. Increases in compensation
associated with additional headcount, incentive compensation payments, and
increases in advertising and promotional expenses accounted for the increases
to sales and marketing expense in the second half of 1998. From January 1, 1998
to December 31, 1998, our sales and marketing personnel increased from 2 to 30.
General and Administrative. Our general and administrative expenses consist
primarily of compensation for personnel, fees for outside professional
services, and, to a lesser extent, allocated occupancy costs and related
overhead. General and administrative expenses amounted to
22
<PAGE>
$5.4 million, or 605.9% of net revenues, during 1998, and increased
substantially in the quarter ended December 31, 1998. Increases in compensation
associated with additional headcount, higher fees for outside professional
services, and the amortization of deferred compensation related to stock and
stock option grants accounted for this increase. From January 1, 1998 to
December 31, 1998, general and administrative personnel increased from 4 to 11.
Interest and Other Income and Interest Expense
Interest and other income consist primarily of interest earnings on our cash
and cash equivalents. Interest and other income amounted to $375,000 during
1998. We concluded a private placement of equity securities in September 1998.
As a result, interest income increased significantly in the final quarter of
the year. To date, we have incurred interest expense on notes payable and
capital lease obligations. For 1998, interest expense amounted to $388,000.
Income Taxes
No provision for federal and state income taxes was recorded as we incurred
net operating losses from inception through December 31, 1998. At December 31,
1998, we had approximately $8.8 million of federal and state net operating loss
carryforwards available to offset future taxable income which expire in varying
amounts beginning in 2012. Under the Tax Reform Act of 1986, the amounts of and
benefits from net operating loss carryforwards may be impaired or limited in
certain circumstances. For example, the amount of net operating losses that we
may utilize in any one year would be limited in the presence of a cumulative
ownership change of more than 50% over a three year period. Because there is
significant doubt as to whether we will realize any benefit of this deferred
tax asset, we have fully reserved this asset as of December 31, 1998.
Stock-Based Compensation
During 1998, we recorded aggregate unearned compensation in the amount of
$15.4 million in connection with the grant of certain stock options during
1998. These amortization amounts are allocated among operating expense
categories based upon the principal activity of the related employee and
aggregated $2.5 million during 1998. See Note 8 of Notes to Consolidated
Financial Statements.
23
<PAGE>
Quarterly Results of Operations
The following table sets forth certain unaudited quarterly statements of
operations data for the four quarters ended December 31, 1998. This information
has been derived from Critical Path's consolidated unaudited financial
statements, which, in management's opinion, have been prepared on the same
basis as the audited consolidated financial statements, and include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the information for the quarters presented. This
information should be read in conjunction with the audited consolidated
financial statements of Critical Path and the notes thereto included elsewhere
in this prospectus. The operating results for any quarter are not necessarily
indicative of the operating results for any future period.
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------------------
Mar. 31, 1998 June 30, 1998 Sept. 30, 1998 Dec. 31, 1998
------------- ------------- -------------- -------------
(in thousands)
<S> <C> <C> <C> <C>
Net revenues............ $ 70 $ 66 $ 156 $ 605
Cost of revenues........ (82) (230) (941) (1,093)
------- ------- ------- -------
Gross profit (loss)... (12) (164) (785) (488)
------- ------- ------- -------
Operating expenses:
Research and
development........... 298 420 590 938
Sales and marketing.... 266 236 660 1,156
General and
administrative........ 594 978 987 2,876
------- ------- ------- -------
Total operating
expenses............. 1,158 1,634 2,237 4,970
------- ------- ------- -------
Loss from operations.... (1,170) (1,798) (3,022) (5,458)
Interest and other
income (expense), net.. (150) 47 (39) 129
------- ------- ------- -------
Net loss................ $(1,320) $(1,751) $(3,061) $(5,329)
======= ======= ======= =======
</TABLE>
Revenues increased substantially in the quarter ended December 31, 1998, as
revenues from E*TRADE rose significantly during this period relative to prior
periods. General and administrative expenses increased substantially during the
quarter ended December 31, 1998, due to increases in compensation associated
with additional headcount, higher fees for outside professional services, and
the amortization of unearned compensation.
Fluctuations in Quarterly Results
We have incurred operating losses since inception, and we cannot be certain
that we will achieve profitability on a quarterly or annual basis in the
future. Critical Path believes that future operating results will be subject to
quarterly fluctuations due to a variety of factors, including, but not limited
to:
. continued growth of the Internet and of email usage;
. demand for outsourced email services;
. our ability to attract and retain customers and maintain customer
satisfaction;
. our ability to upgrade, develop and maintain our systems and
infrastructure;
. the amount and timing of operating costs and capital expenditures
relating to expansion of our business and infrastructure;
. technical difficulties or system outages;
. the announcement or introduction of new or enhanced services by our
competitors;
24
<PAGE>
. our ability to attract and retain qualified personnel with Internet
industry expertise, particularly sales and marketing personnel;
. the pricing policies of our competitors;
. failure to increase our international sales; and
. governmental regulation surrounding the Internet and email in particular.
Due to lead times required to purchase, install and test equipment, we
typically need to purchase equipment well in advance of the receipt of any
expected revenues. Delays in obtaining this equipment could result in
unexpected revenue shortfalls.
Liquidity and Capital Resources
Our cash and cash equivalents increased by approximately $14.8 million during
1998. This net change occurred as we raised approximately $23.4 million in
proceeds from the sale of equity securities, and incurred a net loss of
approximately $11.5 million during the year as we expanded our organization and
operations. Net of depreciation, our investment in property and equipment
increased approximately $4.2 million during 1998. Installation of network
infrastructure equipment in our data centers, purchases of furniture and
equipment for new employees, and leasehold improvements related to office
expansions accounted for this increase. We expect that our investment in
property and equipment will continue to grow as we increase our capacity to
provide email services.
We have a credit agreement with a bank which provides a line of credit for
working capital advances of up to $1.0 million. There were no borrowings under
this line of credit at December 31, 1998. During 1998, we retired approximately
$1.3 million in convertible promissory notes payable by converting
approximately $1.1 million of the outstanding notes into equity securities and
paying cash for the remainder. Capital lease obligations, including both short-
term and long-term portions, increased approximately $4.0 million during fiscal
year 1998 as we secured financing for a substantial share of our additions to
property and equipment. Deferred revenue increased $500,000 during 1998 as we
received payment from one customer of an advance against future revenues
pursuant to a service agreement.
In January 1999, we completed the second round of the Series B Convertible
Preferred Stock financing through the issuance of approximately 8.1 million
shares, including 1.0 million shares issued pursuant to outstanding stock
purchase rights, for gross proceeds of $15.6 million. Also in January 1999, we
sold 2.4 million shares of common stock for gross proceeds of $2.4 million.
We believe that the net proceeds from the sale of common stock offered
hereby, together with our current cash balances, proceeds from the January
equity sales and cash available under our line of credit, will be sufficient to
meet our working capital and capital expenditure requirements for at least the
next 12 months. Our operating and investing activities may require us to obtain
additional equity or debt financing. In addition, although there are no present
understandings, commitments or agreements with respect to any acquisition of
other businesses, products, or technologies, we may, from time to time,
evaluate potential acquisitions of other businesses, products, and
technologies. In order to consummate potential acquisitions, we may need
additional equity or debt financings in the future.
Year 2000 Issues
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any computer
programs or hardware that have date-sensitive
25
<PAGE>
software or embedded chips may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in system failures or
miscalculations causing disruptions of operations for any company using such
computer programs or hardware, including, among other things, a temporary
inability to process transactions, send invoices or engage in normal business
activities. As a result, many companies' computer systems may need to be
upgraded or replaced in order to avoid "Year 2000" issues.
We are in the process of testing our internal information technology ("IT")
and non-IT systems. To date, we have only completed preliminary testing of our
internally developed IT and non-IT software. Based on such testing, we believe
that such software is Year 2000 compliant; however, we intend to complete more
extensive testing by mid 1999.
In addition to our internally developed software, we utilize software and
hardware developed by third parties both for our network and internal
information systems. To date, we have not done any testing of such third-party
software or hardware to determine Year 2000 compliance. Based upon an initial
evaluation of our primary software and hardware providers, we are aware that
all of these providers are in the process of reviewing and implementing their
own Year 2000 compliance programs, and we will work with these providers to
address the Year 2000 issue and seek assurances from them that their products
are Year 2000 compliant.
In addition, we rely on third party network infrastructure providers to gain
access to the Internet. If such providers experience business interruptions as
a result of their failure to achieve Year 2000 compliance, our ability to
provide Internet connectivity could be impaired, which could have a material
adverse effect on our business, results of operations and financial condition.
We have not incurred any significant expenses to date and we are not aware of
any material costs associated with our anticipated Year 2000 efforts. However,
if we, our providers of hardware and software or our third party network
providers fail to remedy any Year 2000 issues, we could experience a material
loss of revenues that could materially adversely affect our business, results
of operations and financial condition. We have not yet developed a
comprehensive contingency plan to address the issues which could result from
such failure. We are prepared to develop such a contingency plan if our ongoing
assessment indicates areas of significant exposure. See "Risk Factors--We Face
Year 2000 Risks."
Recent Accounting Pronouncements
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") No. 98-1, "Software for Internal Use," which
provides guidance on accounting for the cost of computer software developed or
obtained for internal use. SOP No. 98-1 is effective for financial statements
for fiscal years beginning after December 15, 1998. Critical Path does not
expect that the adoption of SOP No. 98-1 will have a material impact on its
consolidated financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). Critical Path is required to
adopt SFAS 133 in fiscal 2000. SFAS 133 established methods of accounting for
derivative financial instruments and hedging activities related to those
instruments as well as other hedging activities. Critical Path has not yet
determined what the effect of SFAS 133 will be on its operations and financial
position.
26
<PAGE>
BUSINESS
Company Overview
We are a leading provider of advanced email hosting services. Our email
services are designed to allow a wide range of organizations, including ISPs,
web hosting companies, web portals and corporations, to reduce costs and
improve customer service by outsourcing their email systems. Our services are
designed to facilitate scalability and reliability, allow access to advanced
technologies and provide greater access with high levels of security. In
addition, our service is designed to allow our customers to enhance their brand
recognition by maintaining their "look and feel" while improving the
functionality of their email service. We intend to build on our expertise in
email services to provide additional Internet messaging services in the future.
At December 31, 1998, we had over 100 customers and intend to further develop
new and existing strategic relationships to expand our distribution channels
and to undertake joint product development and marketing efforts. Our strategic
partners to date include E*TRADE, Network Solutions, Sprint and US West.
Industry Background
Growth of the Internet and Email
The Internet has experienced rapid growth and has developed into a
significant tool for global communications, commerce and media, enabling
millions of people to share information and transact business electronically.
International Data Corporation ("IDC") estimates that there were over
38 million web users in the United States and over 68 million worldwide at the
end of 1997. IDC projects these numbers to increase to over 135 million web
users in the United States and over 319 million worldwide by the end of 2002.
In an April 1998 report, the U.S. Department of Commerce estimated that the
volume of data flowing over the Internet was doubling every 100 days. Internet-
based businesses have emerged to offer a variety of products and services over
the Internet. Additionally, many traditional businesses now use the Internet
for a growing number of applications, including advertising, sales, customer
service and training. Advances in on-line security and payment mechanisms have
also prompted more businesses and consumers to engage in electronic commerce.
IDC estimates that the number of customers buying goods and services on the
Internet will grow from 17.6 million worldwide in 1997 to 128.4 million
worldwide in 2002. The growth of the Internet is the result of a number of
factors, including the extensive and growing installed base of advanced
personal computers in the home and workplace, increasingly faster and cheaper
access to the Internet, improvements in network infrastructure and an increased
awareness of the Internet among consumer and business users. Alternative access
devices, including television set-top boxes, personal digital assistants,
pagers, Internet capable telephones and wireless phones are also contributing
to the increasing use of the Internet. Further, the development of applications
for the Internet platform has helped fuel the growth of the Internet.
Email, one of the most popular Internet applications, has broadened from a
simple personal messaging tool to a strategic business tool. According to IDC,
the number of electronic mailboxes in the United States grew from 73 million in
1996 to over 150 million in 1998. IDC estimates that this number will grow to a
quarter billion in the United States by 2002. Message traffic has increased
rapidly, as well. IDC calculates that the number of messages sent over the
Internet has grown from 685,000 per day in 1996 to 2.1 billion per day in 1998
and will grow to 7.9 billion per day by 2002. Email messages have increased in
volume and functionality, and this trend is expected to continue. For example,
email is expected to become a major vehicle for e-commerce transactions.
Forrester Research predicts that the typical online consumer will participate
in eight
27
<PAGE>
to ten commerce-related exchanges via email per week by 2001. Furthermore, the
electronic mailbox as a locating and delivering device has enabled additional
applications such as directory services, scheduling, document sharing, work-
flow and unified messaging. This increased functionality, along with the
widespread acceptance of email, positions the electronic mailbox as a platform
for other forms of electronic messaging.
Development of Email
Email was initially developed for isolated groups of people working on single
mainframe computers or on small networks of homogeneous computers. Early email
implementations were based on proprietary technologies, incompatible with other
systems and limited to single local area networks ("LANs"). Mail transfer
standards were subsequently developed to carry mail traffic between LANs but
did not allow for communication outside of the user's corporation or service.
While these systems were limited when compared to current email systems, they
became an increasingly important communication tool within many organizations.
Users have migrated to open-standards mail systems, such as Lotus Notes and
Microsoft Exchange, that allow communication with any email user on the
Internet, from proprietary systems, such as Lotus cc:mail and Microsoft Mail.
Simple Mail Transport Protocol ("SMTP"), currently the most widely used mail
standard on the Internet, allows users of proprietary mail systems to
communicate over the Internet by converting messages' internal mail formats to
SMTP before transmission. In addition, new open standards are emerging to
enhance the functionality of email. For example, Post Office Protocol ("POP"),
which has been adopted by most ISPs, allows users to connect to a shared mail
server and download mail to their PC or alternative access device. In addition,
Internet Messaging Access Protocol ("IMAP"), one of the latest email standards,
allows users to access their mailboxes at the server rather than at the desktop
level. This flexibility is particularly valuable for users who access their
mail from a variety of different computers with different email clients such as
Microsoft Outlook, Eudora and HyperText Markup Language ("HTML"), more commonly
known as web-based email.
Current Trends in Email
As the importance of email grows, customers increasingly expect their email
service to meet the same standards of carrier-class reliability and
availability that consumers have traditionally received from their telephone
service providers. For example, email customers expect reliability from their
email service similar to the dial tone they hear when they pick up the
telephone, commonly referred to as web-tone reliability. Similarly, customers
want email access to be as ubiquitous as their telephone access by being able
to download their email from anywhere in the world, at anytime and through a
variety of devices. Just as many individuals have multiple phone numbers for
home and business use, a growing number of people have multiple email accounts.
As a result, domain names, which are the Internet identities that correlate to
unique electronic addresses such as [email protected], are proliferating.
Companies use multiple domains to build awareness of their brands in electronic
communication, and individuals increasingly use domains to express personal
identity.
To address this growth, a wide range of businesses, including ISPs, web
hosting companies, web portals and corporations, are finding that providing
their customers or employees with email access is a necessity. ISPs, web
hosting companies and telecommunication carriers offer email to enhance their
services offerings and to maintain competitiveness with other companies in
their industry. Many web portals offer email service to increase web traffic on
their sites and strengthen their brand due to
28
<PAGE>
repeat traffic from users checking for messages. In addition, corporations
increasingly view email as a means to decrease costs and increase productivity.
Email messages have increased not only in volume but also in complexity. The
use of graphics and multimedia elements is becoming more common and requires
greater functionality on the part of the email service. As organizations and
the numbers of users grow, the ability to accommodate thousands, or millions,
of additional mailboxes in a single domain requires substantial investment in
hardware, software and personnel. Further, in the largest email
implementations, such as ISPs or web portals, the design architecture must
handle complex networking and scale issues across many domains. Web
organizations that implement and host multiple domains for customers incur
substantial additional expenses because of the complexity associated with
hosting multiple domains. There is no unified email service standard, and
online service providers must continually enhance and maintain email
applications for existing standards, as well as seek to develop new features
and functionality for emerging standards. For example, LDAP (directory
services) is an emerging standard that is the foundation for adding additional
applications to login and access features of email service. Moreover, ISPs and
corporations running their own email must make substantial investments in
backup systems and networking equipment if they are to meet the growing
expectation of email service with carrier class access, availability and
reliability.
Today, most organizations are using internal hardware and software solutions
to address their email needs. Many companies attempting to manage expanding and
increasingly sophisticated email systems lack the resources and expertise to
cost-effectively implement, maintain, scale, enhance and service the hardware
and software components of an email system. Businesses often find it difficult
to implement state-of-the-art technology in their own infrastructure and
individuals with the expertise to maintain a sophisticated email system can be
scarce and costly to hire, train and retain. As a result, organizations seeking
to lower their costs and to quicken time to market with complex technologies
are increasingly looking to outsource non-core competencies to maintain
competitiveness.
Critical Path Solution
We deliver advanced email services to ISPs, web hosting companies, web
portals and corporations, giving them the ability to provide a feature-rich
email service to their customers and employees. Our services are designed to
provide the following key benefits:
Lower Total Cost of Ownership
Our customers do not need to lease, buy or continually upgrade existing
hardware and software, or recruit and retain systems engineers and
administrative personnel for their email services. Our service is designed to
reduce customers' administrative burden by eliminating the cycle of purchasing,
installing, testing, debugging and deploying email systems. The software is
maintained at our facilities, not at customer facilities, and we employ a team
of systems administrators to monitor the service 24 hours a day, seven days a
week. By having the capability to host millions of mailboxes, we provide
customers a cost savings over in-house email solutions through economies of
scale.
Scalability; Web-Tone Reliability
Our system's architecture and infrastructure are designed to facilitate
scalability and reliability. While existing email software solutions can scale
to support millions of users at a single domain ([email protected]), we have
designed our architecture to support our service over hundreds of
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<PAGE>
millions of mailboxes across millions of domains ([email protected],
[email protected], [email protected], etc.), allowing each customer to create
email addresses at his or her own domain. Our load-balanced, redundant hardware
and software infrastructure allows multiple domain hosting while reducing the
amount of required equipment and capacity. We have created a global network
strategy to provide the type of continuous service that individuals have come
to expect from their telephone service providers. We provide our customers
improved performance through our multiple peering relationships,
interconnection agreements, and additional purchased access from national
Internet access providers. For redundancy purposes, we maintain two data
centers in the United States and plan to open additional data centers in the
United States, Europe and Asia.
Leading-Edge Technology
We provide our customers with access to advanced technologies. We eliminate
the need for customers and partners to maintain a core competency in email by
having experts with experience in rapidly deploying new technologies, combating
system failures due to unsolicited commercial email traffic and maintaining
network and system security. Our services include POP3, web-based email and, in
the near future, IMAP4, which enables customers to choose the option that suits
their end-users' needs. Customers rely on us to evaluate, test and implement
the leading features to maintain a "best-of-breed" email solution. Our
technological capabilities enable us to quickly implement competitive new
technologies for our customers and end-users, reducing their time to market for
leading technologies.
Anytime, Anywhere Accessibility
We have designed our services to allow easy access by customers and end-
users. Designed and built on open Internet-based standards, our services are
compatible with leading desktop software such as Microsoft Outlook and Eudora.
In addition, we have developed a web-based email interface that is compatible
with leading web browsers, including Microsoft Internet Explorer and Netscape
Navigator. Our email services are designed to allow administrators and end-
users to access their email system anywhere at any time. Our technology is
designed to support innovations in standards-based access devices, such as
hand-held computers, cellular and PCS telephones and pagers.
Enhanced Security
We have created a custom firewall solution to enhance network and data center
security. Using a combination of licensed software technology, internally
developed software and sophisticated third-party hardware, we reduce the
potential for network breaches. We have network and data center surveillance 24
hours a day, seven days a week to identify and curtail potential security
breaches. We are not aware of any security breaches to our network.
Branding; Customer Control
Our messaging service solution enables our customers to maintain control over
their own brand and desired functionality. Our fully customized web-based email
interfaces include customer logos and preserve the existing "look and feel" of
the customers' brands. Our web-based Mail Administration Center is designed to
give customers control via a secure Account Provisioning Protocol, enabling
customers to add and delete accounts and functionality either at the domain
level, or at the individual end-user level.
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Strategy
Our objective is to be the premier provider of comprehensive, advanced
Internet messaging services. We plan to attain this goal by pursuing the
following key strategies:
Extend Technology Leadership in Messaging Applications
We intend to capitalize on our expertise in email services to deliver
industry-leading functionality to other types of electronic messaging. Building
upon our Internet-based email architecture, we plan to deliver industry-leading
functionality, including global and local directories and other capabilities,
and to deliver new applications that will extend the core functionality of
email and integrate smoothly with existing back office applications. Our
services development team regularly meets with customers and participates in
research projects with leading industry groups and analysts to anticipate
future customer needs. We also participate in open standards organizations and
Internet technology leadership groups, such as IETF (Internet Engineering Task
Force), the North American Network Operators Group and the Coalition Against
Unsolicited Commercial Email, a spam control organization.
Develop and Leverage Strategic Relationships
We intend to expand our marketing and distribution channels through strategic
relationships with key ISPs, web hosting companies, web portals and
corporations to increase quickly the number of electronic mailboxes we host.
Our strategic partners include E*TRADE, Network Solutions, Sprint and US West.
We intend to further develop new and existing strategic relationships to expand
our distribution channels and to undertake joint product development and
marketing efforts, such as integrating email into e-commerce applications.
Increase Sales and Marketing Efforts
We intend to significantly expand our sales and marketing activities while
focusing on four target markets: ISPs, web hosting companies, web portals and
corporations. In this expansion, we plan to target and hire seasoned sales
professionals with specific expertise and contacts within our focused markets.
We also intend to expand our indirect sales channel by teaming with leading
distributors, resellers and system integrators with strong backgrounds and
market presence. As of January 15, 1999, we had 30 sales and marketing
personnel.
Develop Value-Added Services
We intend to extend our services beyond email by offering additional value-
added services. These services are intended to extend our relationships with
current customers, to attract new customers and to allow us to differentiate
ourselves in the email service provider market. We believe that our email
hosting solution can form the foundation of a wide range of Internet messaging
applications for which we intend to provide solutions. Examples of value-added
services or applications that can be leveraged are secure email, e-commerce and
enterprise services.
Expand International Presence
In addition to expanding our U.S. presence, we believe there is substantial
opportunity for outsourcing messaging services in non-U.S. markets. We intend
to capitalize by developing worldwide sales offices, data centers and strategic
relationships. We have established a sales office in Germany, and we plan to
open additional sales offices and data centers in Europe and Asia. In
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addition, we intend to support our worldwide operations by offering localized
web-based email interfaces. For example, we have already developed web-based
email interfaces in Spanish, Portuguese, German, French and English.
Services
We offer multiple email services to ISPs, web hosting companies, web portals
and corporations. Our "all-in" service model pricing includes all enhancements,
upgrades and new standard features. Pricing is based on a per mailbox, per
month charge that varies depending on functionality and volume. Web portal
market pricing is based on a minimal per mailbox, per month charge plus a share
of revenue generated by advertising on the web-based email interface. Our
standard service offering includes our basic services as part of the monthly
mailbox fee. Our add-ons are included in the basic mailbox offering or offered
as an optional premium service. Our premium services are optional add-ons to
the basic mailbox charge and are offered for an additional charge.
Our service offering includes web-based end-user support. Additional support
through customer help desks is provided 24 hours a day, seven days a week by
contractual agreement. Professional implementation and transitioning support
for new customers is also included in the basic offering.
[VALUE-FUNCTIONALITY CHART APPEARS HERE]
PREMIUM ADD-ON PLANNED
SERVICES (In development) IMAP4 Hosting
Mailing List Management -------------
Calendar & Schedule Functionality Users manage mail at the server
SSL-Based Email level through desktop client
USENET/Newsgroup and/or CP web mail client
Digital Certificates (Includes POP3 Mail and
Certified Delivery integrated web mail)
V
A
L PREMIUM ADD-ON SERVICES
U (Available today)
E Directory Services (LDAP) CURRENT
Additional Data Storage POP3 Hosting
Unified Messaging ------------
Users manage email from
desktop client eg:Eudora,
Outlook, Netscape, etc.
(Includes integrated web mail)
CURRENT
Web-Based Email
---------------
Users manage email
from any web browser through
the Critical Path web mail client
CORE SERVICES
Spam blocking . Multiple domain hosting
Domain-wide bulletins . Language Localization
24 X 7 Tier 2 Support . Customized branding & web mail
Administrative tools (MAC & APP)
FUNCTIONALITY
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Current Services
We have introduced to market a variety of email services. Information
concerning our current email services is summarized in the following table:
<TABLE>
<S> <C> <C> <C> <C>
Class of Target
Service Description Benefits Service Markets
- ----------------------------------------------------------------------------------------------------
Web-Based . Hosting service based on a . Requires no software Basic All
Email web mail interface downloads or configurations
. End-users simply point any
browser
to http://mail.userdomain.com,
enter account name and
password for full email
access
- ----------------------------------------------------------------------------------------------------
POP3 Hosting . Hosting service based . Allows users to connect to a Basic ISPs, web
on Post Office Protocol shared mail server and (Premium hosting,
download email to their add-on corporate
desktop client (Microsoft for
Outlook, Eudora), which portals)
stores the message on the
user's hard drive each time
the inbox is accessed
- ----------------------------------------------------------------------------------------------------
Web-Based . Mail Administration Center . Allows email administrators Basic All
Administration (MAC) to add, delete and modify Add-On
has Secure Socket Layer- accounts online
based brandable web
interface
- ----------------------------------------------------------------------------------------------------
Spam . Utilizes comprehensive . Protects users from Basic All
Blocking/UBE filtering unsolicited bulk email, Add-On
Filtering system commonly referred to as
"spam" or "junk mail"
. Identifies and eliminates
spam
- ----------------------------------------------------------------------------------------------------
Directory . Common directory layer to . Search capabilities Premium All
Services share information between Add-On
(LDAP) various independent
software applications
. LDAP services allow . End-users can update their
publishing of directory own directory entries, and
information for user domain administrators to
communities update, add and delete
entries
. Key component of many
collabora-
tive applications such as
certified delivery and
calendaring
- ----------------------------------------------------------------------------------------------------
Additional . Additional storage in . Provides expandability of Premium All
Data Storage increments of 5 megabytes storage Add-On
space
- ----------------------------------------------------------------------------------------------------
Unified . Private-label unified . Allows users to retrieve Premium Portal
Messaging messaging service through faxes and voice messages by Add-On
JFAX logging into their email
. Allows users to retrieve
faxes and emails via
voicemail and universal
telephone number
</TABLE>
33
<PAGE>
Planned Services
We intend to develop several new Internet messaging services to complement
our existing services.
<TABLE>
<S> <C> <C> <C> <C>
Class
of Target
Service Description Benefits Service Markets
- ------------------------------------------------------------------------------------------------------
IMAP4 . Hosting service that . Email messages and files hosted Basic All
Hosting bridges the gap between on an IMAP server can be
POP3 functionality and web- manipulated from multiple email
based email accessibility environments without the
need to transfer data
- ------------------------------------------------------------------------------------------------------
Double-Byte . Web mail interface in . Allows display of web-based Basic All
Localization double-byte languages: email interface in double-byte Add-On
and Traffic Chinese and Japanese languages and transfer and
storage of messages
containing double-byte message
data
- ------------------------------------------------------------------------------------------------------
Permanent . Archives up to 5 megabytes of . Stores and backs up daily Basic All
Archiving data per mailbox included archived documents on its Add-On
in basic service servers
- ------------------------------------------------------------------------------------------------------
ETRN . Email access that does not . Allows store and forward Basic ISP,
require a dedicated access service for some or all Add-On Corporate
line to the Internet messages at a specific domain
. Provides ability to send email
through the Internet while
maintaining the existing
groupware functionality of a
local mailserver
- ------------------------------------------------------------------------------------------------------
Mailing List . Supports custom-generated . Allows for user specified list Premium All
Management lists, digest formats, list management Add-On
filters, auto-subscribe and
unsubscribe, and
confirmation of
subscriptions
- ------------------------------------------------------------------------------------------------------
Calendar and . On-line calendars which . Integrates scheduling function Premium Corporate
Schedule provide groupware with the ability to access the Add-On
Functionality functionality user's schedule and those of
colleagues
- ------------------------------------------------------------------------------------------------------
SSL-Based . SSL-based encryption of . Provides enhanced security of Premium All
Email POP3, IMAP4 and web-based email Add-On
email messages messages
- ------------------------------------------------------------------------------------------------------
USENET/ . Public and private . Facilitates participation in Premium All
Newsgroup newsgroups which give the newsgroup in a web-friendly Add-On
enterprise a platform for manner
discussion outside the
mailing list functionality
. Allows access to messages
stored on a news server
- ------------------------------------------------------------------------------------------------------
Digital . Receipt verification . Verifies that message was Premium All
Certificates service received by the authenticated Add-On
recipient
. Sends a confirmation notice to
sender that the intended
recipient has picked up the
message when both sender and
recipient are hosted on our
system
- ------------------------------------------------------------------------------------------------------
Certified . More sophisticated receipt . In addition to verifying that Premium Corporate
Delivery verification service the message was delivered, Add-On
users return encrypted
digital certificates that
identify them as the recipient
</TABLE>
The statements in this prospectus regarding planned service offerings and
anticipated features of such planned service offerings are forward-looking
statements. Actual service offerings and benefits could differ materially from
those projected as a result of a variety of factors, some or all of which may
be out of our control. For a discussion of some of these factors, see "Risk
Factors."
34
<PAGE>
Customers
We currently have the opportunity to offer email services to millions of
mailboxes across our four target markets. Companies with whom we have email
services agreements include:
<TABLE>
<S> <C>
Internet Service Providers Web Hosting Companies
- -------------------------- ---------------------
DSL Networks CardSecure
Isp.net Data 2 Info
Las Vegas Digital Internet Navisite Network Solutions, Inc.
NetConX Tonic Domains Corporation
Surfree.com, Inc. True Media Solutions
US Online Network Ultima Networks
Verio Texas Verio
WNC Net Worldport Online
</TABLE>
<TABLE>
<CAPTION>
Web Portals Corporations
- ----------- ------------
<S> <C>
E*TRADE Bank Law Services
Gayweb Birkenstock
ifan (San Francisco Giants) California Family Health Council, Inc.
The Mountain Zone CompareNet Inc.
The Password (a division of Password Internet ICT Financial
Publishing)
Raging Bull Partech International Ventures C.V.
Third Age Media, Inc. Photonetics
US West Sprint
</TABLE>
Target Markets
We intend to expand our marketing and distribution channels through strategic
relationships to rapidly increase the number of electronic mailboxes hosted. We
have developed strategic relationships within four target markets: ISPs, web
hosting companies, web portals and corporations.
Internet Service Providers (ISPs)
Internet service providers are companies that provide access to the Internet.
Email has become an integral part of ISP service offerings. ISPs provide
service via dial-up and ISDN as well as dedicated private-line hookups. For a
monthly fee, customers receive a software package, username, password and
access phone number. Many ISPs offer free home-page hosting to members at the
ISP's domain name (for example, www.ispname.com/~username). Some ISPs are also
providing commercial web hosting (hosting sites at a domain name registered by
the user). ISPs serve large companies by providing a direct connection from the
companies' networks to the Internet.
Web Hosting Companies
Web hosting companies offer corporate customers and individual consumers
hosting of their website on a commercial web server (at a unique domain
registered to the customer). In addition, web hosting companies are
increasingly offering web design, domain name registration service and email
services to their customers. We believe that most business customers are
looking for a full-service web hosting company that can provide domain name
registration, basic website services and enhanced website services including e-
commerce and messaging.
35
<PAGE>
Web Portals
Web portals include online communities and search engines which offer a one-
stop source of information to a broad range of users, and vertical portals,
such as E*TRADE, which cater to the needs of a specific audience. The goal of
portal sites is to develop a sense of community in order to draw large online
audiences, encourage repeat visits, and keep users engaged. Portals are
accomplishing this goal by providing users with value-rich content and services
such as search engines, free individual homepages and free email. The majority
of a portal's revenue comes from advertising targeting its large, demographic-
specific audience and repeat website visits.
Corporations
Email has become a mission-critical application for businesses. Many U.S.-
based corporations of varying sizes use email as a primary form of
communication. In addition, the ability to access Internet-based email from
outside the office has added to email's appeal and utility for corporations. A
large percentage of the corporate market's email is supplied internally via LAN
mail systems. Companies are struggling with aging LAN-based systems designed in
the late 1980s and early 1990s when email was used on a much more casual basis
and by a smaller user population. Until recently, Internet standards-based
email has accounted for only a small portion of corporate messaging systems,
but according to Internet Week, that portion will increase to one-third of the
corporate market by the end of the decade.
Strategic Relationships
A key element of our strategy is to expand our marketing and distribution
channels through strategic relationships. We believe that these strategic
relationships will enable us to expand our distribution channels and to
undertake joint product development and marketing efforts. The following are
examples of our existing strategic relationships.
E*TRADE Group, Inc.
In September 1998, we entered into an agreement with E*TRADE, an on-line
brokerage services company, pursuant to which each party will include the other
in certain advertising campaigns, including E*TRADE's international and
strategic partner relationships. We will also provide email services to users
of E*TRADE's Internet access services. E*TRADE uses our brandable email
services to extend its brand and value-added services to its fast-growing
customer base. As online trading grows, the need for secure transmissions of
trade confirmations grows. In addition, we are in the process of developing an
electronic order confirmation system designed to be SEC compliant, which could
allow online brokerages to conduct most of their customer communications
electronically.
Network Solutions, Inc.
In May 1998, we entered into an agreement with Network Solutions, currently
the exclusive registrar of Internet domain names, pursuant to which we provide
email outsourcing services to users of Network Solutions' website. In exchange
for our services, Network Solutions will provide domain name registration
services for our customers. Through this agreement, a Network Solutions
customer is able to extend its brand using its unique domain name for its email
address instead of the domain name of its Internet access provider.
36
<PAGE>
Sprint Communications Company L.P.
In September 1998, we entered into an agreement with Sprint's IP Business
Services pursuant to which we provide email services to Sprint's corporate IP
customers. Sprint has over 7,000 sales representatives who can now offer hosted
email services to their business customers at their own domain name. We provide
a dedicated customer support number and a sales support center to support
Sprint's sales representatives. We believe Sprint will integrate our brand and
bill email services under the Sprint name.
US West Communications Services, Inc.
In December 1998, we entered into an agreement with US West pursuant to which
we provide email services to US West's voice customers. We believe that US West
views web mail as part of its strategy to offer its voice customers value-added
Internet services. Web mail is a user-friendly, simple vehicle to transition
voice customers from dial-tone to web-tone. The agreement also provides for the
enhanced email functionality of US West's !nterprise Internet customers through
an email viewer.
Our agreements with our strategic partners typically are for terms of one to
three years, and automatically renew for additional one-year periods unless
either party gives prior notice of its intention to terminate the agreement. In
addition, these agreements are terminable by either party without cause, upon
notice ranging from 30 to 120 days. Most of the agreements also provide for the
partial refund of fees paid or other monetary penalties in the event that our
services fail to meet defined minimum performance standards. There can be no
assurance that these strategic agreements will not be terminated upon short
notice in the future.
Sales and Marketing
Sales Strategy
Our sales efforts target all market segment audiences through direct and
indirect channels. We maintain our own direct sales force to introduce and
educate prospective customers and partners about our service. The direct sales
group targets larger ISPs, telecommunications companies, medium to large
corporate customers, large web hosting companies and high-trafficked web
portals. As of January 15, 1999, we had 15 account executives in the direct
sales group, and we plan to significantly expand this group in the next 12
months. Offices in the United States currently include San Francisco, Irvine,
San Jose, Seattle and New York, and are planned to include Denver and
Washington D.C. We currently have an international office in Munich, Germany.
Within our direct sales group, a subgroup is responsible for retaining and
increasing use by existing customers. This group is critical to ensuring
customer satisfaction and selling existing customers new add-on services as
they become available in our service offering.
A telesales group is being formed and will be located in Tempe, Arizona,
beginning in the first quarter of 1999. The target markets of the telesales
group will be smaller ISPs, web hosting companies and corporations. The vast
majority of the activity generated through this channel will be outbound in
nature. In addition, the telesales group will handle all in-bound leads
generated through the web and telephone and qualify those leads by placing
additional calls or referring them to the direct sales group.
The indirect sales channel will use the sales forces of our partners to offer
our services to their end-users. We share revenue with our partners to achieve
this purpose. To gain market presence and
37
<PAGE>
market share overseas, we plan to team with leading distributors, resellers and
system integrators that have strong industry backgrounds and market presence in
their respective markets and geographic regions.
Marketing Strategy
Our marketing strategy includes a media relations and public speaking focus
to develop a reputation as an industry leader for email services and messaging.
We will use narrowly focused, co-branded print and online advertising campaigns
for lead generation. Direct marketing will be used to target specific ISP and
web hosting firms. Co-branded and cooperative direct mail will be the
cornerstone of the direct marketing efforts. Event, forum and trade show
participation will also be used to promote our business-to-business brand
presence.
Enhanced Services Development
Our application management and marketing organizations focus on marketing and
service development. Our application management team monitors new email and
messaging service introductions by our competitors. This in turn assists our
marketing group in determining our application pipeline and feature development
schedules and provides direction for our engineering, operations, sales and
support teams. We also have segment managers for each of our four target
markets who are responsible for defining strategies to address specific needs
within each market. These segment managers work with our technical service
managers, who are in turn responsible for service strategies and development
plans.
Our service management team focuses on provisioning and billing, mail and
directory services and mail center technology. In addition, the services
management team manages cross-departmental service development effort. The
development process also includes quality-control steps such as reviews, walk-
throughs and post-implementation audits. The services development process
incorporates input from a variety of sources, including our current and
potential customers, and refines this information through a business
prioritization process. The service management team prepares a marketing
requirements document, which is reviewed by our change control board. The
change control board, which is attended by a cross-department management team,
prioritizes and schedules our development efforts and assigns resources to the
development project team.
Our services development process involves coordination among our application
management, marketing and service management teams. To support our service
development and marketing functions, we conduct an ongoing analysis of
competitive intelligence, product forecasting, financial analysis and pricing
strategies.
Technology
In offering email services, we employ advanced software and hardware,
combining internal expertise with industry standard technology to create a
proprietary infrastructure.
Mail Center Technology
We have created a proprietary email system, Mail Center Technology ("MCT"),
designed to ensure access to hundreds of millions of mailboxes across millions
of domains. MCT is able to handle high-volume loads for complex and diverse
mail environments such as those required for ISPs, web hosting companies, web
portals and corporations providing email accounts to their
38
<PAGE>
end-users for activities such as trading securities, shopping or participating
in online communities. We have written proprietary load-balancing and email
software, and Oracle Corporation databases are used in account provisioning and
management.
MCT is made up of multiple groups of servers and routers acting as a single,
virtual point of contact to customers for email services. Our MCT hardware
consists of Sun Microsystems, Inc. Ultra Enterprise servers, Cisco Systems,
Inc. routers, Network Appliance, Inc. RAID array storage and rackmounted Intel
processor-based servers running Solaris and FreeBSD, a free operating language.
All aspects of MCT are deployed in pairs with the goal of ensuring that if any
process or system goes down, another will be available to handle customer
traffic seamlessly. This behavior is called "transparent failover," and is
designed to increase the availability of email services to the customer. MCT
also includes a dynamic load-balancing system that acts as proxy servers for
firewall safety. The load balancers are configured in parallel to ensure that
if one goes down, the load is transferred to the remaining systems.
MCT currently hosts SMTP, POP3 and web-based email services and will also
host IMAP4 and other services as they are released. Both the hardware capacity
and the services hosted by the mail center can be expanded based on customer
demand.
Simple Mail Transfer Protocol (SMTP)
SMTP is currently the standard mail protocol for the Internet. It allows
hosts on the Internet to route mail from the sender to the destination. All
Internet messages must be sent using SMTP; older proprietary mail systems must
convert their internal mail formats to SMTP in order to communicate effectively
over the Internet.
Post Office Protocol (POP)
With POP, mail is delivered to a shared mail server; users periodically
connect to the server and download all pending mail to their machines.
Thereafter, all mail processing is local to the client machine. POP provides
only the store-and-forward service, moving mail on demand from a mail server to
a single destination machine, usually a PC, Macintosh or UNIX workstation, and
then typically deleting the messages from the POP server.
Web-based Email
Web-based email, also known as HTML (Hyper Text Markup Language) email,
allows users to access their mail from any computer with Web browser and
Internet access. This eliminates the need to maintain a separate program for
accessing email.
Internet Message Access Protocol (IMAP)
IMAP is more sophisticated than the POP3 protocol and provides greater
flexibility at the server level. This enhanced service allows users to sort
mail by sender and subject, search for specific text, and manipulate folders
and mailboxes while the files remain on the server, rather than downloading
them to their local desktop. This flexibility is particularly valuable for
users who travel frequently and access their mail from a variety of different
computers and email clients.
39
<PAGE>
Account Provisioning
We have created a proprietary Account Provisioning Protocol ("APP") for
account creation and maintenance. The APP enables accounts transitioning from
other services or legacy systems to be bulk-loaded, tested, replicated and
deployed on our service automatically. This addresses a critical time to market
issue by enabling organizations to quickly transition to the new standards-
based email service with minimal down-time and degradation to their existing
internal systems. In addition, the APP can be used by customers and partners to
facilitate automatic account sign-ups from websites, typically in less than
three minutes.
Data Centers and Network Access
We maintain data centers in San Francisco and Palo Alto, California and
Laurel, Maryland. The data centers have private peering with all major
backbones to allow high-bandwidth access to the Internet. With multiple high-
speed connections to different backbone providers, we have reduced the
likelihood that our customers will suffer downtime as a result of network
outages. Our backbone architecture and interconnection strategy consists of
clear channel DS-3 and OC-3 connections and direct 100 MB/sec Ethernet
connections.
We currently have bilateral peering arrangements in place with the following
organizations:
<TABLE>
<S> <C> <C>
AboveNet Communications Inc. Exodus Communications Nuri Net
Compaq/Digital Equipment
Corporation Frontier GlobalCenter Pilot Network Services
Concentric Networks GTE Internetworking/Genuity Skybytes
Dacom, Inc. @Home Verio
DataResearch Associates Hurricane Electric Web Professionals
Electric Lightwave, Inc. MAXIM XMISSION
</TABLE>
In addition to our peering connections, we currently purchase additional
Internet access from MCI WorldCom and Sprint, through their relationships with
AboveNet Communications Inc.
Our data centers feature redundant systems for power, fire protection,
seismic reinforcement, and security surveillance 24 hours a day, seven days a
week by both personnel and video monitors. If we experience service
interruptions on either the East Coast or the West Coast due to a natural
disaster, all Critical Path-hosted messages will be automatically rerouted to
the data center that is not affected. We intend to open data centers in Europe
and Asia. These data centers will add further redundancy and create a local
connectivity in those markets.
Network Security
We have created a custom firewall solution to reduce the incidence of network
security breaches, utilizing Cisco Systems, Inc. routers for firewall hardware.
To enhance security for the network, our staff members monitor the network and
hardware 24 hours a day, seven days a week. Any suspicious activity is reported
and investigated immediately.
Our operations and engineering staffs include many active participants in
open Internet security groups. Newsgroups and industry consortium postings are
actively monitored for information regarding reported security flaws. Suspected
flaws in software and hardware products that could compromise security are
investigated thoroughly and fixes are implemented, often within a matter of
hours.
40
<PAGE>
The goals of our security efforts are to prevent intruders from gaining
access to our customers' email messages, passwords or financial information, to
protect our server software and design information from being accessed by
intruders, and to prevent malicious individuals from causing service failure or
slowdown. We accomplish these goals by ensuring that our server clusters are
entirely isolated from the Internet at large except for the specific services
we provide, continuously monitoring the network to detect intrusion attempts,
staying up to date on current security issues, and tracking abuse incidents,
such as "spamming," blocking as necessary, and reporting incidents to the
appropriate originating ISPs.
Spam Blocking
Our basic email and web-based email services include comprehensive spam
prevention at no additional charge. This spam prevention is currently being
used to screen messages for all of our service partners and customers.
Our engineers have written proprietary "learning" software that automatically
screens incoming messages for telltale items in message headers and subject
lines. We have also developed a comprehensive database of commonly forged
addresses and frequently abused domain names. Most additions to the "black
list" have been reported by our end-users, who are encouraged to notify us of
suspected abuse. The black list is actively reviewed to ensure that no
legitimate domains or individual users are blocked from accessing the system or
sending messages.
In addition to filtering technology at the server level, our personnel
monitor incoming messages 24 hours a day, seven days a week. We are part of a
group of key network operators and ISPs working to develop technologies and
other measures aimed at protecting users from junk email. We have
representatives serving on the Coalition Against Unsolicited Commercial Email,
the leading national organization lobbying for anti-spam legislation. Our
Acceptable Use Policy explicitly states that partners and customers may not use
our service to send unsolicited bulk email.
Customer Support
We provide customer support 24 hours a day, seven days a week by contractual
agreement. Our customer support service consists of two tiers. Tier 1 includes
technical support in response to end-user inquiries. Although our customers
typically provide Tier 1 support directly to their end-users, they can
outsource this function to us and we can provide Tier 1 support to their end-
users via email or web-based support. We also provide support information on
our website.
Tier 2 support includes technical support, provided to our ISP, web hosting,
web portal and corporate customers, via toll-free access and email
correspondence managed by our team of trained technical support
representatives. Our technical support representatives include pooled and
dedicated representatives. Pooled representatives are trained to resolve the
majority of inquiries and, where necessary, to escalate and manage inquiries
through to resolution. Dedicated representatives must meet stringent technical
criteria, are assigned to strategic accounts and assist in identifying and
qualifying new features and functionality in addition to advanced problem
solving.
In an effort to further improve customer satisfaction, we are deploying new
tools designed to allow customers to track the status of their open tickets and
access standard reported metrics through a secure web interface. These tools
will also facilitate our ability to track recurring customer issues that will
identify opportunities for service improvements. Our staff of trained technical
41
<PAGE>
representatives, coupled with leading edge monitoring and tracking tools allows
us to successfully serve the needs of our clients.
Competition
The market for Internet-based email service is characterized by companies
that elect to develop and maintain in-house solutions and companies that seek
outsourcing arrangements for their email service. For customers seeking
outsourcing arrangements, we compete with email service providers, such as
USA.NET, and iName, as well as product-based companies, such as Software.com
and Lotus Development Corporation. In addition, companies such as Software.com,
Microsoft, Netscape, Lotus and Sun Microsystems are currently offering email
products directly to ISPs, web hosting companies, web portals and corporations.
These companies could potentially leverage their existing capabilities and
relationships to enter the email service industry by redesigning their system
architecture, pricing and marketing strategies to sell through to the entire
market. In the future, ISPs, web hosting companies and outsourced application
companies may broaden their service offerings to include outsourced email
solutions.
The level of competition is likely to increase as current competitors
increase the sophistication of their offerings and as new participants enter
the market. In the future, as we expand our service offerings, we expect to
encounter increased competition in the development and delivery of these
services. Many of our current and potential competitors have longer operating
histories, larger customer bases, greater brand recognition and significantly
greater financial, marketing and other resources than we do and may enter into
strategic or commercial relationships with larger, more established and well-
financed companies. Certain of our competitors may be able to enter into such
strategic or commercial relationships on more favorable terms. Further, certain
of our competitors may offer services at or below cost. In addition, new
technologies and the expansion of existing technologies may increase
competitive pressures on us. Increased competition may result in reduced
operating margins and loss of market share. We believe that our service
solution competes favorably with that of other providers with respect to the
following:
. providing cost savings over in-house solutions by relieving customers of
expenses associated with acquiring and maintaining hardware and software
and the associated administrative burden;
. providing greater functionality and access to leading technologies and
protocols, which in turn enables customers to choose the protocol that
best suits their end-users' needs;
. enabling customers to maintain brand control, thereby enhancing their
brand identity; and
. facilitating scalability through an infrastructure designed to support
hundreds of millions of mailboxes across millions of domains.
However, despite our competitive positioning, we may not be able to compete
successfully against current and future competitors, and competitive pressures
we face could have a material adverse effect on our business, operating results
and financial condition.
Intellectual Property
We regard our copyrights, service marks, trademarks, trade secrets and
similar intellectual property as critical to our success, and rely on trademark
and copyright law, trade secret protection and confidentiality and/or license
agreements with our employees, customers, partners and others to protect our
proprietary rights. We have no registered trademarks or service marks to date.
It may be
42
<PAGE>
possible for unauthorized third parties to copy certain portions of our
products or reverse engineer or obtain and use information that we regard as
proprietary. Certain end-user license provisions protecting against
unauthorized use, copying transfer and disclosure of the licensed program may
be unenforceable under the laws of certain jurisdictions and foreign countries.
In addition, the laws of some foreign countries do not protect proprietary
rights to the same extent as do the laws of the United States. There can be no
assurance that our means of protecting our proprietary rights in the United
States or abroad will be adequate or that competing companies will not
independently develop similar technology.
Other parties may assert infringement claims against us. We may also be
subject to legal proceedings and claims from time to time in the ordinary
course of our business, including claims of alleged infringement of the
trademarks and other intellectual property rights of third parties by us and
our licensees. Such claims, even if not meritorious, could result in the
expenditure of significant financial and managerial resources.
We also intend to continue to strategically license certain technology from
third parties, including our web server and SSL encryption technology. In the
future, if we add certificate technology to our systems, we may license
additional technology from third-party vendors. We cannot be certain that these
third-party content licenses will be available to us on commercially reasonable
terms or that we will be able to successfully integrate the technology into our
products and services. These third-party in-licenses may expose us to increased
risks, including risks associated with the assimilation of new technology, the
diversion of resources from the development of our own proprietary technology
and our inability to generate revenues from new technology sufficient to offset
associated acquisition and maintenance costs. The inability to obtain any of
these licenses could result in delays in product and service development until
equivalent technology can be identified, licensed and integrated. Any such
delays in services could cause our business, financial condition and operating
results to suffer. See "Risk Factors--We Have Limited Protection of Our
Intellectual Property and Proprietary Rights."
Government Regulation
Although there are currently few laws and regulations directly applicable to
the Internet and commercial email services, it is possible that a number of
laws and regulations may be adopted with respect to the Internet or commercial
email services covering issues such as user privacy, pricing, content,
copyrights, distribution, antitrust and characteristics and quality of products
and services. Further, the growth and development of the market for online
email may prompt calls for more stringent consumer protection laws that may
impose additional burdens on those companies conducting business online. The
adoption of any additional laws or regulations may impair the growth of the
Internet or commercial online services, which could, in turn, decrease the
demand for our products and services and increase our cost of doing business,
or otherwise have a material adverse effect on our business, operating results
and financial condition. Moreover, the applicability to the Internet of
existing laws in various jurisdictions governing issues such as property
ownership, sales and other taxes, libel and personal privacy is uncertain and
may take years to resolve. Any such new legislation or regulation, the
application of laws and regulations from jurisdictions whose laws do not
currently apply to our business or the application of existing laws and
regulations to the Internet could have a material adverse effect on our
business, operating results and financial condition. See "Risk Factors--We Face
Risks Associated with Government Regulation and Legal Uncertainties."
43
<PAGE>
Employees
As of January 15, 1999, we had 106 full-time employees. None of our employees
is covered by collective bargaining agreements. We believe that our relations
with our employees are good.
Facilities
Our principal executive offices are located in San Francisco, California, in
a 15,000 square foot facility under a lease expiring in June 30, 2002, with a
five-year renewal option. We are currently negotiating for additional space. We
believe that, with this additional space, our facilities will be adequate for
the next 12 months. However, we may not be able to lease additional space on
commercially reasonable terms or at all.
44
<PAGE>
MANAGEMENT
Directors and Executive Officers
The executive officers, directors and key employees of Critical Path and
their ages as of December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Douglas T. Hickey....... 43 President, Chief Executive Officer and Director
David C. Hayden......... 43 Chairman of the Board of Directors
David A. Thatcher....... 43 Executive Vice President and Chief Financial Officer
Wayne D. Correia........ 32 Chief Technology Officer
Joseph Duncan........... 50 Vice President and Chief Information Officer
Judie A. Hayes.......... 51 Vice President of Corporate Communications
Carolyn J. Patterson.... 34 Vice President of Operations
William H. Rinehart..... 34 Vice President of Sales
Marcy Swenson........... 34 Vice President of Software Engineering
Mari E. Tangredi........ 33 Vice President of Marketing and Strategic Planning
Christos M. Cotsakos.... 50 Director
Lisa Gansky(1).......... 40 Director
Kevin R. Harvey(1)...... 34 Director
James A. Smith(2)....... 46 Director
George Zachary(2)....... 33 Director
</TABLE>
- --------
(1) Member of Compensation Committee of the Board of Directors.
(2) Member of Audit Committee of the Board of Directors.
Douglas T. Hickey has served as the President and Chief Executive Officer and
a director of Critical Path since October 1998. From February 1998 to October
1998, Mr. Hickey served as Executive Vice President of Frontier Communications
Corporation, a telecommunications company, and as President of Frontier's
GlobalCenter. From July 1996 to February 1998, Mr. Hickey served as President
and CEO of GlobalCenter, Inc., a web hosting company. In February 1998,
GlobalCenter was acquired by Frontier. From December 1994 to July 1996, Mr.
Hickey was President of Internet services at MFS Communications, a provider of
high-speed fiber-optic services. From September 1990 to November 1994, Mr.
Hickey was general manager of North American sales and field operations at
Ardis, a Motorola company. Mr. Hickey received a B.S. in economics from Siena
College.
David C. Hayden founded Critical Path and served as the Chairman, President
and Chief Executive Officer and Secretary from its inception in February 1997
to October 1998. Mr. Hayden has served as Chairman of the Board of Directors of
Critical Path since October 1998. From February 1993 to August 1996, Mr. Hayden
served as Chairman, Chief Executive Officer, and co-founder of The McKinley
Group, Inc., creators of Magellan, an Internet search engine. Mr. Hayden
received a B.A. in political science from Stanford University.
David A. Thatcher has served as Executive Vice President, Chief Financial
Officer and Secretary of Critical Path since December 1998, and served as a
director of Critical Path from May 1997 to March 1998 and from May 1998 to
November 1998. From June 1998 to January 1999, Mr. Thatcher served as President
and Chief Executive Officer of Geoworks Corporation, a provider of software
solutions for the wireless market. Mr. Thatcher joined Geoworks Corporation in
March 1997 as Vice President of Finance and Administration and Chief Financial
Officer and was appointed President and Director in January 1998. From May 1996
to January 1997, Mr. Thatcher served as
45
<PAGE>
Vice President and Chief Financial Officer of Diba, Inc., an Internet software
company, which was later acquired by Sun Microsystems, Inc. From January 1996
to May 1996, Mr. Thatcher served as Vice President and Chief Financial Officer
of The McKinley Group. From March 1993 to November 1995, Mr. Thatcher served as
Vice President and Chief Financial Officer of Peregrine Systems, Inc., a
provider of customer support software. Mr. Thatcher received a B.S. in
accounting from San Diego State University and is a CPA in California.
Wayne D. Correia has served as the Chief Technology Officer since April 1997
and as a director of Critical Path from May 1997 to January 1999. From November
1994 to February 1997, Mr. Correia was President and founder of domainNET, an
Internet strategy, engineering and services company, providing application
hosting and on-demand high-speed wireless Internet connections for mediacasts
and other events. In January 1992, Mr. Correia founded Collaboration
Technologies, a developer of leading-edge computer telephony hardware and
software and was Chief Executive Officer until May 1995. From July 1988 to
October 1993, he worked in the Macintosh Software Architecture Division and
Apple Developer Group at Apple Computer, Inc., a computer manufacturer.
Joseph Duncan has served as Vice President and Chief Information Officer of
Critical Path since December 1998. From December 1997 to December 1998, Mr.
Duncan was founder and Chief Executive Officer of Charybdis Software, a
software company. From June 1993 to November 1997, Mr. Duncan held various
positions at Oracle Corporation, most recently as Senior Vice President for
Groupware Systems and Object-Oriented Tools. Mr. Duncan received a B.A. in
philosophy from the University of Minnesota.
Judie A. Hayes joined Critical Path as Vice President of Corporate
Communications in December 1998. From January 1997 to December 1998, Ms. Hayes
served as Vice President Corporate Marketing and Communications for Frontier
GlobalCenter. From March 1995 to January 1997, Ms. Hayes served as Senior
Director of Corporate Communications for NETCOM On-Line Communication Services,
Inc., an Internet service provider. Ms. Hayes has served as Director of
Marketing Communications for MCI Data Services Division, a telecommunications
company, and Director of Corporate Communications for British Telecom North
America, a telecommunications company. Ms. Hayes received her bachelor's degree
from Wisconsin State University.
Carolyn J. Patterson has served as Vice President of Operations of Critical
Path since January 1999 and as Director of Operations of Critical Path from
August 1998 to January 1999. From January 1998 to July 1998, Ms. Patterson
served as Manager, Strategic Alliances for Sybase Inc. From February 1997 to
January 1998, Ms. Patterson served as General Manager, Data Services Operations
for AT&T Corp. From June 1986 to February 1997, Ms. Patterson worked as a
programmer and later in various AT&T Corp. divisions including sales, product
management, customer care, finance and sales. Ms. Patterson holds a B.S.C. in
decision science from Rider University and an M.B.A. from Monmouth University.
William H. Rinehart joined Critical Path as Vice President, Sales in November
1998. From May 1997 to November 1998, Mr. Rinehart served as Senior Vice
President, General Manager at Frontier GlobalCenter. From July 1996 to June
1997, Mr. Rinehart held a range of positions including Vice President, Product
Development and Vice President, Sales for Genuity, a Bechtel company. He has
also served as Vice President, General Manager at MFS Communications, Internet
Division, from January 1995 to July 1996. From April 1993 to January 1995, Mr.
Rhinehart was a Senior Account Executive at Ardis, a wireless data
communications company. Mr. Rinehart received a B.S. in business administration
from Ball State University.
46
<PAGE>
Marcy Swenson has served as the Vice President of Software Engineering of
Critical Path since June 1997. From May 1995 to June 1997, Ms. Swenson served
as Vice President of Software Development at Providence Systems. In June 1987,
Ms. Swenson co-founded After Hours Software, Inc., which provides custom
software solutions to Fortune 500 customers, and served as Vice President of
Software and Consulting Services until May 1994. Ms. Swenson has completed
advanced studies in Artificial Intelligence at Stanford University, and
received a B.S. in math/computer science from UCLA.
Mari E. Tangredi has served as Vice President, Marketing and Strategic
Planning for Critical Path since February 1998. From June 1995 to November
1997, Ms. Tangredi served as the General Manager/Vice President of Electronic
Commerce of Pacific Bell. From July 1986 to May 1995, Ms. Tangredi worked at
AT&T Corp. as a programmer and later in various positions in sales, emerging
product development and customer care, providing network products and services
to Fortune 500 customers. Ms. Tangredi received a B.S. in M.I.S. from Clarkson
University and an M.B.A in high technology from Northeastern University.
Christos M. Cotsakos has served as a director of Critical Path since May
1998. Mr. Cotsakos has served as President, Chief Executive Officer and a
director of E*TRADE, an on-line brokerage services company, since March 1996.
From March 1995 to January 1996, Mr. Cotsakos served as President, Co-Chief
Executive Officer, Chief Operating Officer and a director of A.C. Nielsen, Inc.
From September 1993 to March 1995, he served as President and Chief Executive
Officer of Nielsen International. From March 1992 to September 1993, he served
as President and Chief Operating Officer of Nielsen Europe, Middle East and
Africa. Mr. Cotsakos serves as a director of National Processing Company, Forte
Software, Inc. and The Fourth Network Communications Network, Inc. Mr. Cotsakos
received a B.A. from William Patterson College and an M.B.A. from Pepperdine
University and is currently pursuing a Ph.D. in economics at the Management
School, University of London.
Lisa Gansky has served as a director of Critical Path since May 1998. Ms.
Gansky has been a Principal at Trading Fours, a venture development company,
since January 1997. From June 1995 to January 1997, Ms. Gansky served as Vice
President of AOL, Inc., an online and Internet services company. From June 1994
to January 1995, Ms. Gansky founded and served as Chief Executive Officer of
Global Network Navigator, Inc. ("GNN"), an Internet solutions company.
Kevin R. Harvey has served as a director of Critical Path since April 1998.
Mr. Harvey has been a General Partner of Benchmark Capital, a venture capital
firm, since January 1995. From July 1993 to January 1995, he served as General
Manager for Lotus Development Corporation. In August 1990, Mr. Harvey founded
Approach Software Corporation ("Approach"), a software company, where he served
as the President and Chief Executive Officer until July 1993 when Approach was
sold to Lotus Development Corporation. Prior to founding Approach, Mr. Harvey
founded Styleware, a software company, which was subsequently sold to Claris
Corporation. Mr. Harvey is also a director of Silicon Gaming, Inc., an
entertainment and gaming technology company, and a director of several
privately held companies. Mr. Harvey received a B.S.E.E. degree from Rice
University, 1987.
James A. Smith has served as a director of Critical Path since January 1999.
Mr. Smith has served as the President and Chief Executive Officer of US West
Dex, a provider of Internet directory and database marketing services, since
October 1997. From March 1996 to October 1997, Mr. Smith served as Vice
President of Local Markets for US West. From July 1992 to March 1996, Mr. Smith
served as Vice President and General Manager of Mass Markets for US West. Mr.
Smith received a B.A. from Willamette University and a J.D. from the University
of Washington.
47
<PAGE>
George Zachary has served as a director of Critical Path since April 1998.
Mr. Zachary has been a partner at Mohr, Davidow Ventures II, a venture capital
firm, since January 1996. From March 1993 to December 1997, Mr. Zachary ran the
consumer products business at Silicon Graphics, Inc., a computer workstation
company. Since September 1986 until March 1993, Mr. Zachary has held various
engineering and marketing management positions at Silicon Graphics, Inc., VPL
Research, Inc., Apple Computer, Inc., Texas Instruments Incorporated and C-ATS
Software Inc. Mr. Zachary received a B.S. degree from Massachusetts Institute
of Technology and Massachusetts Institute of Technology Sloan School of
Management.
We have authorized seven (7) directors. All directors are elected to hold
office until our next annual meeting of shareholders and until their successors
have been elected. Officers are elected at the first board of directors meeting
following the shareholders' meeting at which the directors are elected and
serve at the discretion of the board of directors. There are no family
relationships among any of our directors or executive officers.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee is responsible for determining salaries,
incentives and other forms of compensation for our directors, officers and
other employees and administering various incentive compensation and benefit
plans. The Compensation Committee consists of two outside directors. Lisa
Gansky and Kevin Harvey are currently the two outside directors on our
Compensation Committee.
Director Compensation
We reimburse each member of our board of directors for out-of-pocket expenses
incurred in connection with attending board meetings. No member of our board of
directors currently receives any additional cash compensation. In connection
with their joining the board of directors in July 1998, directors Christos
Cotsakos and Lisa Gansky each received an option to purchase 300,000 shares of
common stock vesting monthly over two years.
48
<PAGE>
Executive Compensation
The following table summarizes all compensation earned by or paid to Critical
Path's Chief Executive Officer and to each of Critical Path's four most highly
compensated executive officers other than the Chief Executive Officer whose
total annual salary and bonus exceeded $100,000 (collectively, the "Named
Executive Officers"), for services rendered in all capacities to Critical Path
during the fiscal year ended December 31, 1998.
Summary Compensation Table for Last Fiscal Year
<TABLE>
<CAPTION>
Long-Term
Annual Compensation
Compensation(1) Awards
----------------- ------------
Security
Underlying
Name and Principal Position Salary Bonus Options (#)
- --------------------------- -------- -------- ------------
<S> <C> <C> <C>
Douglas Hickey(2)
President and Chief Executive Officer.......... $ 51,136 $ -- 5,608,626(4)
David Hayden(3)
Chairman of the Board of Directors............. 170,833 135,000 3,000,000(5)
Wayne Correia
Chief Technology Officer....................... 140,417 25,000 --
Marcy Swenson
Vice President of Software Engineering......... 127,500 40,000 --
Mari E. Tangredi
Vice President of Marketing and
Strategic Planning............................ 108,056 65,000 950,000(6)
</TABLE>
- --------
(1) Other than the salary and bonus described herein, Critical Path did not pay
any executive officer named in the Summary Compensation Table any fringe
benefits, perquisites or other compensation in excess of 10% of such
executive officer's salary and bonus during fiscal 1998.
(2) Mr. Hickey became President and Chief Executive Officer in October 1998.
(3) Prior to October 1998, Mr. Hayden served as Critical Path's Chief Executive
Officer and President as well as its Chairman.
(4)In October 1998, Mr. Hickey received two options to purchase shares of
common stock (an option to purchase 1,052,631 and 4,555,995 shares at an
exercise price of $0.38, each of which vest in equal installments over 48
months.
(5) Option to purchase 3,000,000 shares of common stock at an exercise price of
$.01 per share vests as to 25% of the shares on the first anniversary of
Mr. Hayden's employment with Critical Path and 1/48th each full month
thereafter.
(6) Includes options to purchase 150,000, 100,000, 500,000 and 200,000 shares
at exercise prices of $0.01, $0.10, $0.38 and $1.00 per share,
respectively. All options vest as to 25% of the shares on the first
anniversary of Ms. Tangredi's employment with Critical Path and 1/48th each
full month thereafter.
49
<PAGE>
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Potential
Realizable
Value at
Assumed
Annual Rates
of Stock
Price
Percentage of Appreciation
Total Options for Option
Granted to Exercise or Term(3)
Options Employees in Base Price Expiration -------------
Name Granted Fiscal Year(1) ($/Share)(2) Date 5% 10%
- ---- --------- -------------- ------------ ---------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Douglas Hickey.......... 1,052,631(4) 5.61% $0.38 10/18/08
4,555,995(5) 2.42 0.38 10/18/08
David Hayden............ 3,000,000(6) 1.59 0.01 3/2/03
Wayne Correia........... -- -- -- --
Marcy Swenson........... -- -- -- --
Mari Tangredi........... 150,000(7) 0.80 0.01 3/2/03
100,000(7) 0.53 0.10 6/15/03
500,000(7) 2.67 0.38 9/29/03
200,000(7) -- 1.00 12/14/08
</TABLE>
- --------
(1) Based on options to purchase an aggregate of 23,310,176 shares of common
stock granted during fiscal 1998. Under the terms of Critical Path's 1998
Stock Plan, the committee designated by the board of directors to
administer the 1998 Stock Plan retains the discretion, subject to certain
limitations within the 1998 Stock Plan, to modify, extend or renew
outstanding options and to reprice outstanding options. Options may be
repriced by canceling outstanding options and reissuing new options with an
exercise price equal to the fair market value on the date of reissue, which
may be lower than the original exercise price of such canceled options. See
"Stock Plans."
(2) The exercise price on the date of grant was equal to 100% of the fair
market value on the date of grant as determined by the board of directors.
(3) The 5% and 10% assumed rates of appreciation are mandated by the rules of
the Securities and Exchange Commission and do not represent Critical Path's
estimate or projection of the future common stock price. There can be no
assurance that any of the values reflected in the table will be achieved.
(4) This incentive stock option has a 10-year term, subject to earlier
termination in certain events related to termination of employment, and
vests as to 1/48th of the shares per month over a four-year period. This
option provides for partial acceleration of vesting upon change of control
of Critical Path, and an early exercise provision.
(5) This non-statutory stock option has a 10-year term, subject to earlier
termination in certain events related to termination of employment, and
vests as to 1/48th of the shares per month over a four-year period. This
option provides for partial acceleration of vesting upon change of control
of Critical Path, and an early exercise provision. In November 1998 this
option was exercised as to 2,804,313 shares.
(6) This incentive stock option has a five-year term, subject to earlier
termination in certain events related to termination of employment, and
vests as to 25% of the shares on the first anniversary of the vest start
date, and vests ratably on a monthly basis thereafter, becoming fully
vested on the fourth anniversary of the vest start date.
(7) These incentive stock options have a five-year term, subject to earlier
termination in certain events related to termination of employment, and
vest as to 25% of the shares on the first anniversary of the vest start
date, and vest ratably on a monthly basis thereafter, becoming fully vested
on the fourth anniversary of the vest start date.
50
<PAGE>
Aggregated Option Exercises in Last Fiscal
Year And Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised In-the-Money
Shares Options at Options at
Acquired Fiscal Year-End Fiscal Year-End(3)
on Value ------------------------- -------------------------
Name Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
---- --------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Douglas Hickey.......... 2,804,313(1) $116,846 2,804,313(2) $
-- -- 43,859/1,008,772
David Hayden............ -- -- 1,437,500/1,562,500
Wayne Correia........... -- -- --
Marcy Swenson........... -- -- --
Mari Tangredi........... -- -- 0/950,000
</TABLE>
- --------
(1) Includes 40,000 shares which are held in trust for benefit of minor
children.
(2) Allows for early exercise.
(3) Assumes a per share fair market value equal to $ , the mid-point of the
estimated per share price of the common stock offered hereby.
1998 Stock Plan
Our 1998 Stock Plan was adopted by the board of directors on January 21,
1998, amended on December 15, 1998 and will be amended and restated effective
upon completion of this offering. Our 1998 Stock Plan provides for awards or
sales of shares and options (including incentive stock options ("ISOs") and
nonstatutory stock options ("NSOs")). Employees, consultants and advisors of
Critical Path are eligible for all awards except ISOs. Only employees are
eligible for the grant of ISOs. A total of 27,035,233 shares of common stock
has been reserved for issuance under our 1998 Stock Plan and this amount is
increased by 5% each January 1, commencing January 1, 2000.
Our 1998 Stock Plan is administered by our compensation committee and our
non-insider option committee. Our compensation committee consists of at least
two directors who are "non-employee directors," as defined in Rule 16b-3. The
board of directors may amend our 1998 Stock Plan as desired without further
action by Critical Path's shareholders except as required by applicable law.
Our 1998 Stock Plan will continue in effect until terminated by the board or
for a term of 10 years from its original adoption date, whichever is earlier.
The consideration for each award under our 1998 Stock Plan will be
established by the compensation committee, but in no event will the option
price for ISOs be less than 100% of the fair market value of the stock on the
date of grant. Awards will have such terms and be exercisable in such manner
and at such times as the compensation committee may determine. However, each
ISO must expire within a period of not more than 10 years from the date of
grant.
Our 1998 Stock Plan provides that, in the event of a merger or reorganization
of Critical Path, outstanding options and restricted shares shall be subject to
the agreement of merger or reorganization.
As of January 28, 1999, 25,297,676 awards had been granted under our 1998
Stock Plan. Such options have exercise prices ranging from $0.01 to $1.54 per
share and a weighted average per share exercise price of $0.50, and were held
by 158 persons. Options to purchase 4,886,919 shares have been exercised.
51
<PAGE>
Employee Stock Purchase Plan
The board of directors adopted our Employee Stock Purchase Plan in January
1999, to be effective upon completion of this offering. A total of 1,500,000
shares of common stock have been reserved for issuance under our Employee Stock
Purchase Plan and this amount will be increased by 5% each January 1 commencing
January 1, 2000, up to a maximum of 1,000,000 shares per year. Our Employee
Stock Purchase Plan, which is intended to qualify under Section 423 of the
Internal Revenue Code of 1986, as amended, is administered by the board of
directors or by a committee appointed by the board. Employees (including
officers and employee directors of Critical Path but excluding 5% or greater
shareholders) are eligible to participate if they are customarily employed for
at least 20 hours per week and for more than five months in any calendar year.
Our Employee Stock Purchase Plan permits eligible employees to purchase common
stock through payroll deductions, which may not exceed 15% of an employee's
compensation.
Our Employee Stock Purchase Plan will be implemented in a series of
overlapping 24 month participation periods. The initial participation period
commences on the effectiveness of this offering and ends on April 30, 2001.
Subsequent 24 month participation periods will commence on November 1, 1999 and
each May 1 and November 1 thereafter. Purchases will occur on each April 30 and
October 31 (the "purchase dates") during each participation period, excluding
April 30, 1999. If on any purchase date during a participation period the fair
market value of a share of common stock is less than the fair market value on
the commencement of the participation period, the participation period shall be
terminated immediately following such purchase date. The employees who had
enrolled in the terminated participation period shall automatically be enrolled
in the participation period commencing on the day after the purchase date.
The purchase price of the common stock under our Employee Stock Purchase Plan
will be equal to 85% of the fair market value per share of common stock on
either the start date of the offering period or on the purchase date, whichever
is less. Employees may end their participation in an offering period at any
time during that period, and participation ends automatically on termination of
employment with Critical Path. In the event of a proposed dissolution or
liquidation of Critical Path, the offering periods terminate immediately prior
to the consummation of the proposed action, unless otherwise provided by the
board. If there is a proposed sale of all or substantially all of Critical
Path's assets or the merger of Critical Path with or into another corporation,
then the offering period in progress will be shortened and a new exercise date
will be set that is before the sale or merger. The offering period in progress
shall end on the new exercise date. Each participant shall be notified at least
ten business days prior to the new exercise date, and unless such participant
ends his or her participation, the option will be exercised automatically on
the new exercise date. Our Employee Stock Purchase Plan will terminate in 2009,
unless sooner terminated by the board of directors.
401(k) Plan
Critical Path has established a tax-qualified employee savings and retirement
plan (the "401(k) Plan") for which all of Critical Path's employees are
eligible except for employees subject to a collective bargaining agreement and
nonresident aliens with no U.S. source income. Pursuant to the 401(k) Plan,
employees may elect to reduce their current compensation by up to the lower of
16% or the statutorily prescribed limit and have the amount of such reduction
contributed to the 401(k) Plan. The 401(k) Plan permits additional
discretionary matching contributions by Critical Path. To date, Critical Path
has made no such matching contributions. The 401(k) Plan is intended to qualify
under
52
<PAGE>
Section 401 of the Internal Revenue Code of 1986, as amended, so that
contributions by employees or by Critical Path to the 401(k) Plan, and income
earned on plan contributions, are not taxable to employees until withdrawn from
the 401(k) Plan, and so that contributions by Critical Path, if any, will be
deductible by Critical Path when made.
Employment Agreement and Change in Control Arrangements
Critical Path does not currently have any employment contracts in effect with
any of the Named Executive Officers other than Douglas T. Hickey, its
President, Chief Executive Officer and director.
Critical Path and Mr. Hickey are parties to a letter agreement dated October
1, 1998 governing his employment with Critical Path. The agreement sets forth
Mr. Hickey's compensation level and eligibility for salary increases, bonuses,
benefits and option grants under the 1998 Stock Plan. In the event of a change
of control, Mr. Hickey is entitled to receive, for each of his shares of common
stock and each vested option, a bonus equal to the difference between the value
of the consideration per share to be received by Critical Path's Series B
Preferred shareholders and the value of the consideration per share to be
received by Critical Path's common shareholders, up to a maximum amount equal
to $8 million less the consideration payable in the transaction with respect to
Mr. Hickey's shares. Mr. Hickey's right to receive this bonus will terminate
upon the closing of this offering. The agreement also provides for accelerated
vesting of a portion of Mr. Hickey's options in the event of a change of
control. Mr. Hickey also received a loan in the amount of $500,000, bearing
interest at the applicable federal rate. The loan will be due on the earlier of
five years or 30 days following termination of his employment and is non-
recourse unless Mr. Hickey terminates his employment voluntarily. Mr. Hickey's
employment under the letter agreement is at-will and may be terminated by
Critical Path or Mr. Hickey at any time, with or without cause and with or
without notice.
Limitation of Liability and Indemnification Matters
Critical Path's articles of incorporation limit the liability of directors to
the maximum extent permitted by California law. This limitation of liability is
subject to exceptions including intentional misconduct, obtaining an improper
personal benefit and abdication or reckless disregard of director duties.
Critical Path's articles of incorporation and bylaws provide that Critical Path
may indemnify its directors, officers, employees and other agents to the
fullest extent permitted by law. Critical Path's bylaws also permit it to
secure insurance on behalf of any officer, director, employee or other agent
for any liability arising out of his or her actions in such capacity,
regardless of whether the bylaws would permit indemnification.
Critical Path has entered into agreements to indemnify its directors and
executive officers, in addition to indemnification provided for in Critical
Path's bylaws. These agreements, among other things, provide for
indemnification of Critical Path's directors and executive officers for certain
expenses (including attorneys' fees), judgments, fines and settlement amounts
incurred by any such person in any action or proceeding, including any action
by or in the right of Critical Path, arising out of such person's services as a
director or executive officer of Critical Path, any subsidiary of Critical Path
or any other company or enterprise to which the person provides services at the
request of Critical Path. Critical Path believes that these provisions and
agreements are necessary to attract and retain qualified persons as directors
and executive officers.
53
<PAGE>
CERTAIN TRANSACTIONS
Between April 1998 and January 1999, Critical Path sold and issued 43,097,731
shares of its preferred stock for an aggregate consideration of $38,433,214.
Critical Path sold 27,957,317 shares of Series A Preferred Stock in April 1998
at a sale price of $0.328 per share. In addition, 39,632 shares of Series A
Preferred Stock were purchased at a sale price of $0.328 per share pursuant to
the exercise of warrants. Critical Path sold an aggregate of 15,100,782 shares
of Series B Preferred Stock in September 1998 and January 1999 at a sale price
of $1.9373 per share. Each share of Series A Preferred Stock and Series B
Preferred Stock converts into one share of common stock.
The following table summarizes purchases, valued in excess of $60,000, of
shares of preferred stock and of common stock by directors, executive officers
and 5% shareholders of Critical Path:
<TABLE>
<CAPTION>
Shares
-----------------------------
Common Series A Series B
--------- --------- ---------
<S> <C> <C> <C>
E*TRADE Group, Inc................................ -- 762,196 7,742,735
US West Data Investments, Inc..................... 2,400,000 -- 2,890,621
Mohr, Davidow Ventures V, L.P..................... -- 9,527,440 516,184
Benchmark Capital Partners II, L.P................ -- 9,527,440 516,184
CMG@Ventures II, L.L.C............................ -- 3,048,781 774,274
Douglas Hickey.................................... 2,804,313 -- --
The Cotsakos Revocable Trust, UAD 9/3/87.......... -- -- 87,749
David Hayden...................................... 5,000,000 533,537 --
Lisa Gansky....................................... -- 152,439 --
</TABLE>
Christos Cotsakos, the Chief Executive Officer of E*TRADE Group, Inc., is a
director of Critical Path. Mr. Cotsakos is the trustee of The Cotsakos
Revocable Trust, UAD 9/3/87.
The shares held by Mohr, Davidow Ventures V, L.P. include 9,340,570 shares
held by it and 703,034 shares held by Mohr, Davidow Ventures V, L.P. as nominee
for MDV Entrepreneurs' Network Fund II (A), L.P. and MDV Entrepreneurs' Network
Fund II (B), L.P. George Zachary, a member of Mohr, Davidow Ventures V, L.P.,
is a director of Critical Path.
The shares held by Benchmark Capital Partners II, L.P. are held by it as
nominee for Benchmark Capital Partners II, L.P., Benchmark Founders' Fund II,
L.P., Benchmark Founders Fund II-A, L.P. and Benchmark Members' Fund II, L.P.
Kevin Harvey, a managing member of Benchmark Capital Partners II, L.P., is a
director of Critical Path.
In April 1998, Critical Path entered into an agreement with E*TRADE pursuant
to which each party will include the other party in certain advertising
campaigns, including E*TRADE's international and strategic partner
relationships. Critical Path will also provide email services to users of
E*TRADE's Internet access services. In addition, under the terms of the
agreement, Critical Path agreed to develop certain features for its email
services which Critical Path may make available to other customers in addition
to E*TRADE.
In December 1998, Critical Path entered into an agreement with US West
pursuant to which Critical Path agreed to provide email services and certain
related development services to US West. In exchange for such services, US
West, through the use of its sales channels, will provide Critical Path
assistance in selling advertising inventory for the email sites of certain
customers of Critical Path. The agreement also provides for the joint
development of certain services and features from time to time.
54
<PAGE>
In November 1998, Critical Path loaned Douglas Hickey $500,000 pursuant to a
five-year promissory note bearing interest at the rate of 4.51% (the applicable
federal rate) per annum. In November 1998, Mr. Hickey exercised an option to
purchase 2,804,313 shares of common stock by execution of a five-year
promissory note in the principal amount of $1,065,638.94 bearing interest of
4.51% annually.
In January 1999, Critical Path loaned William Rinehart $65,000 pursuant to a
promissory note bearing interest at the rate of 4.64% per annum. Mr. Rinehart
is an executive officer of Critical Path.
Critical Path's articles of incorporation limit the liability of its
directors for monetary damages arising from a breach of their fiduciary duty as
directors, except to the extent otherwise required by the California
Corporations Code. Such limitation of liability does not affect the
availability of equitable remedies such as injunctive relief or rescission.
Critical Path's bylaws provide that Critical Path may indemnify its directors
and officers to the fullest extent permitted by California law, including in
circumstances in which indemnification is otherwise discretionary under
California law. Critical Path has also entered into indemnification agreements
with its officers and directors containing provisions that may require Critical
Path, among other things, to indemnify such officers and directors against
certain liabilities that may arise by reason of their status or service as
directors or officers (other than liabilities arising from willful misconduct
of a culpable nature), to advance their expenses incurred as a result of any
proceeding against them as to which they could be indemnified, and to obtain
directors' and officers' insurance if available on reasonable terms.
In 1998, Critical Path sold 5,000,000 shares of common stock to David Hayden
at a purchase price of $0.01 per share. Critical Path has also entered into a
stock option agreement with Mr. Hayden pursuant to which it granted options to
purchase 3,000,000 shares of common stock to Mr. Hayden at a purchase price of
$0.01. These options vest over a four-year period, with a portion vesting in
the event of a merger, reorganization or similar change in the voting control
of Critical Path.
Critical Path believes that the foregoing transactions were in its best
interests. It is Critical Path's current policy that all transactions by
Critical Path with officers, directors, 5 percent shareholders and their
affiliates will be entered into only if such transactions are approved by a
majority of the disinterested independent directors, are on terms no less
favorable to Critical Path than could be obtained from unaffiliated parties and
are reasonably expected to benefit Critical Path.
For information concerning indemnification of directors and officers, see
"Management--Limitation of Liability and Indemnification Matters."
55
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding beneficial
ownership of common stock as of January 28, 1999, on a pro forma basis to
reflect the automatic conversion upon completion of this offering of the
outstanding shares of Series A Preferred Stock and Series B Preferred Stock
into 43,097,731 shares of common stock and the conversion of outstanding
warrants into 1,505,434 shares of common stock, by:
. each person or entity known to Critical Path to own beneficially more
than 5% of Critical Path's common stock;
. each of Critical Path's directors;
. each of Critical Path's Named Executive Officers; and
. all executive officers and directors as a group.
<TABLE>
<CAPTION>
Percentage of
Common Stock(2)
-----------------
Name and Address of Beneficial Total Shares Before After
Owner(1) Beneficially Owned(2) Offering Offering
- ------------------------------ --------------------- -------- --------
<S> <C> <C> <C>
Benchmark Capital Partners II,
L.P.(3)
2480 Sand Hill Road
Menlo Park, CA 94025........... 10,043,624 15.2%
Mohr, Davidow Ventures V,
L.P.(4)
2775 Sand Hill Road, Suite 240
Menlo Park, CA 94025........... 10,043,624 15.2
CMG@Ventures II, L.L.C.
2420 Sand Hill Road
Menlo Park, CA 94025........... 3,823,055 5.8
E*TRADE Group, Inc.
Four Embarcadero
2400 Geng Road
Palo Alto, CA 94306............ 8,504,931 12.9
US West Data Investments, Inc.
1999 Broadway, Suite 500
Denver, CO 80202............... 5,290,621 8.0
Douglas T. Hickey(5)............ 3,308,544 5.0
David Hayden(6)................. 6,977,430 10.3
Wayne Correia................... 5,500,000 8.3
Marcy Swenson................... 2,450,000 3.7
Mari Tangredi(7)................ 203,124 *
Christos M. Cotsakos............ 387,749 *
Lisa Gansky..................... 502,439 *
Kevin R. Harvey(8).............. 10,043,624 15.2
James A. Smith.................. 0 *
George Zachary(9)............... 10,043,624 15.2
All directors and executive
officers
as a group (14 persons)(10).... 39,416,534 57.5%
</TABLE>
- --------
*Less than 1%.
(1) Unless otherwise indicated, the address for the following shareholders is
c/o Critical Path, Inc., 320 1st Street, San Francisco, California 94105.
56
<PAGE>
(2) Assumes no exercise of the underwriters' over-allotment option. Applicable
percentage ownership is based on 65,903,242 shares of common stock
outstanding as of January 28, 1999 and shares outstanding
immediately following completion of this offering. Beneficial ownership is
determined in accordance with the rules and regulations of the Securities
and Exchange Commission. In computing the number of shares beneficially
owned by a person and the percentage ownership of that person, shares of
common stock subject to options held by that person that are currently
exercisable or exercisable within 60 days of the date of this prospectus
are deemed outstanding. These shares, however, are not deemed outstanding
for the purposes of computing the percentage ownership of any other
person. Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, each shareholder named in the table
has sole voting and investment power with respect to the shares set forth
opposite such shareholder's name.
(3) These shares are held by Benchmark Capital Partners II, L.P. as nominee
for Benchmark Capital Partners II, L.P., Benchmark Founders Fund II, L.P.,
Benchmark Founders Fund II-A, L.P. and Benchmark Members' Fund II, L.P.
(4) Includes 10,007,490 shares held by Mohr, Davidow Ventures V, L.P. and
36,134 shares held by Mohr, Davidow Ventures V, L.P. as nominee from MDV
Entrepreneurs' Network Fund II (A), L.P. and MDV Entrepreneurs' Network
Fund II (B), L.P.
(5) Includes 584,231 shares subject to options exercisable within 60 days
after January 28, 1999.
(6) Includes 1,625,000 shares subject to options exercisable within 60 days
after January 28, 1999.
(7) Includes 203,124 shares subject to options exercisable within 60 days
after January 28, 1999.
(8) Represents shares held by Benchmark Capital Partners II, L.P., of which
Mr. Harvey is a managing partner. Mr. Harvey disclaims beneficial
ownership of all such shares except to the extent of his pecuniary
interest therein.
(9) Represents shares held by Mohr, Davidow Ventures V, L.P., of which Mr.
Zachary is a member. Mr. Zachary disclaims beneficial ownership of all
such shares except to the extent of his pecuniary interest therein.
(10) Includes 2,637,403 shares subject to options exercisable within 60 days
after January 28, 1999.
57
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering, our authorized capital stock, after giving
effect to the conversion of all outstanding preferred stock into common stock,
conversion of outstanding warrants and the amendment of our articles of
incorporation, will consist of 150,000,000 shares of common stock, par value
$0.001 and 5,000,000 shares of preferred stock, par value $0.001.
The following summary of certain provisions of our common stock, preferred
stock, amended and restated articles of incorporation and bylaws, as in effect
upon completion of this offering, assumes that our shareholders will approve of
the amended and restated articles of incorporation and bylaws.
Common Stock
As of January 15, 1999, there were 65,283,102 shares of common stock
outstanding, held by approximately 78 shareholders of record.
Holders of our common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the shareholders, including the
election of directors, and do not have cumulative voting rights. Subject to
preferences that may be applicable to any then outstanding preferred stock,
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
therefor. See "Dividend Policy." Upon a liquidation, dissolution or winding up
of Critical Path, the holders of common stock will be entitled to share ratably
in the net assets legally available for distribution to shareholders after the
payment of all debts and other liabilities of Critical Path, subject to the
prior rights of any preferred stock then outstanding. Holders of common stock
have no preemptive or conversion rights or other subscription rights and there
are no redemption or sinking funds provisions applicable to the common stock.
All outstanding shares of common stock are, and the common stock to be
outstanding upon completion of this offering will be, fully paid and
nonassessable.
Preferred Stock
There are currently no shares of preferred stock outstanding. Our board of
directors has the authority, without further action by the shareholders, to
issue from time to time the preferred stock in one or more series and to fix
the number of shares, designations, preferences, powers and relative,
participating, optional or other special rights and the qualifications or
restrictions thereof. The preferences, powers, rights and restrictions of
different series of preferred stock may differ with respect to dividend rates,
amounts payable on liquidation, voting rights, conversion rights, redemption
provisions, sinking fund provisions and purchase funds and other matters. The
issuance of preferred stock could decrease the amount of earnings and assets
available for distribution to holders of common stock or affect adversely the
rights and powers, including voting rights, of the holders of common stock, and
may have the effect of delaying, deferring or preventing a change in control of
Critical Path. We currently do not plan to issue any shares of preferred stock.
Registration Rights
Pursuant to an agreement between Critical Path and the holders of the Series
A and B Preferred Stock, who hold 43,097,731 shares of common stock, the
holders of the Series A and B Preferred Stock are entitled to certain rights
with respect to the registration of such shares under the Securities Act of
1933, as amended (the "Securities Act"). If we propose to register any of our
securities under
58
<PAGE>
the Securities Act, either for our own account or for the account of other
security holders, the holders of the Series A and B Preferred Stock are
entitled to notice of the registration and are entitled to include, at our
expense, their shares, provided, among other conditions, that the underwriters
have the right to limit the number of such shares included in the registration.
In addition, the holders of the Series A and B Preferred Stock may require us
at our expense, on not more than two occasions, to register their shares under
the Securities Act, and we are required to use our best efforts to effect the
registration, subject to certain conditions and limitations. Further, the
holders of the Series A and B Preferred Stock may require us at our expense to
register their shares on Form S-3 when such form becomes available to us,
subject to certain conditions and limitations.
California Law and Certain Charter Provisions
Articles of Incorporation
Our articles of incorporation and bylaws authorize us to indemnify our
current and former directors, officers, employees or agents to the fullest
extent permitted by law. Our articles of incorporation eliminate a director's
liability for monetary damages to the fullest extent permitted by the
California Corporations Code. We believe that these provisions will assist us
in attracting or retaining qualified individuals to serve as directors and
officers.
Under our articles of incorporation, the board of directors has the power to
authorize the issuance of up to 5,000,000 shares of preferred stock and to
determine the price, rights, preferences, privileges and restrictions,
including voting rights, of those shares without further vote or action by the
shareholders. The issuance of preferred stock, while providing desirable
flexibility in connection with possible acquisitions and other corporate
purposes, may have the effect of delaying, deferring or preventing a change in
control of Critical Path, may discourage bids for the common stock at a premium
over the market price of the common stock and may adversely affect the market
price of and the voting and other rights of the holders of the common stock.
These provisions of our articles of incorporation could discourage potential
acquisition proposals and could delay or prevent a change in control of
Critical Path. These provisions are intended to enhance the likelihood of
continuity and stability in the composition of the board of directors and in
the policies formulated by the board of directors and to discourage certain
types of transactions that may involve an actual or threatened change of
control of Critical Path. These provisions are designed to reduce the
vulnerability of Critical Path to an unsolicited acquisition proposal and to
discourage certain tactics that may be used in proxy fights. Such provisions,
however, could have the effect of discouraging others from making tender offers
for our shares and, as a consequence, they also may inhibit fluctuations in the
market price of our shares that could result from actual or rumored takeover
attempts. Such provisions also may have the effect of preventing changes in our
management.
Our articles of incorporation provide that our bylaws may be repealed or
amended only by a two-thirds vote of the board of directors or a two-thirds
shareholder vote. Further, our articles of incorporation require that all
shareholder action be taken at a shareholders' meeting. In addition, those
provisions of the articles of incorporation may only be amended or repealed by
the holders of at least two-thirds of the voting power of all the then-
outstanding shares of stock entitled to vote generally for the election of
directors voting together as a single class. The provisions described above,
together with the ability of the board of directors to issue preferred stock as
described under "--Preferred Stock," may have the effect of deterring a hostile
takeover or delaying a change in control or management of Critical Path. See
"Risk Factors--Antitakeover Effects of Our Articles of Incorporation and
Bylaws."
59
<PAGE>
Transactions Involving Interested Parties
Section 1203 of the California Corporations Code requires delivery of a
report of an independent appraiser to shareholders in certain reorganizations,
tender offers and cash-for-asset sales proposed by an interested party. The
report must include an opinion as to the fairness of the consideration. An
interested party is a person who indirectly or directly controls the subject
corporation, is directly or indirectly controlled by an officer or director of
the subject corporation or is an entity in which a material financial interest
is held by any director or executive officer of the corporation.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is .
60
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering there has been no public market for our common stock,
and no predictions can be made regarding the effect, if any, that market sales
of shares or the availability of shares for sale will have on the market price
prevailing from time to time. As described below, only a limited number of
shares will be available for sale shortly after this offering due to certain
contractual and legal restrictions on resale. Nevertheless, sales of
substantial amounts of our common stock in the public market after the
restrictions lapse could adversely affect the prevailing market price.
Upon completion of this offering, we will have shares of common
stock outstanding (assuming no exercise of the underwriters' over-allotment
option). As of January 28, 1999, we had granted stock options to certain
employees and directors for the purchase of an aggregate of shares of
common stock. The shares of common stock being sold hereby will be
freely tradable (other than by our "affiliates" as such term is defined in the
Securities Act) without restriction or registration under the Securities Act.
All remaining shares were issued and sold by us in private transactions are
restricted shares and are eligible for public sale if registered under the
Securities Act or sold in accordance with Rule 701 thereunder.
Certain of our shareholders, who own in the aggregate 65,903,242 shares of
common stock, have agreed they will not sell any common stock owned by them
without the prior written consent of the representatives of the underwriters
for a period of 180 days from the effective date of the Registration Statement
of which this prospectus is a part (the "Lockup Period"). Following the
expiration of the lockup period, approximately shares of common stock,
including shares issuable upon the exercise of certain options, will be
available for sale in the public market subject to compliance with Rule 701.
See "Underwriting."
Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 may be relied upon with respect to
the resale of securities originally purchased from us by our employees,
directors, officers, consultants or advisers prior to the closing of this
offering, pursuant to written compensatory benefit plans or written contracts
relating to the compensation of such persons. In addition, the Securities and
Exchange Commission has indicated that Rule 701 will apply to stock options
granted by us before this offering, along with the shares acquired upon
exercise of such options. Securities issued in reliance on Rule 701 are deemed
to be restricted shares and, beginning 90 days after the date of this
prospectus (unless subject to the contractual restrictions described above),
may be sold by persons other than affiliates subject only to the manner of sale
provisions of Rule 144 and by affiliates under Rule 144 without compliance with
its two-year minimum holding period requirements.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person deemed to be our affiliate, or a person
holding restricted shares who beneficially owns shares that were not acquired
from us or our affiliate within the previous two years, would be entitled to
sell within any three-month period a number of shares that does not exceed the
greater of 1% of the then outstanding shares of common stock (approximately
shares immediately after this offering, assuming no exercise of the
Underwriters' over-allotment option) or the average weekly trading volume of
the common stock during the four calendar weeks preceding the date on which
notice of the sale is filed with the Securities and Exchange Commission (the
"Commission"). Sales under Rule 144 are subject to certain requirements
relating to manner of sale, notice and availability of current public
information about us. However, a person (or persons whose shares are
aggregated) who is not deemed to have been our affiliate at any time during the
90 days immediately preceding
61
<PAGE>
the sale and who beneficially owns Restricted Shares is entitled to sell such
shares under Rule 144(k) without regard to the limitations described above;
provided that at least three years have elapsed since the later of the date the
shares were acquired from us or from our affiliate. The foregoing is a summary
of Rule 144 and is not intended to be a complete description of it.
We intend to file a registration statement under the Securities Act covering
approximately 27,035,233 shares of common stock reserved for issuance under the
1998 Stock Plan. This registration statement is expected to be filed soon after
the date of this prospectus and will automatically become effective upon
filing. Accordingly, shares registered under such registration statement will
be available for sale in the open market, unless such shares are subject to
vesting restrictions with us or the contractual restrictions described above.
We also intend to register an aggregate of 1,500,000 shares of common stock
received for issuance under our 1999 Employee Stock Purchase Plan. However, no
shares will be issuable under the 1999 Employee Stock Purchase Plan.
In addition, after this offering, the holders of approximately 56,663,319
shares of common stock will be entitled to certain rights to cause us to
register the sale of such shares under the Securities Act. Registration of such
shares under the Securities Act would result in such shares becoming freely
tradable without restriction under the Securities Act (except for shares
purchased by our affiliates) immediately upon the effectiveness of such
registration. See "Description of Capital Stock-- Registration Rights."
62
<PAGE>
UNDERWRITING
The underwriters named below, acting through their representatives,
BancBoston Robertson Stephens Inc., Hambrecht & Quist LLC, Dain Rauscher
Wessels, a division of Dain Rauscher Incorporated, and FAC/Equities, a division
of First Albany Corporation, have severally agreed with Critical Path, subject
to the terms and conditions set forth in the underwriting agreement, to
purchase from Critical Path the number of shares of common stock set forth
opposite their names below. The underwriters are committed to purchase and pay
for all such shares if any are purchased.
<TABLE>
<CAPTION>
Number
Underwriter of Shares
----------- ---------
<S> <C>
BancBoston Robertson Stephens Inc...............................
Hambrecht & Quist LLC...........................................
Dain Rauscher Wessels...........................................
First Albany Corporation........................................
Total.........................................................
====
</TABLE>
Critical Path has been advised by the representatives of the underwriters
that the underwriters propose to offer the shares of common stock to the public
at the initial public offering price set forth on the cover page of this
prospectus and to certain dealers at such price less a concession of not in
excess of $ per share, of which $ may be reallowed to other dealers.
After the initial public offering, the public offering price, concession and
reallowance to dealers may be reduced by the representatives. No such reduction
shall change the amount of proceeds to be received by Critical Path as set
forth on the cover page of this prospectus. The common stock is offered by the
underwriters as stated herein, subject to receipt and acceptance by them and
subject to their right to reject any order in whole or in part.
The underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
Over-allotment Option
Critical Path has granted to the underwriters an option, exercisable during
the 30-day period after the date of this prospectus, to purchase up to
additional shares of common stock at the same price per share as
Critical Path will receive for the shares that the underwriters have
agreed to purchase. To the extent that the underwriters exercise this option,
each of the underwriters will have a firm commitment to purchase approximately
the same percentage of such additional shares that the number of shares of
common stock to be purchased by it shown in the above table represents as a
percentage of the shares offered hereby. If purchased, such additional shares
will be sold by the underwriters on the same terms as those on which the
shares are being sold. Critical Path will be obligated, pursuant to
the option, to sell shares to the extent the option is exercised. The
underwriters may exercise such option only to cover over-allotments made in
connection with the sale of the shares of common stock offered hereby. If such
option is exercised in full, the total public offering price, underwriting
discounts and commissions and proceeds to Critical Path will be $ , $
and $ , respectively.
Indemnity
The underwriting agreement contains covenants of indemnity among the
underwriters and Critical Path against certain civil liabilities, including
liabilities under the Securities Act and
63
<PAGE>
liabilities arising from breaches of representations and warranties contained
in the underwriting agreement.
Lock-up Agreements
Each of Critical Path's executive officers, directors, director-nominees,
shareholders of record, optionholders, warrantholders and holders of
convertible notes has agreed with the representatives of the underwriters, for
a period of 180 days after the date of this prospectus, subject to certain
exceptions, not to offer to sell, contract to sell, or otherwise sell, dispose
of, loan, pledge or grant any rights with respect to any shares of common
stock, any options or warrants to purchase any shares of common stock, or any
securities convertible into or exchangeable for shares of common stock owned as
of the date of this prospectus or thereafter acquired directly by such holders
or with respect to which they have or hereafter acquire the power of
disposition, without the prior written consent of BancBoston Robertson Stephens
Inc. However, BancBoston Robertson Stephens Inc. may, in its sole discretion
and at any time without notice, release all or any portion of the securities
subject to the lock-up agreements. There are no agreements between the
representatives and any of Critical Path's shareholders providing consent by
the representatives to the sale of shares prior to the expiration of the lock-
up period.
Future Sales
In addition, Critical Path has agreed that during the lock-up period Critical
Path will not, without the prior written consent of BancBoston Robertson
Stephens Inc., subject to certain exceptions, (i) consent to the disposition of
any shares held by shareholders subject to lock-up agreements prior to the
expiration of the lock-up period or (ii) issue, sell, contract to sell, or
otherwise dispose of, any shares of common stock, any options to purchase any
shares of common stock or any securities convertible into, exercisable for or
exchangeable for shares of common stock other than Critical Path's sale of
shares in this offering, the issuance of common stock upon the exercise of
outstanding options, and the issuance of options under existing stock option
and incentive plans provided such options do not vest prior to the expiration
of the lock-up period. See "Shares Eligible for Future Sale."
Listing
Application has been made to have the common stock approved for quotation on
the Nasdaq National Market under the symbol "CPTH."
No Prior Public Market
Prior to this offering, there has been no public market for the common stock
of Critical Path. Consequently, the initial public offering price for the
common stock offered hereby will be determined through negotiations between
Critical Path and the representatives of the underwriters. Among the factors to
be considered in such negotiations are prevailing market conditions, certain
financial information of Critical Path, market valuations of other companies
that Critical Path and the representatives believe to be comparable to Critical
Path, estimates of the business potential of Critical Path, the present state
of Critical Path's development and other factors deemed relevant.
Stabilization
The representatives of the underwriters have advised Critical Path that,
pursuant to Regulation M under the Securities Act, certain persons
participating in this offering may engage in
64
<PAGE>
transactions, including stabilizing bids, syndicate covering transactions or
the imposition of penalty bids, that may have the effect of stabilizing or
maintaining the market price of the common stock at a level above that which
might otherwise prevail in the open market. A "stabilizing bid" is a bid for or
the purchase of the common stock on behalf of the underwriters for the purpose
of fixing or maintaining the price of the common stock. A "syndicate covering
transaction" is the bid for or the purchase of the common stock on behalf of
the underwriters to reduce a short position incurred by the underwriters in
connection with this offering. A "penalty bid" is an arrangement permitting the
representatives to reclaim the selling concession otherwise accruing to an
underwriter or syndicate member in connection with this offering if the common
stock originally sold by such underwriter or syndicate member is purchased by
the representatives in a syndicate covering transaction and has therefore not
been effectively placed by such underwriter or syndicate member. The
representatives have advised Critical Path that such transactions may be
effected on the Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
Directed Share Program
At the request of Critical Path, the underwriters have reserved up to
shares of common stock to be issued by Critical Path and offered
hereby for sale, at the initial public offering price, to directors, officers,
employees, business associates and related persons of Critical Path. The number
of shares of common stock available for sale to the general public will be
reduced to the extent such individuals purchase such reserved shares. Any
reserved shares which are not so purchased will be offered by the underwriters
to the general public on the same basis as the other shares offered hereby.
Prior Transaction
Hambrecht & Quist LLC acted as the placement agent for the sale of shares of
Critical Path's Series B Preferred Stock in September 1998 and January 1999. In
compensation for its services, Hambrecht & Quist LLC received a fee and a
warrant. In addition, certain funds affiliated with Hambrecht & Quist LLC
purchased shares of Series B Preferred Stock on the same terms as other
purchasers of the Series B Preferred Stock.
65
<PAGE>
LEGAL MATTERS
Certain legal matters with respect to the validity of the common stock
offered hereby are being passed upon for Critical Path by Pillsbury Madison &
Sutro LLP, Palo Alto, California. Certain legal matters in connection with this
offering will be passed upon for the underwriters by Wilson Sonsini Goodrich &
Rosati, Professional Corporation, Palo Alto, California. Certain partners of
Pillsbury Madison & Sutro LLP beneficially own an aggregate of 305,244 shares
of common stock.
EXPERTS
The consolidated financial statements of Critical Path, Inc. as of December
31, 1997 and 1998 and for the period from February 19, 1997 (Inception) through
December 31, 1997 and for the year ended December 31, 1998 included in this
Prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 with respect
to the common stock offered hereby. This prospectus, which constitutes a part
of the registration statement, does not contain all of the information set
forth in the registration statement or the exhibits and schedules which are
part of the registration statement. For further information with respect to
Critical Path and the common stock, reference is made to the registration
statement and the exhibits and schedules thereto. You may read and copy any
document we file at the SEC's public reference rooms in Washington, DC, New
York, New York and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for
further information on the public reference rooms. Our SEC filings are also
available to the public from our website at http://www.cp.com or the SEC's
website at http://www.sec.gov.
Upon completion of this offering, Critical Path will become subject to the
information and periodic reporting requirements of the Securities and Exchange
Act, as amended, and, in accordance therewith, will file periodic reports,
proxy statements and other information with the SEC. Such periodic reports,
proxy statements and other information will be available for inspection and
copying at the SEC's public reference rooms, Critical Path's website and the
website of the SEC referred to above. Information on our website does not
constitute a part of this prospectus.
66
<PAGE>
CRITICAL PATH, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants.......................................... F-2
Consolidated Balance Sheet................................................. F-3
Consolidated Statement of Operations....................................... F-4
Consolidated Statement of Shareholders' Equity (Deficit)................... F-5
Consolidated Statement of Cash Flows....................................... F-6
Notes to Consolidated Financial Statements................................. F-7
</TABLE>
F-1
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholdersof Critical Path, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of shareholders' equity (deficit) and of
cash flows present fairly, in all material respects, the financial position of
Critical Path, Inc. and its subsidiary at December 31, 1997 and 1998, and the
results of their operations and their cash flows for the period from February
19, 1997 (Inception) to December 31, 1997 and the year ended December 31, 1998,
in conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
PricewaterhouseCoopers LLP
San Jose, California
January 28, 1999
F-2
<PAGE>
CRITICAL PATH, INC.
CONSOLIDATED BALANCE SHEET
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Pro Forma
Shareholders'
December 31, Equity at
----------------- December 31,
1997 1998 1998
------- -------- -------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................... $ 1 $ 14,791
Restricted cash............................. -- 325
Accounts receivable, net.................... -- 121
Other current assets........................ 4 138
------- --------
Total current assets...................... 5 15,375
Note receivable from officer.................. -- 500
Property and equipment, net................... 501 4,687
Other assets.................................. 44 101
------- --------
$ 550 $ 20,663
======= ========
LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Accounts payable............................ $ 593 $ 423
Accrued expenses............................ 34 426
Deferred revenue............................ -- 500
Convertible promissory notes payable........ 420 --
Convertible promissory notes payable--
related party.............................. 427 --
Capital lease obligations, current.......... 55 1,502
------- --------
Total current liabilities................. 1,529 2,851
Capital lease obligations, long-term.......... 42 2,454
------- --------
1,571 5,305
------- --------
Commitments (Note 6)
Shareholders' equity (deficit):
Series A Convertible Preferred Stock, $0.001
par value; 29,235 shares authorized, 27,997
shares issued and outstanding, no shares
pro forma (unaudited)...................... -- 28 $ --
Series B Convertible Preferred Stock, $0.001
par value; 22,000 shares authorized, 8,001
shares issued and outstanding, no shares
pro forma (unaudited)...................... -- 8 --
Common Stock, $0.001 par value, 85,000
shares authorized; 5,268 and 18,248 shares
issued and outstanding, 54,237 (unaudited)
shares issued and outstanding pro forma.... 5 18 54
Additional paid-in capital.................. 48 41,872 41,872
Notes receivable from shareholders.......... -- (1,151) (1,151)
Unearned compensation....................... -- (12,882) (12,882)
Accumulated deficit......................... (1,074) (12,535) (12,535)
------- -------- --------
Total shareholders' equity (deficit)...... (1,021) 15,358 $ 15,358
------- -------- ========
$ 550 $ 20,663
======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
CRITICAL PATH, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Period from
February 19,
1997
(Inception) to Year Ended
December 31, December 31,
1997 1998
-------------- ------------
<S> <C> <C>
Net revenues........................................ $ -- $ 897
Cost of net revenues................................ -- (2,346)
------- --------
Gross profit (loss)............................... -- (1,449)
------- --------
Operating expenses:
Research and development.......................... 454 2,246
Sales and marketing............................... 244 2,318
General and administrative........................ 358 5,435
------- --------
Total operating expenses........................ 1,056 9,999
------- --------
Loss from operations................................ (1,056) (11,448)
Interest and other income........................... -- 375
Interest expense.................................... (18) (388)
------- --------
Net loss............................................ $(1,074) $(11,461)
======= ========
Basic and diluted net loss per share................ $ (0.24) $ (1.34)
======= ========
Weighted average shares--basic and diluted.......... 4,386 8,576
======= ========
Pro forma net loss per share (unaudited):
Basic and diluted net loss per share.............. $ (0.37)
========
Weighted average shares--basic and diluted........ 31,217
========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
CRITICAL PATH, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
(in thousands)
<TABLE>
<CAPTION>
Convertible
Preferred Notes Total
Stock Common Stock Additional Receivable Shareholders'
------------- ------------- Paid-in from Unearned Accumulated Equity
Shares Amount Shares Amount Capital Shareholders Compensation Deficit (Deficit)
------ ------ ------ ------ ---------- ------------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Inception, February 19,
1997
Issuance of Common
Stock.................. -- $-- 5,268 $ 5 $ 48 $ -- $ -- $ -- $ 53
Net loss................ -- -- -- -- -- -- -- (1,074) (1,074)
------ --- ------ --- ------- ------- -------- -------- --------
Balance at December 31,
1997................... -- -- 5,268 5 48 -- -- (1,074) (1,021)
Issuance of Common
Stock.................. -- -- 8,746 9 77 (85) -- -- 1
Exercise of stock
options................ -- -- 4,234 4 1,102 (1,066) -- -- 40
Issuance of Series A
Preferred Stock, net... 27,997 28 -- -- 9,096 -- -- -- 9,124
Issuance of Series B
Preferred Stock, net... 8,001 8 -- -- 15,433 -- -- -- 15,441
Issuance of warrants and
stock purchase rights.. -- -- -- -- 723 -- -- -- 723
Unearned compensation... -- -- -- -- 15,393 -- (15,393) -- --
Amortization of unearned
compensation........... -- -- -- -- -- -- 2,511 -- 2,511
Net loss................ -- -- -- -- -- -- -- (11,461) (11,461)
------ --- ------ --- ------- ------- -------- -------- --------
Balance at December 31,
1998................... 35,998 $36 18,248 $18 $41,872 $(1,151) $(12,882) $(12,535) $ 15,358
====== === ====== === ======= ======= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
CRITICAL PATH, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Period from
February 19,
1997
(Inception) to Year Ended
December 31, December 31,
1997 1998
-------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss......................................... $(1,074) $(11,461)
Adjustments to reconcile net loss to net cash
used in operating activities:
Provision for doubtful accounts................ -- 50
Depreciation and amortization.................. 26 1,019
Common stock issued for services............... 3 --
Amortization of warrants and stock purchase
rights........................................ -- 473
Amortization of unearned compensation.......... -- 2,511
Changes in assets and liabilities:
Accounts receivable.......................... -- (171)
Other assets................................. (48) (86)
Accounts payable............................. 593 (170)
Accrued expenses............................. 34 392
Deferred revenue............................. -- 500
------- --------
Net cash used in operating activities...... (466) (6,943)
------- --------
Cash flows from investing activities:
Notes receivable from officer.................... -- (500)
Property and equipment purchases................. (409) (491)
Restricted cash.................................. -- (325)
------- --------
Net cash used in investing activities...... (409) (1,316)
------- --------
Cash flows from financing activities:
Proceeds from issuance of Convertible Preferred
Stock, net...................................... -- 23,445
Proceeds from equipment lease line............... -- 198
Proceeds from issuance of Common Stock........... 50 41
Proceeds from convertible promissory notes
payable......................................... 847 500
Repayment of convertible promissory notes
payable......................................... -- (227)
Principal payments on lease obligations.......... (21) (908)
------- --------
Net cash provided by financing activities.. 876 23,049
------- --------
Net increase in cash and cash equivalents.......... 1 14,790
Cash and cash equivalents at beginning of period... -- 1
------- --------
Cash and cash equivalents at end of period......... $ 1 $ 14,791
======= ========
Supplemental cash flow disclosure:
Cash paid for interest........................... $ 1 $ 244
Non-cash investing and financing activities
Property and equipment leases.................... $ 118 $ 4,714
Common Stock issued for notes receivable......... $ -- $ 1,151
Conversion of notes payable into Convertible
Preferred Stock................................. $ -- $ 1,120
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-6
<PAGE>
CRITICAL PATH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The Company
Critical Path, Inc. (the "Company") was incorporated in California on
February 19, 1997 to deliver advanced email hosting services.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Basis of presentation
The financial statements include the accounts of the Company and its wholly
owned subsidiary. All significant intercompany balances and transactions have
been eliminated in consolidation.
Cash equivalents and restricted cash
The Company considers all highly liquid investments with an original maturity
of three months or less to be cash equivalents. Cash equivalents consist
primarily of deposits in money market funds. Restricted cash comprises amounts
held on deposit which is required as collateral for Company provided credit
cards.
Concentration of credit risk
Financial instruments that potentially subject the Company to a concentration
of credit risk consist of cash and cash equivalents and accounts receivable.
Cash and cash equivalents are deposited with financial institutions that
management believes are creditworthy. The Company's accounts receivable are
derived from transactions with companies throughout the United States. The
Company maintains an allowance for doubtful accounts receivable based upon the
expected collectibility of accounts receivable.
During the year ended December 31, 1998, approximately 62% and 30% of
revenues before charges related to amortization of the fair value of warrants
issued to customers were derived from the delivery of email services to two
individual customers.
Fair value of financial instruments
The Company's financial instruments, including cash and cash equivalents,
accounts receivable, accounts payable and capital lease obligations, are
carried at cost, which approximates fair value due to the short-term maturity
of these instruments.
F-7
<PAGE>
CRITICAL PATH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Property and equipment
Property and equipment are stated at cost. Depreciation and amortization is
computed using the straight-line method over the shorter of the estimated
useful lives of the assets, generally three to five years, or the lease term,
if applicable.
Revenue recognition
The Company derives revenue through the sale of email hosting services.
Payments for such services are based either on contractual rates per active
mailbox per month, non-refundable fixed payments or as a percentage of customer
generated email advertising revenues. Revenues from contracts specifying a
contractual rate per active mailbox per month are recognized monthly for each
active mailbox covered by the respective contract. Revenues from contracts that
provide non-refundable fixed payments are not dependent upon the active number
of mailboxes and are therefore recognized ratably over the contract term.
Revenues based upon a percentage of customer generated email advertising
revenues are recognized when such revenues are earned and reported by the
customer. Amounts billed or received in advance of service delivery are
recorded as deferred revenue.
In connection with certain customer contracts, the Company granted warrants
or options to purchase Series B Convertible Preferred Stock to such customers.
The fair value of such warrants or options, determined using the Black-Scholes
option pricing model, is being recognized ratably as a sales discount over the
terms of the respective agreements. See Note 7--Shareholders' Equity.
Research and development
Research and development costs include expenses incurred by the Company to
develop and enhance its email service offerings and to develop new electronic
messaging services. Research and development costs are expensed as incurred.
Advertising expense
Advertising costs are expensed as incurred and totaled $0 and $135,000 during
the period from February 19, 1997 (Inception) through December 31, 1997 and the
year ended December 31, 1998, respectively.
Stock-based compensation
The Company accounts for stock-based employee compensation arrangements in
accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees" and complies with the
disclosure provisions of Statement of Financial Accounting Standards ("SFAS")
No. 123, "Accounting for Stock-Based Compensation." Under APB No. 25,
compensation expense is based on the difference, if any, on the date of the
grant, between the fair value of the Company's stock and the exercise price of
the option. The Company accounts for equity instruments issued to nonemployees
in accordance with the provisions of SFAS No. 123 and Emerging Issues Task
Force ("EITF") 96-18.
F-8
<PAGE>
CRITICAL PATH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Income taxes
Income taxes are accounted for using an asset and liability approach, which
requires the recognition of taxes payable or refundable for the current year
and deferred tax assets and liabilities for the future tax consequences of
events that have been recognized in the Company's financial statements or tax
returns. The measurement of current and deferred tax assets and liabilities are
based on provisions of the enacted tax law; the effects of future changes in
tax laws or rates are not anticipated. The measurement of deferred tax assets
is reduced, if necessary, by the amount of any tax benefits that, based on
available evidence, are not expected to be realized.
Net loss per share
Net loss per share is calculated in accordance with SFAS No. 128, "Earnings
per Share" and Securities and Exchange Commission ("SEC") Staff Accounting
Bulletin No. 98 ("SAB 98"). Under the provisions of SFAS No. 128 and SAB 98,
basic net loss per share is computed by dividing the net loss available to
common stockholders for the period by the weighted average number of common
shares outstanding during the period. Diluted net loss per share is computed by
dividing the net loss for the period by the weighted average number of common
and potential common shares outstanding during the period if their effect is
dilutive. Potential common shares comprise unvested restricted Common Stock and
incremental common and preferred shares issuable upon the exercise of stock
options and warrants and upon conversion of Series A and Series B Convertible
Preferred Stock. At December 31, 1998, approximately 62,604,000 potential
common shares are excluded from diluted net loss per share as the effect of
such shares is anti-dilutive.
Pro forma net loss per share (unaudited)
Pro forma net loss per share for the year ended December 31, 1998 is computed
using the weighted average number of common shares outstanding, including the
pro forma effects of the automatic conversion of the Company's Series A and
Series B Convertible Preferred Stock into shares of the Company's Common Stock
as if such conversion occurred on January 1, 1998, or at date of original
issuance, if later. The resulting pro forma adjustment includes an increase in
the weighted average shares used to compute basic and diluted net loss per
share of approximately 22,641,000 shares for the year ended December 31, 1998.
The pro forma effects of these transactions are unaudited and have been
reflected in the accompanying consolidated statement of operations on a pro
forma basis.
Pro forma shareholders' equity (unaudited)
Effective upon the closing of the Company's planned initial public offering
("Offering"), the outstanding shares of Series A and Series B Convertible
Preferred Stock will automatically convert into 27,996,949 and 8,000,827
shares, respectively, of Common Stock. The pro forma effects of these
transactions are unaudited and have been reflected in the accompanying pro
forma consolidated balance sheet at December 31, 1998.
Comprehensive income
Effective January 1, 1998, the Company adopted the provisions of SFAS No.
130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for
reporting comprehensive income
F-9
<PAGE>
CRITICAL PATH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
and its components in financial statements. Comprehensive income, as defined,
includes all changes in equity (net assets) during a period from non-owner
sources. To date, the Company has not had any transactions that are required to
be reported in comprehensive income as compared to its net loss.
Segment information
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." This
statement establishes standards for the way companies report information about
operating segments in annual financial statements. It also establishes
standards for related disclosures about products and services, geographic areas
and major customers. In accordance with the provisions of SFAS No. 131, the
Company has determined that it does not have separately reportable operating
segments.
Recent accounting pronouncements
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") No. 98-1, "Software for Internal Use," which
provides guidance on accounting for the cost of computer software developed or
obtained for internal use. SOP No. 98-1 is effective for financial statements
for fiscal years beginning after December 15, 1998. The Company does not expect
that the adoption of SOP No. 98-1 will have a material impact on its
consolidated financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". The Company is required to adopt SFAS 133
in fiscal 2000. SFAS 133 established methods of accounting for derivative
financial instruments and hedging activities related to those instruments as
well as other hedging activities. To date, the Company has not entered into any
derivative financial instruments or hedging activities.
NOTE 2--BALANCE SHEET COMPONENTS:
<TABLE>
<CAPTION>
December 31,
-------------
1997 1998
---- -------
(in
thousands)
<S> <C> <C>
Accounts receivable, net:
Accounts receivable......................................... $ -- $ 171
Less: Allowance for doubtful accounts..................... -- (50)
---- -------
$ -- $ 121
==== =======
Property and equipment, net:
Computer equipment and software............................. $440 $ 5,247
Furniture and fixtures...................................... 34 74
Leasehold improvements...................................... 53 411
---- -------
527 5,732
Less: Accumulated depreciation and amortization........... (26) (1,045)
---- -------
$501 $ 4,687
==== =======
</TABLE>
F-10
<PAGE>
CRITICAL PATH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Property and equipment includes $118,000 and $4,832,000 of assets under
capital leases at December 31, 1997 and 1998, respectively. Accumulated
depreciation of assets under capital leases totaled $3,000 and $765,000 at
December 31, 1997 and 1998, respectively.
<TABLE>
<CAPTION>
December 31,
---------------
1997 1998
------- -------
(in thousands)
<S> <C> <C>
Accrued liabilities:
Compensation related....................................... $ 18 $ 89
Other...................................................... 16 337
------ -------
$ 34 $ 426
====== =======
</TABLE>
NOTE 3--RELATED PARTY TRANSACTIONS:
Notes receivables from shareholders
At December 31, 1998, the Company had notes receivable from shareholders and
officers of the Company related to purchases of Common Stock in the amount of
$85,000 and $1,066,000 which accrue interest at 5.69% and 4.51% per annum,
respectively. The notes are full recourse and secured by Common Stock. The
notes are due and payable in February 2003 or, for the $1,066,000 note, 90 days
following termination of the officer.
At December 31, 1998, the Company held a note receivable from an officer
totaling $500,000. The note accrues interest at the rate of 4.51% per annum, is
secured by all shares of the Company's Common Stock held by this individual,
and is due and payable in November 2003 or 30 days following termination.
Revenues
In April 1998, the Company entered into an email services agreement with a
significant customer, who is also a holder of the Company's Series B Preferred
Stock. Net revenues from this shareholder approximated $605,000 in 1998.
NOTE 4--INCOME TAXES:
No provision for income taxes was recorded due to the net losses for the
periods from February 19, 1997 (Inception) to December 31, 1998.
At December 31, 1998, the Company had deferred tax assets of approximately
$4,001,000. Management believes that, based on a number of factors, it is more
likely than not that the deferred tax assets will not be realized, such that a
full valuation allowance has been recorded. Deferred tax assets relate
primarily to net operating loss carryforwards.
At December 31, 1998, the Company had approximately $8,803,000 of federal and
state net operating loss carryforwards available to offset future taxable
income which expire in varying amounts beginning in 2012 and 2005,
respectively. Under the Tax Reform Act of 1986, the amounts
F-11
<PAGE>
CRITICAL PATH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
of and benefits from net operating loss carryforwards may be impaired or
limited in certain circumstances. Events which cause limitations in the amount
of net operating losses that the Company may utilize in any one year include,
but are not limited to, a cumulative ownership change of more than 50%, as
defined, over a three year period.
NOTE 5--BORROWINGS:
Line of credit
At December 31, 1998, the Company maintained a revolving line of credit with
a bank that provides for borrowings of up to $1,000,000. The line of credit
expires in November 1999 and accrues interest on outstanding borrowings at a
rate equal to the bank's prime rate plus 2.0% (9.75% at December 31, 1998). The
line of credit requires the Company to meet certain financial tests and to
comply with certain other covenants. Borrowings are secured by substantially
all of the assets of the Company. At December 31, 1998, there were no
borrowings outstanding and the Company was in compliance with all restrictive
covenants.
Convertible promissory notes
At December 31, 1997, the Company had obligations totaling $420,000 under 7%
convertible promissory notes payable to individual investors. In April 1998,
the principal amount of the notes was converted into 1,280,488 shares of Series
A Convertible Preferred Stock at $0.328 per share.
In January and February 1998, the Company issued an additional $430,000 of 7%
convertible promissory notes to individual investors. In April 1998, the
principal amount of the notes was converted into 1,310,975 shares of Series A
Convertible Preferred Stock at $0.328 per share.
Convertible promissory notes--related parties
At December 31, 1997, the Company had obligations totaling $427,000 under 7%-
10% convertible promissory notes payable to the Company's founder and an
individual associated with the founder. In April 1998, $200,000 of the
principal amount of the notes was converted into 609,757 shares of Series A
Convertible Preferred Stock at $0.328 per share and the remaining balance of
$227,000 was repaid in cash.
In January and February 1998, the Company issued an additional $70,000 of 7%
convertible promissory notes to a member of the Board of Directors and an
individual associated with the Company's founder. In April 1998, the principal
amount of the notes was converted into 213,415 shares of Series A Convertible
Preferred Stock at $0.328 per share.
NOTE 6--COMMITMENTS:
Leases
The Company leases office space and equipment under noncancelable operating
and capital leases with various expiration dates through 2002. Rent expense for
the period from February 19,
F-12
<PAGE>
CRITICAL PATH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
1997 (inception) to December 31, 1997 and the year ended December 31, 1998,
totaled $33,000 and $220,000, respectively.
Future minimum lease payments under noncancelable operating and capital
leases, including operating lease commitments entered into subsequent to
December 31, 1998, are as follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
Year Ending December 31, ------- ---------
(in thousands)
<S> <C> <C>
1999...................................................... $1,792 $358
2000...................................................... 1,779 222
2001...................................................... 979 213
2002...................................................... 3 103
------ ----
Total minimum lease payments.............................. 4,553 $896
====
Less: Amount representing interest........................ (453)
Unamortized discount.................................... (144)
------
Present value of capital lease obligations................ 3,956
Less: Current portion..................................... (1,502)
------
Long-term portion of capital lease obligations............ $2,454
======
</TABLE>
Equipment lease lines
In April 1998, the Company entered into a financing agreement that provides
for the acquisition of equipment up to $1,000,000. Amounts available under this
agreement are limited to specific acquisitions through March 2001 and are
collateralized by the related equipment. Such amounts are payable over a three-
year period in monthly installments of principal and interest, with interest
accruing at a rate of 6.3% per annum.
In April 1998, the Company entered into another financing agreement which
provides for the acquisition of equipment up to $2,000,000. Amounts available
under this agreement are limited to specific acquisitions between May 1, 1998
and April 30, 1999. Such amounts are payable over a three-year period in
monthly installments of principal and interest, with interest accruing at the
rate of 7.0% per annum. As part of this agreement, the Company issued warrants
to purchase 213,415 shares of Series A Preferred Stock at a purchase price of
$0.328 per share. The Company estimated the fair value of these warrants at
date of issuance was approximately $53,000 which is being amortized as interest
expense.
In May 1998, the Company entered into a financing agreement which provides
for the acquisition of equipment up to $3,500,000 and software and tenant
improvements up to $1,500,000. Amounts available under this agreement are
limited to specific acquisitions between March 1, 1998 and May 1, 1999. Such
amounts are payable over a three-year period in monthly installments of
principal and interest, with interest accruing at the rate of 7.0% per annum.
As part of this agreement, the Company issued warrants to purchase 533,536
shares of Series A Preferred Stock at a purchase price of $0.328 per share. The
Company estimated the fair value associated with these warrants at date of
issuance was approximately $133,000 which is being amortized as interest
expense.
F-13
<PAGE>
CRITICAL PATH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Revenue contracts
Net revenues are derived from contractual relationships which typically have
one to two year terms. Certain agreements require minimum performance standards
regarding the availability and response time of email services. If these
standards are not met, such contracts are subject to termination and the
Company could be subject to monetary penalties.
NOTE 7--SHAREHOLDERS' EQUITY:
As of December 31, 1998, the Company's Articles of Incorporation authorized
the Company to issue 85,000,000 shares of Common Stock at $0.001 par value, and
29,234,743 and 22,000,000 shares of Series A and Series B Convertible Preferred
Stock ("Preferred Stock"), respectively, at $0.001 par value.
Preferred Stock
On April 1, 1998, the Company completed its Series A Convertible Preferred
Stock ("Series A") financing through the issuance of 27,957,317 shares at a
price per share of $0.328 for net cash proceeds of $7,991,000, and the
conversion of convertible promissory notes payable totaling $1,120,000. The
Company issued an additional 39,632 shares of Series A Preferred Stock to the
convertible promissory note holders upon the exercise of their warrants for
proceeds of $13,000.
In September 1998, the Company issued 8,000,827 shares of its Series B
Convertible Preferred Stock ("Series B") at $1.9373 per share for net proceeds
of approximately $15,441,000.
The holders of Preferred Stock have various rights and preferences as
follows:
Voting
Each share of Preferred Stock has voting rights equal to an equivalent number
of shares of Common Stock into which it is convertible and votes together as
one class with Common Stock.
As long as at least 6,500,000 shares of Preferred Stock remain outstanding,
the Company must obtain approval from a majority of the holders of Preferred
Stock to declare or pay any dividend on Common Stock; redeem, purchase or
otherwise acquire any Common Stock other than shares subject to right of
repurchase by the Company; cause the acquisition, reorganization, merger or
consolidation of the Company that results in a transfer of 50% or more of the
voting control of the Company; authorize or issue another equity security
having a preference over, or being on parity with, the Series A and Series B;
or increase the number of directors of the Company.
As long as at least 1,500,000 shares of Preferred Stock remain outstanding,
the Company must obtain approval from a majority of the holders of Preferred
Stock to alter the Articles of Incorporation as it relates to the Preferred
Stock or change the authorized number of shares of Preferred Stock.
F-14
<PAGE>
CRITICAL PATH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Dividends
Holders of Series A and Series B are entitled to receive noncumulative
dividends at the per annum rate of $0.02624 and $0.154984 per share,
respectively, when and if declared by the Board of Directors. The holders of
Preferred Stock will also be entitled to participate in dividends on Common
Stock, when and if declared by the Board of Directors, based on the number of
shares of Common Stock held on an as-if converted basis. No dividends on
Preferred Stock or Common Stock have been declared by the Board of Directors.
Liquidation
In the event of any liquidation, dissolution or winding up of the Company,
including a merger, acquisition or sale of assets where the beneficial owners
of the Company's Common Stock and Preferred Stock own less than 51% of the
resulting voting power of the surviving entity, the holders of Series A and
Series B are entitled to receive an amount of $0.328 and $1.9373 per share,
respectively, plus any declared but unpaid dividends prior to and in preference
to any distribution to the holders of Common Stock. The remaining assets, if
any, shall be distributed ratably among the holders of Common Stock. Should the
Company's legally available assets be insufficient to satisfy the liquidation
preferences, the funds will be distributed ratably among the holders of
Preferred Stock
Conversion
Each share of Preferred Stock is convertible, at the option of the holder,
according to a conversion ratio, subject to adjustment for dilution. Each share
of Preferred Stock automatically converts into the number of shares of Common
Stock into which such shares are convertible at the then effective conversion
ratio upon: (1) the closing of a public offering of Common Stock at a per share
price of at least $7.7492 per share with gross proceeds of at least
$30,000,000, or (2) the consent of the holders of the majority of Convertible
Preferred Stock. The initial conversion ratio of Preferred Stock for Common
Stock is 1 to 1.
Warrants and Stock Purchase Rights
In May 1998, the Company issued a right to purchase 1,000,000 shares of
Common Stock or Preferred Stock in a subsequent financing to a customer as part
of an email services agreement. Under the agreement, the price shall be 80% of
the price at which the stock is sold in the subsequent financing for the
initial 500,000 shares and 100% of such price for the remaining 500,000 shares.
In September 1998, the Company consummated its Series B Convertible Preferred
Stock financing at a per share price of $1.94. The Company has estimated the
fair value of the right to be $194,000, which will be recognized as a sales
discount over the term of the services agreement. Approximately $136,000 has
been recognized in 1998. No warrants were exercised as of December 31, 1998.
In May 1998, the Company issued to a different customer a warrant to purchase
up to $250,000 of Preferred Stock in the Company's next financing round. The
warrant is exercisable until December 31, 2001 and the exercise price per share
will equal the price per share at which the Preferred Stock is sold by the
Company. In September 1998, the warrants were exercised in connection with the
Series B Convertible Preferred Stock financing at a per share price of $1.94.
The
F-15
<PAGE>
CRITICAL PATH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Company has estimated the initial fair value of the warrants approximated
$143,000, which will be recognized as a sales discount over the term of the
services agreement. Approximately $95,000 has been recognized in 1998.
In connection with various financing agreements described in Note 6, the
Company issued warrants to purchase 746,951 share of Series A at $0.328 per
share. The warrants are exercisable for seven years from May 1, 1998, or five
years from the effective date of the Company's initial public offering,
whichever is shorter. As of December 31, 1998, no warrants were exercised.
In connection with the issuance of certain convertible promissory notes
described in Note 5, the Company issued warrants to purchase 250,000 shares of
Common Stock at $0.01 per share and 530,474 shares of Series A at $0.328 per
share. These warrants are exercisable for one and three years, respectively.
The warrants to purchase Common Stock were exercised in September 1998. At
December 31, 1998, warrants to purchase 39,632 shares of Series A had been
exercised. The Company estimated the fair value of the warrants issued at
approximately $119,000 which is being amortized as interest expense.
In connection with the Series B Convertible Preferred Stock financing, the
Company issued warrants to purchase 154,639 shares of Series B at $1.94 per
share to the placement agent. As of December 31, 1998, no warrants were
exercised.
Common Stock purchase agreements
In February 1998, the Company entered into stock purchase agreements with
three founders and sold 8,500,000 shares of the Company's Common Stock at $0.01
per share. Under the terms of the stock purchase agreements, the Company has
the right to purchase the shares of Common Stock at the original issue price in
the event any one of the founders ceases to be an employee of the Company. The
repurchase rights lapse 25% on the first anniversary of the vesting start date
and ratably each month thereafter for 36 months. In the event of a change in
control of the Company or the closing date of an Initial Public Offering, as
defined, repurchase rights with respect to 50% of the then unvested shares of
Common Stock will lapse. At December 31, 1998, 4,687,500 of theses shares of
Common Stock were subject to repurchase rights. In connection with the issuance
of these shares, the Company recorded unearned compensation of $765,000. See
Note 8.
In November 1998, the Company entered into stock purchase agreement with an
officer who exercised stock options to purchase 2,804,313 shares of the
Company's Common Stock at a price of $0.38 per share. Under the terms of the
stock purchase agreement, the Company has the right to purchase the shares of
Common Stock at the original issue price in the event the officer ceases to be
an employee of the Company. The repurchase rights lapse 25% on the first
anniversary of the vesting start date and ratably each month thereafter for 36
months. In the event of a change in control of the Company or the closing date
of an Initial Public Offering, as defined, repurchase rights with respect to
50% of the then unvested shares of Common Stock will lapse. At December 31,
1998, 2,804,313 of these shares of Common Stock were subject to repurchase
rights.
F-16
<PAGE>
CRITICAL PATH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 8--STOCK OPTIONS:
In January 1998, the Company's Board of Directors adopted the 1998 Stock
Option Plan. The Plan provides for the granting of up to 27,035,032 stock
options to employees and consultants of the Company. Options granted under the
Plan may be either incentive stock options ("ISO") or nonqualified stock
options ("NSO"). ISOs may be granted only to Company employees (including
officers and directors who are also employees). NSOs may be granted to Company
employees and consultants.
Options under the Plan may be granted for periods of up to ten years and at
prices no less than 85% of the estimated fair value of the shares on the date
of grant as determined by the Board of Directors, provided, however, that (i)
the exercise price of an ISO may not be less than 100% of the estimated fair
value of the shares on the date of grant, and (ii) the exercise price of an ISO
granted to a 10% shareholder may not be less than 110% of the estimated fair
value of the shares on the date of grant. Options generally vest 25% per year
and are exercisable for a maximum period of ten years from the date of grant.
The following table summarizes activity under the Plan for the year ended
December 31, 1998:
<TABLE>
<CAPTION>
Year Ended December 31, 1998
----------------------------
Weighted
Average
Exercise
Shares Price
---------------- ---------------
<S> <C> <C>
Granted..................................... 23,310,176 $0.42
Exercised................................... (4,234,419) 0.26
Canceled.................................... (2,120,000) 0.07
----------------
Outstanding at end of period................ 16,955,757 $ 0.39
================
Options exercisable at period end........... 2,054,958 $ 0.01
================
Weighted average minimum value of options
granted during period...................... $0.71
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1998:
<TABLE>
<CAPTION>
Options Exercisable
Options Outstanding at December 31, 1998 at December 31, 1998
-------------------------------------------- --------------------
Weighted
Average Weighted Weighted
Number of Remaining Average Number of Average
Shares Contractual Exercise Shares Exercise
Range of Exercise Price Outstanding Life Price Exercisable Price
----------------------- --------------- -------------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.01-
$0.25 6,184,500 9.2 years $ 0.04 2,054,958 $0.01
$0.38-
$1.00 10,771,257 9.8 years 0.59 -- --
--------------- -------------- ---------- --------- -----
16,955,757 9.5 years $ 0.39 2,054,958 $0.01
=============== ============== ========== ========= =====
</TABLE>
F-17
<PAGE>
CRITICAL PATH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Fair value disclosures
The Company calculated the minimum fair value of each options grant on the
date of grants using the Black-Scholes option pricing model as prescribed by
SFAS No. 123 using the following assumptions:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1997 1998
----------- -----------
<S> <C> <C>
Risk-free interest rates......................... 6.0% 5.9%
Expected lives (in years)........................ 4.0 4.0
Dividend yield................................... 0.0% 0.0%
Expected volatility.............................. 0.0% 0.0%
</TABLE>
The compensation cost associated with the Company's stock-based compensation
plans, determined using the minimum value method prescribed by SFAS No. 123,
did not result in a material difference from the reported net loss for the year
ended December 31, 1998.
Unearned stock-based compensation
In connection with certain stock option grants and common stock issuances
during the year ended December 31, 1998, the Company recorded unearned
compensation totaling $15,393,000 which is being amortized over the vesting
periods of the related options. Amortization expense recognized during the year
ended December 31, 1998 totaled approximately $2,511,000.
NOTE 9--SUBSEQUENT EVENTS:
Series B Convertible Preferred Stock Financing
In January 1999, the Company completed the second round of the Series B
Convertible Preferred Stock financing through the issuance of 7,132,589 shares
at $1.9373 per share for gross proceeds of approximately $13,818,000.
Exercise of Stock Purchase Rights
In January 1999, a customer exercised stock purchase rights granted in May
1998 to purchase 1,000,000 shares of Series B Convertible Preferred Stock for
proceeds of approximately $1,744,000.
Employee Stock Purchase Plan
In January 1999, the Board of Directors adopted the 1999 Employee Stock
Purchase Plan (the "Purchase Plan") effective on the date of the Offering. The
Purchase Plan reserves 1,500,000 shares for issuance thereunder. Employees
generally will be eligible to participate in the Purchase Plan if they are
customarily employed by the Company for more than 20 hours per week and more
than five months in a calendar year and are not 5% or greater shareholders.
Under the Purchase Plan, eligible employees may select a rate of payroll
deduction up to 15% of their compensation subject to certain maximum purchase
limitations. The Purchase Plan will be implemented in a series of overlapping
twenty-four month offering periods and beginning on the effective date of the
Offering and
F-18
<PAGE>
CRITICAL PATH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
subsequent offering periods will begin on the first trading day on or after
May 1 and November 1 of each year. Purchases will occur on each April 30 and
October 31 (the "purchase dates") during each participation period. Under the
Purchase Plan, eligible employees will be granted an option to purchase shares
of Common Stock at a purchase price equal to 85% of the fair market value per
share of Common Stock on either the start date of the offering period or the
date on which the option is exercised, whichever is less. If the fair market
value of the Common Stock on any purchase date (other than the final purchase
date) is lower than the fair market value on the start date of that offering
period, then all participants in that offering period will be automatically
withdrawn from such offering period and re-enrolled in the offering period
immediately following.
Stock Option Grants
In January 1999, the Company granted incentive stock options to employees to
purchase 1,987,500 shares of Common Stock at an exercise price of $1.54 per
share. In connection with such option grants, the Company will record unearned
compensation of approximately $2.9 million.
Sale of Common Stock
In January 1999, the Company sold an aggregate of 2,400,000 shares of Common
Stock at $1.00 per share for proceeds of approximately $2,400,000. In
connection with the sale, the Company will record unearned compensation of
approximately $1,300,000.
F-19
<PAGE>
INSIDE BACK COVER
the
brand
behind
the
brand
[pictures of Critical Path
customer branded
web mail interfaces
appears here]
<PAGE>
[LOGO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the various expenses expected to be incurred
by the Registrant in connection with the sale and distribution of the
securities being registered hereby, other than underwriting discounts and
commissions. All amounts are estimated except the Securities and Exchange
Commission registration fee and the National Association of Securities Dealers,
Inc. filing fee.
<TABLE>
<CAPTION>
Payable by
Registrant
----------
<S> <C>
SEC registration fee.............................................. $14,387
National Association of Securities Dealers, Inc. filing fee....... 5,675
Accounting fees and expenses...................................... *
Legal fees and expenses........................................... *
Printing and engraving expenses................................... *
Blue Sky fees and expenses........................................ *
Registrar and Transfer Agent's fees............................... *
Miscellaneous fees and expenses................................... *
-------
Total............................................................. $ *
=======
</TABLE>
--------
* To be filed by amendment.
Item 14. Indemnification of Directors and Officers
Section 317 of the California Corporations Code provides for the
indemnification of officers, directors and other corporate agents in terms
sufficiently broad to indemnify such persons under certain circumstances for
liabilities (including reimbursement for expenses incurred) arising under the
Securities Act of 1933, as amended (the "Act"). Article V, Section B of our
articles of incorporation (Exhibit 3.1 hereto) provides for indemnification of
our directors, officers, employees and other agents to the extent and under the
circumstances permitted by the California Corporations Code. We have also
entered into agreements with our directors and officers that will require us,
among other things, to indemnify them against certain liabilities that may
arise by reason of their status or service as directors or officers to the
fullest extent permitted by law.
The Underwriting Agreement (Exhibit 1.1) provides for indemnification by
ourself, our underwriters and our directors and officers of the underwriters,
for certain liabilities, including liabilities arising under the Act, and
affords certain rights of contribution with respect thereto.
Item 15. Recent Sales of Unregistered Securities
1. From February 1997 to January 15, 1999, the Registrant issued and sold
14,162,257 shares of common stock to employees, directors and consultants at
prices ranging from $0.01 to $1.00 per share.
2. On April 1, 1998, the Registrant issued and sold 27,957,317 shares of Series
A Preferred Stock to a total of 29 investors for an aggregate purchase price
of $9,170,001.99.
II-1
<PAGE>
3. On September 11, 1998 and January 13, 1999, the Registrant issued and sold
15,100,782 shares of Series B Preferred Stock to a total of 19 investors for
an aggregate purchase price of $29,061,014.44.
4. On January 13, 1999, the Registrant issued and sold 2,400,000 shares of
common stock to one investor for an aggregate purchase price of
$2,400,000.00.
5. From February 1997 to January 15, 1999, the Registrant issued and sold
13,763,158 shares of common stock to 5 investors at a purchase price of
$0.01 per share.
The sales of the above securities were deemed to be exempt from registration
under the Securities Act in reliance on Section 4(2) of the Securities Act, or
Regulation D promulgated thereunder, or Rule 701 promulgated under Section 3(b)
of the Securities Act, as transactions by an issuer not involving a public
offering or transactions pursuant to compensatory benefit plans and contracts
relating to compensation as provided under Rule 701. The recipients of
securities in each of these transactions represented their intention to acquire
the securities for investment only and not with view to or for sale in
connection with any distribution thereof and appropriate legends were affixed
to the share certificates and instruments issued in such transactions. All
recipients had adequate access, through their relationship with the Registrant,
to information about the Registrant.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
See exhibits listed on the Exhibit Index following the signature page of the
Form S-1, which is incorporated herein by reference.
(b) Financial Statement Schedules
Schedules other than those referred to above have been omitted because they
are not applicable or not required or because the information is included
elsewhere in the Financial Statements or the notes thereto.
Item 17. Undertakings
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act"), may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of 1933,
as amended, 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
II-2
<PAGE>
Rule 424(b)(1) or (4) or 497(h) under the 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, as amended, 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.
(3) The Registrant will provide to the underwriters at the closing(s) 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.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Francisco, State of
California, on the 29th day of January, 1999.
Critical Path, Inc.
/s/ Douglas T. Hickey
By: _________________________________
Douglas T. Hickey
President, Chief Executive
Officer and Director
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Douglas T. Hickey and David A. Thatcher, and
each of them, his or her true and lawful attorneys-in-fact and agents, each
with full power of substitution and resubstitution, for him or her and in his
or her name, place and stead, in any and all capacities, to sign any and all
amendments, including post-effective amendments, to this Registration
Statement, and any registration statement relating to the offering covered by
this Registration Statement and filed pursuant to Rule 462(b) under the
Securities Act of 1933 and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that each of said attorneys-
in-fact and agents or their substitute or substitutes may lawfully do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ Douglas T. Hickey President, Chief Executive January 29, 1999
____________________________________ Officer and Director
Douglas T. Hickey
/s/ David A. Thatcher Executive Vice President, January 29, 1999
____________________________________ Chief Financial Officer
David A. Thatcher (Principal Financial Officer)
and Accounting Officer
/s/ David C. Hayden Chairman of the Board January 29, 1999
____________________________________
David C. Hayden
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ Christos M. Cotsakos Director January 29, 1999
____________________________________
Christos M. Cotsakos
/s/ Lisa Gansky Director January 29, 1999
____________________________________
Lisa Gansky
/s/ Kevin R. Harvey Director January 29, 1999
____________________________________
Kevin R. Harvey
/s/ James A. Smith Director January 29, 1999
____________________________________
James A. Smith
/s/ George Zachary Director January 29, 1999
____________________________________
George Zachary
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
1.1* Form of Underwriting Agreement.
3(i)(a) Amended and Restated Articles of Incorporation and amendments
thereto.
3(i)(b) Form of Amended and Restated Articles of Incorporation to be filed
prior to completion of this offering.
3(ii)(a) Bylaws of the Registrant, as amended.
3(ii)(b) Form of Amended and Restated Bylaws.
4.1* Form of Common Stock Certificate.
4.2* Warrant to Purchase Preferred Stock dated September 11, 1998 issued
by the Registrant to Hambrecht & Quist LLC.
4.3* Warrant to Purchase Preferred Stock dated January 13, 1999 issued
by the Registrant to Hambrecht & Quist LLC.
5.1* Opinion of Pillsbury Madison & Sutro LLP.
10.1 Form of Indemnification Agreement between the Registrant and each
of its directors and officers.
10.2 Employee Stock Purchase Plan.
10.3 1998 Stock Plan and forms of stock option agreements thereunder.
10.4 Series B Preferred Stock Purchase Agreement dated September 11,
1998.
10.5 Amendment to Series B Preferred Stock Purchase Agreement dated
January 13, 1999.
10.6 Amended and Restated Investors' Rights Agreement dated September
11, 1998.
10.7 Amendment to the Amended and Restated Investors' Rights Agreement
dated January 13, 1999.
10.8 Master Equipment Lease Agreement dated April 28, 1998, and Lease
Line Schedule thereto, by and between the Registrant and Lighthouse
Capital Partners II, L.P.
10.9 Master Lease Agreement dated May 1, 1998, and addendum thereto, by
and between the Registrant and Comdisco, Inc.
10.10 Standard Industrial/Multitenant Lease-Gross dated June 20, 1997 by
and between the Registrant and 501 Folsom Street Building.
10.11 Letter Agreement dated October 1, 1998 by and between the
Registrant and Douglas Hickey.
10.12 Promissory Note and Security Agreement dated November 6, 1998 by
and between the Registrant and Doug Hickey.
10.13 Warrant Agreement dated April 28, 1998 by and between the
Registrant and Lighthouse Capital Partners II, L.P.
10.14 Warrant Agreement dated May 1, 1998 by and between the Registrant
and Comdisco, Inc.
10.15+ Master Services Agreement dated December 10, 1998 by and between
the Registrant and US West Communications Services, Inc.
10.16+ Email Services Agreement dated May 27, 1998 by and between the
Registrant and Network Solutions, Inc.
10.17+ Email Services Agreement dated July 6, 1998 by and between the
Registrant and StarMedia Network, Inc.
10.18+ Amendment to Email Services Agreement September 30, 1998 by and
between the Registrant and E*TRADE Group, Inc.
10.19+ Email Services Agreement dated September 14, 1998 by and between
the Registrant and Sprint Communications Company L.P.
10.20+ Email Services Agreement dated March 19, 1998 by and between the
Registrant and NTX, Inc. dba TABNet, Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
10.21 QuickStart Loan and Security Agreement dated May 12, 1998 by and
between the Registrant and Silicon Valley Bank.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2* Consent of Pillsbury Madison & Sutro LLP (included in Exhibit 5.1).
24.1 Power of Attorney (see Page II-4).
27.1 Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
+ Confidential treatment has been requested with respect to certain portions of
these agreements.
<PAGE>
EXHIBIT 3(i)(a)
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
CRITICAL PATH, INC.
The undersigned, David Hayden, certifies that:
1. He is the duly elected President and Secretary of Critical Path, Inc.,
a California corporation.
2. The Articles of Incorporation of this corporation are amended and
restated to read in full as follows:
ARTICLE I
NAME
The name of this corporation is Critical Path, Inc.
ARTICLE II
PURPOSES
The purpose of the corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
California other than the banking business, the trust company business or the
practice of a profession permitted to be incorporated by the California
Corporations Code.
ARTICLE III
STOCK
This corporation is authorized to issue two classes of stock to be
designated respectively, Common Stock ("Common Stock") and Preferred Stock
("Preferred Stock"). The total number of shares of capital stock which the
corporation is authorized to issue is One Hundred Eighteen Million One Hundred
Thirty-Nine Thousand Three Hundred One (118,139,301) shares, of which Seventy-
Five Million (75,000,000) shares shall be Common Stock, and Forty-Three Million
One Hundred Thirty-Nine Thousand Three Hundred One (43,139,301) shares shall be
Preferred Stock. Both the Common Stock and the Preferred Stock shall have par
value of $0.001 per share.
The Preferred Stock may be issued from time to time in one or more series.
The first series of Preferred Stock shall be designated as Series A Preferred
Stock (the "Series A Preferred") and shall consist of Twenty-Nine Million Two
Hundred Thirty-Four Thousand
-1-
<PAGE>
Seven Hundred Forty-Three (29,234,743) shares. The second series of Preferred
Stock shall be designated as Series B Preferred Stock (the "Series B Preferred")
and shall consist of Thirteen Million Nine Hundred Four Thousand Five Hundred
Fifty-Eight (13,904,558) shares. The Series A Preferred Stock and the Series B
Preferred Stock are hereafter sometimes collectively referred to as the
"Preferred Stock" or the "Series A and Series B Preferred."
ARTICLE IV
RIGHTS, PREFERENCES,
PRIVILEGES AND RESTRICTIONS ON STOCK
A. Preferred Stock. The rights, preferences, privileges and
restrictions, granted to and imposed on the Series A and Series B Preferred are
as set forth below in this Article IV.
(1) Dividends. The holders of the outstanding Series A and Series B
Preferred shall be entitled to receive, when and as declared by the Board of
Directors, out of any assets at the time legally available therefor, dividends
at the rate of $0.02624 per share of Series A Preferred and $0.154984 per share
of Series B Preferred (as adjusted for any stock dividends, combinations or
splits with respect to such shares) per annum (payable other than in Common
Stock or other securities and rights convertible into or entitling the holder
thereof to receive, directly or indirectly, additional shares of Common Stock of
this corporation). No dividend shall be declared or paid with respect to the
Common Stock unless an equivalent dividend (which shall be in addition to the
dividend on the Preferred Stock referred to in the preceding sentence) is
declared and set apart or paid with respect to the Series A and Series B
Preferred (on an as-converted basis). The right to such dividends on shares of
Series A and Series B Preferred shall not be cumulative, and no right shall
accrue to holders of shares of Series A and Series B Preferred by reason of the
fact that dividends on said shares are not declared in any prior year.
(2) Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up
of the corporation, either voluntary or involuntary, the holders of the
Preferred 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 Common Stock by reason of their ownership thereof, the amount of
(i) $0.328 per share of Series A Preferred then held by them and (ii) $1.9373
per share of Series B Preferred then held by them (as adjusted for any
combinations, consolidations, subdivisions, splits or stock dividends with
respect to such shares), plus an amount equal to all declared but unpaid
dividends on such series of Preferred Stock. If, upon the occurrence of such
event, the assets and funds thus distributed among the holders of Preferred
Stock shall be insufficient to permit the payment to such holders of the full
preferential amounts, then the entire assets and funds of the corporation
legally available for distribution shall be distributed ratably among the
holders of Preferred Stock in proportion to the preferential amount each such
holder would have otherwise been entitled to receive.
(b) After the distribution described in Subsection A(2)(a),
above has been paid, the remaining assets of the corporation available for
distribution to shareholders shall be distributed among the holders of Common
Stock pro rata based on the number of
-2-
<PAGE>
shares of Common Stock held by each.
(c) For purposes of this Section A(2), a liquidation,
dissolution or winding up of the corporation shall be deemed to be occasioned
by, or to include (unless the holders of at least a majority of the Preferred
Stock then outstanding shall determine otherwise) (A) the acquisition of this
corporation by another entity or entities by means of any transaction or series
of related transactions (including, without limitation, any reorganization,
merger or consolidation) that results in the transfer of fifty percent (50%) or
more of the outstanding voting power of this corporation, or (B) the sale,
transfer or lease (other than a pledge or grant of a security interest to a bona
fide lender) of all or substantially all of the assets of this corporation.
(d) In any of the events specified in Subsection A(2)(a) above,
if the consideration received by the corporation is other than cash, its value
will be deemed its fair market value. The fair market value of any securities
shall be determined as follows:
(i) Securities not subject to investment letter or other
similar restrictions on free marketability:
(A) If traded on a securities exchange or the Nasdaq
National Market, 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, 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 mutually determined by the Board of
Directors of the corporation (which determination must include the approval of
the Series A Directors (as hereinafter defined)) and the holders of at least a
majority of the voting power of all then outstanding shares of Preferred Stock.
(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 the market value determined as above in (i) (A),
(B) or (C) to reflect the approximate fair market value thereof, as mutually
determined by the Board of Directors of the corporation (which determination
must include the approval of the Series A Directors) and the holders of at least
a majority of the voting power of all then outstanding shares of Preferred
Stock.
(iii) In the event the requirements of this Subsection
A(2)(d) are not complied with, the corporation shall forthwith either:
(A) cause such closing to be postponed until such time
as the requirements of this Section A(2) have been complied with; or
(B) cancel such transaction, in which event the
rights,
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preferences and privileges of the holders of the Preferred Stock shall revert to
and be the same as the rights, preferences and privileges existing immediately
prior to the date of the first notice referred to in Subsection A(2)(d)(iv)
hereof.
(iv) In the event of any transaction described in
Subsection A(2)(a)(c), the corporation shall give each holder of record of
Preferred Stock written notice of such transaction pursuant to the notice
provisions of Subsection A(7)(c)(iv) herein.
(3) Conversion Rights.
(a) Conversion of Preferred Stock. Each share of Series A and
Series B Preferred shall be convertible, at the option of the holder thereof, at
any time after the issuance of such share into that number of fully paid and
nonassessable shares of Common Stock of the corporation described in Subsection
A(3)(b) below. Each share of Series A and Series B Preferred shall automatically
be converted into that number of fully paid and nonassessable shares of Common
Stock of the corporation described in Subsection A(3)(b) below immediately upon
the earlier to occur of:
(i) The closing of a sale of the corporation's Common Stock
in a firm commitment underwritten registered public offering pursuant to a
registration statement on Form S-1 or Form SB-2 under the Securities Act of
1933, as amended, with aggregate gross proceeds to the corporation of at least
$12,500,000 at an initial offering price of at least $7.7492 per share (as
adjusted for any combinations, consolidations, subdivisions, splits or stock
dividends with respect to such shares of Common Stock); or
(ii) The date on which the holders of a majority of the
then outstanding shares of Series A and Series B Preferred have voted to convert
or consented in writing to the conversion of such shares into Common Stock.
(b) Determination of Number of Shares of Common Stock Upon
Conversion. The number of shares of Common Stock into which each share of
Preferred Stock may be converted shall be determined by dividing (i) $0.328 in
the case of the Series A Preferred and $1.9373 in the case of the Series B
Preferred by (ii) the Conversion Price for such series of Preferred Stock
(determined as hereinafter provided) in effect at the time of conversion.
(c) Determination of Initial Conversion Price. The conversion
price per share (the "Conversion Price") at which shares of Common Stock shall
initially be issuable upon conversion of the Preferred Stock shall be $0.328 in
the case of the Series A Preferred (the "Series A Conversion Price") and $1.9373
in the case of the Series B Preferred (the "Series B Conversion Price"), in each
case subject to adjustment as set forth in Section A(4) hereof.
(d) Procedures for Exercise of Conversion Rights. The holders of
any shares of Preferred Stock may exercise their conversion rights as to all
such shares or any part thereof by delivering to the corporation during regular
business hours, at the office of any transfer agent of the corporation for the
Preferred Stock, or at the principal office of the
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corporation or at such other place as may be designated by the corporation, the
certificate or certificates for the shares to be converted, duly endorsed for
transfer to the corporation (if required by the corporation), accompanied by
written notice stating that the holder elects to convert such shares (except
that no such written notice of election to the corporation shall be necessary in
the event of an automatic conversion pursuant to Subsection A(3)(a)). In the
event such conversion is requested in connection with a proposed liquidation,
dissolution or winding up of the corporation as described in Subsection A(2)(a)
above (a "Liquidation Transaction") or a proposed merger, consolidation or sale
transaction described in Subsection A(2)(c) above (a "Merger Transaction"), such
conversion shall be deemed to have been made subject to and immediately prior to
the consummation of such transaction. Conversion shall be deemed to have been
effected on the date when such delivery is made (except that (i) in the event of
an automatic conversion pursuant to Subsection A(3)(a) above, such conversion
shall be deemed to have been made immediately prior to the closing of the public
offering referred to therein or the date on which holders referred to therein
have voted to convert or consented in writing to convert the shares referred to
therein and (ii) in the event such conversion is requested in connection with a
proposed Liquidation Transaction or Merger Transaction, such conversion shall be
deemed to have been made immediately prior to the consummation of such
transaction), and such date is referred to herein as the "Conversion Date." As
promptly as practicable after the Conversion Date, the corporation shall issue
and deliver to or upon the written order of such holder, at such office or other
place designated by the corporation, a certificate or certificates for the
number of full shares of Common Stock to which such holder is entitled and a
check for cash with respect to any fractional interest in a share of Common
Stock as provided in Subsection A(3)(e) below. The holder shall be deemed to
have become a shareholder of record on the Conversion Date, and the applicable
Conversion Price shall be the Conversion Price in effect on the Conversion Date.
Upon conversion of only a portion of the number of shares of Preferred Stock
represented by a certificate surrendered for conversion, the corporation shall
issue and deliver to or upon the written order of the holder of the certificate
so surrendered for conversion, at the expense of the corporation, a new
certificate covering the number of shares of Preferred Stock representing the
unconverted portion of the certificate so surrendered.
(e) No Fractional Shares. No fractional shares of Common Stock
or scrip shall be issued upon conversion of shares of Preferred Stock. If more
than one share of Series A or Series B Preferred shall be surrendered for
conversion at any one time by the same holder, the number of full shares of
Common Stock issuable upon conversion thereof shall be computed on the basis of
the aggregate number of shares of Preferred Stock so surrendered. Instead of any
fractional shares of Common Stock which would otherwise be issuable upon
conversion of any shares of Preferred Stock, the corporation shall pay a cash
adjustment in respect of such fractional interest equal to the fair market value
of such fractional interest as determined by the corporation's Board of
Directors.
(f) Payment of Taxes for Conversions. 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 pursuant hereto of Preferred
Stock. The corporation shall not, however, be required to pay any tax which may
be payable in respect of any transfer involved in the issue and delivery of
shares of Common Stock in a name other than that in which the shares of
Preferred Stock so converted were registered, and no such issue or delivery
shall be made unless and until the person requesting such issue has paid to the
corporation the
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amount of any such tax, or has established, to the satisfaction
of the corporation, that such tax has been paid.
(g) Reservation of Common Stock. The corporation shall at all
times reserve and keep available, out of its authorized but unissued Common
Stock, solely for the purpose of effecting the conversion of the Preferred
Stock, the full number of shares of Common Stock deliverable upon the conversion
of all shares of all series of Preferred Stock from time to time outstanding.
(h) Registration or Listing of Shares of Common Stock. If any
shares of Common Stock to be reserved for the purpose of conversion of shares of
Preferred Stock require registration or listing with, or approval of, any
governmental authority, stock exchange or other regulatory body under any
federal or state law or regulation or otherwise, before such shares may be
validly issued or delivered upon conversion, the corporation will in good faith
and as expeditiously as possible endeavor to secure such registration, listing
or approval, as the case may be.
(i) Status of Common Stock Issued Upon Conversion. All shares of
Common Stock which may be issued upon conversion of the shares of Preferred
Stock will upon issuance by the corporation be validly issued, fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issuance thereof.
(j) Status of Converted Preferred Stock. In case any shares of
Preferred Stock shall be converted pursuant to this Section A(3), the shares so
converted shall be canceled and shall not be issuable by the corporation and the
Articles of Incorporation of the corporation, as then in effect, shall be
appropriately amended to reflect the corresponding reduction in the authorized
capital stock of the corporation.
(4) Adjustment of Conversion Price.
(a) General Provisions. The Conversion Price of the Series A
Preferred and the Series B Preferred shall be subject to adjustment from time to
time as follows:
(i) If the corporation shall issue any Additional Stock (as
defined in Subsection A(4)(a)(iii) below) for a consideration per share less
than the Conversion Price of a series of Preferred Stock then in effect on the
date of and immediately prior to such issue, then the Conversion Price of such
series of Preferred Stock shall be reduced, concurrently with such issue, to a
price determined by multiplying such Conversion Price in effect immediately
prior to such issuance by the quotient obtained by dividing:
(A) an amount equal to the sum of (x) the total number
of shares of Common Stock outstanding (assuming for such purpose the conversion
of all outstanding Preferred Stock) immediately prior to such issuance, plus (y)
the quotient of the total consideration received by the corporation upon such
issuance divided by such Conversion Price, by
(B) the total number of shares of Common Stock
outstanding (assuming for such purpose the conversion of any outstanding
convertible
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securities of the corporation and exercise of any outstanding options, warrants
or rights to purchase Common Stock or such convertible securities of the
corporation) immediately prior to such issuance plus the Additional Stock issued
in such issuance (but not including any shares of Additional Stock deemed to be
issued as a result of any adjustment in the Conversion Price of the Preferred
Stock resulting from such issuance).
(ii) For the purposes of any adjustment of a Conversion
Price pursuant to Subsection A(4)(a)(i) above, the following provisions shall be
applicable:
(A) In the case of the issuance of Additional Stock
for cash, the consideration shall be deemed to be the amount of cash paid
therefor without deducting any discounts or commissions paid or incurred by the
corporation in connection with the issuance and sale thereof.
(B) In the case of the issuance of Additional Stock
for a consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the fair value thereof as determined in good
faith by the Board of Directors of the corporation.
(C) In the case of the issuance of (i) options,
warrants or rights to purchase, subscribe for or otherwise acquire Common Stock,
(ii) evidences of indebtedness, shares or other securities by their terms
convertible into or exchangeable for Common Stock, or (iii) options, warrants or
rights to purchase, subscribe for or otherwise acquire evidences of
indebtedness, shares or other securities by their terms convertible into or
exchangeable for Common Stock:
(1) the aggregate maximum number of shares of
Common Stock deliverable upon exercise of such options to purchase or rights to
subscribe for Common Stock shall be deemed to have been issued at the time such
options or rights were issued and for a consideration equal to the consideration
(determined in the manner provided in Subsections A(4)(a)(ii)(A) and (B) above),
if any, received by the corporation upon the issuance of such options or rights
plus the minimum purchase price provided in such options or rights for the
Common Stock covered thereby,
(2) the aggregate maximum number of shares of
Common Stock deliverable upon conversion of or in exchange for any such
convertible or exchangeable securities, or upon the exercise of options to
purchase or rights to subscribe for such convertible or exchangeable securities
and subsequent conversion or exchange thereof, shall be deemed to have been
issued at the time such securities were issued or such options or rights were
issued and for a consideration equal to the consideration received by the
corporation for any such securities and related options or rights (excluding any
cash received on account of accrued interest or accrued dividends), plus the
additional consideration, if any, to be received by the corporation upon the
conversion or exchange of such securities or the exercise of any related options
or rights (the consideration in each case to be determined in the manner
provided in Subsections A(4)(a)(ii)(A) and (B) above);
(3) on any change in the number of shares of
Common Stock deliverable upon exercise of any such options or rights or
conversion of or
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exchange for such convertible or exchangeable securities, or on any change in
the minimum purchase price of such options, rights or securities, the Conversion
Price for such series shall forthwith be readjusted to such Conversion Price as
would have obtained had the adjustment made upon (x) the issuance of such
options, rights or securities not exercised, converted or exchanged prior to
such change, as the case may be, been made upon the basis of such change or (y)
the options or rights related to such securities not converted or exchanged
prior to such change, as the case may be, been made upon the basis of such
change; and
(4) on the expiration of any such options or
rights, the termination of any such rights to convert or exchange or the
expiration of any options or rights related to such convertible or exchangeable
securities, the Conversion Price for such series shall forthwith be readjusted
to such Conversion Price as would have obtained had the adjustment made upon the
issuance of such options, rights, convertible or exchangeable securities or
options or rights related to such convertible or exchangeable securities, as the
case may be, been made upon the basis of the issuance of only the number of
shares of Common Stock actually issued upon the exercise of such options or
rights, upon the conversion or exchange of such convertible or exchangeable
securities or upon the exercise of the options or rights related to such
convertible or exchangeable securities, as the case may be; provided that, in no
event shall the Conversion Price be readjusted pursuant to Paragraph (3) or
Paragraph (4) above to an amount which exceeds the lesser of: (x) the Conversion
Price on the original adjustment date, and (y) the Conversion Price that would
have resulted from any issuance of Additional Stock between the original
adjustment date and such readjustment date.
(iii) "Additional Stock" shall mean any shares of Common
Stock issued or deemed to have been issued pursuant to Subsection A(4)(a)(ii)(C)
by the corporation after the date on which a share of Series A or Series B
Preferred was first issued, other than shares of Common Stock issued or
issuable:
(A) Upon conversion of shares of Series A or Series B
Preferred;
(B) To employees, consultants, directors or vendors of
this corporation directly or pursuant to a stock option plan or stock purchase
plan or other incentive stock arrangement approved by the Board of Directors of
the corporation acting in their good faith, reasonable, business judgment;
(C) In connection with bona fide equipment lease or
loan financing or similar transactions approved by the Board of Directors acting
in their good faith, reasonable, business judgment; and
(D) In connection with stock dividends, subdivisions,
split-ups, combinations or dividends which are covered by Subsections
A(4)(a)(iv), (v) and (vi).
(iv) If the number of shares of Common Stock outstanding at
any time after the date hereof 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, on the date such payment is made or such change is effective, the
Conversion Price for each series of Preferred Stock shall be appropriately
decreased so that the number of shares of Common Stock issuable
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<PAGE>
on conversion of any shares of such series of Preferred Stock shall be increased
in proportion to such increase of outstanding shares.
(v) If the number of shares of Common Stock outstanding at
any time after the date hereof is decreased by a combination of the outstanding
shares of Common Stock, then, on the effective date of such combination, the
Conversion Price for each series of Preferred Stock shall be appropriately
increased so that the number of shares of Common Stock issuable on conversion of
shares of such series of Preferred Stock shall be decreased in proportion to
such decrease in outstanding shares.
(vi) In case the corporation shall distribute to holders of
its Common Stock shares of its capital stock (other than Common Stock), stock or
other securities of other persons, evidences of indebtedness issued by the
corporation or other persons, assets (excluding cash dividends), or options or
rights (excluding options to purchase and rights to subscribe for Common Stock
or other securities of the corporation convertible into or exchangeable for
Common Stock), then, in each such case, immediately following the record date
fixed for the determination of the holders of Common Stock entitled to receive
such distribution, provision shall be made so that the holders of each series of
Preferred Stock shall receive upon conversion thereof, in addition to the number
of shares of Common Stock receivable thereupon, the amount of shares of the
corporation's capital stock, stock or other securities of other persons,
evidences of indebtedness, assets, or options or rights which they would have
received had such shares of Series A or Series B Preferred been converted into
Common Stock immediately prior to such record date and had thereafter, during
the period from the date of such record date to and including the date of
conversion, retained such capital stock, stock or other securities of other
persons, evidences of indebtedness, assets, or options or rights receivable by
them as aforesaid during such period, subject to all other adjustments called
for during such period under this Section A(4).
(vii) In case, at any time after the date hereof, of any
capital reorganization, or any reclassification of the stock of the corporation
(other than a change in par value or as a result of a stock dividend or
subdivision, split-up or combination of shares), or the consolidation or merger
of the corporation with or into another person (other than a transaction
described in Article IV, Section A(2) or a consolidation or merger in which the
corporation is the continuing entity and which does not result in any change in
the Common Stock), or of the sale or other disposition of all or substantially
all the properties and assets of the corporation as an entirety to any other
person, the shares of Series A and Series B Preferred shall, after such
reorganization, reclassification, consolidation, merger, sale or other
disposition, be convertible into the kind and number of shares of stock or other
securities or property of the corporation or of the entity resulting from such
consolidation or surviving such merger or to which such properties and assets
shall have been sold or otherwise disposed to which such holder would have been
entitled if immediately prior to such reorganization, reclassification,
consolidation, merger, sale or other disposition it had converted its shares of
Series A or Series B Preferred into Common Stock. The provisions of this
Subsection A(4)(a)(vii) shall similarly apply to successive reorganizations,
reclassifications, consolidations, mergers, sales or other dispositions.
(viii) All calculations under this Section A(4) shall be
made to the nearest one-hundredth (1/100) of a cent or to the nearest one-
hundredth (1/100) of a share,
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as the case may be.
(b) Minimal Adjustments. No adjustment in a Conversion Price
need be made if such adjustment would result in a change in a Conversion Price
of less than $0.01. Any adjustment of less than $0.01 which is not made shall be
carried forward and shall be made at the time of and together with any
subsequent adjustment which, on a cumulative basis, amounts to an adjustment of
$0.01 or more in a Conversion Price.
(c) No Impairment. The corporation will not, through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, including amending these
Articles of Incorporation, 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 A(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 Preferred Stock against impairment. This provision shall not
restrict the corporation from amending its Articles of Incorporation in
accordance with the General Corporation Law of the State of California and the
terms hereof.
(d) Computation of Adjustment. Upon the occurrence of each
adjustment or readjustment of the Conversion Price of any series of Preferred
Stock pursuant to this Section A(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 Preferred Stock affected
thereby a certificate 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 (i) such adjustment or readjustment, (ii) the
Conversion Price at the time in effect for such series of Preferred Stock, and
(iii) 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 such
holder's shares.
(5) Voting Rights.
(a) Voting other than for Directors. Except as required by law
and in Subsection A(5)(b) below, the holder of each share of Preferred Stock
shall be entitled to the number of votes equal to the number of shares of Common
Stock into which such shares of Preferred Stock could be converted on the record
date for the vote or consent of shareholders and, except as otherwise required
by law, 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 shareholders' meeting in accordance with the Bylaws of
the corporation and shall vote with holders of the Common Stock upon the
election of directors and upon any other matter submitted to a vote of
shareholders, except as to those matters required by law or these Articles of
Incorporation to be submitted to a class vote. 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 Series A and Series B Preferred Stock held by each holder could be
converted) shall be rounded to the nearest whole number.
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(b) Voting for Directors.
(i) With respect to the election of members of the Board of
Directors of the Corporation, (A) so long as at least 5,000,000 shares of
Series A Preferred remain outstanding (as adjusted for stock splits,
combinations and the like), the holders of Series A Preferred, voting as a
separate class, shall have the right to elect two members of the Board of
Directors (the "Series A Directors"), (B) so long as at least 1,500,000
shares of Series B Preferred remain outstanding, the holders of Series B
Preferred, voting as a separate class, shall have the right to elect one
member of the Board of Directors (the "Series B Director"), (C) the holders
of Common Stock, voting as a separate class, shall have the right to elect
two members of the Board of Directors (the "Common Stock Directors"), and
(D) the holders of the Series A Preferred, the Series B Preferred and the
Common Stock, voting together as a single class and not as separate series
and on an as-converted basis, shall have the right to elect the remaining
member(s) of the Board of Directors (the "Joint Director(s)").
(ii) the Series A Directors may be removed from the Board
of Directors, either with or without cause, only by the affirmative vote of
the holders of a majority of the outstanding Series A Preferred; the Series
B Director may be removed from the Board of Directors, either with or
without cause, only by the affirmative vote of the holders of a majority of
the outstanding Series B Preferred; the Common Directors may be removed
from the Board of Directors, either with or without cause, only by the
affirmative vote of the holders of a majority of the outstanding Common
Stock; and the Joint Director(s) may be removed from the Board of
Directors, either with or without cause, only by the affirmative vote of
the holders of a majority of the Series A Preferred, the Series B Preferred
and the Common Stock, voting together as a single class and not as separate
series and on an as-converted basis; provided, however, that no director
may be removed (unless the entire board is removed) when the votes cast
against removal, or not consenting in writing to the removal, would be
sufficient to elect the director if voted cumulatively at an election at
which the same total number of votes were cast (or, if the action is taken
by written consent, all shares entitled to vote were voted) and the entire
number of directors authorized at the time of the director's most recent
election were then being elected.
(iii) If a vacancy on the Board of Directors is to be
filled by the Board of Directors, only a director or directors elected by
the same class of shareholders as those who would be entitled to vote to
fill such vacancy, if any, shall vote to fill such vacancy. If there are no
such directors, such vacancy shall be filled by the affirmative vote of the
holders of a majority of the shares of that class.
(6) Redemption. The Preferred Stock shall not be redeemable.
(7) Protective Provisions.
(a) So long as at least 6,500,000 shares of Preferred Stock
remain outstanding, the corporation shall not, without first obtaining the
approval by vote or written consent, in the manner provided by law, of the
holders of at least a majority of the shares of Preferred Stock outstanding,
voting as a class:
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(i) declare or pay any dividend on the Common Stock;
(ii) redeem, purchase or otherwise acquire (or pay into or
set aside for a sinking fund for such purpose) any of the Common Stock;
provided, however, that this restriction shall not apply to the repurchase of
shares of Common Stock from employees, officers, directors, consultants or other
persons performing services for the corporation or any subsidiary pursuant to
agreements under which the corporation has the option to repurchase such shares
at cost or at cost plus interest upon the occurrence of certain events, such as
the termination of employment;
(iii) cause the acquisition of this corporation by another
entity or entities by means of any transaction or series of related transactions
(including, without limitation, any reorganization, merger or consolidation)
that results in the transfer of fifty percent (50%) or more of the outstanding
voting power of this corporation, or the sale, transfer or lease (other than a
pledge or grant of a security interest to a bona fide lender) of all or
substantially all of the assets of this corporation;
(iv) authorize or issue, or obligate itself to issue, any
other equity security, including any other security convertible into or
exercisable for any equity security, having a preference over, or being on a
parity with, the Series A or Series B Preferred with respect to dividends,
liquidation, redemption or voting rights;
(v) increase the authorized number of directors of the
corporation to a number greater than seven.
(b) So long as at least 1,500,000 shares of any series of
Preferred Stock remain outstanding, the Corporation shall not, without first
obtaining the approval by vote or written consent of the holders of a majority
of the then outstanding shares of such series of Preferred Stock:
(i) amend or repeal any provision of, or add any provision
to, this corporation's Articles of Incorporation or bylaws if such action would
alter or change materially and adversely the preferences, rights, privileges or
powers of, or the restrictions provided for the benefit of, such series of
Preferred Stock;
(ii) increase or decrease the authorized number of shares
of such series of Preferred Stock;
(c) Notices of Record Date. In the event that this corporation
shall propose at any time:
(i) to declare any dividend or distribution upon shares of
its Common Stock, whether in cash, property, stock or other securities, whether
or not a regular cash dividend and whether or not out of earnings or earned
surplus;
(ii) 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;
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(iii) to effect any reclassification or recapitalization of
its Common Stock outstanding; or
(iv) to merge, reorganize or consolidate with or into any
other entity or entities by means of any transaction or series of related
transactions resulting in the transfer of 50% or more of the outstanding voting
power of the corporation; to sell, transfer or lease (other than a pledge or
grant of a security interest to a bona fide lender) all or substantially all of
its assets or business; or to liquidate, dissolve or wind up;
then, in connection with each such event, this corporation shall send to the
holders of the Preferred Stock:
(A) 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 in respect of the matters referred to in (i) and
(ii) above or for determining rights to vote in respect of the matters referred
to in (iii) and (iv) above.
(B) in the case of matters referred to in (iv) above,
this 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 shareholders' 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 Subsection A(7)(c), and
this 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 this corporation has given the first notice provided for
herein or sooner than ten (10) days after this 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 Preferred Stock that
are entitled to such notice rights or similar rights that represent at least a
majority of the voting power of all then outstanding shares of such Preferred
Stock.
(C) in the case of the matters referred to in (iii)
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).
(D) Each such written notice shall be delivered
personally or given by first class mail, postage prepaid, addressed to the
holders of the Preferred Stock at the address for each such holder as shown on
the books of this corporation.
B. Common Stock.
(1) Dividend Rights. Subject to the prior rights of holders of all
classes of stock at the time outstanding having prior rights as to dividends,
the holders of the Common Stock shall be entitled to receive, when and as
declared by the Board of Directors, out of any
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assets of the corporation legally available therefor such dividends as may be
declared from time to time by the Board of Directors.
(2) Liquidation Rights. Upon the liquidation, dissolution or winding
up of the corporation, the assets of the corporation shall be distributed as
provided in Article IV, Section A(2) hereof.
(3) Voting Rights. The holder of each share of Common Stock shall
have the right to one vote, and shall be entitled to notice of any shareholders'
meeting in accordance with the Bylaws of this corporation, and shall be entitled
to vote upon such matters and in such manner as may be provided by law.
ARTICLE V
LIABILITY OF DIRECTORS
AND INDEMNIFICATION OF AGENTS
A. Limitation on Directors' Liability. The liability of the directors of
the corporation for monetary damages shall be eliminated to the fullest extent
permissible under California law.
B. Indemnification of Corporate Agents. The corporation is authorized to
provide indemnification of agents (as defined in Section 317 of the California
General Corporation Law) through bylaw provisions, agreements with agents, vote
of shareholders or disinterested directors or otherwise, in excess of the
indemnification otherwise permitted by Section 317 of the California General
Corporation Law, subject only to the applicable limits set forth in Section 204
of the California General Corporation Law with respect to actions for breach of
duty to the corporation and its shareholders.
C. Repeal or Modification. Any repeal or modification of the foregoing
provisions of this Article V by the shareholders of the corporation shall not
adversely affect any right or protection of an agent of the corporation existing
at the time of such repeal or modification.
3. The foregoing amendment of the Articles of Incorporation has been
duly approved by the Board of Directors.
4. The foregoing amendment of the Articles of Incorporation has been
duly approved by the required vote of shareholders in accordance with Sections
902 and 903 of the California Corporations Code. The total number of
outstanding shares of Common Stock of the corporation is 14,723,264. The total
number of outstanding shares of Series A Preferred Stock of the Corporation is
27,987,803. The number of shares voting in favor of the amendment equaled or
exceeded the vote required. The percentage vote required under the law and the
Articles of Incorporation in effect at the time of this amendment was more than
50% of the outstanding Common Stock and more than 50% of the outstanding Series
A Preferred Stock, each voting separately as a class.
-14-
<PAGE>
I further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of my own knowledge.
Dated: September 4, 1998
/S/ David Hayden
------------------------------------
David Hayden, President
/S/ David Hayden
------------------------------------
David Hayden, Secretary
-15-
<PAGE>
CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION
-----------------------------------------------------
The undersigned, Douglas Hickey and David Hayden certify that:
1. They are the duly elected President and the Secretary, respectively,
of Critical Path, Inc., a California corporation.
2. Article III of the Articles of Incorporation of this corporation is
amended in its entirety to read in full as follows:
"ARTICLE III
STOCK
-----
This corporation is authorized to issue two classes of stock to be
designated respectively, Common Stock ("Common Stock") and Preferred Stock
("Preferred Stock"). The total number of shares of capital stock which the
corporation is authorized to issue is One Hundred Thirty Six Million Two Hundred
Thirty-Four Thousand Seven Hundred Forty-Three (136,234,743) shares, of which
Eighty-Five Million (85,000,000) shares shall be Common Stock, and Fifty-One
Million Two Hundred Thirty-Four Thousand Seven Hundred Forty-Three (51,234,743)
shares shall be Preferred Stock. Both the Common Stock and the Preferred Stock
shall have par value of $0.001 per share.
The Preferred Stock may be issued from time to time in one or more series.
The first series of Preferred Stock shall be designated as Series A Preferred
Stock (the "Series A Preferred") and shall consist of Twenty-Nine Million Two
Hundred Thirty-Four Thousand Seven Hundred Forty-Three (29,234,743) shares. The
second series of Preferred Stock shall be designated as Series B Preferred Stock
(the "Series B Preferred") and shall consist of Twenty-Two Million (22,000,000)
shares. The Series A Preferred Stock and the Series B Preferred Stock are
hereafter sometimes collectively referred to as the "Preferred Stock" or the
"Series A and Series B Preferred."
D-1
<PAGE>
3. Paragraph (i) of Section 3(a) of Article IV of the Articles of
Incorporation of this corporation is amended in its entirety to read in full as
follows:
"(i) The closing of a sale of the corporation's Common Stock in a
firm commitment underwritten registered public offering pursuant to a
registration statement on Form S-1 or Form SB-2 under the Securities Act of
1933, as amended, with aggregate gross proceeds to the corporation of at least
$30,000,000 at an initial offering price of at least $7.7492 per share (as
adjusted for any combinations, consolidations, subdivisions, splits or stock
dividends with respect to such shares of Common Stock); or"
4. The foregoing amendment of the Articles of Incorporation has been duly
approved by the Board of Directors.
5. The foregoing amendment of the Articles of Incorporation has been duly
approved by the required vote of shareholders in accordance with Sections 902
and 903 of the California Corporations Code. The total number of outstanding
shares of the corporation is 18,162,577 shares of Common Stock, 27,987,803
shares of Series A Preferred Stock and 8,000,197 shares of Series B Preferred
Stock. The number of shares voting in favor of the amendment equaled or
exceeded the vote required. The percentage vote required under the law and the
Articles of Incorporation in effect at the time of this amendment was more than
50% of the outstanding Common Stock and more than 50% of the outstanding
Preferred Stock, each voting separately as a class.
I further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of my own knowledge.
Dated: December 17, 1998
/S/ Douglas Hickey
--------------------------------
Douglas Hickey
President
/S/ David Hayden
--------------------------------
David Hayden
Secretary
D-2
<PAGE>
CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION
-----------------------------------------------------
The undersigned, David Hayden and David Thatcher certify that:
1. They are the duly elected Chairman and the Secretary, respectively, of
Critical Path, Inc., a California corporation.
2. Section A(4)(a)(iii) of Article IV of the Articles of Incorporation of
this corporation is amended in its entirety to read in full as follows:
(iii) "Additional Stock" shall mean any shares of Common Stock issued
or deemed to have been issued pursuant to Subsection A(4)(a)(ii)(C) by the
corporation after the date on which a share of Series A or Series B Preferred
was first issued, other than shares of Common Stock issued or issuable:
(A) Upon conversion of shares of Series A or Series B Preferred;
(B) To employees, consultants, directors or vendors of this
corporation directly or pursuant to a stock option plan or stock purchase plan
or other incentive stock arrangement approved by the Board of Directors of the
corporation acting in their good faith, reasonable, business judgment;
(C) In connection with bona fide equipment lease or loan
financing or similar transactions approved by the Board of Directors acting in
their good faith, reasonable, business judgment;
(D) In connection with stock dividends, subdivisions, split-ups,
combinations or dividends which are covered by Subsections A(4)(a)(iv), (v) and
(vi); and
(E) To a corporate investor prior to January 31, 1999 in an
amount not to exceed 2,400,000 shares of Common Stock.
3. The foregoing amendment of the Articles of Incorporation has been duly
approved by the Board of Directors.
4. The foregoing amendment of the Articles of Incorporation has been duly
approved by the required vote of shareholders in accordance with Sections 902
and 903 of the California Corporations Code. The total number of outstanding
shares of the corporation is 18,177,577 shares of Common Stock, 27,996,949
shares of Series A Preferred Stock and
<PAGE>
8,000,827 shares of Series B Preferred Stock. The number of shares voting in
favor of the amendment equaled or exceeded the vote required. The percentage
vote required under the law and the Articles of Incorporation in effect at the
time of this amendment was more than 50% of the outstanding Common Stock and
more than 50% of the outstanding Preferred Stock, each voting separately as a
class.
[Remainder of Page Intentionally Left Blank]
<PAGE>
The undersigned further declare under penalty of perjury under the laws of
the State of California that the matters set forth in this certificate are true
and correct of their own knowledge.
Dated: January 4, 1999
/S/ David Hayden
-------------------------------------
David Hayden
Chairman of the Board
/S/ David Thatcher
-------------------------------------
David Thatcher
Secretary
<PAGE>
EXHIBIT 3(i)(b)
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
CRITICAL PATH, INC.
The undersigned, Douglas T. Hickey and David A. Thatcher, certify that:
1. They are the duly elected President and Secretary, respectively, of
Critical Path, Inc., a California corporation.
2. The Articles of Incorporation of this corporation are amended and
restated to read in full as follows:
ARTICLE I
NAME
----
The name of this corporation is Critical Path, Inc. (hereinafter, the
"Corporation").
ARTICLE II
PURPOSES
--------
The purpose of the Corporation is to engage in any lawful act or activity
for which a Corporation may be organized under the General Corporation Law of
California other than the banking business, the trust company business or the
practice of a profession permitted to be incorporated by the California
Corporations Code.
ARTICLE III
STOCK
-----
This Corporation is authorized to issue two classes of stock to be
designated respectively, Common Stock ("Common Stock") and Preferred Stock
("Preferred Stock"). The total number of shares of capital stock which the
Corporation is authorized to issue is One Hundred Fifty-Five Million
(155,000,000) shares, of which One Hundred Fifty Million (150,000,000) shares
shall be Common Stock, and Five Million (5,000,000) shares shall be Preferred
Stock. Both the Common Stock and the Preferred Stock shall have par value of
$0.001 per share.
The Preferred Stock may be issued from time to time in one or more series.
The Board of Directors of the Corporation (the "Board of Directors") is
expressly authorized, within the limitations and restrictions stated in this
Amended and Restated Articles of Incorporation, to
-1-
<PAGE>
provide for the issue, in one or more series, of all or any of the remaining
shares of the Preferred Stock, and to fix the number of shares and to determine
or alter for each such series, such voting powers, full or limited, or no voting
powers, and such designations, preferences, and relative, participating,
optional, or other rights and such qualifications, limitations, or restrictions
thereof, as shall be stated and expressed in the resolution or resolutions
adopted by the Board of Directors providing for the issue of such shares and as
may be permitted by the General Corporation Law of California. The Board of
Directors is also expressly authorized (unless forbidden in the resolution or
resolutions providing for such issue) to increase or decrease (but not below the
number of shares of such series then outstanding) the number of shares of any
series of Preferred Stock subsequent to the issue of shares of that series. In
case the number of shares of any such series shall be so decreased, 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 of such
series.
ARTICLE IV
The holder of each share of Common Stock shall have the right to one vote,
and shall be entitled to notice of any shareholders' meeting in accordance with
the Bylaws of this Corporation, and shall be entitled to vote upon such matters
and in such manner as may be provided by law. No action required to be taken by
the shareholders of the Corporation may be taken by written consent.
ARTICLE V
LIABILITY OF DIRECTORS
AND INDEMNIFICATION OF AGENTS
-----------------------------
A. Limitation on Directors' Liability. The liability of the directors of
the Corporation for monetary damages shall be eliminated to the fullest extent
permissible under California law.
B. Indemnification of Corporate Agents. The Corporation is authorized to
provide indemnification of agents (as defined in Section 317 of the California
General Corporation Law) through bylaw provisions, agreements with agents, vote
of shareholders or disinterested directors or otherwise, in excess of the
indemnification otherwise permitted by Section 317 of the California General
Corporation Law, subject only to the applicable limits set forth in Section 204
of the California General Corporation Law with respect to actions for breach of
duty to the Corporation and its shareholders.
C. Repeal or Modification. Any repeal or modification of the foregoing
provisions of this Article V by the shareholders of the Corporation shall not
adversely affect any right or protection of an agent of the Corporation existing
at the time of such repeal or modification.
3. The foregoing amendment of the Articles of Incorporation has been
duly approved by the Board of Directors.
4. The foregoing amendment of the Articles of Incorporation has been
duly approved by the required vote of shareholders in accordance with Sections
902 and 903 of the
-2-
<PAGE>
California Corporations Code. The total number of outstanding shares of Common
Stock of the Corporation is _________. The total number of outstanding shares of
Series A Preferred Stock of the Corporation is __________. The total number of
outstanding shares of Series B Preferred Stock of the Corporation is __________.
The number of shares voting in favor of the amendment equaled or exceeded the
vote required. The percentage vote required under the law and the Articles of
Incorporation in effect at the time of this amendment was more than 50% of the
outstanding Common Stock and more than 50% of the outstanding Preferred Stock,
each voting separately as a class.
I further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of my own knowledge.
Dated: January __, 1999
---------------------------------------
Douglas T. Hickey, President
---------------------------------------
David A. Thatcher, Secretary
-3-
<PAGE>
EXHIBIT 3(ii)(a)
BYLAWS
OF
CRITICAL PATH, INC.
<PAGE>
BYLAWS OF
CRTICAL PATH, INC.
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I - CORPORATE OFFICES............................................ 1
1.1 Principal Office............................................. 1
1.2 Other Offices................................................ 1
ARTICLE II - MEETINGS OF SHAREHOLDERS..................................... 1
2.1 Place of Meetings............................................ 1
2.2 Annual Meeting............................................... 1
2.3 Special Meetings............................................. 1
2.4 Notice of Shareholders' Meetings............................. 2
2.5 Manner of Giving Notice; Affidavit of Notice................. 3
2.6 Quorum....................................................... 3
2.7 Adjourned Meeting; Notice.................................... 4
2.8 Voting....................................................... 4
2.9 Validation of Meetings; Waiver of Notice; Consent............ 5
2.10 Shareholder Action by Written Consent
Without A Meeting............................................ 6
2.11 Record Date for Shareholder Notice; Voting;
Giving Consents.............................................. 7
2.12 Proxies...................................................... 7
2.13 Inspectors of Election....................................... 8
ARTICLE III - DIRECTORS.................................................... 9
3.1 Powers....................................................... 9
3.2 Number of Directors.......................................... 9
3.3 Election and Term of Office of Directors..................... 9
3.4 Removal...................................................... 10
3.5 Resignation and Vacancies.................................... 10
3.6 Place of Meetings; Meetings by Telephone..................... 11
3.7 Regular Meetings............................................. 11
3.8 Special Meetings; Notice..................................... 11
3.9 Quorum....................................................... 12
3.10 Waiver of Notice............................................. 12
3.11 Adjournment.................................................. 12
3.12 Notice of Adjournment........................................ 13
3.13 Board Action by Written Consent Without A
Meeting...................................................... 13
3.14 Fees and Compensation of Directors........................... 13
3.15 Approval of Loans to Officers................................ 13
ARTICLE IV - COMMITTEES................................................... 14
4.1 Committees of Directors...................................... 14
4.2 Meetings and Action of Committees............................ 14
ARTICLE V - OFFICERS..................................................... 15
5.1 Officers..................................................... 15
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
5.2 Appointment of Officers...................................... 15
5.3 Subordinate Officers......................................... 15
5.4 Removal and Resignation of Officers.......................... 15
5.5 Vacancies in Offices......................................... 16
5.6 Chairman of the Board........................................ 16
5.7 President.................................................... 16
5.8 Vice Presidents.............................................. 16
5.9 Secretary.................................................... 17
5.10 Chief Financial Officer...................................... 17
ARTICLE VI - INDEMNIFICATION OF DIRECTORS, OFFICERS,
EMPLOYEES, AND OTHER AGENTS.................................. 18
6.1 Indemnification of Directors................................. 18
6.2 Indemnification of Others.................................... 18
6.3 Payment of Expenses in Advance............................... 19
6.4 Indemnity Not Exclusive...................................... 19
6.5 Insurance Indemnification.................................... 19
6.6 Conflicts.................................................... 19
6.7 Right to Bring Suit.......................................... 20
6.8 Indemnity Agreements......................................... 20
6.9 Amendment, Repeal or Modification............................ 20
ARTICLE VII - RECORDS AND REPORTS.......................................... 21
7.1 Maintenance and Inspection of Share Register................. 21
7.2 Maintenance and Inspection of Bylaws......................... 21
7.3 Maintenance and Inspection of Other
Corporate Records............................................ 22
7.4 Inspection by Directors...................................... 22
7.5 Annual Report to Shareholders; Waiver........................ 22
7.6 Financial Statements......................................... 23
7.7 Representation of Shares of Other
Corporations................................................. 23
ARTICLE VIII - GENERAL MATTERS.............................................. 24
8.1 Record Date for Purposes Other Than Notice
and Voting................................................... 24
8.2 Checks; Drafts; Evidences of Indebtedness.................... 24
8.3 Corporate Contracts and Instruments: How Executed........... 24
8.4 Certificates for Shares...................................... 25
8.5 Lost Certificates............................................ 25
8.6 Construction; Definitions.................................... 25
ARTICLE IX - AMENDMENTS................................................... 26
9.1 Amendment by Shareholders.................................... 26
9.2 Amendment by Directors....................................... 26
9.3 Record of Amendments......................................... 26
ARTICLE X - INTERPRETATION............................................... 20
</TABLE>
-ii-
<PAGE>
BYLAWS
------
OF
--
CRITICAL PATH, INC.
ARTICLE I
CORPORATE OFFICES
-----------------
1.1 Principal Office.
----------------
The Board of Directors shall fix the location of the princ ipal executive
office of the corporation at any place within or outside the State of
California. If the principal executive office is located outside California and
the corporation has one or more business offices in California, then the Board
of Directors shall fix and designate a principal business office in California.
1.2 Other Offices.
-------------
The Board of Directors may at any time establish branch or subordinate
offices at any place or places.
ARTICLE II
MEETINGS OF SHAREHOLDERS
------------------------
2.1 Place of Meetings.
-----------------
Meetings of shareholders shall be held at any place within or outside the
State of California designated by the Board of Directors. In the absence of any
such designation, share holders' meetings shall be held at the principal
executive office of the corporation or at any place consented to in writing by
all persons entitled to vote at such meeting, given before or after the meeting
and filed with the Secretary of the corporation.
2.2 Annual Meeting.
--------------
An annual meeting of shareholders shall be held each year on a date and at
a time designated by the Board of Directors. At that meeting, directors shall
be elected. Any other proper business may be transacted at the annual meeting
of shareholders.
2.3 Special Meetings.
----------------
Special meetings of the shareholders may be called at any time, subject to
the provisions of Sections 2.4 and 2.5 of these
-1-
<PAGE>
Bylaws, by the Board of Directors, the Chairman of the Board, the President or
the holders of shares entitled to cast not less than ten percent (10%) of the
votes at that meeting.
If a special meeting is called by anyone other than the Board of Directors
or the President or the Chairman of the Board, then 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 other written communication to the Chairman of the Board,
the President, any Vice President or the Secretary of the corporation. The
officer receiving the request forthwith shall cause notice to be given to the
shareholders entitled to vote, in accordance with the provisions of Sections 2.4
and 2.5 of these Bylaws, that a meeting will be held at the time requested by
the person or persons calling the meeting, so long as that time is 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 receipt of the request,
then 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 shareholders called by action of
the Board of Directors may be held.
2.4 Notice of Shareholders' Meetings.
--------------------------------
All notices of meetings of shareholders shall be sent or otherwise given in
accordance with Section 2.5 of these Bylaws not less than ten (10) (or, if sent
by third-class mail pursuant to Section 2.5 of these Bylaws, not less than
thirty (30)) nor more than sixty (60) days before the date of the meeting to
each shareholder entitled to vote thereat. Such notice shall state 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, and 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 the mailing
of the notice, intends to present for action by the shareholders, but, subject
to the provisions of the next paragraph of this Section 2.4, 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 names of nominees intended
at the time of the notice to be presented by the Board for election.
If action is proposed to be taken at any meeting for approval of (i) a
contract or transaction in which a director has a direct or indirect financial
interest, pursuant to Section 310 of the California Corporations Code (the
"Code"), (ii) an amendment of the Articles of Incorporation, pursuant to Section
902 of the Code, (iii) a reorganization of the corporation, pursuant to Section
1201 of the Code, (iv) a voluntary dissolu tion of the corporation, pursuant to
Section 1900 of the Code,
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<PAGE>
or (v) a distribution in dissolution other than in accordance with the rights of
any outstanding preferred shares, pursuant to Section 2007 of the Code, then the
notice shall also state the general nature of that proposal.
2.5 Manner of Giving Notice; Affidavit of Notice.
--------------------------------------------
Notice of a shareholders' meeting shall be given either personally or by
first-class mail, or, if the corporation has outstanding shares held of record
by five hundred (500) or more persons (determined as provided in Section 605 of
the Code) on the record date for the shareholders' meeting, notice may be sent
by third-class mail, or other means of written communica tion, addressed to the
shareholder at the address of the share holder appearing on the books of the
corporation or given by the shareholder to the corporation for the purpose of
notice; or if no such address appears or is given, at the place where the
principal executive office of the corporation is located or by publication at
least once in a newspaper of general circulation in the county in which the
principal executive office is located. The notice shall be deemed to have been
given at the time when delivered personally or deposited in the mail or sent by
other means of written communication.
If any notice (or any report referenced in Article VII of these Bylaws)
addressed to a shareholder at the address of such shareholder 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 shareholder at that address, all future
notices or reports shall be deemed to have been duly given without further
mailing if the same shall be available to the shareholder upon written demand of
the shareholder 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 mailing of any notice or report in accordance with the
provisions of this Section 2.5, executed by the Secretary, Assistant Secretary
or any transfer agent, shall be prima facie evidence of the giving of the notice
or report.
2.6 Quorum.
------
Unless otherwise provided in the Articles of Incorporation of the
corporation, a majority of the shares entitled to vote, represented in person or
by proxy, shall constitute a quorum at a meeting of the shareholders. The
shareholders present at a duly called or held meeting at which a quorum is
present may continue to transact business until adjournment notwithstanding the
withdrawal of enough shareholders 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.
-3-
<PAGE>
In the absence of a quorum, any meeting of shareholders may be adjourned
from time to time by the vote of a majority of the shares represented either in
person or by proxy, but no other business may be transacted, except as provided
in the last sentence of the preceding paragraph.
2.7 Adjourned Meeting; Notice.
-------------------------
Any shareholders' 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.
When any meeting of shareholders, either annual or special, is adjourned to
another time or place, notice need not be given of the adjourned meeting if its
time and place are announced at the meeting at which the adjournment is taken.
However, if the adjournment is for more than forty-five (45) days from the date
set for the original meeting or if a new record date for the adjourned meeting
is fixed, a notice of the adjourned meeting shall be given to each shareholder
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 shareholders entitled to vote at any meeting of share holders shall be
determined in accordance with the provisions of Section 2.11 of these Bylaws,
subject to the provisions of Sections 702 through 704 of the Code (relating to
voting shares held by a fiduciary, in the name of a corporation, or in joint
ownership).
Elections for directors and voting on any other matter at a shareholders'
meeting need not be by ballot unless a shareholder demands election by ballot at
the meeting and before the voting begins.
Except as provided in the last paragraph of this Sec tion 2.8, or as may be
otherwise provided in the Articles of Incorporation, each outstanding share,
regardless of class, shall be entitled to one vote on each matter submitted to a
vote of the shareholders. Any holder of shares 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 may vote them against the proposal other than elections to
office, but, if the shareholder fails to specify the number of shares such share
holder is voting affirmatively, it will be conclusively presumed that the
shareholder's approving vote is with respect to all shares which the shareholder
is entitled to vote.
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<PAGE>
The affirmative vote of the majority of the shares repre sented and voting
at a duly held meeting at which a quorum is present (which shares voting
affirmatively also constitute at least a majority of the required quorum) shall
be the act of the shareholders, unless the vote of a greater number or voting by
classes is required by the Code or by the Articles of Incorporation.
At a shareholders' meeting at which directors are to be elected, a
shareholder shall be entitled to cumulate votes either (i) by giving one
candidate a number of votes equal to the number of directors to be elected
multiplied by the number of votes to which that shareholder's shares are
normally entitled or (ii) by distributing the shareholder's votes on the same
principle among as many candidates as the shareholder thinks fit, if the
candidate or candidates' names have been placed in nomination prior to the
voting and the shareholder has given notice prior to the voting of the
shareholder's intention to cumulate the shareholder's votes. If any one
shareholder has given such a notice, then every shareholder entitled to vote may
cumulate votes for candidates in nomination. The candidates receiving the
highest number of affirmative votes, up to the number of directors to be
elected, shall be elected; votes against any candidate and votes withheld shall
have no legal effect.
2.9 Validation of Meetings; Waiver of Notice; Consent.
-------------------------------------------------
The transactions of any meeting of shareholders, either annual or special,
however called and noticed, and wherever held, are 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 of the persons entitled to vote, 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. Neither the business to be
transacted at nor the purpose of any annual or special meeting of shareholders
need be specified in any written waiver of notice or consent to the holding of
the meeting or approval of the minutes thereof, except that if action is taken
or proposed to be taken for approval of any of those matters specified in the
second para graph of Section 2.4 of these Bylaws, the waiver of notice or
consent or approval shall state the general nature of the proposal. All such
waivers, consents, and approvals shall be filed with the corporate records or
made a part of the minutes of the meeting.
Attendance of a person at a meeting shall 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 and except that attendance at a meeting is not a
waiver of any right to object to the consideration of
-5-
<PAGE>
matters required by the Code to be included in the notice of such meeting but
not so included, if such objection is expressly made at the meeting.
2.10 Shareholder Action by Written Consent Without A Meeting.
-------------------------------------------------------
Any action which may be taken at any annual or special meeting of
shareholders may be taken without a meeting and without prior notice, if a
consent in writing, setting forth the action so taken, shall be signed by the
holders of outstanding shares having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted.
Directors may not be elected by written consent except by unanimous written
consent of all shares entitled to vote for the election of directors. However,
a director may be elected at any time to fill any vacancy on the Board of
Directors, provided that it was not created by removal of a director and that it
has not been filled by the directors, by the written consent of the holders of a
majority of the outstanding shares entitled to vote for the election of
directors.
All such consents shall be maintained in the corporate records. Any
shareholder giving a written consent, or the shareholder's proxy holders, or a
transferee of the shares, or a personal representative of the shareholder, or
their respective proxy holders, may revoke the consent by a writing received by
the Secretary of the corporation before written consents of the number of shares
required to authorize the proposed action have been filed with the Secretary.
If the consents of all shareholders entitled to vote have not been
solicited in writing, the Secretary shall give prompt notice of any corporate
action approved by the shareholders without a meeting by less than unanimous
written consent to those shareholders entitled to vote who have not consented in
writing. Such notice shall be given in the manner specified in Section 2.5 of
these Bylaws. In the case of approval of (i) a contract or transaction in which
a director has a direct or indirect financial interest, pursuant to Section 310
of the Code, (ii) indemnification of a corporate "agent," pursuant to Section
317 of the Code, (iii) a reorganization of the corpora tion, pursuant to Section
1201 of the Code, and (iv) a distri bution in dissolution other than in
accordance with the rights of outstanding preferred shares, pursuant to Section
2007 of the Code, the notice shall be given at least ten (10) days before the
consummation of any action authorized by that approval, unless the consents of
all shareholders entitled to vote have been solicited in writing.
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<PAGE>
2.11 Record Date for Shareholder Notice; Voting; Giving Consents.
-----------------------------------------------------------
In order that the corporation may determine the share holders entitled to
notice of any meeting or to vote, 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 prior to the date of such meeting nor more than sixty (60) days before any
other action. Shareholders at the close of business on the record date are
entitled to notice and to vote, as the case may be, notwithstanding any transfer
of any shares on the books of the corporation after the record date, except as
otherwise pro vided in the Articles of Incorporation or the Code.
A determination of shareholders of record entitled to notice of or to vote
at a meeting of shareholders shall apply to any adjournment of the meeting
unless the Board of Directors fixes a new record date for the adjourned meeting,
but the Board of Directors shall fix a new record date if the meeting is
adjourned for more than forty-five (45) days from the date set for the original
meeting.
If the Board of Directors does not so fix a record date:
(a) The record date for determining shareholders entitled to notice
of or to vote at a meeting of shareholders 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.
(b) The record date for determining shareholders 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 thereto, or the sixtieth (60th) day prior to the date of such other
action, whichever is later.
The record date for any other purpose shall be as provided in Section 8.1
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. A proxy shall be deemed signed if the shareholder's name or other
authorization is placed on the proxy (whether by manual signa ture, typewriting,
telegraphic or electronic transmission or otherwise) by the shareholder or the
shareholder's attorney-in-fact. A validly executed proxy which does not state
that it is
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<PAGE>
irrevocable shall continue in full force and effect unless (i) the person who
executed the proxy revokes it prior to the time of voting by delivering a
writing to the corporation stat ing that the proxy is revoked or by executing a
subsequent proxy and presenting it to the meeting or by attendance at such meet
ing and voting in person, or (ii) written notice of the death or incapacity of
the maker of that proxy is received by the corporation before the vote pursuant
to that proxy is counted; provided, however, that no proxy shall be valid after
the expiration of eleven (11) months from the date thereof, unless otherwise
provided in the proxy. The dates contained on the forms of proxy presumptively
determine the order of execution, regardless of the postmark dates on the
envelopes in which they are mailed. The revocability of a proxy that states on
its face that it is irrevocable shall be governed by the provisions of Sections
705(e) and 705(f) of the Code.
2.13 Inspectors of Election.
----------------------
In advance of any meeting of shareholders, the Board of Directors may
appoint inspectors of election to act at the meeting and any adjournment
thereof. If inspectors of election are not so appointed or designated or if any
persons so appointed fail to appear or refuse to act, then the Chairman of the
meeting may, and on the request of any shareholder or a shareholder's proxy
shall, appoint inspectors of election (or persons to replace those who so fail
to appear) at the meeting. The number of inspectors shall be either one (1) or
three (3). If appointed at a meeting on the request of one (1) or more
shareholders or proxies, the majority of shares represented in person or by
proxy shall determine whether one (1) or three (3) inspectors are to be
appointed.
The inspectors of election shall determine the number of shares outstanding
and the voting power of each, the shares represented at the meeting, the
existence of a quorum, and the authenticity, validity, and effect of proxies,
receive votes, ballots or consents, hear and determine all challenges and
questions in any way arising in connection with the right to vote, count and
tabulate all votes or consents, determine when the polls shall close, determine
the result and do any other acts that may be proper to conduct the election or
vote with fairness to all shareholders.
ARTICLE III
DIRECTORS
---------
3.1 Powers.
------
Subject to the provisions of the Code and any limitations in the Articles
of Incorporation and these Bylaws relating to action required to be approved by
the shareholders or by the
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<PAGE>
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. The Board may delegate the management of the day-to-day
operation of the business of the corporation to a management company or other
person provided that the business and affairs of the corporation shall be
managed and all corporate powers shall be exercised under the ultimate direction
of the Board.
3.2 Number of Directors.
-------------------
The authorized number of directors of the corporation shall be five (5).
The number of directors may be changed, by a duly adopted amendment to the
Articles of Incorporation or by an amendment to this Bylaw duly adopted by the
vote or written consent of holders of a majority of the outstanding shares
entitled to vote; provided, however, that an amendment reducing the fixed number
or the minimum number of directors to a number less than five (5) cannot be
adopted if the votes cast against its adoption at a meeting, or the shares not
consenting in the case of an action by written consent, are equal to more than
sixteen and two-thirds percent (16-2/3%) of the outstanding shares entitled to
vote thereon.
No reduction of the authorized number of directors shall have the effect of
removing any director before that director's term of office expires.
3.3 Election and Term of Office of Directors.
----------------------------------------
At each annual meeting of shareholders, directors shall be elected to hold
office until the next annual meeting. Each director, including a director
elected to fill a vacancy, shall hold office until the expiration of the term
for which elected and until a successor has been elected and qualified, except
in the case of the death, resignation, or removal of such a director.
3.4 Removal.
-------
The entire Board of Directors or any individual director may be removed
from office without cause by the affirmative vote of a majority of the
outstanding shares entitled to vote on such removal; provided, however, that
unless the entire Board is removed, no individual director may be removed when
the votes cast against such director's removal, or not consenting in writing to
such removal, would be sufficient to elect that director if voted cumulatively
at an election at which the same total number of votes cast were cast (or, if
such action is taken by written consent, all shares entitled to vote were voted)
and the entire number of directors authorized at the time of such director's
most recent election were then being elected.
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<PAGE>
3.5 Resignation and Vacancies.
-------------------------
Any director may resign effective upon giving oral or 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 the effectiveness of such
resignation. 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 on the Board of Directors may be filled by a majority of the
remaining directors, or if the number of directors then in office is less than a
quorum by (i) unanimous written consent of the directors then in office, (ii)
the affirmative vote of a majority of the directors then in office at a meeting
held pursuant to notice or waivers of notice, or (iii) a sole remaining
director; however, a vacancy created by the removal of a director by the vote or
written consent of the shareholders or by court order may be filled only by the
affirmative vote of a majority of the shares represented and voting at a duly
held meeting at which a quorum is present (which shares voting affirmatively
also constitute at least a majority of the required quorum), or by the unanimous
written consent of all shares entitled to vote thereon. Each director so
elected shall hold office until the next annual meeting of the shareholders and
until a successor has been elected and qualified, or until his or her death,
resignation or removal.
A vacancy or vacancies in the Board of Directors shall be deemed to exist
(i) in the event of the death, resignation or removal of any director, (ii) if
the Board of Directors by resolution declares vacant the office of a director
who has been declared of unsound mind by an order of court or convicted of a
felony, (iii) if the authorized number of directors is increased, or (iv) if the
shareholders fail, at any meeting of shareholders at which any director or
directors are elected, to elect the full authorized number of directors to be
elected at that meeting.
The shareholders may elect a director or directors at any time to fill any
vacancy or vacancies not filled by the directors, but any such election by
written consent, other than to fill a vacancy created by removal, shall require
the consent of the holders of a majority of the outstanding shares entitled to
vote thereon. A director may not be elected by written consent to fill a
vacancy created by removal except by unanimous consent of all shares entitled to
vote for the election of directors.
3.6 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 California that has been designated from time to time by
resolution of the Board.
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<PAGE>
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 California 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.
Members of the Board may participate in a meeting through the use of
conference telephone or similar communications equipment, so long as all
directors participating in such meeting can hear one another. Participation in
a meeting pursuant to this paragraph constitutes presence in person at such
meeting.
3.7 Regular Meetings.
----------------
Regular meetings of the Board of Directors may be held without notice if
the time and place of such meetings are fixed by the Board of Directors.
3.8 Special Meetings; Notice.
------------------------
Subject to the provisions of the following paragraph, special meetings of
the Board of Directors for any purpose or purposes may be called at any time by
the Chairman of the Board, the President, any Vice President, the Secretary or
any two (2) directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail,
telegram, charges prepaid, or by telecopier, addressed to each director at that
director's address as it is shown on the records of the corporation. If the
notice is mailed, it shall be deposited in the United States mail at least four
(4) days before the time of the holding of the meeting. If the notice is
delivered personally or by telephone or by telecopier or telegram, it shall be
delivered personally or by telephone or by telecopier or to the telegraph
company 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 of the meeting.
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 3.11
of these Bylaws. Every act or decision done or made by a majority of the
directors present at a meeting duly held at which a quorum is present is the act
of the Board of Directors, subject to the provisions of Section
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<PAGE>
310 of the Code (as to approval of contracts or transactions in which a director
has a direct or indirect material financial interest), Section 311 of the Code
(as to appointment of committees), Section 317(e) of the Code (as to
indemnification of directors), the Articles of Incorporation, and other
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 such meeting.
3.10 Waiver of Notice.
----------------
Notice of a meeting need not be given to any director 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 who attends the meeting without
protesting, prior thereto or at its commencement, the lack of notice to such
director. All such waivers, consents, and approvals shall be filed with the
corporate records or made a 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.
3.11 Adjournment.
-----------
A majority of the directors present, whether or not a quorum is present,
may adjourn any meeting to another time and place.
3.12 Notice of Adjournment.
---------------------
If the meeting is adjourned for more than twenty-four (24) hours, notice of
any adjournment to another time and place shall be given prior to the time of
the adjourned meeting 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, if all members of the Board individually or
collectively consent in writing to such action. Such written consent or
consents shall be filed with the minutes of the proceedings of the Board. Such
action by written consent shall have the same force and effect as a unanimous
vote of the Board of Directors.
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 3.14 shall not
be construed to preclude any director from serving the corporation in any other
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<PAGE>
capacity as an officer, agent, employee or otherwise and receiving compensation
for those services.
3.15 Approval of Loans to Officers./1/
-----------------------------
If these Bylaws have been approved by the corporation's shareholders in
accordance with the Code, the corporation may, upon the approval of the Board of
Directors alone, make loans of money or property to, or guarantee the
obligations of, any officer of the corporation or of its parent, if any, whether
or not a director, or adopt an employee benefit plan or plans authorizing such
loans or guaranties provided that (i) the Board of Directors determines that
such a loan or guaranty or plan may reasonably be expected to benefit the
corporation, (ii) the corporation has outstanding shares held of record by 100
or more persons (determined as provided in Section 605 of the Code) on the date
of approval by the Board of Directors, and (iii) the approval of the Board of
Directors is by a vote sufficient with out counting the vote of any interested
director or directors. Notwithstanding the foregoing, the corporation shall
have the power to make loans permitted by the Code.
ARTICLE IV
COMMITTEES
----------
4.1 Committees of Directors.
-----------------------
The Board of Directors may, by resolution adopted by a majority of the
authorized number of directors, designate one or more committees, each
consisting of two (2) or more directors, to serve at the pleasure of the Board.
The Board may designate one 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 such committee shall
have authority to act in the manner and to the extent provided in the resolution
of the Board and may have all the authority of the Board, except with respect
to:
(a) The approval of any action which, under the Code, also requires
shareholders' approval or approval of the outstanding shares.
(b) The filling of vacancies on the Board of Directors or in any
committee.
____________________
/1/ If This section is effective only if it has been approved by the
shareholders in accordance with Corp. Code (S)(S) 315(b) and 152.
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<PAGE>
(c) The fixing of compensation of the directors for serving on the
Board or on any committee.
(d) The amendment or repeal of these Bylaws or the adoption of new
Bylaws.
(e) The amendment or repeal of any resolution of the Board of
Directors which by its express terms is not so amendable or repealable.
(f) A distribution to the shareholders of the corporation, except at
a rate, in a periodic amount or within a price range set forth in the Articles
of Incorporation or determined by the Board of Directors.
(g) The appointment of any other committees of the Board of Directors
or the members thereof.
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 III of these Bylaws, Section 3.6
(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 committees may be determined either by resolution of the Board of Directors
or by resolution of the committee, that special meetings of committees may also
be called by resolution of the Board of Directors, and that notice of special
meetings of committees shall also be given to all alternate members, who shall
have the right to attend all meetings of the committee. The Board of Directors
may adopt rules for the government of any committee not inconsistent with the
provisions of these Bylaws.
ARTICLE V
OFFICERS
--------
5.1 Officers.
--------
The officers of the corporation shall be a President, a Secretary, and a
Chief Financial Officer. The corporation may also have, at the discretion of
the Board of Directors, a Chairman of the Board, one or more Vice Presidents,
one or more Assistant Secretaries, one or more Assistant Treasurers, and such
other officers as may be appointed in accordance with the
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provisions of Section 5.3 of these Bylaws. Any number of offices may be held by
the same person.
5.2 Appointment of Officers.
-----------------------
The officers of the corporation, except such officers as may be appointed
in accordance with the provisions of Section 5.3 or Section 5.5 of these Bylaws,
shall be chosen by the Board and serve at the pleasure of 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 Chairman of the
Board or the President to appoint, such other officers as the business of the
corporation may require, each of whom shall hold office for such period, have
such authority, and perform such duties as are provided in these Bylaws or as
the Board of Directors may from time to time determine.
5.4 Removal and Resignation of Officers.
-----------------------------------
Subject to the rights, if any, of an officer under any contract of
employment, all officers serve at the pleasure of the Board of Directors and 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.
5.6 Chairman of the Board.
---------------------
The Chairman of the Board, if such an officer be elected, shall, if
present, preside at meetings of the Board of Directors and exercise and perform
such other powers and duties as may from time to time be assigned by the Board
of Directors or as may be prescribed by these Bylaws. If there is no President,
then the Chairman of the Board shall also be the chief executive
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<PAGE>
officer of the corporation and shall have the powers and duties prescribed in
Section 5.7 of these Bylaws.
5.7 President.
---------
Subject to such supervisory powers, if any, as may be given by the Board of
Directors to the Chairman of the Board, if there be such an officer, the
President shall be the chief executive officer of the corporation and shall,
subject to the control of the Board of Directors, have general supervision,
direction, and control of the business and the officers of the corporation. The
President shall preside at all meetings of the shareholders and, in the absence
or nonexistence of a Chairman of the Board, at all meetings of the Board of
Directors. The President shall have the general powers and duties of management
usually vested in the office of President of a corporation, and shall have such
other powers and duties as may be prescribed by the Board of Directors or these
Bylaws.
5.8 Vice Presidents.
---------------
In the absence or disability of the President, the Vice Presidents, if any,
in order of their rank as fixed by the Board of Directors or, if not ranked, a
Vice President designated by the Board of Directors, shall perform all the
duties of the President and when so acting shall have all the powers of, and be
subject to all the restrictions upon, the President. The Vice Presidents shall
have such other powers and perform such other duties as from time to time may be
prescribed for them respectively by the Board of Directors, these Bylaws, the
President or the Chairman of the Board.
5.9 Secretary.
---------
The Secretary shall keep or cause to be kept, at the principal executive
office of the corporation or such other place as the Board of Directors may
direct, a book of minutes of all meetings and actions of Directors, committees
of directors and shareholders. The minutes shall show the time and place of
each meeting, whether regular or special (and, if special, how authorized and
the notice given), the names of those present at directors' meetings or
committee meetings, the number of shares present or represented at shareholders'
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 shareholders
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.
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The Secretary shall give, or cause to be given, notice of all meetings of
the shareholders and of the Board of Directors required to be given by law or by
these Bylaws. The Secretary shall keep the seal of the corporation, if one be
adopted, in safe custody and shall have such other powers and perform such other
duties as may be prescribed by the Board of Directors or by these Bylaws.
5.10 Chief Financial Officer.
-----------------------
The Chief Financial Officer shall keep and maintain, or cause to be kept
and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings, and shares. The books of account shall at all reasonable
times be open to inspection by any director.
The Chief Financial Officer shall deposit all money and other valuables in
the name and to the credit of the corporation with such depositaries as may be
designated by the Board of Directors. The Chief Financial Officer shall
disburse the funds of the corporation as may be ordered by the Board of
Directors, shall render to the President and directors, whenever they request
it, an account of all 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 VI/2/
INDEMNIFICATION OF DIRECTORS, OFFICERS,
---------------------------------------
EMPLOYEES, AND OTHER AGENTS
---------------------------
6.1 Indemnification of Directors.
----------------------------
The corporation shall, to the maximum extent and in the manner permitted by
the Code, indemnify each of its directors against expenses (as defined in
Section 317(a) of the Code), judgments, fines, settlements, and other amounts
actually and
____________________
/2/ This Article assumes that the Articles of Incorporation include a provision
authorizing indemnification of agents in excess of that provided in Corp. Code
(S) 317 (such as is contained in Article V of the master Articles of
Incorporation) and then provides mandatory indemnification for directors for
certain acts and permissive indemnification for employees, officers, and agents
(other than directors). For a discussion of alternative provisions with sample
forms, see Ballantine & Sterling, 3 California Corporation Laws Form 6.01
---------------------------
(Ballantine & Sterling Publishers, 1992).
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<PAGE>
reasonably incurred in connection with any proceeding (as defined in Section
317(a) of the Code), arising by reason of the fact that such person is or was a
director of the corporation. For purposes of this Article VI, a "director" of
the corporation includes any person (i) who is or was a director of the corpo
ration, (ii) who is or was serving at the request of the corpo ration as a
director of another foreign or domestic corporation, partnership, joint venture,
trust or other enterprise, or (iii) who was a director of a corporation which
was a prede cessor 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 extent and in the manner
permitted by the Code, to indemnify each of its employees, officers, and agents
(other than directors) against expenses (as defined in Section 317(a) of the
Code), judgments, fines, settlements, and other amounts actually and reasonably
incurred in connection with any proceeding (as defined in Section 317(a) of the
Code), arising by reason of the fact that such person is or was an employee,
officer, or agent of the corporation. For purposes of this Article VI, an
"employee" or "officer" or "agent" of the corporation (other than a director)
includes any person (i) who is or was an employee, officer, or agent of the
corporation, (ii) who is or was serving at the request of the corporation as an
employee, officer, or agent of another foreign or domestic corporation,
partnership, joint venture, trust or other enterprise, or (iii) who was an
employee, officer, 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 Payment of Expenses in Advance.
------------------------------
Expenses and attorneys' fees incurred in defending any civil or criminal
action or proceeding for which indemnification is required pursuant to Section
6.1, or if otherwise authorized by the Board of Directors, shall be paid by the
corporation in advance of the final disposition of such action or proceeding
upon receipt of an undertaking by or on behalf of the indemni fied party to
repay such amount if it shall ultimately be deter mined that the indemnified
party is not entitled to be indemni fied as authorized in this Article VI.
6.4 Indemnity Not Exclusive.
-----------------------
The indemnification provided by this Article VI shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under any Bylaw, agreement, vote of shareholders or directors or
otherwise, both as to action in an official capacity and as to action in another
capacity while holding such office. The rights to indemnity hereunder shall
continue as to a person who has ceased to be a director,
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officer, employee, or agent and shall inure to the benefit of the heirs,
executors, and administrators of the person.
6.5 Insurance Indemnification.
-------------------------
The corporation shall have the power to purchase and main tain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation against any lia bility asserted against or incurred by such person
in such capacity or arising out of that person's status as such, whether or not
the corporation would have the power to indemnify that person against such
liability under the provisions of this Article VI.
6.6 Conflicts.
---------
No indemnification or advance shall be made under this Article VI, except
where such indemnification or advance is mandated by law or the order, judgment
or decree of any court of competent jurisdiction, in any circumstance where it
appears:
(1) That it would be inconsistent with a provision of the Articles of
Incorporation, these Bylaws, a resolution of the shareholders or an agreement in
effect at the time of the accrual of the alleged cause of the action asserted in
the proceeding in which the expenses were incurred or other amounts were paid,
which prohibits or otherwise limits indemnification; or
(2) That it would be inconsistent with any condition expressly imposed
by a court in approving a settlement.
6.7 Right to Bring Suit.
-------------------
If a claim under this Article is not paid in full by the corporation within
90 days after a written claim has been received by the corporation (either
because the claim is denied or because no determination is made), the claimant
may at any time thereafter bring suit against the corporation to recover the
unpaid amount of the claim and, if successful in whole or in part, the claimant
shall also be entitled to be paid the expenses of prosecuting such claim. The
corporation shall be entitled to raise as a defense to any such action that the
claimant has not met the standards of conduct that make it permissible under the
Code for the corporation to indemnify the claimant for the claim. Neither the
failure of the corporation (including its Board of Directors, independent legal
counsel, or its shareholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is permissible
in the circumstances because he or she has met the applicable standard of
conduct, if any, nor an actual determination by the corporation (including its
Board of Directors, independent legal counsel, or its shareholders) that the
claimant has not met the applicable standard of conduct,
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<PAGE>
shall be a defense to such action or create a presumption for the purposes of
such action that the claimant has not met the applicable standard of conduct.
6.8 Indemnity Agreements.
--------------------
The Board of Directors is authorized to enter into a contract with any
director, officer, employee or agent of the corporation, or any person who 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, including employee benefit plans, or any person who was a director,
officer, employee or agent of a corporation which was a predecessor corporation
of the corporation or of another enterprise at the request of such predecessor
corpora tion, providing for indemnification rights equivalent to or, if the
Board of Directors so determines and to the extent permitted by applicable law,
greater than, those provided for in this Article VI.
6.9 Amendment, Repeal or Modification.
---------------------------------
Any amendment, repeal or modification of any provision of this Article VI
shall not adversely affect any right or protec tion of a director or agent of
the corporation existing at the time of such amendment, repeal or modification.
ARTICLE VII
RECORDS AND REPORTS
-------------------
7.1 Maintenance and Inspection of Share Register.
--------------------------------------------
The corporation shall keep either at its principal execu tive office or at
the office of its transfer agent or registrar (if either be appointed), as
determined by resolution of the Board of Directors, a record of its shareholders
listing the names and addresses of all shareholders and the number and class of
shares held by each shareholder.
A shareholder or shareholders of the corporation holding at least five
percent (5%) in the aggregate of the outstanding vot ing shares of the
corporation or who hold at least one percent (1%) of such voting shares and have
filed a Schedule 14B with the United States Securities and Exchange Commission
relating to the election of directors, shall have an absolute right to do either
or both of the following (i) inspect and copy the record of shareholders' names,
addresses, and shareholdings during usual business hours upon five (5) days'
prior written demand upon the corporation, or (ii) obtain from the transfer
agent for the corporation, upon written demand and upon the tender of such
transfer agent's usual charges for such list (the amount of which charges shall
be stated to the shareholder by the transfer
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<PAGE>
agent upon request), a list of the shareholders' names and addresses who are
entitled to vote for the election of directors, and their shareholdings, as of
the most recent record date for which it has been compiled or as of a date
specified by the shareholder subsequent to the date of demand. The list shall
be made available on or before the later of five (5) business days after the
demand is received or the date specified therein as the date as of which the
list is to be compiled.
The record of shareholders shall also be open to inspection and copying by
any shareholder or holder of a voting trust certificate at any time during usual
business hours upon written demand on the corporation, for a purpose reasonably
related to the holder's interests as a shareholder or holder of a voting trust
certificate.
Any inspection and copying under this Section 7.1 may be made in person or
by an agent or attorney of the shareholder or holder of a voting trust
certificate making the demand.
7.2 Maintenance and Inspection of Bylaws.
------------------------------------
The corporation shall keep at its principal executive office or, if its
principal executive office is not in the State of California, at its principal
business office in California, the original or a copy of these Bylaws as amended
to date, which shall be open to inspection by the shareholders at all reason-
able times during office hours. If the principal executive office of the
corporation is outside the State of California and the corporation has no
principal business office in such state, then it shall, upon the written request
of any shareholder, furnish to such shareholder a copy of these Bylaws as
amended to date.
7.3 Maintenance and Inspection of Other Corporate Records.
-----------------------------------------------------
The accounting books and records and the minutes of proceedings of the
shareholders and the Board of Directors, and committees of the Board of
Directors shall be kept at such place or places as are designated by the Board
of Directors or, in absence of such designation, at the principal executive
office of the corporation. The minutes shall be kept in written form, and the
accounting books and records shall be kept either in written form or in any
other form capable of being converted into written form.
The minutes and accounting books and records shall be open to inspection
upon the written demand on the corporation of any shareholder or holder of a
voting trust certificate at any reasonable time during usual business hours, for
a purpose reasonably related to such holder's interests as a shareholder or as
the holder of a voting trust certificate. Such inspection by a shareholder or
holder of a voting trust certificate may be made in person or by an agent or
attorney and the right of
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<PAGE>
inspection includes the right to copy and make extracts. Such rights of
inspection shall extend to the records of each subsidiary corporation of the
corporation.
7.4 Inspection by Directors.
-----------------------
Every director shall have the absolute right at any reasonable time to
inspect and copy all books, records, and documents of every kind and to inspect
the physical properties of the corporation and each of its subsidiary
corporations, domestic or foreign. Such inspection by a director may be made in
person or by an agent or attorney and the right of inspection includes the right
to copy and make extracts.
7.5 Annual Report to Shareholders; Waiver.
-------------------------------------
The Board of Directors shall cause an annual report to be sent to the
shareholders not later than one hundred twenty (120) days after the close of the
fiscal year adopted by the corporation. Such report shall be sent to the
shareholders at least fifteen (15) (or, if sent by third-class mail, thirty-five
(35)) days prior to the annual meeting of shareholders to be held during the
next fiscal year and in the manner specified in Section 2.5 of these Bylaws for
giving notice to shareholders of the corporation.
The annual report shall contain a balance sheet as of the end of the fiscal
year and an income statement and statement of changes in financial position for
the fiscal year, accompanied by any report thereon of independent accountants
or, if there is no such report, the certificate of an authorized officer of the
corporation that the statements were prepared without audit from the books and
records of the corporation.
The foregoing requirement of an annual report shall be waived so long as
the shares of the corporation are held by fewer than one hundred (100) holders
of record.
7.6 Financial Statements.
--------------------
If no annual report for the fiscal year has been sent to shareholders, then
the corporation shall, upon the written request of any shareholder made more
than one hundred twenty (120) days after the close of such fiscal year, deliver
or mail to the person making the request, within thirty (30) days thereafter, a
copy of a balance sheet as of the end of such fiscal year and an income
statement and statement of changes in financial position for such fiscal year.
A shareholder or shareholders holding at least five percent (5%) of the
outstanding shares of any class of the corporation may make a written request to
the corporation for an income statement of the corporation for the three-month,
six-month or nine-month period of the current fiscal year ended more than
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<PAGE>
thirty (30) days prior to the date of the request and a balance sheet of the
corporation as of the end of that period. The statements shall be delivered or
mailed to the person making the request within thirty (30) days thereafter. A
copy of the statements shall be kept on file in the principal office of the
corporation for twelve (12) months and it shall be exhibited at all reasonable
times to any shareholder demanding an examination of the statements or a copy
shall be mailed to the shareholder. If the corporation has not sent to the
shareholders its annual report for the last fiscal year, the statements referred
to in the first paragraph of this Section 7.6 shall likewise be delivered or
mailed to the shareholder or shareholders within thirty (30) days after the
request.
The quarterly income statements and balance sheets referred to in this
section shall be accompanied by the report thereon, if any, of any independent
accountants engaged by the corporation or the certificate of an authorized
officer of the corporation that the financial statements were prepared without
audit from the books and records of the corporation.
7.7 Representation of Shares of Other Corporations.
----------------------------------------------
The Chairman of the Board, the President, any Vice President, the Chief
Financial Officer, the Secretary or Assistant Secretary of this corporation, or
any other person authorized by the Board of Directors or the President or a Vice
President, is authorized to vote, represent, and exercise on behalf of this
corporation all rights incident to any and all shares of any other corporation
or corporations standing in the name of this corporation. The authority 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.
ARTICLE VIII
GENERAL MATTERS
---------------
8.1 Record Date for Purposes Other Than Notice and Voting.
-----------------------------------------------------
For purposes of determining the shareholders entitled to receive payment of
any dividend or other distribution or allotment of any rights or entitled to
exercise any rights in respect of any other lawful action (other than with
respect to notice or voting at a shareholders meeting or action by shareholders
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 prior to
any such action. Only shareholders of record at the close of business on the
record date are entitled to receive the dividend, distribution or allotment of
rights, or to exercise the rights, as the case may be, notwithstanding any
transfer of any shares on the books of the corporation after the
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<PAGE>
record date, except as otherwise provided in the Articles of Incorporation or
the Code.
If the Board of Directors does not so fix a record date, then the record
date for determining shareholders for any such purpose shall be at the close of
business on the day on which the Board adopts the resolution relating thereto or
the sixtieth (60th) day prior to 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 Certificates for Shares.
-----------------------
A certificate or certificates for shares of the corporation shall be issued
to each shareholder when any of such shares are fully paid. The Board of
Directors may authorize the issuance of certificates for shares partly paid
provided that these certificates shall state the total amount of the
consideration to be paid for them and the amount actually paid. All certifi-
cates shall be signed in the name of the corporation by the Chairman of the
Board or the Vice Chairman of the Board or the President or a Vice President and
by the Chief Financial Officer or an Assistant Treasurer or the Secretary or an
Assistant Secretary, certifying the number of shares and the class or series of
shares owned by the shareholder. Any or all of the signatures on the
certificate may be by facsimile.
In case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed on 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 that person were an
officer, transfer agent or registrar at the date of issue.
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<PAGE>
8.5 Lost Certificates.
-----------------
Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation or its transfer agent or registrar 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 (as evidenced by
a written affidavit or affirmation of such fact), 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.
8.6 Construction; Definitions.
-------------------------
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the Code 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 IX
AMENDMENTS
----------
9.1 Amendment by Shareholders.
-------------------------
New Bylaws may be adopted or these Bylaws may be amended or repealed by the
vote or written consent of holders of a majority of the outstanding shares
entitled to vote; provided, however, that if the Articles of Incorporation of
the corporation set forth the number of authorized Directors of the corporation,
then the authorized number of Directors may be changed only by an amendment of
the Articles of Incorporation.
9.2 Amendment by Directors.
----------------------
Subject to the rights of the shareholders as provided in Section 9.1 of
these Bylaws, Bylaws, other than a Bylaw or an amendment of a Bylaw changing the
authorized number of directors (except to fix the authorized number of directors
pursuant to a Bylaw providing for a variable number of directors), may be
adopted, amended or repealed by the Board of Directors.
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<PAGE>
9.3 Record of Amendments.
--------------------
Whenever an amendment or new Bylaw is adopted, it shall be copied in the
book of minutes with the original Bylaws. If any Bylaw is repealed, the fact of
repeal, with the date of the meeting at which the repeal was enacted or written
consent was filed, shall be stated in said book.
ARTICLE X
INTERPRETATION
--------------
Reference in these Bylaws to any provision of the California Corporations
Code shall be deemed to include all amendments thereof.
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<PAGE>
EXHIBIT 3(ii)(b)
B Y L A W S
of
CRITICAL PATH, INC.
(Effective as of _______ __, 1999)
<PAGE>
TABLE OF CONTENTS
Page
----
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE I. Principal Office............................................ 1
Section 1. Principal Office............................................ 1
Section 1. Place of Meetings........................................... 1
Section 2. Annual Meetings............................................. 1
Section 3. Special Meetings............................................ 1
Section 4. Procedure of Annual Meeting; Notice of Meetings............. 2
Section 5. Quorum...................................................... 3
Section 6. No Cumulative Voting........................................ 3
ARTICLE III Board of Directors.......................................... 3
Section 1. Powers...................................................... 3
Section 2. Number...................................................... 3
Section 3. Election and Tenure......................................... 3
Section 4. Vacancies................................................... 4
ARTICLE IV Meetings of Directors....................................... 4
Section 1. Regular Meetings............................................ 4
Section 2. Special Meetings............................................ 5
Section 3. Quorum...................................................... 5
Section 4. Waiver...................................................... 5
Section 5. Action by Written Consent................................... 5
Section 6. Committees of the Board..................................... 5
ARTICLE V Officers.................................................... 6
Section 1. Officers.................................................... 6
Section 2. Chairman of the Board....................................... 6
Section 3. Chief Executive Officer and President....................... 6
Section 4. Vice Presidents............................................. 6
Section 5. Secretary................................................... 7
Section 6. Assistant Secretaries....................................... 7
Section 7. Chief Financial Officer..................................... 7
Section 8. Assistant Treasurers........................................ 7
Section 9. Loans or Guarantees of Obligations of Directors and Officers 7
ARTICLE VI Amendments.................................................. 8
Section 1. By Shareholders............................................. 8
Section 2. By Directors................................................ 8
ARTICLE VII Annual and Other Reports.................................... 8
ARTICLE VIII Indemnification............................................. 8
Section 1. Right of Indemnification.................................... 8
Section 2. Definition of Agent......................................... 9
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE IX Certificates and Transfer of Shares......................... 9
Section 1. Certificates for Shares..................................... 9
Section 2. Transfer on the Books....................................... 9
Section 3. Lost or Destroyed Certificates.............................. 9
Section 4. Transfer Agents and Registrars.............................. 10
Section 5. Closing Stock Transfer Books - Record Date.................. 10
Section 6. Legend Condition............................................ 10
ARTICLE X Corporate Records and Reports -- Inspection................. 10
Section 1. Records..................................................... 10
Section 2. Inspection of Books and Records............................. 10
Section 3. Certification and Inspection of Bylaws...................... 10
Section 4. Checks, Drafts, Etc......................................... 11
Section 5. Contracts, Etc. -- How Executed............................. 11
</TABLE>
ii
<PAGE>
B Y L A W S
of
CRITICAL PATH, INC.
(Effective as of January __, 1999)
ARTICLE I
Principal Office
Section 1. Principal Office. The Board of Directors shall fix the
location of the principal executive office of the corporation at any place
within or outside the State of California. If the principal executive office is
located outside California and the corporation has one or more business offices
in California, then the Board of Directors shall fix and designate a principal
business office in California.
Section 2. Other Offices. The Board of Directors may at any time
establish branch or subordinate offices at any place or places.
ARTICLE II
Meetings of Shareholders
Section 1. Place of Meetings. All meetings of the shareholders shall be
held at any place within or without the State of California which may be
designated by the board of directors. In the absence of any such designation,
shareholders' meetings shall be held at the principal executive office of the
corporation.
Section 2. Annual Meetings. An annual meeting of shareholders shall be
held each year on a date and at a time designated by the Board of Directors. At
that meeting, directors shall be elected. Any other proper business may be
transacted at the annual meeting of shareholders.
Section 3. Special Meetings. Special meetings of the shareholders may be
called by the board of directors, the chairman of the board, the chief executive
officer and president, or by the holders of shares entitled to cast not less
than ten percent (10%) of the votes at the meeting. Notice of any special
meeting shall specify the general nature of the business to be transacted, and
no other business may be transacted at such meeting. Upon receipt of a written
request addressed to the chairman, chief executive officer and president, vice
president or secretary, mailed or delivered personally to such officer by any
person (other than the board) entitled to call a special meeting of
shareholders, such officer shall cause notice to be given, to the shareholders
entitled to vote, that a meeting will be held at a time requested by the person
or persons calling the meeting, not less than thirty-five (35) nor more than
sixty (60) days after the receipt of such request. If such notice is not given
within twenty (20) days after receipt of such request, the persons calling the
meeting may give notice thereof in the manner provided by
1
<PAGE>
these bylaws or apply to the superior court as provided in the California
General Corporation Law.
Section 4. Procedure of Annual Meeting; Notice of Meetings. To be
properly brought before the annual meeting, business must be either (a)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board of Directors, (b) otherwise properly brought before
the meeting by or at the direction of the Board of Directors, or (c) otherwise
properly brought before the meeting by a shareholder of record. In addition to
any other applicable requirements, for business to be properly brought before
the annual meeting by a shareholder, the shareholder must have given timely
notice thereof in writing to the Secretary of the Corporation. To be timely, a
shareholder's notice must be delivered to or mailed and received at the
principal executive offices of the Corporation, addressed to the attention of
the Secretary of the Corporation, within 120 calendar days before the date of
the Corporation's proxy statement released to shareholders in connection with
the previous year's annual meeting. A shareholder's notice to the Secretary
shall set forth as to each matter the shareholder proposes to bring before the
annual meeting (i) a brief description of the business desired to be brought
before the annual meeting, (ii) the name and record address of the shareholder
proposing such business, (iii) the class and number of shares of the Corporation
which are beneficially owned by the shareholder, and (iv) any material interest
of the shareholder in such business. Notwithstanding anything in these by-laws
to the contrary, no business shall be conducted at the annual meeting except in
accordance with the procedures set forth in this Section 4; provided, however,
that nothing in this Section 4 shall be deemed to preclude discussion by any
shareholder of any business properly brought before the annual meeting.
Written notice of each meeting of the shareholders, annual or special, shall be
given to each shareholder entitled to vote thereat not less than ten (10) days
nor more than sixty (60) days before the date of the meeting. Such notices shall
be given personally or by first-class mail or other means of written
communication permitted by the California General Corporation Law, charges
prepaid, addressed to each shareholder at the address appearing on the books of
the corporation, or given by the shareholder to the corporation for the purpose
of notice. If no address of a shareholder appears on the books of the
corporation or is given by the shareholder to the corporation, notice is duly
given to him or her if sent by mail or other means of written communication
addressed to the place where the principal executive office of the corporation
is located or if published at least once in a newspaper of general circulation
in the county in which said principal executive office is located. Any such
notice shall be deemed to have been given at the time when delivered personally
or deposited in the United States mail or sent by other means of written
communication.
Such notices shall state (i) the place, date and hour of the meeting, (ii)
those matters which the board, at the time of the mailing of the notice, intends
to present for action by the shareholders, (iii) if directors are to be elected,
the names of nominees intended at the time of the notice to be presented by
management for election, and (iv) such other matters, if any, as may be
expressly required by statute. In addition, in the case of a special meeting,
the general nature of the business to be transacted shall be set forth in the
notice, and no other business may be transacted.
Section 5. Quorum. The presence in person or by proxy of the holders of
[66 2/3%] of
2
<PAGE>
the shares entitled to vote at any meeting shall constitute a quorum for the
transaction of business. Except as provided in this section, the affirmative
vote of a [66 2/3%] of the shares represented and voting at a duly held meeting
at which a quorum is present shall be the act of the shareholders, unless the
vote of a greater number or voting by classes is required by law or the articles
of incorporation. The shareholders present at a duly called or held meeting at
which a quorum is present may continue to transact business until adjournment,
notwithstanding the withdrawal of enough shareholders to leave less than a
quorum, if any action taken (other than adjournment) is approved by at least [66
2/3%] of the shares required to constitute a quorum. In the absence of a quorum,
any meeting of shareholders may be adjourned from time to time by the vote of a
[66 2/3%] of the shares represented either in person or by proxy, but no other
business may be transacted except as provided in the preceding sentence.
Section 6. No Cumulative Voting. In any election of directors of the
corporation, no shareholder of the corporation shall have the right to cumulate
votes in the manner described in Section 708(a) of the California General
Corporation Law.
ARTICLE III
Board of Directors
Section 1. Powers. Subject to the provisions of the California General
Corporation Law and any limitations in the articles of incorporation and these
bylaws as to action to be authorized or approved by the shareholders, 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.
Section 2. Number. The authorized number of directors shall not be less
than four (4) nor more than seven (7) [OR A CLASSIFIED BOARD]. The exact
authorized number of directors shall be fixed from time to time, within the
limits specified in this Section 2 or in the articles of incorporation, by the
board of directors, or by a bylaw or amendment thereof duly adopted by the vote
of [66 2/3%] of the shares represented and voting at a duly held meeting at
which a quorum is present (which shares voting affirmatively also constitute at
least [66 2/3%] of the required quorum), or by the written consent of the
holders of [66 2/3%] of the outstanding shares entitled to vote.
Section 3. Election and Tenure. Only persons who are nominated in
accordance with the following procedures shall be eligible for election as
directors. Nominations of persons for election to the Board of Directors at the
annual meeting, by or at the direction of the Board of Directors, may be made by
the nominating committee of the Board of Directors or any person appointed by
the Board of Directors; nominations may also be made by any shareholder of
record of the Corporation entitled to vote for the election of directors at the
meeting who complies with the notice procedures set forth in this Section 3.
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. To be timely, a shareholder's notice shall be delivered to
or mailed and received at the principal executive offices of the Corporation
addressed to the attention of the Secretary of the Corporation not less than 120
calendar days before the date of the Corporation's proxy statement released to
shareholders in connection with the previous year's annual meeting. Such
shareholder's notice to the Secretary shall set forth
3
<PAGE>
(a) as to each person whom the shareholder proposes to nominate for election or
reelection as a director, (i) the name, age, business address and residence
address of the person, (ii) the principal occupation or employment of the
person, (iii) the class and number of shares of capital stock of the Corporation
which are beneficially owned by the person, (iv) a statement as to the person's
citizenship, and (v) any other information relating to the person that is
required to be disclosed in solicitations for proxies for election of directors
pursuant to Section 14 of the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder; and (b) as to the shareholder
giving the notice, (i) the name and record address of the shareholder and (ii)
the class, series and number of shares of capital stock of the Corporation which
are beneficially owned by the shareholder. The Corporation may require any
proposed nominee to furnish such other information as may reasonably be required
by the Corporation to determine the eligibility of such proposed nominee to
serve as director of the Corporation. No person shall be eligible for election
as a director of the Corporation unless nominated in accordance with the
procedures set forth herein.
Section 4. Vacancies. Vacancies in the board of directors, including a
vacancy created by the removal of a director, may be filled by a majority of the
directors then in office, whether or not less than a quorum, or by a sole
remaining director.
ARTICLE IV
Meetings of Directors
Section 1. Regular Meetings. Regular meetings of the board of directors
shall be held at any place within or without the State of California that has
been designated from time to time by the board of directors. In the absence of
such designation, regular meetings shall be held at the principal executive
office of the corporation; provided, however, that immediately following each
annual meeting of the shareholders there shall be a regular meeting of the board
of directors of the corporation at the place of said annual meeting or at such
other place as shall have been designated by the board of directors for the
purpose of organization, election of officers and the transaction of other
business. Other regular meetings of the board of directors shall be held without
call on such date and time as may be fixed by the board of directors; provided,
however, that should any such day fall on a legal holiday, then said meeting
shall be held at the same time on the next business day thereafter ensuing which
is not a legal holiday. Notice of regular meetings of the directors is hereby
dispensed with and no notice whatever of any such meeting need be given,
provided that notice of any change in the time or place of regular meetings
shall be given to all of the directors in the same manner as notice for special
meetings of the board of directors.
Section 2. Special Meetings. Special meetings of the board of directors
may be held at any place within or without the State of California which has
been designated in the notice of the meeting, or, if not designated in the
notice or if there is no notice, at the principal executive office of the
corporation. 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 chief
executive officer and president or any two 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 telegram or facsimile transmission,
charges prepaid, addressed to him or her at his or her address as it
4
<PAGE>
appears upon the records of the corporation or, if it is not so shown on the
records and is not readily ascertainable, at the place at which the meetings of
the directors are regularly held. Such notice shall be sent at least four (4)
days prior to the meeting if sent by mail and at least forty-eight (48) hours
prior to the meeting if delivered personally or by telephone or telegraph. The
notice need not specify the place of the meeting if the meeting is to be held at
the principal executive office of the corporation, and need not specify the
purpose of the meeting.
Section 3. Quorum. Presence of a majority of the authorized number of
directors at a meeting of the board of directors constitutes a quorum for the
transaction of business, except as hereinafter provided. Members of the board
may participate in a meeting through use of conference telephone or similar
communications equipment, so long as all members participating in such meeting
can hear one another.
Section 4. Waiver. Notice of a meeting need not be given to any director
who signs a waiver of notice or consent to holding the meeting or an approval of
the minutes thereof, whether before or after the meeting, or who attends the
meeting without protesting, prior thereto or at its commencement, the lack of
notice to such director. All such waivers, consents and approvals shall be filed
with the corporate records or made a part of the minutes of the meeting.
Section 5. Action by Written Consent. Any action required or permitted
to be taken by the board of directors may be taken without a meeting if all
members of the board shall individually or collectively consent in writing to
such action. Such written consent or consents shall be filed with the minutes of
the proceedings of the board. Such action by written consent shall have the same
force and effect as a unanimous vote of such directors.
Section 6. Committees of the Board. The provisions of this Article IV
shall also apply, with necessary changes in points of detail, to committees of
the board of directors, if any, and to actions by such committees (except for
the first sentence of Section 2 of Article IV, which shall not apply, and except
that special meetings of a committee may also be called at any time by any two
members of the committee), unless otherwise provided by these bylaws or by the
resolution of the board of directors designating such committees. For such
purpose, references to "the board" or "the board of directors" shall be deemed
to refer to each such committee and references to "directors" or "members of the
board" shall be deemed to refer to members of the committee. Committees of the
board of directors may be designated, and shall be subject to the limitations on
their authority, as provided in Section 311 of the California General
Corporation Law. The appointment of members or alternate members of a committee
requires the vote of a majority of the authorized number of directors.
ARTICLE V
Officers
Section 1. Officers. The officers of the corporation shall be a chairman
of the board or a chief executive officer and president or both, chief financial
officer and secretary. The corporation may also have, at the discretion of the
board of directors, one or more vice presidents, one or more assistant
secretaries and such other officers as may be designated from
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time to time by the board of directors. Any number of offices may be held by the
same person. The officers shall be elected by the board of directors and shall
hold office at the pleasure of such board.
Section 2. Chairman of the Board. The chairman of the board, if there be
such officer, shall, if present, preside at all meetings of the board of
directors and exercise and perform such other powers and duties as may be from
time to time assigned to him or her by the board of directors or prescribed by
the bylaws. If there is not a president, the chairman of the board shall, in
addition, be the general manager and chief executive officer of the corporation
and shall have the powers and duties prescribed in Section 3 of this Article V.
Section 3. Chief Executive Officer and President. Subject to such
supervisory powers, if any, as may be given by the board of directors to the
chairman of the board, if there be such an officer, the chief executive officer
and president of the corporation shall, subject to the control of the board of
directors, have general supervision, direction and control of the business and
officers of the corporation. The chief executive officer and president shall
have the general powers and duties of management usually vested in the chief
executive officer and president of a corporation, and shall have such other
powers and duties as may be prescribed by the board of directors or bylaws.
Section 4. Vice Presidents. In the absence or disability of the
president, the vice presidents in order of their rank as fixed by the board of
directors or, if not ranked, the vice president designated by the board of
directors, shall perform all of the duties of the chief executive officer and
president and when so acting shall have all the powers of and be subject to all
the restrictions upon the chief executive officer and president. The vice
presidents shall have such other powers and perform such other duties as from
time to time may be prescribed for them, respectively, by the board of directors
or the bylaws.
Section 5. 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 order, a book of minutes of all proceedings of the
shareholders, the board of directors and committees of the board, with the time
and place of holding, whether regular or special, and if special how authorized,
the notice thereof given, the names of those present at directors' and committee
meetings, and the number of shares present or represented at shareholders'
meetings. The secretary shall keep or cause to be kept at the principal
executive office or at the office of the corporation's transfer agent a record
of shareholders or a duplicate record of shareholders showing the names of the
shareholders and their addresses, the number of shares and classes of shares
held by each, the number and date of certificates issued for the same and the
number and date of cancellation of every certificate surrendered for
cancellation. The secretary or an assistant secretary or, if they are absent or
unable or refuse to act, any other officer of the corporation, shall give or
cause to be given notice of all the meetings of the shareholders, the board of
directors and committees of the board required by the bylaws or by law to be
given, and he or she shall keep the seal of the corporation, if any, 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 the bylaws.
Section 6. Assistant Secretaries. It shall be the duty of the assistant
secretaries to assist the secretary in the performance of his or her duties and
generally to perform such other duties
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as may be delegated to them by the board of directors.
Section 7. Chief Financial Officer. The chief financial officer shall
keep and maintain, or cause to be kept and maintained, in accordance with
generally accepted accounting principles adequate and correct books and records
of account of the corporation. He or she shall receive and deposit all moneys
and other valuables belonging to the corporation in the name and to the credit
of the corporation and shall disburse the same only in such manner as the board
of directors or the appropriate officers of the corporation may from time to
time determine, shall render to the chief executive officer and president and
the board of directors, whenever they request it, an account of all his or her
transactions as chief financial officer and of the financial condition of the
corporation, and shall perform such further duties as the board of directors may
require.
Section 8. Assistant Treasurers. It shall be the duty of the assistant
treasurers to assist the chief financial officer in the performance of his or
her duties and generally to perform such other duties as may be delegated to
them by the board of directors.
Section 9. Loans or Guarantees of Obligations of Directors and Officers.
The corporation may make any loan of money or property to, or guarantee the
obligation of, any director or officer of the corporation or of its parent if
such loan or guaranty is approved by the board alone by a vote sufficient
without counting the vote of any interested director or directors if the board
determines that such loan or guaranty may reasonably be expected to benefit the
corporation.
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ARTICLE VI
Amendments
Section 1. By Shareholders. New bylaws may be adopted or these bylaws
may be amended or repealed by the affirmative vote or written consent of [66
2/3%] of the outstanding shares entitled to vote, except as otherwise provided
by law or by the articles of incorporation or these bylaws.
Section 2. By Directors. Subject to the right of shareholders as
provided in Section 1 of this Article to adopt, amend or repeal bylaws, and
except as otherwise provided by law or by the articles of incorporation, bylaws,
other than a bylaw or amendment thereof changing the authorized maximum or
minimum number of directors, may be adopted, amended or repealed by the board of
directors.
ARTICLE VII
Annual and Other Reports
The board of directors of the corporation shall cause an annual report to
be sent to the shareholders not later than one hundred twenty (120) days after
the close of the fiscal year of the corporation. Such report shall contain a
balance sheet as of the end of that completed fiscal year and an income
statement and statement of changes in cash flows for that fiscal year,
accompanied by any report thereon of independent accountants or, if there is no
such report, the certificate of an authorized officer of the corporation that
the statements were prepared without audit from the books and records of the
corporation. Such report shall be sent at least fifteen (15) days prior to the
annual meeting of shareholders to be held during the next fiscal year. The
annual report shall also contain any information required by Section 1501(b) of
the California General Corporation Law.
ARTICLE VIII
Indemnification
Section 1. Right of Indemnification. The corporation shall have power to
indemnify each of its agents to the fullest extent permissible by the California
General Corporation Law. Without limiting the generality of the foregoing
sentence, the corporation:
(a) is authorized to provide indemnification of agents in excess of
that otherwise permitted by Section 317 of the California General
Corporation Law for those agents of the corporation for breach of duty to
the corporation and its shareholders; provided, however, that the
corporation is not authorized to provide indemnification of any agent for
any acts or omissions or transactions from which a director may not be
relieved of liability as set forth in the exception to Section 204(a)(10)
of the California General Corporation Law or as to circumstances in which
indemnity is expressly prohibited by Section 317 of
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the California General Corporation Law; and
(b) shall have power to purchase and maintain insurance on behalf of
any agent of the corporation against any liability asserted against or
incurred by the agent in such capacity or arising out of the agent's status
as such, whether or not the corporation would have the power to indemnify
the agent against such liability under the provisions of Section 317 of the
California General Corporation Law, and shall have power to advance the
expenses reasonably expected to be incurred by such agent in defending any
such proceeding upon receipt of the undertaking required by subdivision (f)
of such section.
Section 2. Definition of Agent. The term "agent" used in this Article
shall have the same meaning as such term in Section 317 of the California
General Corporation Law.
ARTICLE IX
Certificates and Transfer of Shares
Section 1. Certificates for Shares. Certificates for shares shall be of
such form and device as the board of directors may designate and shall state the
name of the record holder of the shares represented thereby; its number; date of
issuance; the number of shares for which it is issued; a statement of the
rights, privileges, preferences and restrictions, if any; a statement as to the
redemption or conversion, if any; a statement of liens or restrictions upon
transfer or voting, if any; if the shares be assessable or, if assessments are
collectible by personal action, a plain statement of such facts. Every
certificate for shares must be signed by the chief executive officer and
president or a vice president and the secretary or an assistant secretary or
must be authenticated by facsimiles of the signatures of the chief executive
officer and president and secretary or by a facsimile of the signature of its
chief executive officer and president and the written signature of its secretary
or an assistant secretary. Before it becomes effective every certificate for
shares authenticated by a facsimile of a signature must be countersigned by a
transfer agent or transfer clerk and must be registered by an incorporated bank
or trust company, either domestic or foreign, as registrar of transfers.
Section 2. Transfer on the Books. Upon surrender to the secretary or
transfer agent of the corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
Section 3. Lost or Destroyed Certificates. Any person claiming a
certificate of stock to be lost or destroyed shall make an affidavit or
affirmation of that fact and shall if the directors so require give the
corporation a bond of indemnity, in form and with one or more sureties
satisfactory to the board, in at least double the value of the stock represented
by said certificate, whereupon a new certificate may be issued in the same tenor
and for the same number of shares as the one alleged to be lost or destroyed.
Section 4. Transfer Agents and Registrars. The board of directors may
appoint one or
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more transfer agents or transfer clerks, and one or more registrars, which shall
be an incorporated bank or trust company -- either domestic or foreign, who
shall be appointed at such times and places as the requirements of the
corporation may necessitate and the board of directors may designate.
Section 5. Closing Stock Transfer Books - Record Date. In order that the
corporation may determine the shareholders entitled to notice of any meeting or
to vote or entitled to receive payment of any dividend or other distribution or
allotment of any rights or entitled to exercise any rights in respect of any
other lawful action, the board may fix, in advance, a record date, which shall
not be more than sixty nor less than ten days prior to the date of such meeting
nor more than sixty days prior to any other action.
Section 6. Legend Condition. In the event any shares of this corporation
are issued pursuant to a permit or exemption therefrom requiring the imposition
of a legend condition the person or persons issuing or transferring said shares
shall make sure said legend appears on the certificate and on the stub relating
thereto in the stock record book and shall not be required to transfer any
shares free of such legend unless an amendment to such permit or a new permit be
first issued so authorizing such a deletion.
ARTICLE X
Corporate Records and Reports -- Inspection
Section 1. Records. The corporation shall maintain, in accordance with
generally accepted accounting principles, adequate and correct accounts, books
and records of its business and properties. All of such books, records and
accounts shall be kept at its principal executive office in the State of
California, as fixed by the board of directors from time to time.
Section 2. Inspection of Books and Records. All books and records
provided for in Section 1500 of the California General Corporation Law shall be
open to inspection of the directors and shareholders from time to time and in
the manner provided in Sections 1600 - 1602.
Section 3. Certification and Inspection of Bylaws. The original or a
copy of these bylaws, as amended or otherwise altered to date, certified by the
secretary, shall be kept at the corporation's principal executive office and
shall be open to inspection by the shareholders of the company, at all
reasonable times during office hours, as provided in Section 213 of the
California General Corporation Law.
Section 4. Checks, Drafts, Etc. All checks, drafts or other orders for
payment of money, notes or other evidences of indebtedness, issued in the name
of or payable to the corporation, shall be signed or endorsed by such person or
persons and in such manner as shall be determined from time to time by
resolution of the board of directors.
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Section 5. Contracts, Etc. -- How Executed. The board of directors,
except as in the bylaws otherwise provided, may authorize any officer or
officers, 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.
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EXHIBIT 10.1
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT is made and entered into as of the ____ day
of ______________, 1999 (the "Agreement"), by and between CRITICAL PATH, INC., a
California corporation (the "Company"), and _____________________ (the
"Indemnitee"), with reference to the following facts:
A. The Company desires the benefits of having Indemnitee serve as an
officer and/or director secure in the knowledge that any expenses, liability
and/or losses incurred by him in his good faith service to the Company will be
borne by the Company or its successors and assigns;
B. Indemnitee is willing to serve in his position with the Company only
on the condition that he be indemnified for such expenses, liability and/or
losses;
C. The Company and Indemnitee recognize the increasing difficulty in
obtaining liability insurance for directors, officers and agents of a
corporation at reasonable cost;
D. The Company and Indemnitee recognize that there has been an increase
in litigation against corporate directors, officers and agents; and
E. The Company's Articles of Incorporation allow and require the Company
to indemnify its directors, officers and agents to the maximum extent permitted
under California law.
NOW, THEREFORE, the parties hereby agree as follows:
1. Definitions. For purposes of this Agreement:
1.1 "Agent" shall mean any person who is or was a director, officer,
employee or agent of the Company or a subsidiary of the Company whether
serving in such capacity or as a director, officer, employee, agent,
fiduciary or other official of another corporation, partnership, limited
liability company, joint venture, trust or other enterprise at the request
of, for the convenience of, or to represent the interests of the Company or
a subsidiary of the Company.
1.2 "Change of Control" shall mean the occurrence of any of the
following events after the date of this Agreement:
(a) a change in the composition of the Board of Directors, as a
result of which fewer than one-half of the incumbent directors are
directors who either: (i) had been directors of the Company 24 months
prior to such change; or (ii) were elected, or nominated for election,
to the Board of Directors with the affirmative votes of at least a
majority of the directors who had been directors of the Company 24
months prior to such change and who were still in office at the time
of the election or nomination;
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(b) any "person" (as such term is used in sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) by the acquisition or aggregation of securities is or
becomes the beneficial owner, directly or indirectly, of securities of
the Company representing 50 percent or more of the combined voting
power of the Company's then outstanding securities ordinarily (and
apart from rights accruing under special circumstances) having the
right to vote at elections of directors (the "Base Capital Stock");
except that any change in the relative beneficial ownership of the
Company's securities by any person resulting solely from a reduction
in the aggregate number of outstanding shares of Base Capital Stock,
and any decrease thereafter in such person's ownership of securities,
shall be disregarded until such person increases in any manner,
directly or indirectly, such person's beneficial ownership of any
securities of the Company;
(c) The sale of all or substantially all of the assets of the
Company to a person or entity who is not an affiliate (including a
parent or subsidiary) of the Company;
(d) the dissolution of the Company pursuant to action validly
taken by the shareholders of the Company in accordance with applicable
state law; or
(e) the occurrence of any other tender offer, merger,
consolidation, sale, reorganization, dissolution or other such event
or series of events, which in the opinion of a majority of the Board
of Directors (as reflected in a written resolution of the Board of
Directors) has resulted in a change of control of the Company.
Notwithstanding the foregoing, a Change of Control shall not be deemed to
occur in the event of (x) sale by the Company of shares of Preferred Stock prior
to an initial public offering of securities by the Company, (y) a change in the
Company's state of incorporation or (z) an initial public offering of securities
by the Company.
1.3 "Disinterested Director" shall mean a director of the Company who
is not and was not a party to the Proceeding in respect of which
indemnification is being sought by Indemnitee.
1.4 "Expenses" shall be broadly construed and shall include, without
limitation, (a) all direct and indirect costs incurred, paid or accrued,
(b) all attorneys' fees, retainers, court costs, transcripts, fees of
experts, witness fees, travel expenses, food and lodging expenses while
traveling, duplicating costs, printing and binding costs, telephone
charges, postage, delivery service, freight or other transportation fees
and expenses, (c) all other disbursements and out-of-pocket expenses, (d)
amounts paid in settlement, to the extent not prohibited by California Law,
and (e) reasonable compensation for time spent by Indemnitee for which he
is otherwise not compensated by the Company or any third party, actually
and reasonably incurred in connection with or arising out of a
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Proceeding, including a Proceeding by Indemnitee to establish or enforce a
right to indemnification under this Agreement, applicable law or otherwise.
1.5 "Independent Counsel" shall mean a law firm or a member of a law
firm that neither is presently nor in the past five years has been retained
to represent: (a) the Company, an affiliate of the Company or Indemnitee
in any matter material to either party or (b) any other party to the
Proceeding giving rise to a claim for indemnification hereunder.
Notwithstanding the foregoing, the term "Independent Counsel" shall not
include any person who, under the applicable standards of professional
conduct then prevailing would have a conflict of interest in representing
either the Company or Indemnitee in an action to determine Indemnitee's
right to indemnification under this Agreement.
1.6 "Liabilities" shall mean liabilities of any type whatsoever,
including, but not limited to, judgments or fines, ERISA or other excise
taxes and penalties, and amounts paid in settlement (including all
interest, assessments or other charges paid or payable in connection with
any of the foregoing) actually and reasonably incurred by Indemnitee in
connection with a Proceeding.
1.7 "California Law" means the California Corporations Code, as
amended and in effect from time to time or any successor or other statutes
of California having similar import and effect.
1.8 "Proceeding" shall mean any pending, threatened or completed
action, hearing, suit or any other proceeding, whether civil, criminal,
arbitrative, administrative, investigative or any alternative dispute
resolution mechanism, including without limitation any such Proceeding
brought by or in the right of the Company.
2. Employment Rights and Duties. Subject to any other obligations imposed
on either of the parties by contract or by law, and with the understanding that
this Agreement is not intended to confer employment rights on either party which
they did not possess on the date of its execution, Indemnitee agrees to serve as
a director or officer so long as he is duly appointed or elected and qualified
in accordance with the applicable provisions of the Articles of Incorporation
(the "Articles") and Bylaws (the "Bylaws") of the Company or any subsidiary of
the Company and until such time as he resigns or fails to stand for election or
until his employment terminates. Indemnitee may from time to time also perform
other services at the request, or for the convenience of, or otherwise
benefiting the Company. Indemnitee may at any time and for any reason resign or
be removed from such position (subject to any other contractual obligation or
other obligation imposed by operation of law), in which event the Company shall
have no obligation under this Agreement to continue Indemnitee in any such
position.
2.1 Directors' and Officers' Insurance.
(a) The Company hereby covenants and agrees that, so long as
Indemnitee shall continue to serve as a director or officer of the
Company and thereafter so long as Indemnitee shall be subject
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to any possible Proceeding, the Company, subject to Section 2.1(c),
shall maintain directors' and officers' insurance in full force and
effect.
(b) In all policies of directors' and officers' insurance,
Indemnitee shall be named as an insured in such a manner as to provide
Indemnitee the same rights and benefits, subject to the same
limitations, as are accorded to the Company's directors or officers
most favorably insured by such policy.
(c) The Company shall have no obligation to maintain directors'
and officers' insurance if the Company determines in good faith that
such insurance is not reasonably available, the premium costs for such
insurance are disproportionate to the amount of coverage provided, or
the coverage provided by such insurance is limited by exclusions so as
to provide an insufficient benefit.
3. Indemnification. The Company shall indemnify Indemnitee to the fullest
extent authorized or permitted by California Law and the provisions of the
Articles and Bylaws of the Company in effect on the date hereof, and as
California Law, the Articles and Bylaws may from time to time be amended (but,
in the case of any such amendment, only to the extent such amendment permits the
Company to provide broader indemnification rights than California Law, the
Articles and/or Bylaws permitted the Company to provide before such amendment).
The right to indemnification conferred in the Articles shall be presumed to have
been relied upon by Indemnitee in serving or continuing to serve the Company as
a director or officer and shall be enforceable as a contract right. Without in
any way diminishing the scope of the indemnification provided by the Articles
and this Section 3, the Company shall indemnify Indemnitee if and whenever he is
or was a witness, party or is threatened to be made a witness or a party to any
Proceeding, by reason of the fact that he is or was an Agent or by reason of
anything done or not done, or alleged to have been done or not done, by him in
such capacity, against all Expenses and Liabilities actually and reasonably
incurred by Indemnitee or on his behalf in connection with the investigation,
defense, settlement or appeal of such Proceeding. In addition to, and not as a
limitation of, the foregoing, the rights of indemnification of Indemnitee
provided under this Agreement shall include those rights set forth in Sections
4, 5 and 6 below.
4. Payment of Expenses.
4.1 All Expenses incurred by or on behalf of Indemnitee shall be
advanced by the Company to Indemnitee within 20 days after the receipt by
the Company of a written request for such advance which may be made from
time to time, whether prior to or after final disposition of a Proceeding
(unless there has been a final determination by a court of competent
jurisdiction that Indemnitee is not entitled to be indemnified for such
Expenses). Indemnitee's entitlement to advancement of Expenses shall
include those incurred in connection with any Proceeding by Indemnitee
seeking a determination, an adjudication or an award in arbitration
pursuant to this Agreement. The requests shall reasonably evidence the
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Expenses incurred by Indemnitee in connection therewith. Indemnitee hereby
undertakes to repay the amounts advanced if it shall ultimately be
determined that Indemnitee is not entitled to be indemnified pursuant to
the terms of this Agreement.
4.2 Notwithstanding any other provision in this Agreement, to the
extent that Indemnitee has been successful on the merits or otherwise in
defense of any Proceeding, Indemnitee shall be indemnified against all
Expenses actually and reasonably incurred by Indemnitee in connection
therewith.
5. Procedure for Determination of Entitlement to Indemnification.
5.1 Whenever Indemnitee believes that he is entitled to
indemnification pursuant to this Agreement, Indemnitee shall submit a
written request for indemnification (the "Indemnification Request") to the
Company to the attention of the President with a copy to the Secretary.
This request shall include documentation or information which is necessary
for the determination of entitlement to indemnification and which is
reasonably available to Indemnitee. Determination of Indemnitee's
entitlement to indemnification shall be made no later than 60 days after
receipt of the Indemnification Request. The President or the Secretary
shall, promptly upon receipt of Indemnitee's request for indemnification,
advise the Board in writing that Indemnitee has made such request for
indemnification.
5.2 The Indemnification Request shall set forth Indemnitee's
selection of which of the following forums shall determine whether
Indemnitee is entitled to indemnification:
(1) A majority vote of Directors who are not parties to the
action with respect to which indemnification is sought, even though
less than a quorum.
(2) A written opinion of an Independent Counsel (provided there
are no such Directors as set forth in (1) above or if such Directors
as set forth in (1) above so direct).
(3) A majority vote of the shareholders at a meeting at which a
quorum is present, with the shares owned by the person to be
indemnified not being entitled to vote thereon.
(4) The court in which the Proceeding is or was pending upon
application by Indemnitee.
The Company agrees to bear any and all costs and expenses incurred by
Indemnitee or the Company in connection with the determination of Indemnitee's
entitlement to indemnification by any of the above forums.
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6. Presumptions and Effect of Certain Proceedings. No initial finding by
the Board, its counsel, Independent Counsel, arbitrators or the shareholders
shall be effective to deprive Indemnitee of the protection of this indemnity,
nor shall a court or other forum to which Indemnitee may apply for enforcement
of this indemnity give any weight to any such adverse finding in deciding any
issue before it. Upon making a request for indemnification, Indemnitee shall be
presumed to be entitled to indemnification under this Agreement and the Company
shall have the burden of proof to overcome that presumption in reaching any
contrary determination. The termination of any Proceeding by judgment, order,
settlement, arbitration award or conviction, or upon a plea of nolo contendere
or its equivalent, shall not, of itself, (a) adversely affect the rights of
Indemnitee to indemnification except as indemnification may be expressly
prohibited under this Agreement, (b) create a presumption that Indemnitee did
not act in good faith and in a manner which he reasonably believed to be in or
not opposed to the best interests of the Company or (c) with respect to any
criminal action or proceeding, create a presumption that Indemnitee had
reasonable cause to believe that his conduct was unlawful.
7. Remedies of Indemnitee in Cases of Determination not to Indemnify or
to Advance Expenses.
7.1 In the event that (a) an initial determination is made that
Indemnitee is not entitled to indemnification, (b) advances for Expenses
are not made when and as required by this Agreement, (c) payment has not
been timely made following a determination of entitlement to
indemnification pursuant to this Agreement or (d) Indemnitee otherwise
seeks enforcement of this Agreement, Indemnitee shall be entitled to a
final adjudication in an appropriate court of the State of California of
his entitlement to such indemnification or advance. Alternatively,
Indemnitee at his option may seek an award in arbitration. If the parties
are unable to agree on an arbitrator, the parties shall provide JAMS
Endispute ("JAMS") with a statement of the nature of the dispute and the
desired qualifications of the arbitrator. JAMS will then provide a list of
three available arbitrators. Each party may strike one of the names on the
list, and the remaining person will serve as the arbitrator. If both
parties strike the same person, JAMS will select the arbitrator from the
other two names. The arbitration award shall be made within 90 days
following the demand for arbitration. Except as set forth herein, the
provisions of California law shall apply to any such arbitration. The
Company shall not oppose Indemnitee's right to seek any such adjudication
or arbitration award. In any such proceeding or arbitration Indemnitee
shall be presumed to be entitled to indemnification under this Agreement
and the Company shall have the burden of proof to overcome that
presumption.
7.2 An initial determination, in whole or in part, that Indemnitee is
not entitled to indemnification shall create no presumption in any judicial
proceeding or arbitration that Indemnitee has not met the applicable
standard of conduct for, or is otherwise not entitled to, indemnification.
7.3 If an initial determination is made or deemed to have been made
pursuant to the terms of this Agreement that Indemnitee is entitled to
indemnification, the Company shall be bound by such determination in the
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absence of (a) a misrepresentation of a material fact by Indemnitee in the
request for indemnification or (b) a specific finding (which has become
final) by a court of competent jurisdiction that all or any part of such
indemnification is expressly prohibited by law.
7.4 The Company and Indemnitee agree herein that a monetary remedy
for breach of this Agreement, at some later date, will be inadequate,
impracticable and difficult of proof, and further agree that such breach
would cause Indemnitee irreparable harm. Accordingly, the Company and
Indemnitee agree that Indemnitee shall be entitled to temporary and
permanent injunctive relief to enforce this Agreement without the necessity
of proving actual damages or irreparable harm. The Company and Indemnitee
further agree that Indemnitee shall be entitled to such injunctive relief,
including temporary restraining orders, preliminary injunctions and
permanent injunctions, without the necessity of posting bond or other
undertaking in connection therewith. Any such requirement of bond or
undertaking is hereby waived by the Company, and the Company acknowledges
that in the absence of such a waiver, a bond or undertaking may be required
by the court.
7.5 The Company shall be precluded from asserting that the procedures
and presumptions of this Agreement are not valid, binding and enforceable.
The Company shall stipulate in any such court or before any such arbitrator
that the Company is bound by all the provisions of this Agreement and is
precluded from making any assertion to the contrary.
7.6 Expenses incurred by Indemnitee in connection with his request
for indemnification under, seeking enforcement of or to recover damages for
breach of this Agreement shall be borne and advanced by the Company.
8. Other Rights to Indemnification. Indemnitee's rights of
indemnification and advancement of expenses provided by this Agreement shall not
be deemed exclusive of any other rights to which Indemnitee may now or in the
future be entitled under applicable law, the Articles, the Bylaws, an employment
agreement, a vote of shareholders or Disinterested Directors, insurance or other
financial arrangements or otherwise.
9. Limitations on Indemnification. No indemnification pursuant to
Section 3 shall be paid by the Company nor shall Expenses be advanced pursuant
to Section 3:
9.1 Insurance. To the extent that Indemnitee is reimbursed pursuant
to such insurance as may exist for Indemnitee's benefit. Notwithstanding
the availability of such insurance, Indemnitee also may claim
indemnification from the Company pursuant to this Agreement by assigning to
the Company any claims under such insurance to the extent Indemnitee is
paid by the Company. Indemnitee shall reimburse the Company for any sums
he receives as indemnification from other sources to the extent of any
amount paid to him for that purpose by the Company;
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<PAGE>
9.2 Section 16(b). On account and to the extent of any wholly or
partially successful claim against Indemnitee for an accounting of profits
made from the purchase or sale by Indemnitee of securities of the Company
pursuant to the provisions of Section 16(b) or the Securities Exchange Act
of 1934, as amended, and amendments thereto or similar provisions of any
federal, state or local statutory law; or
9.3 Indemnitee's Proceedings. Except as otherwise provided in this
Agreement, in connection with all or any part of a Proceeding which is
initiated or maintained by or on behalf of Indemnitee, or any Proceeding by
Indemnitee against the Company or its directors, officers, employees or
other agents, unless (a) such indemnification is expressly required to be
made by California Law, (b) the Proceeding was authorized by a majority of
the Disinterested Directors, (c) there has been a Change of Control or (d)
such indemnification is provided by the Company, in its sole discretion,
pursuant to the powers vested in the Company under California Law.
10. Duration and Scope of Agreement; Binding Effect. This Agreement shall
continue so long as Indemnitee shall be subject to any possible Proceeding
subject to indemnification by reason of the fact that he is or was an Agent and
shall be applicable to Proceedings commenced or continued after execution of
this Agreement, whether arising from acts or omissions occurring before or after
such execution. This Agreement shall be binding upon the Company and its
successors and assigns (including any direct or indirect successor by purchase,
merger, consolidation or otherwise to all or substantially all of the business
or assets of the Company) and shall inure to the benefit of Indemnitee and his
spouse, assigns, heirs, devisees, executors, administrators and other legal
representatives.
11. Notice by Indemnitee and Defense of Claims. Indemnitee agrees
promptly to notify the Company in writing upon being served with any summons,
citation, subpoena, complaint, indictment, information or other document
relating to any matter which may be subject to indemnification hereunder,
whether civil, criminal, arbitrative, administrative or investigative; but the
omission so to notify the Company will not relieve it from any liability which
it may have to Indemnitee if such omission does not actually prejudice the
Company's rights and, if such omission does prejudice the Company's rights, it
will relieve the Company from liability only to the extent of such prejudice;
nor will such omission relieve the Company from any liability which it may have
to Indemnitee otherwise than under this Agreement. With respect to any
Proceeding:
(a) The Company will be entitled to participate therein at its
own expense;
(b) Except as otherwise provided below, to the extent that it may
wish, the Company jointly with any other indemnifying party similarly
notified will be entitled to assume the defense thereof, with counsel
reasonably satisfactory to Indemnitee. After notice from the Company
to Indemnitee of its election so to assume the defense thereof and the
assumption of such defense, the
-8-
<PAGE>
Company will not be liable to Indemnitee under this Agreement for any
attorney fees or costs subsequently incurred by Indemnitee in
connection with Indemnitee's defense except as otherwise provided
below. Indemnitee shall have the right to employ his counsel in such
Proceeding but the fees and expenses of such counsel incurred after
notice from the Company of its assumption of the defense thereof and
the assumption of such defense shall be at the expense of Indemnitee
unless (i) the employment of counsel by Indemnitee has been authorized
by the Company, (ii) Indemnitee shall have reasonably concluded that
there may be a conflict of interest between the Company and Indemnitee
in the conduct of the defense of such action or that the Company's
counsel may not be adequately representing Indemnitee or (iii) the
Company shall not in fact have employed counsel to assume the defense
of such action, in each of which cases the fees and expenses of
counsel shall be at the expense of the Company; and
(c) The Company shall not be liable to indemnify Indemnitee under
this Agreement for any amounts paid in settlement of any action or
claim effected without its written consent. The Company shall not
settle any action or claim which would impose any limitation or
penalty on Indemnitee without Indemnitee's written consent. Neither
the Company nor Indemnitee will unreasonably withhold its or his
consent to any proposed settlement.
12. Contribution. In order to provide for just and equitable contribution
in circumstances in which the indemnification provided for in this Agreement is
held by a court of competent jurisdiction to be unavailable to Indemnitee in
whole or part, the Company shall, in such an event, after taking into account,
among other things, contributions by other directors and officers of the Company
pursuant to indemnification agreements or otherwise, and, in the absence of
personal enrichment, acts of intentional fraud or dishonesty or criminal conduct
on the part of Indemnitee, contribute to the payment of Indemnitee's losses to
the extent that, after other contributions are taken into account, such losses
exceed: (i) in the case of a director of the Company or any of its subsidiaries
who is not an officer of the Company or any of such subsidiaries, the amount of
fees paid to the director for serving as a director during the 12 months
preceding the commencement of the Proceeding; or (ii) in the case of a director
of the Company or any of its subsidiaries who is also an officer of the Company
or any of such subsidiaries, the amount set forth in clause (i) plus 5% of the
aggregate cash compensation paid to said director for service in such office(s)
during the 12 months preceding the commencement of the Proceeding; or (iii) in
the case of an officer of the Company or any of its subsidiaries, 5% of the
aggregate cash compensation paid to such officer for service in such office(s)
during the 12 months preceding the commencement of such Proceeding.
13. Establishment of Trust. In order to secure the obligations of the
Company to indemnify and to advance Expenses to Indemnitee pursuant to this
Agreement, upon a Change of Control of the Company, the Company or its successor
or assign shall establish a Trust (the
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<PAGE>
"Trust") for the benefit of the Indemnitee, the trustee (the "Trustee") of which
shall be chosen by the Company and which is reasonably acceptable to the
Indemnitee. Thereafter, from time to time, upon receipt of a written request
from Indemnitee, the Company shall fund the Trust in amounts sufficient to
satisfy any and all Liabilities and Expenses reasonably anticipated at the time
of such request for which the Company may indemnify Indemnitee hereunder. The
amount or amounts to be deposited in the Trust pursuant to the foregoing funding
obligation shall be determined by mutual agreement of the Indemnitee and the
Company or, if the Company and the Indemnitee are unable to reach such an
agreement, by Independent Counsel selected jointly by the Company and the
Indemnitee. The terms of the Trust shall provide that except upon the consent of
the Indemnitee and the Company, (i) the Trust shall not be revoked or the
principal thereof invaded, without the written consent of the Indemnitee, (ii)
the Trustee shall advance to the Indemnitee, within 20 days of a request by the
Indemnitee, any and all Expenses, the Indemnitee hereby agreeing to reimburse
the Trustee of the Trust for all Expenses so advanced if a final determination
is made by a court in a final adjudication from which there is no further right
of appeal that the Indemnitee is not entitled to be indemnified under this
Agreement, (iii) the Trust shall continue to be funded by the Company in
accordance with the funding obligations set forth in this Section, (iv) the
Trustee shall promptly pay to the Indemnitee any amounts to which the Indemnitee
shall be entitled pursuant to this Agreement, and (v) all unexpended funds in
the Trust shall revert to the Company upon a final determination by Independent
Counsel selected by Indemnitee or a court of competent jurisdiction that
Indemnitee has been fully indemnified with respect to the Proceeding giving rise
to the funding of the Trust under the terms of this Agreement. The establishment
of the Trust shall not, in any way, diminish the Company's obligation to
indemnify Indemnitee against Expenses and Liabilities to the full extent
required by this Agreement.
14. Miscellaneous Provisions.
14.1 Severability; Partial Indemnity. If any provision or provisions
of this Agreement (or any portion thereof) shall be held by a court of
competent jurisdiction to be invalid, illegal or unenforceable for any
reason whatever: (a) such provision shall be limited or modified in its
application to the minimum extent necessary to avoid the invalidity,
illegality or unenforceability of such provision; (b) the validity,
legality and enforceability of the remaining provisions of this Agreement
shall not in any way be affected or impaired thereby; and (c) to the
fullest extent possible, the provisions of this Agreement shall be
construed so as to give effect to the intent manifested by the provision
(or portion thereof) held invalid, illegal or unenforceable. If Indemnitee
is entitled under any provision of this Agreement to indemnification by the
Company for some or a portion of any Expenses or Liabilities of any type
whatsoever incurred by him in the investigation, defense, settlement or
appeal of a Proceeding but not entitled to all of the total amount thereof,
the Company shall nevertheless indemnify Indemnitee for such total amount
except as to the portion thereof for which it has been determined pursuant
to Section 5 hereof that Indemnitee is not entitled.
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<PAGE>
14.2 Identical Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall for all purposes be deemed to be
an original but all of which together shall constitute one and the same
Agreement. Only one such counterpart signed by the party against whom
enforceability is sought needs to be produced to evidence the existence of
this Agreement.
14.3 Interpretation of Agreement. It is understood that the parties
hereto intend this Agreement to be interpreted and enforced so as to
provide indemnification to Indemnitee to the fullest extent not now or
hereafter prohibited by law.
14.4 Headings. The headings of the Sections and paragraphs of this
Agreement are inserted for convenience only and shall not be deemed to
constitute part of this Agreement or to affect the construction thereof.
14.5 Pronouns. Use of the masculine pronoun shall be deemed to
include use of the feminine pronoun where appropriate.
14.6 Modification and Waiver. No supplement, modification or
amendment of this Agreement shall be binding unless executed in writing by
both of the parties to this Agreement. No waiver of any provision of this
Agreement shall be deemed to constitute a waiver of any of the provisions
hereof (whether or not similar) nor shall such waiver constitute a
continuing waiver. No waiver of any provision of this Agreement shall be
effective unless executed in writing.
14.7 Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have
been duly given if (i) delivered by hand and receipted for by the party to
whom said notice or other communication shall have been directed (ii)
mailed by certified or registered mail with postage prepaid, on the third
business day after the date on which it is so mailed, or (iii) sent by
facsimile transmission and receipt thereof is electronically confirmed:
(a) If to Indemnitee, to:
----------------------------------------
----------------------------------------
----------------------------------------
----------------------------------------
Telephone: ( ) -
---- ------ -------------
Facsimile: ( ) -
---- ------ -------------
(b) If to the Company, to: Critical Path, Inc.
----------------------------------------
----------------------------------------
Telephone: ( ) -
---- ------ -------------
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<PAGE>
Facsimile: ( ) -
---- ------ -------------
Attention: Secretary
or to such other address as may have been furnished to Indemnitee by the
Company or to the Company by Indemnitee, as the case may be.
14.8 Governing Law. The parties agree that this Agreement shall be
governed by, and construed and enforced in accordance with, the laws of the
State of California, as applied to contracts between California residents
entered into and to be performed entirely within California.
14.9 Consent to Jurisdiction. The Company and Indemnitee each hereby
irrevocably consent to the jurisdiction of the courts of the State of
California for all purposes in connection with any action or proceeding
which arises out of or relates to this agreement and agree that any action
instituted under this agreement shall be brought only in the state courts
of the State of California.
14.10 Entire Agreement. This Agreement represents the entire
agreement between the parties hereto, and there are no other agreements,
contracts or understanding between the parties hereto with respect to the
subject matter of this Agreement, except as specifically referred to herein
or as provided in Sections 8 and 2.1 hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first above written.
CRITICAL PATH, INC.
By:
------------------------------------
Name:
Title:
INDEMNITEE
----------------------------------------
Name:
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<PAGE>
EXHIBIT 10.2
CRITICAL PATH, INC.
EMPLOYEE STOCK PURCHASE PLAN
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
Section 1. Establishment of the Plan................................. 1
Section 2. Definitions............................................... 1
Section 3. Shares Authorized......................................... 2
Section 4. Administration............................................ 2
Section 5. Eligibility and Participation............................. 2
Section 6. Participation Periods..................................... 3
Section 7. Purchase Price............................................ 3
Section 8. Employee Contributions.................................... 3
Section 9. Plan Accounts; Purchase of Shares......................... 3
Section 10. Withdrawal From the Plan.................................. 4
Section 11. Effect of Termination of Employment or Death.............. 4
Section 12. Rights Not Transferable................................... 5
Section 13. Recapitalization, Etc..................................... 5
Section 14. Limitation on Stock Ownership............................. 5
Section 15. No Rights as an Employee.................................. 6
Section 16. Rights as a Stockholder................................... 6
Section 17. Use of Funds.............................................. 6
Section 18. Amendment or Termination of the Plan...................... 6
Section 19. Governing Law............................................. 6
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<PAGE>
CRITICAL PATH, INC.
EMPLOYEE STOCK PURCHASE PLAN
Section 1. Establishment of the Plan.
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The Critical Path, Inc. Employee Stock Purchase Plan (the "Plan") is hereby
established to provide Eligible Employees with an opportunity to purchase the
Company's Common Stock so that they may increase their equity interest in and
share in the success of the Company. The Plan, which provides for the purchase
of stock through payroll withholding, is intended to qualify under Section 423
of the Code.
Section 2. Definitions.
- --------- -----------
(a) "Board of Directors" or "Board" means the Board of Directors of the
Company.
(b) "Code" means the Internal Revenue Code of 1986, as amended.
(c) "Company" means Critical Path, Inc., a California corporation.
(d) "Compensation" means the base compensation paid to a Participant
during a Participation Period in cash or in kind including overtime, commissions
and shift differential. Incentive compensation, other bonuses and other forms of
compensation for work outside the regular work schedule are excluded.
(e) "Date of Participation" means the first day of a Participation Period.
(f) "Eligible Employee" means any Employee of a Participating Company (i)
whose customary employment is for more than five months per calendar year and
for more than 20 hours per week and (ii) who is an Employee at the commencement
of a Participation Period.
(g) "Employee" means any common-law employee of a Participating Company.
(h) "Fair Market Value" shall mean (i) the closing price of a share of
Stock on the principal exchange which the shares are trading on the first
trading day immediately preceding the date on which the Fair Market Value is
determined, or (ii) if the shares are not traded on an exchange but are quoted
on the Nasdaq National Market or a successor quotation system, the closing price
on the Nasdaq National Market or such successor quotation system on the first
trading day immediately preceding the date on which the Fair Market Value is
determined, or (iii) if the shares are not traded on an exchange or quoted on
the Nasdaq National Market or a successor quotation system, the fair market
value of a share as determined by the Plan Administrator in good faith. Such
determination shall be conclusive and binding on all persons.
(i) "Participant" means an Eligible Employee who elects to participate in
the Plan, as provided in Section 5 hereof.
(j) "Participating Company" means the Company and such present or future
Subsidiaries of the Company as the Board of Directors shall from time to time
designate.
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<PAGE>
(k) "Participation Period" means a period during which contributions may
be made toward the purchase of Stock under the Plan, as determined pursuant to
Section 6.
(l) "Plan Account" means the account established for each Participant
pursuant to Section 9(a).
(m) "Purchase Price" means the price at which Participants may purchase
Stock under Section 5 of the Plan, as determined pursuant to Section 7.
(n) "Stock" means the Common Stock of the Company.
(o) "Subsidiary" means a subsidiary corporation as defined in Section 424
of the Code.
Section 3. Shares Authorized.
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The maximum aggregate number of shares which may be offered under the Plan
shall be 1,500,000 shares of Stock, plus an additional amount each January 1
equal to 5% of the number of shares which had previously been authorized for
offers under the Plan, up to a maximum of 1,000,000 additional shares of Stock,
all of which numbers are subject to adjustment as provided in Section 13 hereof.
Section 4. Administration.
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(a) The Plan shall be administered by a Plan Administrator appointed by
the Board of Directors. In the absence of such an appointment, the full Board
of Directors shall serve as the Plan Administrator. The interpretation and
construction by the Plan Administrator of any provision of the Plan or of any
right to purchase stock qualified hereunder shall be conclusive and binding on
all persons.
(b) All costs and expenses incurred in administering the Plan shall be paid
by the Company. The Board or the Plan Administrator may request advice for
assistance or employ such other persons as are necessary for proper
administration of the Plan. A Participant who withdraws from the Plan in
accordance with Section 10 may again become a Participant, if he or she then is
an Eligible Employee, by following the procedure described in Section 5(a).
Section 5. Eligibility and Participation.
- --------- -----------------------------
(a) Any person who qualifies or will qualify as an Eligible Employee on the
Date of Participation with respect to a Participation Period may elect to
participate in the Plan for such Participation Period. An Eligible Employee may
elect to participate by executing the participation agreement prescribed for
such purpose by the Plan Administrator. The participation agreement shall be
filed with the Plan Administrator no later than the deadline stated on the
participation agreement, and if none is stated, then no later than the first day
of the Participation Period. The Eligible Employee shall designate on the
participation agreement the percentage of his or her Compensation which he or
she elects to have withheld for the purchase of Stock, which may be any whole
percentage of the Participant's Compensation or fixed dollar amount specified by
the Plan Administrator.
(b) By enrolling in the Plan, a Participant shall be deemed to have elected
to purchase the maximum number of whole shares of Stock which can be purchased
with the amount of the
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<PAGE>
Participant's Compensation which is withheld during the Participation Period,
subject to any limitations imposed by the Plan Administrator pursuant to
Section 6, and/or Section 14.
(c) Once enrolled, a Participant will continue to participate in the Plan
for each succeeding Participation Period until he or she terminates
participation or ceases to qualify as an Eligible Employee. A Participant who
withdraws from the Plan in accordance with Section 10 may again become a
Participant, if he or she then is an Eligible Employee, by following the
procedure described in Section 5(a).
Section 6. Participation Periods.
- --------- ---------------------
The Plan shall be implemented by one or more Participation Periods of not
more than twenty-seven (27) months each. The Plan Administrator shall determine
the commencement date and duration of each Participation Period, the purchase
dates that may occur during a Purchase Period and the maximum number of shares
that may be purchased by a Participant during the Participation Period.
Section 7. Purchase Price.
- --------- --------------
The Purchase Price for each share of Stock shall be the lesser of (i)
eighty-five percent (85%) of the Fair Market Value of such share on the Date of
Participation or (ii) eighty-five percent (85%) of the Fair Market Value of such
share on the last trading day prior to the date shares are purchased.
Section 8. Employee Contributions.
- --------- ----------------------
A Participant may purchase shares of Stock solely by means of payroll
deductions. Payroll deductions, as designated by the Participant pursuant to
Section 5(a), shall commence with the first paycheck issued during the
Participation Period and shall be deducted from each subsequent paycheck
throughout the Participation Period. If a Participant desires to decrease the
rate of payroll withholding during the Participation Period, he or she may do
so, if permitted by the Plan Administrator, by filing a new participation
agreement with the Plan Administrator. Such decrease will be effective as of
the first day of the second payroll period which begins following the receipt of
the new participation agreement. If a Participant desires to increase the rate
of payroll withholding, he or she may do so effective for the next Participation
Period by filing a new participation agreement with the Plan Administrator on or
before the date specified by the Plan Administrator, and if none is stated, then
no later than the first day of the Participation Period for which such change is
to be effective.
Section 9. Plan Accounts; Purchase of Shares.
- --------- ---------------------------------
(a) The Company will maintain a Plan Account on its books in the name of
each Participant. At the close of each pay period, the amount deducted from the
Participant's Compensation will be credited to the Participant's Plan Account.
(b) As of the last day of each Participation Period, the amount then in the
Participant's Plan Account will be divided by the Purchase Price, and the number
of whole shares which results (subject to the limitations described in Sections
5(b), 9(c) and 14) shall be purchased from the Company with the funds in the
Participant's Plan Account. Share certificates representing the
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<PAGE>
number of shares of Stock so purchased shall be delivered to the Plan
Administrator and kept in an account pursuant to a participation agreement
between each Participant and the Company and subject to the conditions described
therein which may include a requirement that shares of Stock be held and not
sold for certain time periods.
(c) In the event that the aggregate number of shares which all Participants
elect to purchase during a Participation Period shall exceed the number of
shares remaining available for issuance under the Plan, then the number of
shares to which each Participant shall become entitled shall be determined by
multiplying the number of shares available for issuance by a fraction the
numerator of which is the sum of the number of shares the Participant has
elected to purchase pursuant to Section 5, and the denominator of which is the
sum of the number of shares which all employees have elected to purchase
pursuant to Section 5. Any cash amount remaining in the Participant's Plan
Account under these circumstances shall be refunded to the Participant.
(d) Any amount remaining in the Participant's Plan Account caused by a
surplus due to fractional shares after deducting the amount of the Purchase
Price for the number of whole shares issued to the Participant shall be carried
over in the Participant's Plan Account for the succeeding Participation Period,
without interest. Any amount remaining in the Participant's Plan Account caused
by anything other than a surplus due to fractional shares shall be refunded to
the Participant in cash, without interest.
(e) As soon as practicable following the end of each Participation Period,
the Company shall deliver to each Participant a Plan Account statement setting
forth the amount of payroll deductions, the purchase price, the number of shares
purchased and the remaining cash balance, if any.
Section 10. Withdrawal From the Plan.
- ---------- ------------------------
A Participant may elect to withdraw from participation under the Plan at any
time up to the last day of a Participation Period by filing the prescribed form
with the Plan Administrator. As soon as practicable after a withdrawal, payroll
deductions shall cease and all amounts credited to the Participant's Plan
Account will be refunded in cash, without interest. A Participant who has
withdrawn from the Plan shall not be a Participant in future Participation
Periods, unless he or she again enrolls in accordance with the provisions of
Section 5.
Section 11. Effect of Termination of Employment or Death.
- ---------- --------------------------------------------
(a) Termination of employment as an Eligible Employee for any reason,
including death, shall be treated as an automatic withdrawal from the Plan under
Section 10. A transfer from one Participating Company to another shall not be
treated as a termination of employment.
(b) A Participant may file a written designation of a beneficiary who is to
receive any shares and cash, if any, from the Participant's Account under the
Plan in the event of such Participant's death subsequent to the purchase of
shares but prior to delivery to him of such shares and cash. In addition, a
Participant may file a written designation of a beneficiary who is to receive
any cash from the Participant's Account under the Plan in the event of such
Participant's death prior to the last day of a Participation Period.
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<PAGE>
(c) Such designation of beneficiary may be changed by the Participant at
any time by written notice. In the event of the death of a Participant in the
absence of a valid designation of a beneficiary who is living at the time of
such Participant's death, the Company shall deliver such shares and/or cash to
the executor or administrator of the estate of the Participant; or if no such
executor or administrator has been appointed (to the knowledge of the Company),
the Company, in its discretion, may deliver such shares and/or cash to the
spouse or to any one or more dependents or relatives of the Participant; or if
no spouse, dependent or relative is known to the Company, then to such other
person as the Company may designate.
Section 12. Rights Not Transferable.
- ---------- -----------------------
The rights or interests of any Participant in the Plan, or in any Stock or
moneys to which he or she may be entitled under the Plan, shall not be
transferable by voluntary or involuntary assignment or by operation of law, or
by any other manner other than as permitted by the Code or by will or the laws
of descent and distribution. If a Participant in any manner attempts to
transfer, assign or otherwise encumber his or her rights or interest under the
Plan, other than as permitted by the Code or by will or the laws of descent and
distribution, such act shall be treated as an automatic withdrawal under Section
10.
Section 13. Recapitalization, Etc.
- ---------- ----------------------
(a) The aggregate number of shares of Stock offered under the Plan, the
number and price of shares which any Participant has elected to purchase
pursuant to Section 5 and the maximum number of shares which a Participant may
elect to purchase under the Plan in any Participation Period shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Stock resulting from a subdivision or consolidation of shares or any
other capital adjustment, the payment of a stock dividend, or other increase or
decrease in such shares effected without receipt of consideration by the
Company.
(b) In the event of a dissolution or liquidation of the Company, or a
merger or consolidation to which the Company is a constituent corporation, this
Plan shall terminate, unless the plan of merger, consolidation or reorganization
provides otherwise, and all amounts which each Participant has paid towards the
Purchase Price of Stock hereunder shall be refunded, without interest.
(c) The Plan shall in no event be construed to restrict in any way the
Company's right to undertake a dissolution, liquidation, merger, consolidation
or other reorganization.
Section 14. Limitation on Stock Ownership.
- ---------- -----------------------------
Notwithstanding any provision herein to the contrary, no Participant shall
be permitted to elect to participate in the Plan (i) if such Participant,
immediately after his or her election to participate, would own stock possessing
five percent (5%) or more of the total combined voting power or value of all
classes of stock of the Company or any parent or Subsidiary of the Company, or
(ii) if under the terms of the Plan the rights of the Employee to purchase Stock
under this Plan and all other qualified employee stock purchase plans of the
Company or its Subsidiaries would accrue at a rate which exceeds twenty-five
thousand dollars ($25,000) of the Fair Market Value of such Stock (determined at
the time such right is granted) for each calendar year for which such right is
outstanding at any time. For purposes of this Section 14, ownership of stock
shall be
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<PAGE>
determined by the attribution rules of Section 424(d) of the Code, and
Participants shall be considered to own any stock which they have a right to
purchase under this or any other stock plan.
Section 15. No Rights as an Employee.
- ---------- ------------------------
Nothing in the Plan shall be construed to give any person the right to
remain in the employ of a Participating Company. Each Participating Company
reserves the right to terminate the employment of any person at any time and for
any reason.
Section 16. Rights as a Shareholder.
- ---------- -----------------------
A Participant shall have no rights as a shareholder with respect to any
shares he or she may have a right to purchase under the Plan until the date such
shares are actually purchased for the Participant's account, subject to the
shareholders' approval of the adoption of the Plan.
Section 17. Use of Funds.
- ---------- ------------
All payroll deductions received or held by the Company under the Plan may be
used by the Company for any corporate purpose, and the Company shall not be
obligated to segregate such payroll deductions in separate accounts.
Section 18. Amendment or Termination of the Plan.
- ---------- ------------------------------------
The Board of Directors shall have the right to amend, modify or terminate
the Plan at any time without notice. An amendment of the Plan shall be subject
to shareholder approval only to the extent required by applicable laws,
regulations or rules.
Section 19. Governing Law.
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The Plan shall be governed by, and construed and interpreted in accordance
with, the laws of the State of California.
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EXHIBIT 10.3
CRITICAL PATH, INC.
1998 STOCK PLAN
<PAGE>
TABLE OF CONTENTS
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SECTION 1. PURPOSE....................................... 1
SECTION 2. DEFINITIONS................................... 1
(a) "Board of Directors"............................ 1
(b) "Code".......................................... 1
(c) "Committee"..................................... 1
(d) "Company"....................................... 1
(e) "Disability".................................... 1
(f) "Employee"...................................... 2
(g) "Exercise Price"................................ 2
(h) "Fair Market Value"............................. 2
(i) "ISO"........................................... 2
(j) "Nonstatutory Option"........................... 2
(k) "Offeree"....................................... 2
(l) "Option"........................................ 2
(m) "Optionee"...................................... 2
(n) "Plan".......................................... 2
(o) "Purchase Price"................................ 2
(p) "Service"....................................... 2
(q) "Share"......................................... 2
(r) "Stock"......................................... 3
(s) "Stock Option Agreement"........................ 3
(t) "Stock Purchase Agreement"...................... 3
</TABLE>
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(u) "Subsidiary".................................... 3
SECTION 3. ADMINISTRATION................................ 3
(a) Committee Membership............................ 3
(b) Committee Procedures............................ 3
(c) Committee Responsibilities...................... 3
SECTION 4. ELIGIBILITY................................... 5
(a) General Rule.................................... 5
(b) Ten-Percent Stockholders........................ 5
(c) Attribution Rules............................... 5
(d) Outstanding Stock............................... 5
SECTION 5. STOCK SUBJECT TO PLAN......................... 6
(a) Basic Limitation................................ 6
(b) Additional Shares............................... 6
SECTION 6. TERMS AND CONDITIONS OF AWARDS OR SALES....... 7
(a) Stock Purchase Agreement........................ 7
(b) Duration of Offers and Nontransferability
of Rights...................................... 7
(c) Purchase Price.................................. 7
(d) Withholding Taxes............................... 7
(e) Restrictions on Transfer of Shares.............. 7
SECTION 7. TERMS AND CONDITIONS OF OPTIONS............... 8
(a) Stock Option Agreement.......................... 8
(b) Number of Shares................................ 8
(c) Exercise Price.................................. 8
</TABLE>
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<TABLE>
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(d) Withholding Taxes............................... 8
(e) Exercisability.................................. 9
(f) Term............................................ 9
(g) Nontransferability.............................. 9
(h) Exercise of Options on Termination of Service... 9
(i) No Rights as a Stockholder...................... 10
(j) Modification, Extension and Assumption of
Options........................................ 10
(k) Restrictions on Transfer of Shares.............. 10
SECTION 8. PAYMENT FOR SHARES............................ 10
(a) General Rule.................................... 10
(b) Surrender of Stock.............................. 10
(c) Promissory Notes................................ 11
(d) Cashless Exercise............................... 11
SECTION 9. ADJUSTMENT OF SHARES.......................... 11
(a) General......................................... 11
(b) Reorganizations................................. 12
(c) Reservation of Rights........................... 12
SECTION 10. LEGAL REQUIREMENTS........................... 12
SECTION 11. NO EMPLOYMENT RIGHTS......................... 13
SECTION 12. DURATION AND AMENDMENTS...................... 13
(a) Term of the Plan................................ 13
(b) Right to Amend or Terminate the Plan............ 13
(c) Effect of Amendment or Termination.............. 13
</TABLE>
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SECTION 13. EXECUTION.................................... 14
</TABLE>
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CRITICAL PATH, INC.
1998 STOCK PLAN
(AS AMENDED AND RESTATED EFFECTIVE ________, 1999)
SECTION 1. PURPOSE.
The purpose of the Plan is to offer selected employees, directors and
consultants an opportunity to acquire a proprietary interest in the success of
the Company, or to increase such interest, to encourage such selected persons to
remain in the employ of the Company and to attract new employees with
outstanding qualifications. The Plan provides for the direct award or sale of
Shares and for the grant of Options to purchase Shares. Options granted under
the Plan may include Nonstatutory Options as well as incentive stock options
intended to qualify under section 422 of the Internal Revenue Code.
SECTION 2. DEFINITIONS.
(a) "Board of Directors" shall mean the Board of Directors of the Company,
as constituted from time to time.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(c) "Committee" shall mean one or more committees consisting of one or
more members of the Board of Directors that is appointed by the Board of
Directors. If no Committee has been appointed, the entire Board of Directors
shall constitute the Committee. The Committee shall have membership composition
which enables the Plan to qualify under Rule 16b-3 with regard to the grant of
Options or other rights to acquire Shares to persons who are subject to Section
16 of the Securities Exchange Act of 1934.
(d) "Company" shall mean Critical Path, Inc., a California corporation.
(e) "Disability" shall means that an Optionee is unable to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment.
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(f) "Employee" shall mean (i) any individual who is a common-law employee
of the Company or of a Subsidiary, (ii) a member of the Board of Directors, or
(iii) a consultant who performs services for the Company or a Subsidiary.
Service as a member of the Board of Directors or as a consultant shall be
considered employment for all purposes under the Plan except the second sentence
of Section 4(a).
(g) "Exercise Price" shall mean the amount for which one Share may be
purchased upon exercise of an Option, as specified by the Committee in the
applicable Stock Option Agreement.
(h) "Fair Market Value" shall mean the fair market value of a Share, as
determined by the Committee in good faith. Such determination shall be
conclusive and binding on all persons.
(i) "ISO" shall mean an employee incentive stock option described in Code
section 422(b).
(j) "Nonstatutory Option" shall mean an employee stock option that is not
an ISO.
(k) "Offeree"
shall mean an individual to whom the Committee has offered the right to acquire
Shares (other than upon exercise of an Option).
(l) "Option" shall mean an ISO or Nonstatutory Option granted under the
Plan and entitling the holder to purchase Shares.
(m) "Optionee" shall mean an individual who holds an Option.
(n) "Plan" shall mean this Critical Path, Inc. 1998 Stock Plan.
(o) "Purchase Price" shall mean the consideration for which one Share may
be acquired under the Plan (other than upon exercise of an Option), as specified
by the Committee.
(p) "Service" shall mean service as an Employee.
(q) "Share" shall mean one share of Stock, as adjusted in accordance with
Section 9 (if applicable).
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(r) "Stock" shall mean the common stock of the Company.
(s) "Stock Option Agreement" shall mean the agreement between the Company
and an Optionee which contains the terms, conditions and restrictions pertaining
to his or her Option.
(t) "Stock Purchase Agreement" shall mean the agreement between the
Company and an Offeree who acquires Shares under the Plan which contains the
terms, conditions and restrictions pertaining to the acquisition of such Shares.
(u) "Subsidiary" shall mean any corporation, of which the Company and/or
one or more other Subsidiaries own not less than 50 percent of the total
combined voting power of all classes of outstanding stock of such corporation. A
corporation that attains the status of a Subsidiary on a date after the adoption
of the Plan shall be considered a Subsidiary commencing as of such date.
SECTION 3. ADMINISTRATION.
(a) Committee Membership. The Plan shall be administered by the Committee.
The members of the Committee shall be appointed by the Board of Directors.
(b) Committee Procedures. The Board of Directors shall designate one of
the members of the Committee as chairperson. The Committee may hold meetings at
such times and places as it shall determine. The acts of a majority of the
Committee members present at meetings at which a quorum exists, or acts reduced
to or approved in writing by all Committee members, shall be valid acts of the
Committee.
(c) Committee Responsibilities. Subject to the provisions of the Plan, the
Committee shall have full authority and discretion to take the following
actions:
(i) To interpret the Plan and to apply its provisions;
(ii) To adopt, amend or rescind rules, procedures and forms relating
to the Plan;
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(iii) To authorize any person to execute, on behalf of the Company,
any instrument required to carry out the purposes of the Plan;
(iv) To determine when Shares are to be awarded or offered for sale
and when Options are to be granted under the Plan;
(v) To select Offerees and Optionees;
(vi) To determine the number of Shares to be awarded or offered for
sale or to be made subject to each Option;
(vii) To prescribe the terms and conditions of each award or sale of
Shares, including (without limitation) the Purchase Price and vesting of
the award, and to specify the provisions of the Stock Purchase Agreement
relating to such award or sale;
(viii) To prescribe the terms and conditions of each Option,
including (without limitation) the Exercise Price and vesting of the
Option, to determine whether such Option is to be classified as an ISO or
as a Nonstatutory Option, and to specify the provisions of the Stock Option
Agreement relating to such Option;
(ix) To amend any outstanding Stock Purchase or Stock Option
Agreement; provided, however, that the rights and obligations under any
Stock Purchase or Stock Option Agreement shall not be materially altered or
impaired adversely by any such amendment, except with the consent of the
Optionee or Offeree;
(x) To determine the disposition of an Option or other right to
acquire Shares in the event of an Optionee's or Offeree's divorce or
dissolution of marriage;
(xi) To correct any defect, supply any omission, or reconcile any
inconsistency in the Plan and any Stock Purchase or Stock Option Agreement;
and
(xii) To take any other actions deemed necessary or advisable for the
administration of the Plan.
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All decisions, interpretations and other actions of the Committee shall be
final and binding on all Offerees, Optionees, and all persons deriving their
rights from an Offeree or Optionee. No member of the Committee shall be liable
for any action that he or she has taken or has failed to take in good faith with
respect to the Plan, any Option or any other right to acquire Shares under the
Plan.
SECTION 4. ELIGIBILITY.
(a) General Rule. Only Employees shall be eligible for designation as
Optionees or Offerees by the Committee. In addition, only individuals who are
employed as common-law employees by the Company or a Subsidiary shall be
eligible for the grant of ISOs.
(b) Ten-Percent Stockholders. An Employee who owns more than 10 percent of
the total combined voting power of all classes of outstanding stock of the
Company or any of its Subsidiaries shall not be eligible for the grant of an ISO
designation as an Optionee or Offeree unless (i) the Exercise Price is at least
110 percent of Fair Market Value on the date of grant, and (ii) such ISO by its
terms is not exercisable after the expiration of five years from the date of
grant.
(c) Attribution Rules.
For purposes of Subsection (b) above, in determining stock ownership, an
Employee shall be deemed to own the stock owned, directly or indirectly, by or
for his brothers, sisters, spouse, ancestors and lineal descendants. Stock
owned, directly or indirectly, by or for a corporation, partnership, estate or
trust shall be deemed to be owned proportionately by or for its stockholders,
partners or beneficiaries.
(d) Outstanding Stock. For purposes of Subsection (b) above, "outstanding
stock" shall include all stock actually issued and outstanding immediately after
the grant. "Outstanding
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stock" shall not include shares authorized for issuance under outstanding
options held by the Employee or by any other person.
SECTION 5. STOCK SUBJECT TO PLAN.
(a) Basic Limitation. Shares offered under the Plan shall be authorized
but unissued Shares, or issued Shares that have been reacquired by the Company.
The aggregate number of Shares which may be issued under the Plan (upon exercise
of Options or other rights to acquire Shares) shall not exceed 27,035,232
Shares, subject to adjustment pursuant to Section 9. The number of Shares which
are subject to Options or other rights to acquire Shares outstanding at any time
under the Plan shall not exceed the number of Shares which then remain available
for issuance under the Plan. During the term of the Plan, the Company shall at
all times reserve and keep available sufficient Shares to satisfy the
requirements of the Plan. On each January 1 for the remaining term of the Plan,
the aggregate number of Shares which may be issued under the Plan shall be
increased by a number of Shares equal to five (5) percent of the total number of
shares of the Common Stock of the Company that had previously been authorized
for issuance at the end of the most recently concluded calendar year. Any Shares
that have been reserved but not issued as Shares or Options during any calendar
year shall remain available for grant during any subsequent calendar year.
Notwithstanding the foregoing, no more than 75,000,000 Shares shall be issued
under ISOs for the remaining term of the Plan, subject to adjustment pursuant to
Section 9.
(b) Additional Shares. In the event that any outstanding Option or other
right to acquire Shares for any reason expires or is canceled or otherwise
terminated, the Shares allocable to the unexercised portion of such Option or
other right shall again be available for the purposes of the Plan.
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SECTION 6. TERMS AND CONDITIONS OF AWARDS OR SALES.
(a) Stock Purchase Agreement. Each award or sale of Shares under the Plan
(other than upon exercise of an Option) shall be evidenced by a Stock Purchase
Agreement between the Offeree and the Company. Such award or sale shall be
subject to all applicable terms and conditions of the Plan and may be subject to
any other terms and conditions which are not inconsistent with the Plan and
which the Committee deems appropriate for inclusion in a Stock Purchase
Agreement. The provisions of the various Stock Purchase Agreements entered into
under the Plan need not be identical.
(b) Duration of Offers and Nontransferability of Rights. Any right to
acquire Shares under the Plan (other than an Option) shall automatically expire
if not exercised by the Offeree within the number of days specified by the
Committee and communicated to the Offeree by the Committee. Such right shall not
be transferable and shall be exercisable only by the Offeree to whom such right
was granted.
(c) Purchase Price. The Purchase Price of Shares to be offered under the
Plan shall be determined by the Committee at its sole discretion. The Purchase
Price shall be payable in a form described in Section 8 or in the form of
services previously rendered to the Company.
(d) Withholding Taxes. As a condition to the purchase of Shares, the
Offeree shall make such arrangements as the Committee may require for the
satisfaction of any federal, state or local withholding tax obligations that may
arise in connection with such purchase.
(e) Restrictions on Transfer of Shares. No Shares awarded or sold under
the Plan may be sold or otherwise transferred or disposed of by the Offeree
during the one hundred eighty (180) day period following the effective date of a
registration statement covering securities of the Company filed under the
Securities Act of 1933. Subject to the preceding sentence, any Shares awarded or
sold under the Plan shall be subject to such special conditions,
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rights of repurchase, rights of first refusal and other transfer restrictions as
the Committee may determine. Such restrictions shall be set forth in the
applicable Stock Purchase Agreement and shall apply in addition to any general
restrictions that may apply to all holders of Shares.
SECTION 7. TERMS AND CONDITIONS OF OPTIONS.
(a) Stock Option Agreement. Each grant of an Option under the Plan shall
be evidenced by a Stock Option Agreement between the Optionee and the Company.
Such Option shall be subject to all applicable terms and conditions of the Plan
and may be subject to any other terms and conditions which are not inconsistent
with the Plan and which the Committee deems appropriate for inclusion in a Stock
Option Agreement. The provisions of the various Stock Option Agreements entered
into under the Plan need not be identical.
(b) Number of Shares. Each Stock Option Agreement shall specify the number
of Shares that are subject to the Option and shall provide for the adjustment of
such number in accordance with Section 9. The Stock Option Agreement shall also
specify whether the Option is an ISO or a Nonstatutory Option.
(c) Exercise Price. Each Stock Option Agreement shall specify the Exercise
Price. The Exercise Price of an ISO shall not be less than one hundred percent
(100%) of the Fair Market Value of a Share on the date of grant, except as
otherwise provided in Section 4(b). The Exercise Price of a Nonstatutory Option
shall not be less than eighty-five percent (85%) of the Fair Market Value of a
Share on the date of grant. Subject to the preceding two sentences, the Exercise
Price under any Option shall be determined by the Committee in its sole
discretion. The Exercise Price shall be payable in a form described in Section
8.
(d) Withholding Taxes. As a condition to the exercise of an Option, the
Optionee shall make such arrangements as the Committee may require for the
satisfaction of any federal, state,
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local or foreign withholding tax obligations that may arise in connection with
such exercise. The Optionee shall also make such arrangements as the Committee
may require for the satisfaction of any federal, state, local or foreign
withholding tax obligations that may arise in connection with the disposition of
Shares acquired by exercising an Option.
(e) Exercisability. Each Stock Option Agreement shall specify the date
when all or any installment of the Option is to become exercisable. Subject to
the preceding sentence, the vesting of any Option shall be determined by the
Committee in its sole discretion.
(f) Term. The Stock Option Agreement shall specify the term of the Option.
The term shall not exceed ten (10) years from the date of grant, except as
otherwise provided in Section 4(b). Subject to the preceding sentence, the
Committee at its sole discretion shall determine when an Option is to expire.
(g) Nontransferability. No Option shall be transferable by the Optionee
other than by will or by the laws of descent and distribution. An Option may be
exercised during the lifetime of the Optionee only by him or by his guardian or
legal representative. No Option or interest therein may be transferred,
assigned, pledged or hypothecated by the Optionee during his lifetime, whether
by operation of law or otherwise, or be made subject to execution, attachment or
similar process.
(h) Exercise of Options on Termination of Service. Each Stock Option
Agreement shall set forth the extent to which the Optionee shall have the right
to exercise the Option following termination of the Optionee's service with the
Company and its Subsidiaries. Such provisions shall be determined in the sole
discretion of the Committee, need not be uniform among all Options issued
pursuant to the Plan, and may reflect distinctions based on the reasons for
termination of employment.
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(i) No Rights as a Stockholder. An Optionee, or a transferee of an
Optionee, shall have no rights as a stockholder with respect to any Shares
covered by an Option until the date of the issuance of a stock certificate for
such Shares.
(j) Modification, Extension and Assumption of Options. Within the
limitations of the Plan, the Committee may modify, extend or assume outstanding
Options or may accept the cancellation of outstanding Options (whether granted
by the Company or another issuer) in return for the grant of new Options for the
same or a different number of Shares and at the same or a different Exercise
Price.
(k) Restrictions on Transfer of Shares. No Shares issued upon exercise of
an Option may be sold or otherwise transferred or disposed of by the Optionee
during the one hundred eighty (180) day period following the effective date of a
registration statement covering securities of the Company filed under the
Securities Act of 1933. Subject to the preceding sentence, any Shares issued
upon exercise of an Option shall be subject to such rights of repurchase, rights
of first refusal and other transfer restrictions as the Committee may determine.
Such restrictions shall be set forth in the applicable Stock Option Agreement
and shall apply in addition to any restrictions that may apply to holders of
Shares generally.
SECTION 8. PAYMENT FOR SHARES.
(a) General Rule. The entire Exercise Price of Shares issued under the
Plan shall be payable in lawful money of the United States of America at the
time when such Shares are purchased, except as provided in Subsections (b), (c)
and (d) below.
(b) Surrender of Stock. To the extent that a Stock Option Agreement so
provides, payment may be made all or in part with Shares which have already been
owned by the Optionee or the Optionee's representative for any time period
specified by the Committee and
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which are surrendered to the Company in good form for transfer. Such Shares
shall be valued at their Fair Market Value on the date when the new Shares are
purchased under the Plan.
(c) Promissory Notes. To the extent that a Stock Option Agreement so
provides, payment may be made all or in part with a full recourse promissory
note executed by the Optionee. The interest rate and other terms and conditions
of such note shall be determined by the Committee. The Committee may require
that the Optionee pledge his or her Shares to the Company for the purpose of
securing the payment of such note. In no event shall the stock certificate(s)
representing such Shares be released to the Optionee until such note is paid in
full.
(d) Cashless Exercise. To the extent that a Stock Option Agreement so
provides and a public market for the Shares exists, payment may be made all or
in part by delivery (on a form prescribed by the Committee) of an irrevocable
direction to a securities broker to sell Shares and to deliver all or part of
the sale proceeds to the Company in payment of the aggregate Exercise Price.
SECTION 9. ADJUSTMENT OF SHARES.
(a) General. In the event of a subdivision of the outstanding Stock, a
declaration of a dividend payable in Shares, a declaration of a dividend payable
in a form other than Shares in an amount that has a material effect on the value
of Shares, a combination or consolidation of the outstanding Stock into a lesser
number of Shares, a recapitalization, a reclassification or a similar
occurrence, the Committee shall make appropriate adjustments in one or more of
(i) the number of Shares available for future grants of Options or other rights
to acquire Shares under Section 5, (ii) the number of Shares covered by each
outstanding Option or other right to acquire Shares or (iii) the Exercise Price
of each outstanding Option or the Purchase Price of each other right to acquire
Shares.
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(b) Reorganizations. In the event that the Company is a party to a merger
or reorganization, outstanding Options or other rights to acquire Shares shall
be subject to the agreement of merger or reorganization.
(c) Reservation of Rights. Except as provided in this Section 9, an
Optionee or Offeree shall have no rights by reason of (i) any subdivision or
consolidation of shares of stock of any class, (ii) the payment of any dividend,
or (iii) any other increase or decrease in the number of shares of stock of any
class. Any issue by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall not affect, and no
adjustment by reason thereof shall be made with respect to, the number or
Exercise Price of Shares subject to an Option, or the number or Purchase Price
of shares subject to any other right to acquire Shares. The grant of an Option
or other right to acquire Shares pursuant to the Plan shall not affect in any
way the right or power of the Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure, to merge or
consolidate or to dissolve, liquidate, sell or transfer all or any part of its
business or assets.
SECTION 10. LEGAL REQUIREMENTS.
Shares shall not be issued under the Plan unless the issuance and delivery
of such Shares complies with (or is exempt from) all applicable requirements of
law, including (without limitation) the Securities Act of 1933, as amended, the
rules and regulations promulgated thereunder, state securities laws and
regulations, and the regulations of any stock exchange on which the Company's
securities may then be listed, and the Company has obtained the approval or
favorable ruling from any governmental agency which the Company determines is
necessary or advisable.
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SECTION 11. NO EMPLOYMENT RIGHTS.
No provision of the Plan, nor any Option granted or other right to acquire
Shares awarded under the Plan, shall be construed to give any person any right
to become, to be treated as, or to remain an Employee. The Company and its
Subsidiaries reserve the right to terminate any person's Service at any time and
for any reason.
SECTION 12. DURATION AND AMENDMENTS.
(a) Term of the Plan. The Plan, as set forth herein, shall become
effective on the date of its adoption by the Board of Directors, subject to the
approval of the Company's stockholders. In the event that the stockholders fail
to approve the Plan within twelve (12) months after its adoption by the Board of
Directors, any Option grants or other right to acquire Shares already made shall
be null and void, and no additional Option grants or other right to acquire
Shares shall be made after such date. The Plan shall terminate automatically ten
(10) years after its adoption by the Board of Directors and may be terminated on
any earlier date pursuant to Subsection (b) below.
(b) Right to Amend or Terminate the Plan. The Board of Directors may amend
the Plan at any time and from time to time. Rights and obligations under any
Option granted or other right to acquire Shares awarded before amendment of the
Plan shall not be materially altered, or impaired adversely, by such amendment,
except with consent of the Optionee or Offeree. An amendment of the Plan shall
be subject to the approval of the Company's stockholders only to the extent
required by applicable laws, regulations or rules.
(c) Effect of Amendment or Termination. No Shares shall be issued or sold
under the Plan after the termination thereof, except upon exercise of an Option
granted prior to such
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termination. The termination of the Plan, or any amendment thereof, shall not
affect any Share previously issued or Option previously granted under the Plan.
SECTION 13. EXECUTION.
To record the adoption of the Plan by the Board of Directors as of January
21, 1998, the Company has caused its authorized officer to execute the same.
CRITICAL PATH, INC.
By___________________________________________________
Its:_________________________________________________
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EXHIBIT 10.4
CRITICAL PATH, INC.
SERIES B PREFERRED STOCK
PURCHASE AGREEMENT
September 11, 1998
<PAGE>
TABLE OF CONTENTS
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SECTION 1 Purchase and Sale of Stock......................... 1
1.1 Sale and Issuance of Series B Preferred Stock...... 1
1.2 Closing; Delivery.................................. 1
1.3 Subsequent Sale of Series B Preferred Stock........ 1
SECTION 2 Representations and Warranties of the Company...... 2
2.1 Organization; Good Standing; Qualification......... 2
2.2 Authorization...................................... 2
2.3 Valid Issuance of Preferred and Common Stock....... 3
2.4 Governmental Consents.............................. 3
2.5 Capitalization and Voting Rights................... 3
2.6 Subsidiaries....................................... 4
2.7 Contracts and Other Commitments; Indebtedness...... 4
2.8 Related-Party Transactions......................... 5
2.9 Registration Rights................................ 5
2.10 Permits............................................ 6
2.11 Compliance With Other Instruments.................. 6
2.12 Litigation......................................... 6
2.13 Title to Property and Assets; Leases............... 6
2.14 Financial Statements............................... 7
2.15 Changes............................................ 7
2.16 Patents and Trademarks............................. 8
2.17 Manufacturing and Marketing Rights................. 9
2.18 Employees; Employee Compensation................... 9
2.19 Labor Agreements and Actions....................... 9
2.20 Confidentiality and Assignment of Inventions
Agreements......................................... 10
2.21 Tax Returns, Payments and Elections................ 10
2.22 Section 83(b) Elections............................ 10
2.23 Minute Books....................................... 11
2.24 Disclosure......................................... 11
2.25 Offering........................................... 11
2.26 Business Plan...................................... 11
2.27 Environmental and Safety Laws...................... 11
2.28 Corporate Documents................................ 11
2.29 Insurance.......................................... 12
2.30 Real Property Holding Company...................... 12
2.31 Brokers............................................ 12
2.32 Significant Customers and Suppliers................ 12
SECTION 3 Representations and Warranties of the Investors.... 12
3.1 Authorization...................................... 12
3.2 Purchase Entirely for Own Account.................. 12
3.3 Reliance Upon Investors' Representations........... 13
3.4 Receipt of Information............................. 13
</TABLE>
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3.5 Investment Experience.............................. 13
3.6 Accredited Investor................................ 13
3.7 Restricted Securities.............................. 13
3.8 Legends............................................ 13
SECTION 4 Conditions of Investors' Obligations at Closing.... 14
4.1 Representations and Warranties..................... 14
4.2 Performance........................................ 14
4.3 Compliance Certificate............................. 14
4.4 Qualifications..................................... 14
4.5 Proceedings and Documents.......................... 14
4.6 Board of Directors................................. 15
4.7 Investors' Rights Agreement........................ 15
4.8 Co-Sale Agreement.................................. 15
4.9 Voting Agreement................................... 15
4.10 Opinion of Company Counsel......................... 15
4.11 Restated Articles.................................. 15
4.12 Confidentiality and Assignment of Inventions
Agreements......................................... 15
4.13 Letter of Intent with E*TRADE Group, Inc........... 15
SECTION 5 Conditions of the Company's Obligations at Closing. 15
5.1 Representations and Warranties..................... 15
5.2 Qualifications..................................... 16
5.3 Restated Articles.................................. 16
SECTION 6 Miscellaneous...................................... 16
6.1 Entire Agreement................................... 16
6.2 Survival of Warranties............................. 16
6.3 Successors and Assigns............................. 16
6.4 Governing Law...................................... 16
6.5 Counterparts....................................... 16
6.6 Titles and Subtitles............................... 16
6.7 Notices............................................ 17
6.8 Finders' Fees...................................... 17
6.9 Expenses........................................... 17
6.10 Attorneys' Fees.................................... 17
6.11 Amendments and Waivers............................. 17
6.12 Severability....................................... 18
6.13 California Corporate Securities Law................ 18
6.14 Effect of Amendment or Waiver...................... 18
6.15 Rights of Investors................................ 18
6.16 Exculpation Among Investors........................ 18
6.17 Aggregation of Stock............................... 19
</TABLE>
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<PAGE>
Schedule A - List of Investors
Schedule 2.5 - Outstanding Common Stock
Exhibit A - Amended and Restated Articles of Incorporation
Exhibit B - Schedule of Exceptions
Exhibit C - Amended and Restated Investors' Rights Agreement
Exhibit D - Amended and Restated Right of First Refusal and
Co-Sale Agreement
Exhibit E - Amended and Restated Voting Agreement
Exhibit F - Opinion of Pillsbury Madison & Sutro LLP
Exhibit G - Letter of Intent
-iii-
<PAGE>
CRITICAL PATH, INC.
-------------------
SERIES B PREFERRED STOCK
------------------------
PURCHASE AGREEMENT
------------------
THIS SERIES B PREFERRED STOCK PURCHASE AGREEMENT (this "Agreement") is
made as of the 11th day of September, 1998, by and between CRITICAL PATH, INC.,
a California corporation (the "Company"), and each of the persons listed on
Schedule A hereto, each of which is herein referred to as an "Investor."
The parties hereby agree as follows:
SECTION 1
---------
Purchase and Sale of Stock
--------------------------
1.1 Sale and Issuance of Series B Preferred Stock.
(a) The Company shall adopt and file with the Secretary of State of
California on or before the Closing (as defined below) Amended and Restated
Articles of Incorporation in the form attached as Exhibit A (the "Restated
Articles").
(b) Subject to the terms and conditions of this Agreement, each
Investor agrees, severally and not jointly, to purchase at the Closing and the
Company agrees to sell and issue to each Investor, severally and not jointly, at
the Closing that number of shares of the Company's Series B Preferred Stock set
forth opposite each Investor's name on Schedule A hereto at a price of $1.9373
per share. The shares of Series B Preferred Stock issued to the Purchasers
pursuant to this Agreement shall be hereinafter referred to as the "Shares."
1.2 Closing; Delivery.
(a) The purchase and sale of the Shares shall take place at the
offices of Pillsbury Madison & Sutro LLP, 2550 Hanover Street, Palo Alto,
California, at 2:00 p.m. on September 11, 1998, or at such other time and place
as the Company and Investors acquiring in the aggregate more than half the
Shares to be sold hereunder shall mutually agree, either orally or in writing
(which time and place are designated as the "Closing").
(b) At the Closing, the Company shall deliver to each Investor a
certificate representing the Shares that such Investor is purchasing against
payment of the purchase price therefor by check or wire transfer.
1.3 Subsequent Sale of Series B Preferred Stock.
(a) If less than all of the authorized number of shares of Series B
Preferred Stock are sold at the Closing, for a period of thirty (30) days
thereafter (the "Subsequent
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<PAGE>
Period") the Company may sell up to the balance of the authorized but unissued
Series B Preferred Stock to such persons as are approved by the Company's Board
of Directors and who meet the suitability requirements set forth in Section 3.6
hereof at the same price per share as the Series B Preferred Stock purchased and
sold at the Closing (each a "Subsequent Closing"). Any such sale shall be upon
the same terms and conditions as those contained herein, and such persons or
entities shall become parties to this Agreement, the Amended and Restated
Investors' Rights Agreement in the form attached as Exhibit C (the "Investors'
Rights Agreement"), the Amended and Restated Right of First Refusal and Co-Sale
Agreement in the form attached as Exhibit D (the "Co-Sale Agreement") and the
Amended and Restated Voting Agreement in the form attached as Exhibit E (the
"Voting Agreement") (collectively the "Other Agreements"), and shall have the
rights and obligations of an Investor hereunder and thereunder.
(b) In the event that less than all of the authorized number of
shares of Series B Preferred Stock are sold during the Subsequent Period, the
Investors shall have the right during a period of ten (10) days following the
Subsequent Period to purchase their pro rata share of the shares of Series B
Preferred Stock which have been authorized in the Restated Articles but not sold
as of the expiration of the Subsequent Period.
SECTION 2
---------
Representations and Warranties of the Company
---------------------------------------------
The Company hereby represents and warrants to each Investor that,
except as set forth on a Schedule of Exceptions furnished to each Investor and
attached hereto as Exhibit B, specifically identifying the relevant
subsection(s) hereof, which exceptions shall be deemed to be representations and
warranties as if made hereunder and shall be deemed disclosed under and
incorporated into any other subsection of the Agreement where such disclosure
would be appropriate.
2.1 Organization; Good Standing; Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of California, has all requisite corporate power and authority to
own, lease, license and operate its properties and assets and to carry on its
business as now conducted and as presently proposed to be conducted, to execute
and deliver this Agreement and the Other Agreements, to issue and sell the
Shares and the Common Stock issuable upon conversion thereof, and to carry out
the provisions of this Agreement, the Other Agreements and the Restated
Articles. The Company is duly qualified to transact business and is in good
standing in each jurisdiction in which the failure to so qualify would have a
material adverse effect on its business or properties.
2.2 Authorization. All corporate action on the part of the Company,
its officers, directors and shareholders necessary for the authorization,
execution and delivery of this Agreement and the Other Agreements, the
performance of all obligations of the Company hereunder and thereunder at the
Closing and the authorization, issuance (or reservation for issuance), sale and
delivery of the Shares and the Common Stock issuable upon conversion thereof has
been taken or will be taken prior to the Closing, and this Agreement, the
Investors' Rights Agreement, the Co-Sale Agreement and the Voting Agreement,
when executed and
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<PAGE>
delivered, will constitute valid and legally binding obligations of the Company,
enforceable against the Company in accordance with their respective terms except
(a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium
and other laws of general application affecting enforcement of creditors' rights
generally, (b) as limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies, and (c) to the
extent the indemnification provisions contained in the Investors' Rights
Agreement may be limited by applicable laws.
2.3 Valid Issuance of Preferred and Common Stock. The Shares, when
issued, sold and delivered in accordance with the terms of this Agreement for
the consideration expressed herein, will be duly and validly issued, fully paid
and nonassessable, and will be free of liens, charges, encumbrances and
restrictions on transfer other than restrictions on transfer under this
Agreement and the Other Agreements and applicable state and federal securities
laws. The Common Stock issuable upon conversion of the Shares has been duly and
validly reserved for issuance and, upon issuance in accordance with the terms of
the Restated Articles, will be duly and validly issued, fully paid and
nonassessable, and will be free of liens, charges, encumbrances and restrictions
on transfer other than restric tions on transfer under this Agreement, the Other
Agreements and under applicable state and federal securities laws. The Shares
and the Common Stock issuable on conversion thereof are not subject to any
preemptive rights or rights of first refusal or other similar right.
2.4 Governmental Consents. No consent, approval, qualification,
order or authorization of, or filing with, any local, state or federal
governmental authority is required on the part of the Company in connection with
the Company's valid execution, delivery or performance of this Agreement, the
offer, sale or issuance of the Shares by the Company or the issuance of Common
Stock upon conversion of the Shares, except (a) the filing of the Restated
Articles with the Secretary of State of the State of California, (b) the filing
of Form D pursuant to Regulation D promulgated under the Securities Act of 1933,
as amended (the "Securities Act"), which filing will be effected within fifteen
(15) days of the Closing, and (c) such filings as have been made prior to the
Closing, except any notices of sale required to be filed with applicable federal
and state agencies, which will be timely filed within the applicable periods
therefor.
2.5 Capitalization and Voting Rights. The authorized capital of the
Company consists, or will consist immediately prior to the Closing, of:
(a) Preferred Stock. 43,139,301 shares of preferred stock (the
"Preferred Stock"), 29,234,743 shares of which have been designated Series A
Preferred Stock (the "Series A Preferred Stock"), 27,987,803 of which are issued
and outstanding immediately prior to the Closing, and 13,904,558 shares of which
have been designated Series B Preferred Stock, none of which is issued and
outstanding immediately prior to the Closing. The rights, privileges and
preferences of the Series A Preferred Stock and the Series B Preferred Stock
will be as stated in the Restated Articles.
(b) Common Stock. 75,000,000 shares of common stock (the "Common
Stock"), of which 14,723,264 shares are issued and outstanding. The outstanding
shares of Common Stock are owned by the shareholders in such numbers as set
forth in Schedule 2.5
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<PAGE>
attached hereto.
(c) The outstanding shares of Common Stock have been duly authorized
and validly issued, are fully paid and nonassessable and were issued in
accordance with the registration or qualification provisions of the Securities
Act and any relevant state securities laws or pursuant to valid exemptions
therefrom.
(d) The Company has reserved 43,139,301 shares of Common Stock for
issuance upon conversion of the Preferred Stock. Except for (i) the conversion
privileges of the Series A Preferred Stock and the Series B Preferred Stock,
(ii) the rights provided in Section 2.3 of the Investors' Rights Agreement,
(iii) warrants to purchase 250,000 shares of Common Stock, (iv) warrants to
purchase 499,988 shares of Series A Preferred Stock issued in connection with
the purchase of convertible promissory notes, (v) warrants to purchase 746,952
shares of Series A Preferred Stock issued in connection with equipment lease
financing, (vi) warrants to purchase 1,129,045 shares of Series B Preferred
Stock, and (vii) currently outstanding options to purchase 7,222,000 shares of
Common Stock granted pursuant to the Company's 1998 Stock Plan (the "Plan") and
the shares reserved for issuance upon exercise thereof, there are not
outstanding any options, warrants, rights (including conversion or preemptive
rights and rights of first refusal), or agreements for the purchase or
acquisition from the Company, or to the Company's knowledge, from any holders of
its securities, of any shares of its capital stock. The Company has reserved an
aggregate of 13,426,606 shares of its Common Stock for purchase upon exercise of
options under the Plan, of which options to purchase 7,222,000 shares of Common
Stock are issued and outstanding (net of options to purchase 1,765,000 shares
that have been returned to the Plan as of the Closing), and 5,239,500 options
remain available for future grant as of the Closing. The Company is not a party
or subject to any agreement or understanding, and, to the best of the Company's
knowledge, there is no agreement or understanding between any persons that
affects or relates to the voting or giving of written consents with respect to
any security or the voting by a director of the Company, except as set forth in
the Voting Agreement.
2.6 Subsidiaries. The Company does not own or control, directly or
indirectly, any interest in any other corporation, association or other business
entity. The Company is not a participant in any joint venture, partnership or
similar arrangement.
2.7 Contracts and Other Commitments; Indebtedness.
(a) Except for agreements explicitly contemplated hereby and by the
Investors' Rights Agreement, the Co-Sale Agreement and the Voting Agreement,
there are no agreements, understandings or proposed transactions between the
Company and any of its officers, directors, affiliates, or any affiliate
thereof.
(b) There are no agreements, understandings, instruments, contracts,
proposed transactions, judgments, orders, writs or decrees to which the Company
is a party or by which it is bound that may involve (i) obligations (contingent
or otherwise) of, or payments to the Company in excess of, $25,000, or (ii) the
license of any patent, copyright, trade secret or other proprietary right to or
from the Company (other than the license of the Company's software and products
in the ordinary course of business), or (iii) provisions restricting or
affecting the
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<PAGE>
development, manufacture or distribution of the Company's products or service,
or (iv) indemnification by the Company with respect to infringements of
proprietary rights.
(c) The Company has not (i) declared or paid any dividends or
authorized or made any distribution upon or with respect to any class or series
of its capital stock; (ii) incurred any indebtedness for money borrowed or any
other liabilities individually in excess of $25,000 or, in the case of
indebtedness and/or liabilities individually less than $25,000, in excess of
$50,000 in the aggregate, except as set forth in the Financial Statements
described in Section 2.14 hereof; (iii) made any loans or advances to any
person, other than ordinary advances for travel expenses; or (iv) sold,
exchanged or otherwise disposed of any of its assets or rights, other than the
sale of its inventory in the ordinary course of business.
(d) For the purposes of subsections (b) and (c) above, all
indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions involving the same person or entity (including persons
or entities the Company has reason to believe are affiliated therewith) shall be
aggregated for the purpose of meeting the individual minimum dollar amounts of
such subsections.
2.8 Related-Party Transactions. No employee, officer or director of
the Company or member of his or her immediate family is indebted to the Company,
nor is the Company indebted (or committed to make loans or extend or guarantee
credit) to any of them, other than in connection with expenses incurred in the
ordinary course of business. To the Company's knowledge, none of such persons
has any direct or indirect ownership in any firm or corporation with which the
Company is affiliated or with which the Company has a business relationship, or
any firm or corporation that competes with the Company, except that employees,
officers or directors of the Company and members of their immediate families may
own, or have rights to acquire, not more than five percent (5%) of the
outstanding stock in publicly traded companies that may compete with the
Company. To the Company's knowledge, no officer or director or any member of
their immediate families is, directly or indirectly, interested in any material
contract with the Company.
2.9 Registration Rights. Except as provided in the Investors' Rights
Agreement, the Company is presently not obligated and has not granted or agreed
to grant any rights to register under the Securities Act any of its presently
outstanding securities or any of its securities that may subsequently be issued.
2.10 Permits. The Company has all franchises, permits, licenses and
any similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which could materially and adversely affect the
business, properties, prospects or financial condition of the Company and
believes it can obtain, without undue burden or expense, any similar authority
for the conduct of its business as planned to be conducted. The Company is not
in default in any material respect under any of such franchises, permits,
licenses or other similar authority.
2.11 Compliance With Other Instruments. The Company is not in
violation or default in any material respect of any provision of its Restated
Articles or Bylaws or in any material respect of any provision of any mortgage,
agreement, instrument or contract to which
-5-
<PAGE>
it is a party or by which it is bound, or to the best of its knowledge, of any
foreign or domestic, federal or state judgment, order, writ, decree, statute,
rule or regulation applicable to the Company. The execution, delivery and
performance by the Company of this Agreement, the Investors' Rights Agreement,
the Co-Sale Agreement and the Voting Agreement, and the consummation of the
transactions contemplated hereby and thereby will not result in any such
violation or be in material conflict with or constitute, with or without the
passage of time or giving of notice, either a material default under any such
provision or an event that results in the creation of any material lien, charge
or encumbrance upon any assets of the Company.
2.12 Litigation. There is no action, suit, proceeding or
investigation pending, or to the best of the Company's knowledge, currently
threatened against the Company nor, to the best of the Company's knowledge, is
there a basis for the foregoing, including, without limitation, any that
questions the validity of this Agreement or the Other Agreements or the right of
the Company to enter into such agreements, or to consummate the transactions
contemplated hereby or thereby. The foregoing includes, without limitation, any
action, suit, proceeding or investigation pending or currently threatened
involving the prior employment of any of the Company's employees, their use in
connection with the Company's business of any information or techniques
allegedly proprietary to any of their former employers or their obligations
under any agreements with prior employers. There is no action, suit, proceeding
or investigation by the Company currently pending or that the Company currently
intends to initiate.
2.13 Title to Property and Assets; Leases. Except (a) for liens for
current taxes not yet delinquent, (b) for liens imposed by law and incurred in
the ordinary course of business for obligations not past due to carriers,
warehousemen, laborers, materialmen and the like, (c) for liens in respect of
pledges or deposits under workers' compensation laws or similar legislation, or
(d) for minor defects in title, none of which, individually or in the aggregate,
materially adversely affects the Company's rights in or interferes with the use
of such property, the Company owns its property and assets free and clear of all
mortgages, liens, claims and encumbrances. With respect to the property and
assets it leases or licenses, the Company is in compliance with such leases or
licenses and, to the best of its knowledge, holds a valid leasehold interest or
license free of any liens, claims or encumbrances subject to clauses (a)-(d)
above.
2.14 Financial Statements. The Company has made available to each
Investor its audited balance sheet as of December 31, 1997 and its audited
income statement for the year ended December 31, 1997 and its unaudited balance
sheet and income statement as of and for the seven (7) month period ended July
31, 1998 (collectively the "Financial Statements"). The Financial Statements
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods indicated and with each
other, except that unaudited Financial Statements may not contain all footnotes
required by generally accepted accounting principles. The Financial Statements
fairly present the financial condition of the Company as of the dates indicated
therein. Except as set forth in the Financial Statements, the Company has no
material liabilities, contingent or otherwise, other than (a) liabilities
incurred in the ordinary course of business subsequent to July 31, 1998 and (b)
obligations under contracts and commitments incurred in the ordinary course of
business and not required under generally accepted accounting principles to be
reflected in the Financial
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<PAGE>
Statements, which, in both cases, individually or in the aggregate do not exceed
$50,000. The Company is not a guarantor or indemnity of any indebtedness of any
other person, firm or corporation. The Company maintains and will continue to
maintain a standard system of accounting established and administered in
accordance with generally accepted accounting principles.
2.15 Changes. Since July 31, 1998, there has not been:
(a) any change in the assets, liabilities, financial condition or
operating results of the Company from that reflected in the Financial
Statements, except changes in the ordinary course of business that have not
been, in the aggregate, materially adverse;
(b) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the business, properties,
prospects, or financial condition of the Company (as such business is presently
conducted and as it is proposed to be conducted);
(c) any waiver or compromise by the Company of a valuable right or
of a material debt owed to it;
(d) any satisfaction or discharge of any lien, claim, or encumbrance
or payment of any obligation by the Company, except in the ordinary course of
business and that is not material to the business, properties, prospects or
financial condition of the Company (as such business is presently conducted and
as it is proposed to be conducted);
(e) any material change to a material contract or agreement by which
the Company or any of its assets is bound or subject;
(f) any material change in any compensation arrangement or agreement
with any employee;
(g) any sale, assignment or transfer of any patents, trademarks,
copyrights, trade secrets or other intangible assets;
(h) any resignation or termination of employment of any key officer
of the Company; and the Company, to its knowledge does not know of the impending
resignation or termination of employment of any such officer;
(i) receipt of notice that there has been a loss of, or material
order cancellation by, any major customer of the Company;
(j) any mortgage, pledge, transfer of a security interest in, or
lien, created by the Company, with respect to any of its material properties or
assets, except liens for taxes not yet due or payable;
(k) any loans or guarantees made by the Company to or for the
benefit of its employees, officers or directors, or any members of their
immediate families, other than travel advances and other advances made in the
ordinary course of its business;
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<PAGE>
(l) any declaration, setting aside or payment or other distribution
in respect to any of the Company's capital stock, or any direct or indirect
redemption, purchase, or other acquisition of any of such stock by the Company;
(m) to the best of the Company's knowledge, any other event or
condition of any character that might materially and adversely affect the
business, properties, prospects or financial condition of the Company (as such
business is presently conducted and as it is proposed to be conducted); or
(n) any arrangement or commitment by the Company to do any of the
things described in this Section 2.15.
2.16 Patents and Trademarks. The Company owns or possesses
sufficient legal rights to all patents, trademarks, service marks, trade names,
copyrights, trade secrets, licenses, information and proprietary rights and
processes necessary for its business as now conducted and as proposed to be
conducted without, to the best of the Company's knowledge, conflict with, or
infringement of the rights of, others. Except for agreements with its own
employees or consultants, substantially in the form referenced in Section 2.18
below, there are no outstanding options, licenses or agreements of any kind
relating to the foregoing, nor is the Company bound by or a party to any
options, licenses or agreements of any kind with respect to the patents,
trademarks, service marks, trade names, copyrights, trade secrets, licenses,
information and proprietary rights and processes of any other person or entity.
The Company has not received any communications alleging that the Company has
violated or, by conducting its business as proposed, would violate any of the
patents, trademarks, service marks, trade names, copyrights, trade secrets or
other proprietary rights or processes of any other person or entity. The Company
is not aware that any of its employees is obligated under any contract
(including licenses, covenants or commitments of any nature) or other agreement,
or subject to any judgment, decree or order of any court or administrative
agency, that would interfere with the use of such employee's best efforts to
promote the interests of the Company or that would conflict with the Company's
business as proposed to be conducted. Neither the execution nor delivery of this
Agreement, nor the carrying on of the Company's business by the employees of the
Company, nor the conduct of the Company's business as proposed, will, to the
best of the Company's knowledge, conflict with or result in a breach of the
terms, conditions or provisions of, or constitute a default under, any contract,
covenant or instrument under which any of such employees is now obligated. The
Company does not believe it is or will be necessary to use any inventions of any
of its employees (or persons it currently intends to hire) made prior to their
employment by the Company, other than those which have been assigned to the
Company.
2.17 Manufacturing and Marketing Rights. The Company has not granted
rights to manufacture, produce, assemble, license, market, or sell its products
to any other person and is not bound by any agreement that affects the Company's
exclusive right to develop, manufacture, assemble, distribute, market, or sell
its products.
2.18 Employees; Employee Compensation.
(a) To its knowledge, the Company has complied in all material
respects with
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<PAGE>
all applicable state and federal equal opportunity and other laws related to
employment. To the Company's knowledge, no employee of the Company is or will be
in violation of any judgment, decree or order, or any term of any employment
contract, patent disclosure agreement, or other contract or agreement relating
to the relationship of any such employee with the Company or any other party
because of the nature of the business conducted or to be conducted by the
Company or to the use by the employee of his or her best efforts with respect to
such business. The Company is not a party to or bound by any currently effective
employment contract, deferred compensation agreement, bonus plan, incentive
plan, profit sharing plan, retirement agreement, or other employee compensation
agreement including any Employee Benefit Plan as defined in the Employee
Retirement Income Security Act of 1974.
(b) The Company has provided to the Investors a list identifying all
current directors, officers, employees, independent contractors and consultants
of the Company. Each of the Company's employees and consultants is fully
authorized to work in the United States without limitation as to time or place.
The employment of each of the Company's employees is "at will" employment. The
Company does not have any obligation (i) to pro vide any particular form or
period of notice prior to termination, or (ii) to pay any of such employees any
severance benefits in connection with his or her termination of employment or
service. The Company has not entered into any consulting agreements with any
employee or consultant who owes services to or is owed compensation by the
Company for services provided in excess of $25,000.
2.19 Labor Agreements and Actions. The Company is not bound by or
subject to (and none of its assets or properties is bound by or subject to) any
written or oral, express or implied, contract, commitment or arrangement with
any labor union, and no labor union has requested or, to the best of the
Company's knowledge, has sought to represent any of the employees,
representatives or agents of the Company. There is no strike or other labor
dispute involving the Company pending, or to the best of the Company's
knowledge, threatened, that could have a material adverse effect on the assets,
properties, financial condition, operating results, or business of the Company
(as such business is presently conducted and as it is proposed to be conducted),
nor is the Company aware of any labor organization activity involving its
employees. The Company is not aware that any officer or key employee, or that
any group of key employees, intends to terminate their employment with the
Company, nor does the Company have a present intention to terminate the
employment of any of the foregoing.
2.20 Confidentiality and Assignment of Inventions Agreements. Each
employee and officer of the Company has executed an agreement with the Company
regarding confidentiality and proprietary information substantially in the form
or forms delivered to the counsel for the Investors. The Company, after
reasonable investigation, is not aware that any of its employees or consultants
is in violation thereof, and the Company will use its best efforts to prevent
any such violation. All consultants to or vendors of the Company with access to
confidential information of the Company are parties to a written agreement
substantially in the form or forms provided to counsel for the Investors under
which, among other things, each such consultant or vendor is obligated to
maintain the confidentiality of confidential information of the Company. The
Company, after reasonable investigation, is not aware that any of its
consultants or vendors are in violation thereof, and the Company will use its
best efforts to
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<PAGE>
prevent any such violation.
2.21 Tax Returns, Payments and Elections. The Company has filed all
tax returns and reports as required by law. These returns and reports are true
and correct in all material respects. The Company has paid all taxes and other
assessments due, except those contested by it in good faith. The Company has not
elected pursuant to the Internal Revenue Code of 1986, as amended ("Code"), to
be treated as an S corporation or a collapsible corporation pursuant to section
341(f) or section 1362(a) of the Code, nor has it made any other elections
pursuant to the Code (other than elections that relate solely to methods of
accounting, depreciation or amortization) that would have a material effect on
the business, properties, prospects or financial condition of the Company. The
Company has never had any tax deficiency proposed or assessed against it and has
not executed any waiver of any statute of limitations on the assessment or
collection of any tax or governmental charge. None of the Company's federal
income tax returns and none of its state income or franchise tax or sales or use
tax returns has ever been audited by governmental authorities. Since the date of
the Financial Statements, the Company has not incurred any taxes, assessments or
governmental charges other than in the ordinary course of business and the
Company has made adequate provisions on its books of account for all taxes,
assessments and governmental charges with respect to its business, properties
and operations for such period. The Company has withheld or collected from each
payment made to each of its employees, the amount of all taxes (including, but
not limited to, federal income taxes, Federal Insurance Contribution Act taxes
and Federal Unemployment Tax Act taxes) required to be withheld or collected
therefrom, and has paid the same to the proper tax receiving officers or
authorized depositories.
2.22 Section 83(b) Elections. To the Company's knowledge, all
individuals who have purchased shares of the Company's Common Stock under
agreements that provide for the vesting of such shares have timely filed
elections under section 83(b) of the Internal Revenue Code and any analogous
provisions of applicable state tax laws.
2.23 Minute Books. The minute book of the Company contains true and
complete minutes of all meetings of directors and shareholders and all actions
by written consent without a meeting by the directors and shareholders since the
date of incorporation and accurately reflects all actions by the directors (and
any committee of directors) and stockholders with respect to all transactions
referred to in such minutes in all material respects.
2.24 Disclosure. The Company has provided each Investor with all the
information reasonably available to it without undue expense that such Investor
has requested for deciding whether to purchase the Shares and all information
that the Company believes is reasonably necessary to enable such Investor to
make such decision. To the best of the Company's knowledge, neither this
Agreement nor any other written statements or certificates made or delivered in
connection herewith contains any untrue statement of a material fact or omits to
state a material fact necessary to make the statements herein or therein not
misleading.
2.25 Offering. Subject in part to the truth and accuracy of each
Investor's representations set forth in this Agreement, the offer, sale and
issuance of the Shares as contemplated by this Agreement are exempt from the
registration requirements of any applicable state and federal securities laws,
and neither the Company nor any authorized agent
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acting on its behalf will take any action hereafter that would cause the loss of
such exemption.
2.26 Business Plan. The Business Plan for the Company previously
delivered to each Investor or Investor representative was prepared in good faith
by the Company and does not, to the best of the Company's knowledge after
reasonable investigation, contain any untrue statement of a material fact nor
does it omit to state a material fact necessary to make the statements therein
not misleading, except that with respect to assumptions, projections and
expressions of opinion or predictions contained in the Business Plan, the
Company represents only that such assumptions, projections and expressions of
opinion and predictions were made in good faith and that the Company believes
there is a reasonable basis therefor.
2.27 Environmental and Safety Laws. To its knowledge, the Company is
not in violation of any applicable statute, law or regulation relating to the
environment or occupational health and safety, and to its knowledge, no material
expenditures are or will be required in order to comply with any such existing
statute, law or regulation.
2.28 Corporate Documents. Except for amendments necessary to satisfy
representations and warranties or conditions contained herein (the form of which
amendments has been approved by the Investors), the Restated Articles and Bylaws
of the Company are in the form previously provided to special counsel for the
Investors.
2.29 Insurance. The Company has in full force and effect fire and
casualty insurance policies, with extended coverage, sufficient in amount
(subject to reasonable deductibles) to allow it to replace any of its properties
that might be damaged or destroyed.
2.30 Real Property Holding Company. The Company is not currently,
and has not been during the prior five years, a United States real property
holding corporation within the meaning of Section 897 of the Code and the
Company has filed with the Internal Revenue Service all statements, if any, with
its United States income tax returns which are required under Section 1.897-2(h)
of the Treasury Regulations.
2.31 Brokers. The Company has no contract, arrangement or
understanding with any broker, finder or similar agent with respect to the
transactions contemplated by this Agreement.
2.32 Significant Customers and Suppliers. No customer or supplier
that was significant to the Company during the period covered by the financial
statements referred to in Section 2.14 or that has been significant to the
Company thereafter, has materially reduced, terminated or advised the Company
that it intended to terminate its purchases from or provision of products of
services to the Company, as the case may be.
SECTION 3
---------
Representations and Warranties of the Investors
-----------------------------------------------
Each Investor hereby represents and warrants, severally and not
jointly, to the Company that:
-11-
<PAGE>
3.1 Authorization. Each Investor has full power and authority to
enter into this Agreement, and that this Agreement constitutes a valid and
legally binding obligation of such Investor.
3.2 Purchase Entirely for Own Account. This Agreement is made with
each Investor in reliance upon such Investor's representation to the Company,
which by such Investor's execution of this Agreement such Investor hereby
confirms, that the Shares to be purchased by such Investor and the Common Stock
issuable upon conversion thereof (collectively, the "Securities") will be
acquired for investment for such Investor's own account, not as a nominee or
agent (except that an Investor that is an investment fund may sign this
Agreement as a nominee for affiliated funds), and not with a view to the resale
or distribution of any part thereof, and that such Investor has no present
intention of selling, granting any participation in, or otherwise distributing
the same. By executing this Agree ment, each Investor further represents that
such Investor does not have any contract, undertaking, agreement or arrangement
with any person to sell, transfer or grant participations to such person or to
any third person, with respect to any of the Securities except, as indicated
above, investment funds acting as nominees for affiliated funds.
3.3 Reliance Upon Investors' Representations. Each Investor
understands that the Series B Preferred Stock is not, and any Common Stock
acquired on conversion thereof at the time of issuance may not be, registered
under the Securities Act on the ground that the sale provided for in this
Agreement and the issuance of securities hereunder is exempt from registration
under the Securities Act pursuant to section 4(2) thereof, and that the
Company's reliance on such exemption is based on the Investors' representations
set forth herein .
3.4 Receipt of Information. Each Investor believes it has received
all the information it considers necessary or appropriate for deciding whether
to purchase the Series B Preferred Stock. Each Investor further represents that
it has had an opportunity to ask questions and receive answers from the Company
regarding the terms and conditions of the offering of the Shares and the
business, properties, prospects and financial condition of the Company and to
obtain additional information (to the extent the Company possessed such
information or could acquire it without unreasonable effort or expense)
necessary to verify the accuracy of any information furnished to it or to which
it had access. The foregoing, however, does not limit or modify the
representations and warranties of the Company in Section 2 of this Agreement or
the right of the Investors to rely thereon.
3.5 Investment Experience. Each Investor is experienced in
evaluating and investing in securities of companies in the development stage and
acknowledges that it is able to fend for itself, can bear the economic risk of
its investment, and has such knowledge and experience in financial and business
matters that it is capable of evaluating the merits and risks of the investment
in the Shares. If other than an individual, each Investor also represents it has
not been organized for the purpose of acquiring the Shares.
3.6 Accredited Investor. Each Investor is an "Accredited Investor"
as defined in Rule 501(a) of Regulation D under the Securities Act.
-12-
<PAGE>
3.7 Restricted Securities. Each Investor understands that the Shares
(and any Common Stock issued on conversion thereof) may not be sold, transferred
or otherwise disposed of without registration under the Securities Act or an
exemption therefrom, and that in the absence of an effective registration
statement covering the Shares (or the Common Stock issued on conversion thereof)
or an available exemption from registration under the Securities Act, the Shares
(and any Common Stock issued on conversion thereof) must be held indefinitely.
In particular, each Investor is aware that the Shares (and any Common Stock
issued on conversion thereof) may not be sold pursuant to Rule 144 promulgated
under the Securities Act unless all of the conditions of that Rule are met.
Among the condi tions for use of Rule 144 is the availability of current
information to the public about the Company. Such information is not now
available and the Company has no present plans to make such information
available.
3.8 Legends. To the extent applicable, each certificate or other
document evidencing any of the Shares or any Common Stock issued upon conversion
thereof shall be endorsed with the legends set forth below, and each Investor
covenants that, except to the extent such restrictions are waived by the
Company, such Investor shall not transfer the shares represented by any such
certificate without complying with the restrictions on transfer described in the
following legend under the Securities Act endorsed on such certificate:"THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED OR QUALIFIED
UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF ANY STATE, AND MAY BE
OFFERED AND SOLD ONLY IF REGISTERED AND QUALIFIED PURSUANT TO THE RELEVANT
PROVISIONS OF FEDERAL AND STATE SECURITIES LAWS OR IF THE COMPANY IS PROVIDED AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION AND
QUALIFICATION UNDER FEDERAL AND STATE SECURITIES LAWS IS NOT REQUIRED."
SECTION 4
---------
Conditions of Investors' Obligations at Closing
-----------------------------------------------
The obligations of each Investor under subsection 1.1(b) of this
Agreement are subject to the fulfillment on or before the Closing of each of the
following conditions, the waiver of which shall not be effective against any
Investor who does not consent in writing thereto:
4.1 Representations and Warranties. The representations and
warranties of the Company contained in Section 2 shall be true on and as of the
Closing with the same effect as though such representations and warranties had
been made on and as of the date of the Closing.
4.2 Performance. The Company shall have performed and complied with
all agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Closing.
4.3 Compliance Certificate. The President of the Company shall
deliver to each Investor at the Closing a certificate certifying that the
conditions specified in Sections 4.1, 4.2, 4.4 and 4.5 have been fulfilled and
stating that there shall have been no material adverse
-13-
<PAGE>
change in the business, affairs, prospects, operations, properties, assets or
condition of the Company since execution of this Agreement.
4.4 Qualifications. All authorizations, approvals or permits, if
any, of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance and sale of
the Stock pursuant to this Agreement shall be duly obtained and effective as of
the Closing.
4.5 Proceedings and Documents. All corporate and other proceedings
in connection with the transactions contemplated at the Closing and all
documents incident thereto shall be reasonably satisfactory in form and
substance to the Investors' special counsel, which shall have received all such
counterpart original and certified or other copies of such documents as it may
reasonably request.
4.6 Board of Directors. The Company's Bylaws shall provide for a
Board of Directors of seven (7) members. As of the Closing, the Board shall be
comprised of David Hayden, Wayne Correia, Kevin Harvey, George Zachary, Lisa
Gansky, David Thatcher and Christos Cotsakos.
4.7 Investors' Rights Agreement. The Company and each Investor
shall have entered into the Investors' Rights Agreement in the form attached
hereto as Exhibit C.
4.8 Co-Sale Agreement. The Company, the Investors and each of David
Hayden, Wayne Correia and Marcy Swenson shall have entered into the Co-Sale
Agreement in the form attached as Exhibit D.
4.9 Voting Agreement. The Company, the Investors and the holders of
Common Stock of the Company named therein shall have entered into the Voting
Agreement in the form attached as Exhibit E.
4.10 Opinion of Company Counsel. Each Investor shall have received
from Pillsbury Madison & Sutro LLP, counsel for the Company, an opinion, dated
the date as of the Closing, in substantially the form attached as Exhibit F.
4.11 Restated Articles. The Restated Articles shall have been filed
with the Secretary of State of California and shall continue to be in full force
and effect as of the Closing Date.
4.12 Confidentiality and Assignment of Inventions Agreements. Each
employee of and consultant to the Company shall have entered into a
Confidentiality and Assignment of Inventions Agreement in the form previously
provided to counsel for the Investors.
4.13 Letter of Intent with E*TRADE Group, Inc. The Company and
E*TRADE Group, Inc. shall have entered into the Letter of Intent relating to a
product development effort attached hereto as Exhibit G.
-14-
<PAGE>
SECTION 5
---------
Conditions of the Company's Obligations at Closing
--------------------------------------------------
The obligations of the Company to each Investor under this Agreement
are subject to the fulfillment on or before the Closing of each of the following
conditions by that Investor:
5.1 Representations and Warranties. The representations and
warranties of each Investor contained in Section 3 shall be true on and as of
the Closing with the same effect as though such representations and warranties
had been made on and as of the Closing.
5.2 Qualifications. All authorizations, approvals or permits, if
any, of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance and sale of
the Series B Preferred Stock pursuant to this Agreement shall be duly obtained
and effective as of the Closing.
5.3 Restated Articles. The Restated Articles shall have been filed
with the Secretary of State of California and shall continue to be in full force
and effect as of the Closing Date.
SECTION 6
---------
Miscellaneous
-------------
6.1 Entire Agreement. This Agreement and the documents referred to
herein constitute the entire agreement among the parties and no party shall be
liable or bound to any other party in any manner by any warranties,
representations or covenants except as specifically set forth herein or therein.
6.2 Survival of Warranties. The warranties, representations and
covenants of the Company and the Investors contained in or made pursuant to this
Agreement shall survive the execution and delivery of this Agreement and the
Closing and shall in no way be affected by any investigation of the subject
matter thereof made by or on behalf of the Investors or the Company.
6.3 Successors and Assigns. Except as otherwise provided herein,
the terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties (including
permitted transferees of any shares of Series B Preferred Stock sold hereunder
or any Common Stock issued upon conversion thereof). Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.
6.4 Governing Law. This Agreement shall be governed by and
construed under the laws of the State of California as applied to agreements
among California residents
-15-
<PAGE>
entered into and to be performed entirely within California.
6.5 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.
6.6 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
6.7 Notices. Any notice required or permitted to be given to a
party pursuant to the provisions of this Agreement shall be in writing and shall
be effective and deemed given to such party under this Agreement on the earliest
of the following: (a) the date of personal delivery; (b) two (2) business days
after transmission by facsimile, addressed to the other party at its facsimile
number, with confirmation of transmission; (c) four (4) business days after
deposit with a return receipt express courier for United States deliveries; or
(d) three (3) business days after deposit in the United States mail by
registered or certified mail (return receipt requested) for United States
deliveries. All notices not delivered personally or by facsimile will be sent
with postage and/or other charges prepaid and properly addressed to the party to
be notified at the address on file with the Company or, in the case of the
Company, at 320 First Street, San Francisco, California 94105, facsimile (415)
808-8777, or at such other address as such other party may designate by ten (10)
days advance written notice to the other parties hereto. Notices to the Company
will be marked "Attention: President."
6.8 Finders' Fees. Each party represents that it neither is nor
will be obligated for any finders' fee or commission in connection with this
transaction. Each Investor agrees to indemnify and to hold harmless the Company
from any liability for any commission or compensation in the nature of a
finder's fee (and the costs and expenses of defending against such liability or
asserted liability) for which the Investor or any of its officers, employees or
representatives is responsible. The Company agrees to indemnify and hold
harmless each Investor from any liability for any commission or compensation in
the nature of a finder's fee (and the costs and expenses of defending against
such liability or asserted liability) for which the Company or any of its
officers, employees or representatives is responsible.
6.9 Expenses. The Company and each Investor shall pay their
respective costs and expenses incurred with respect to the negotiation,
execution, delivery and performance of this Agreement; provided, however, that
if the Closing is effected, the Company shall promptly pay the reasonable fees
and expenses of Brobeck Phleger & Harrison LLP, special counsel for certain
Investors, not to exceed $15,000.
6.10 Attorneys' Fees. If any action at law or in equity is
necessary to enforce or interpret the terms of this Agreement, the Other
Agreements or the Restated Articles, the prevailing party shall be entitled to
reasonable attorneys' fees, costs and disbursements in addition to any other
relief to which such party may be entitled.
6.11 Amendments and Waivers. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or
-16-
<PAGE>
in a particular instance and either retroactively or prospectively), only with
the written consent of the Company and the holders of a majority of the Common
Stock that is issued or issuable upon conversion of the Shares. Any amendment or
waiver effected in accordance with this section shall be binding upon each
holder of any securities purchased under this Agreement at the time outstanding
(including securities into which such securities have been converted), each
future holder of all such securities and the Company.
6.12 Severability. If one or more provisions of this Agreement is
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
6.13 California Corporate Securities Law. THE SALE OF THE
SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH
THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF
SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION FOR
SUCH SECURITIES PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF
SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE
CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE
EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS
SO EXEMPT.
6.14 Effect of Amendment or Waiver. Each Investor acknowledges that
by the operation of Section 6.11 hereof the holders of more than a majority of
the Common Stock that is issued or issuable upon conversion of the Series B
Preferred Stock will have the right and power to diminish or eliminate all
rights of such Investor under this Agreement.
6.15 Rights of Investors. Each holder of Series B Preferred Stock
(and Common Stock issued upon conversion thereof) shall have the absolute right
to exercise or refrain from exercising any right or rights that such holder may
have by reason of this Agreement or any Series B Preferred Stock, including
without limitation the right to consent to the waiver of any obligation of the
Company under this Agreement and to enter into an agreement with the Company for
the purpose of modifying this Agreement or any agreement effecting any such
modification, and such holder shall not incur any liability to any other holder
or holders of Series B Preferred Stock (or Common Stock issued upon exercise
thereof) with respect to exercising or refraining from exercising any such right
or rights.
6.16 Exculpation Among Investors. Each Investor acknowledges that
it is not relying upon any person, firm or corporation, other than the Company
and its officers and directors, in making its investment or decision to invest
in the Company. Each Investor agrees that no Investor nor the respective
controlling persons, officers, directors, partners, agents or employees of any
Investor shall be liable for any action heretofore or hereafter taken or omitted
to be taken by any of them in connection with the Series B Preferred Stock (and
Common Stock issued upon conversion thereof).
-17-
<PAGE>
6.17 Aggregation of Stock. All shares of Preferred Stock held or
acquired by affiliated entities or persons shall be aggregated together for the
purpose of determining the availability of any rights under this Agreement.
6.18 Amendment of Amended and Restated Articles. Upon the request
of E*TRADE Group, Inc., the Company will use best efforts to cause an amendment
of the Amended and Restated Articles of Incorporation to change: (i) the minimum
share threshold in Section 5(b)(i)(B) of Article IV from 1,500,000 to 1,000,000,
(ii) the minimum share threshold in Section 7(a) of Article IV from 6,500,000 to
6,000,000 and (iii) the minimum share threshold in Section 7(b) of Article IV
from 1,500,000 to 1,000,000.
IN WITNESS WHEREOF, the parties have executed this Series B Preferred
Stock Purchase Agreement as of the date first above written.
COMPANY:
CRITICAL PATH, INC.
By
---------------------------------------
David Hayden
President and Chief Executive Officer
-18-
<PAGE>
INVESTORS:
E*TRADE Group, Inc.
By
-----------------------------------------
Title
--------------------------------------
BENCHMARK CAPITAL PARTNERS II, L.P.
as nominee for
Benchmark Capital Partners II, L.P.,
Benchmark Founders Fund II, L.P.,
Benchmark Founders Fund II-A, L.P. and
Benchmark Members' Fund II, L.P.
By: Benchmark Capital Management Co. II,
L.L.C., general partner
By
----------------------------------------
Managing Member
MOHR, DAVIDOW VENTURES V, L.P.
By: Fifth MDV Partners, L.L.C.
By
---------------------------------------
Managing Member
Signature Page to Critical Path, Inc.
Series B Preferred Stock Purchase Agreement
-19-
<PAGE>
US WEST DATA INVESTMENTS, INC.
By
----------------------------------------
Title
-------------------------------------
Signature Page to Critical Path, Inc.
Series B Preferred Stock Purchase Agreement - Second Closing
-20-
<PAGE>
SCHEDULE A
----------
LIST OF INVESTORS
-----------------
<TABLE>
<CAPTION>
Number of Total
Series B Purchase
Investor Shares Price
- ----------------------------- --------- --------
<S> <C> <C>
</TABLE>
S-1
<PAGE>
EXHIBIT A
---------
AMENDED AND RESTATED ARTICLES OF INCORPORATION
----------------------------------------------
A-1
<PAGE>
EXHIBIT B
---------
SCHEDULE OF EXCEPTIONS
----------------------
B-1
<PAGE>
Schedule 2.5
------------
Common Stock Shareholders
-------------------------
<TABLE>
<CAPTION>
Name Number of Shares
- ---- ----------------
<S> <C>
David Hayden 5,000,000
Peter Flaxman 263,158
Kim Alger 500,000
Wayne Correia 5,500,000
Marcy Swenson 2,500,000
----------
TOTAL 13,763,158
</TABLE>
2.5-1
<PAGE>
EXHIBIT C
---------
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
------------------------------------------------
C-1
<PAGE>
EXHIBIT D
---------
AMENDED AND RESTATED CO-SALE AGREEMENT
--------------------------------------
D-1
<PAGE>
EXHIBIT E
---------
AMENDED AND RESTATED VOTING AGREEMENT
-------------------------------------
E-1
<PAGE>
EXHIBIT F
---------
OPINION OF PILLSBURY MADISON & SUTRO LLP
----------------------------------------
F-1
<PAGE>
EXHIBIT G
---------
LETTER OF INTENT
----------------
G-1
<PAGE>
EXHIBIT 10.5
CRITICAL PATH, INC.
-------------------
AMENDMENT TO SERIES B PREFERRED
-------------------------------
STOCK PURCHASE AGREEMENT
------------------------
THIS AMENDMENT TO SERIES B PREFERRED STOCK PURCHASE AGREEMENT (the
"Amendment") is made as of January 13, 1999, by and among CRITICAL PATH, INC., a
California corporation (the "Company"), and the investors listed on the Schedule
of Investors attached hereto as Exhibit A (each an "Investor," collectively the
"Investors").
RECITALS
A. The Company and certain Investors have entered into that certain Series
B Preferred Stock Purchase Agreement dated September 11, 1998 (the "Purchase
Agreement"), pursuant to which the Company sold and certain Investors purchased
8,000,827 shares of Series B Preferred Stock of the Company.
B. The Purchase Agreement provides for the adoption of the Amended and
Restated Articles of Incorporation (the "Restated Articles") which allows for
the issuance of up to 13,904,558 shares of Series B Preferred Stock, and the
Company desires to sell up to an additional 8,095,442 shares of Series B
Preferred Stock (the "Additional Shares") to certain Investors on the same terms
and conditions set forth in the Purchase Agreement.
C. The Company proposes amending relevant sections of the Purchase
Agreement to provide for a second closing at which the Company may sell the
Additional Shares (the "Second Closing").
NOW, THEREFORE, the parties to this Amendment hereby agree as follows
effective upon the Second Closing:
1. Paragraph (a) of Section 1.1 of the Purchase Agreement is hereby
amended to read in its entirety as follows:
"(a) The Company shall adopt and file with the Secretary of State of the
State of California on or before the Closing (as defined below) the Amended and
Restated Articles of Incorporation in the form attached hereto as Exhibit B (the
"Restated Articles"). The Restated Articles authorize the Company to sell and
issue up to 13,904,558 shares of its Series B Preferred Stock, having the
rights, privileges and preferences as set forth in the Restated Articles.
Attached hereto as Exhibit B-1 is the form of Certificate of Amendment of
Articles of Incorporation increasing the authorized number of shares of Series B
Preferred Stock from 13,904,558 to 22,000,000 (the "Certificate of Amendment"),
which the Company shall, prior to the Second Closing of the sale of any
additional shares, adopt and file with the California Secretary of State."
2. Paragraph (a) of Section 1.2 of the Purchase Agreement is hereby
amended to read in its entirety as follows:
-1-
<PAGE>
"(a) The purchase and sale of the Shares shall take place at the offices
of Pillsbury Madison & Sutro LLP, 2550 Hanover Street, Palo Alto, California, at
2:00 p.m., on September 11, 1998, or at such other time and place as the Company
and the Investors acquiring in the aggregate more than half the Shares to be
sold hereunder shall mutually agree, either orally or in writing (which time and
place are designated as the "Closing"). As used in this Agreement, the term
"Closing" shall apply to the September 11, 1998 closing (the "First Closing") or
the January __, 1999 closing (the "Second Closing"), whichever is relevant to
the Investor executing this Agreement."
3. Section 1.3 of the Purchase Agreement is hereby amended to read in its
entirety as follows:
"1.3 Subsequent Sale of Series B Preferred Stock. If less than all of the
authorized number of shares of Series B Preferred Stock are sold at the Closing,
for a period up to and through January 31, 1999 (the "Subsequent Period") the
Company may sell up to the balance of the authorized but unissued Series B
Preferred Stock to such persons as are approved by the Company's Board of
Directors and who meet the suitability requirements set forth in Section 3.6
hereof at the same price per share as the Series B Preferred Stock purchased and
sold at the Closing (each a "Subsequent Closing"). Any such sale shall be upon
the same terms and conditions as those contained herein, and such persons or
entities shall become parties to this Agreement, the Amended and Restated
Investors' Rights Agreement in the form attached as Exhibit C (the "Investors'
Rights Agreement"), the Amended and Restated Right of First Refusal and Co-Sale
Agreement in the form attached as Exhibit D (the "Co-Sale Agreement") and the
Amended and Restated Voting Agreement in the form attached as Exhibit E (the
"Voting Agreement") (collectively the "Other Agreements"), and shall have the
rights and obligations of an Investor hereunder and thereunder."
4. Paragraph (a) of Section 2.5 of the Purchase Agreement is hereby
amended to read in its entirety as follows:
"(a) 51,234,743 shares of preferred stock (the "Preferred Stock"),
29,234,743 shares of which have been designated Series A Preferred Stock (the
"Series A Preferred Stock"), 27,987,803 of which are issued and outstanding
immediately prior to the Closing, and 22,000,000 shares of which have been
designated Series B Preferred Stock, none of which is issued and outstanding
immediately prior to the First Closing. The rights, privileges and preferences
of the Series A Preferred Stock and the Series B Preferred Stock will be as
stated in the Restated Articles. Under the terms of the Certificate of
Amendment attached hereto as Exhibit B-1, the capitalization of the Company
immediately prior to the Second Closing is as set forth above, except that
8,000,827 shares of Series B Preferred Stock shall be issued and outstanding
immediately prior to the Second Closing."
5. Section 6.9 of the Purchase Agreement is hereby amended to read in its
entirety as follows:
"6.9 Expenses. The Company and each Investor shall pay their respective
costs and expenses incurred with respect to the negotiation, execution, delivery
and performance of this Agreement; provided, however, that if the First Closing
is effected, the Company shall promptly pay the reasonable fees and expenses of
Brobeck Phleger & Harrison LLP, special counsel for
-2-
<PAGE>
the largest Investor in the First Closing, not to exceed $15,000. In addition,
if the Second Closing is effected, the Company shall promptly pay the reasonable
fees and expenses of special counsel for the largest Investor in the Second
Closing, as set forth in Exhibit A, not to exceed $15,000."
6. The Purchase Agreement shall be amended to add Exhibit B-1, the form of
Certificate of Amendment of Articles. Other exhibits to the Purchase Agreement
shall be amended as appropriate to reflect the Second Closing.
7. Each Investor shall have received from Pillsbury Madison & Sutro LLP,
counsel for the Company, an opinion dated as of the Second Closing.
8. Investors who are listed on Exhibit A under the heading "Second
Closing," by executing this Amendment, are also executing and becoming parties
to the Purchase Agreement, as amended hereby, and such investors hereby confirm
to the Company the investor representations and warranties set forth in Section
3 thereof.
9. Except as expressly modified herein, the Purchase Agreement shall
remain in full force and effect.
This Amendment to Series B Preferred Stock Purchased Agreement may be
executed in any number of counterparts, each of which shall be an original, but
all of which together shall constitute one and the same instrument.
COMPANY:
CRITICAL PATH, INC.
a California corporation
By /s/ Douglas Hickey
--------------------------------------
Douglas Hickey
President and Chief Executive Officer
-3-
<PAGE>
INVESTORS:
E*TRADE Group, Inc.
By /s/
-------------------------------------
Title CFO
-----------------------------------
BENCHMARK CAPITAL PARTNERS II, L.P.
as nominee for
Benchmark Capital Partners II, L.P.,
Benchmark Founders Fund II, L.P.,
Benchmark Founders Fund II-A, L.P. and
Benchmark Members' Fund II, L.P.
By: Benchmark Capital Management Co. II,
L.L.C., general partner
By /s/
-------------------------------------
Managing Member
US WEST DATA INVESTMENTS, INC.
By /s/
-------------------------------------
Title___________________________________
HAMBRECHT & QUIST
By______________________________________
Title___________________________________
SIGNATURE PAGE TO CRITICAL PATH, INC.
AMENDMENT TO SERIES B PREFERRED STOCK PURCHASE PLAN
-4-
<PAGE>
CMG@VENTURES II, L.L.C.
By /s/
--------------------------------------
Title General Partner
-----------------------------------
ATTRACTOR LP
By /s/ Harvey Allison, MM
--------------------------------------
Title Attractor Ventures LLC, GP
-----------------------------------
Attractor LP
ATTRACTOR DEARBORN PARTNERS LP
By /s/ Harvey Allison, MM
-------------------------------------
Title Attractor Ventures LLC,GP
-----------------------------------
Attractor LP
ATTRACTOR INSTITUTIONAL
By /s/ Harvey Allison, MM
-------------------------------------
Title Attractor Ventures, LLC, GP
-----------------------------------
Attractor LP
NETWORK SOLUTIONS, INC.
By /s/
-------------------------------------
Title Chief Financial Officer and
-----------------------------------
Acting Chief Operating Officer
MOHR, DAVIDOW VENTURES V, L.P.
SIGNATURE PAGE TO CRITICAL PATH, INC.
AMENDMENT TO SERIES B PREFERRED STOCK PURCHASE PLAN
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<PAGE>
By: Fifth MDV Partners, L.L.C.
By /s/ George Zachary
-------------------------------------
Managing Member
MOHR, DAVIDOW VENTURES V, L.P., as
nominee for MDV Entrepreneurs' Network
Fund II(A), L.P. and MDV Entrepreneurs'
Network Fund II(B), L.P.
By: Fifth MDV Partners, L.L.C.
By /s/ George Zachary
-------------------------------------
Managing Member
THE LEVINSON FAMILY TRUST,
Kathy Levinson and Jennifer Levinson,
trustees, uad 1/17/94
By /s/
--------------------------------------
Title Trustee
-----------------------------------
JERRY GRAMAGLIA
/s/ Jerry Gramaglia
----------------------------------------
THE LEONARD C. PURKIS REVOCABLE
TRUST, UAD 4/24/97
By /s/
--------------------------------------
Title Trustee
-----------------------------------
SIGNATURE PAGE TO CRITICAL PATH, INC.
AMENDMENT TO SERIES B PREFERRED STOCK PURCHASE PLAN
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<PAGE>
DEBRA J. CHRAPATY
/s/ Debra J. Chrapaty
----------------------------------------
THE COTSAKOS FAMILY TRUST
By /s/
--------------------------------------
Title___________________________________
RAMSEY/BEIRNE INVESTMENT POOL II, L.L.C.
By /s/
--------------------------------------
Title Member / CFO
-----------------------------------
SIGNATURE PAGE TO CRITICAL PATH, INC.
AMENDMENT TO SERIES B PREFERRED STOCK PURCHASE PLAN
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<PAGE>
EXHIBIT A
---------
SCHEDULE OF INVESTORS
---------------------
First Closing
-------------
September 11, 1998
SA-1
<PAGE>
SCHEDULE OF INVESTORS
---------------------
Second Closing
--------------
January __, 1999
SA-2
<PAGE>
EXHIBIT B-1
-----------
CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION
-----------------------------------------------------
B-1-1
<PAGE>
EXHIBIT A
---------
SCHEDULE OF EXCEPTIONS
----------------------
Second Closing
January __, 1999
D-1
<PAGE>
EXHIBIT 10.6
CRITICAL PATH, INC.
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
SECTION 1 Restrictions on Transferability of Securities; Registration Rights.. 2
1.1 Certain Definitions................................................. 2
1.2 Requested Registration.............................................. 3
1.3 Company Registration................................................ 6
1.4 Expenses of Registration............................................ 7
1.5 Registration on Form S-3............................................ 8
1.6 Registration Procedures............................................. 8
1.7 Indemnification..................................................... 10
1.8 Information by Holder............................................... 12
1.9 Limitations on Registration of Issues of Securities................. 12
1.10 Rule 144 Reporting.................................................. 12
1.11 Transfer or Assignment of Registration Rights....................... 13
1.12 "Market Stand-Off" Agreement........................................ 13
1.13 Delay of Registration............................................... 14
1.14 Termination of Registration Rights.................................. 14
SECTION 2 Covenants of the Company............................................ 14
2.1 Financial Information............................................... 14
2.2 Inspection.......................................................... 15
2.3 Right of First Offer................................................ 15
2.4 Employee Stock Agreements........................................... 17
2.5 Issuance of Additional Series B Preferred Stock..................... 18
2.6 Termination of Covenants............................................ 18
SECTION 3 Miscellaneous....................................................... 18
3.1 Waiver of Right of First Offer...................................... 18
3.2 Governing law....................................................... 18
3.3 Successors and Assigns.............................................. 18
3.4 Entire Agreement; Amendment; Waiver................................. 18
3.5 Notices, etc........................................................ 19
3.6 Delays or Omissions................................................. 19
3.7 Rights; Separability................................................ 19
3.8 Information Confidential............................................ 19
3.9 Titles and Subtitles................................................ 19
3.10 Counterparts........................................................ 20
3.11 Subsequent Closings................................................. 20
3.12 Expenses............................................................ 20
3.13 Aggregation of Stock................................................ 20
Exhibit A - List of Investors
Exhibit B - List of Series A Shareholders
Exhibit C - List of Founders
</TABLE>
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<PAGE>
CRITICAL PATH, INC.
-------------------
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
------------------------------------------------
THIS AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT (this "Agreement"),
made and entered into as of the 11th day of September, 1998, by and among
CRITICAL PATH, INC., a California corporation (the "Company"), and those
investors in the Company listed on Exhibit A attached hereto (the "Series B
Investors"), those shareholders of the Company listed on Exhibit B attached
hereto (the "Series A Shareholders") and those founders listed on Exhibit C
attached hereto (the "Founders"). The Series B Investors, the Series A
Shareholders and the Founders are referred to herein individually as "Investor"
and collectively as the "Investors,"
W I T N E S S E T H:
WHEREAS, the Company, the Series A Shareholders and the Founders entered
into an Investor's Rights Agreement dated as of April 1, 1998 (the "Original
Rights Agreement") pursuant to which the Company granted such Series A
Shareholders and Founders certain registration rights, information rights and
rights of first offer in connection with the purchase and sale of Series A
Preferred Stock of the Company (the "Series A Preferred Stock");
WHEREAS, concurrent with the execution of this Agreement, the Company and
the Series B Investors are entering into a Series B Preferred Stock Purchase
Agreement (the "Purchase Agreement"), pursuant to which the Company will sell,
and the Series B Investors will purchase, shares of the Series B Preferred
Stock. The Series B Investors' obligations under the Purchase Agreement are
conditioned upon the execution and delivery of this Agreement by the Company,
persons holding more than fifty (50%) in interest of the Series A Preferred
Stock and the Founders in order to provide the Series B Investors with
comparable registration rights, information rights and rights of first offer;
and
WHEREAS, the Company, the Series A Shareholders and the Founders desire to
terminate the Original Rights Agreement and to accept the rights and obligations
created pursuant hereto in lieu of the rights and obligations granted to them
under the Original Rights Agreement:
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, and for other consideration, the receipt and adequacy of which is
hereby acknowledged, the Company, the Series A Shareholders and the Founders
hereby agree that upon the execution of this Agreement, the Original Rights
Agreement shall be null and void and superseded in its entirety by the
provisions of this Agreement, and the Company, the Series A Shareholders, the
Founders and the Series B Investors hereby agree as follows:
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<PAGE>
SECTION 1
---------
Restrictions on Transferability of
----------------------------------
Securities; Registration Rights
-------------------------------
1.1 Certain Definitions. As used in this Agreement, the following terms
shall have the meanings set forth below:
(a) "Closing" shall mean the date of the initial sale of shares of the
Company's Series B Preferred Stock.
(b) "Commission" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
(c) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any similar successor federal statute and the rules and regulations
thereunder, all as the same shall be in effect from time to time.
(d) "Holder" shall mean any person or entity who holds Registrable
Securities and any holder of Registrable Securities to whom the registration
rights conferred by this Agreement have been transferred in compliance with
Section 1.11 hereof.
(e) "Initiating Holders" shall mean any Holder or Holders who in the
aggregate hold at least thirty percent (30%) of the outstanding Registrable
Securities.
(f) "Major Investor" shall mean a person or entity which, together with its
affiliates holds at least 1,500,000 Shares (subject to appropriate adjustments
for stock splits, stock dividends, combinations and other recapitalizations) and
E*TRADE Group, Inc. so long as E*TRADE Group, Inc. holds 750,000 Shares (subject
to appropriate adjustments for stock splits, stock dividends, combinations and
other recapitalizations). A Major Investor includes any general partners and
affiliates of a Major Investor (including in the case of a venture capital fund,
partners and funds affiliated with such fund).
(g) "Registrable Securities" shall mean (i) shares of Common Stock issued
to Investors or issued or issuable pursuant to the conversion of the Shares;
(ii) any Common Stock issued as a dividend or other distribution with respect to
or in exchange for or in replacement of the shares referenced in (i) above,
provided, however, that Registrable Securities shall not include any shares of
Common Stock which have previously been registered or which have been sold to
the public; and (iii) solely for the purposes of Section 1.3 hereof, Registrable
Securities shall be deemed to include shares of Common Stock of the Company held
by David Hayden, Peter Flaxman, Wayne Correia and Marcy Swenson ("Founders
Stock").
(h) The terms "register," "registered" and "registration" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement.
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<PAGE>
(i) "Registration Expenses" shall mean all expenses incurred in effecting
any registration pursuant to this Agreement, including, without limitation, all
registration, qualification, and filing fees, printing expenses, escrow fees,
fees and disbursements of counsel for the Company, fees and disbursements of one
special counsel for the selling Holders, blue sky fees and expenses, accounting
fees and expenses of any regular or special audits incident to or required by
any such registration, but shall not include Selling Expenses and fees and
disbursements of additional counsel for the Holders. Registration expenses do
not include the compensation of regular employees of the Company, which shall be
paid in any event by the Company.
(j) "Rule 144" shall mean Rule 144 as promulgated by the Commission under
the Securities Act, as such Rule may be amended from time to time, or any
similar successor rule that may be promulgated by the Commission.
(k) "Rule 145" shall mean Rule 145 as promulgated by the Commission under
the Securities Act, as such Rule may be amended from time to time, or any
similar successor rule that may be promulgated by the Commission.
(l) "Securities Act" shall mean the Securities Act of 1933, as amended, or
any similar successor federal statute and the rules and regulations thereunder,
all as the same shall be in effect from time to time.
(m) "Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities and fees and
disbursements of counsel for any Holder (other than the fees and disbursements
of counsel included in Registration Expenses).
(n) "Shares" shall mean the Company's Series A Preferred Stock and Series B
Preferred Stock.
1.2 Requested Registration.
(a) Request for Registration. If the Company shall receive from Initiating
Holders at any time or times not earlier than the earlier of (i) March 31, 2002
or (ii) six (6) months after the effective date of the first registration
statement filed by the Company covering an underwritten offering of any of its
securities to the general public, a written request that the Company effect any
registration with respect to all or a part of the Registrable Securities having
an aggregate offering price, net of underwriting discounts and expenses, the
aggregate gross proceeds of which (prior to deduction for underwriter's
discounts and expenses related to the issuance) exceed $12,500,000 and an
initial offering price of at least $1.312 per share (as adjusted for any
combinations, consolidations, subdivisions, splits or stock dividends with
respect to such shares of Common Stock) the Company will:
(i) promptly give written notice of the proposed registration to all
other Holders; and
(ii) as soon as practicable, use its best efforts to effect such
registration (including, without limitation, filing post-effective
amendments, appropriate qualifications under applicable blue sky or other
state securities laws, and
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<PAGE>
appropriate compliance with the Securities Act) and as would permit or
facilitate the sale and distribution of all or such portion of such
Registrable Securities as is specified in such request, together with all or
such portion of the Registrable Securities of any Holder or Holders joining
in such request as is specified in a written request received by the Company
within twenty (20) days after such written notice from the Company is mailed
or delivered.
The Company shall not be obligated to effect, or to take any action to
effect, any such registration pursuant to this Section 1.2:
(A) In any particular jurisdiction in which the Company would be
required to execute a general consent to service of process in effecting
such registration, qualification, or compliance, unless the Company is
already subject to service in such jurisdiction and except as may be
required by the Securities Act;
(B) After the Company has initiated two such registrations pursuant to
this Section 1.2(a) (counting for these purposes only registrations which
have been declared or ordered effective and pursuant to which securities
have been sold and registrations which have been withdrawn by the Holders as
to which the Holders have not elected to bear the Registration Expenses
pursuant to Section 1.4 hereof and would, absent such election, have been
required to bear such expenses);
(C) During the period starting with the date sixty (60) days prior to
the Company's good faith estimate of the date of filing of, and ending on a
date one hundred eighty (180) days after the effective date of, a Company-
initiated registration; provided that (ii) the Company is actively employing
in good faith all reasonable efforts to cause such registration statement to
become effective and (ii) that such initial delay of registration relating
to a request of Initiating Holders pursuant to Section 1.2 shall be deemed
the one time delay allowed per demand registration as set forth in Section
1.2(b);
(D) If the Initiating Holders propose to dispose of shares of
Registrable Securities which may be immediately registered on Form S-3
pursuant to a request made under Section 1.5 hereof;
(b) Subject to the foregoing clauses (A) through (D) (except in the case of
a request that is subject to Section 1.5(b), in which case (B) and (D) above
shall not apply), the Company shall file a registration statement covering the
Registrable Securities so requested to be registered as soon as practicable
after receipt of the request or requests of the Initiating Holders; provided,
however, that if (i) in the good faith judgment of the Board of Directors of the
Company, such registration would be seriously detrimental to the Company and the
Board of Directors of the Company concludes, as a result, that it is essential
to defer the filing of such registration statement at such time, and (ii) the
Company shall furnish to such Holders a certificate signed by the President of
the Company stating that in the good faith judgment of the Board of Directors of
the Company, it would be seriously detrimental to the Company for such
registration statement to be filed in the near future and that it is, therefore,
essential to defer the filing of such registration statement, then the Company
shall have the right to defer such filing
-4-
<PAGE>
for the period during which such disclosure would be seriously detrimental,
provided that (except as provided in clause (C) above) the Company may not defer
the filing for a period of more than one hundred twenty (120) days after receipt
of the request of the Initiating Holders, and, provided further, that the
Company shall not defer its obligation in this manner more than once in any
twelve-month period.
The registration statement filed pursuant to the request of the Initiating
Holders may, subject to the provisions of Section 1.2(d) hereof, include other
securities of the Company, with respect to which registration rights have been
granted, and may include securities of the Company being sold for the account of
the Company.
(c) Underwriting. The right of any Holder to registration pursuant to
Section 1.2 shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting (unless otherwise mutually agreed by a majority in interest of the
Initiating Holders and such Holder with respect to such participation and
inclusion) to the extent provided herein. A Holder may elect to include in such
underwriting all or a part of the Registrable Securities he holds.
(d) Procedures. If the Company shall request inclusion in any registration
pursuant to Section 1.2 of securities being sold for its own account, or if
other persons shall request inclusion in any registration pursuant to Section
1.2, the Initiating Holders shall, on behalf of all Holders, offer to include
such securities in the underwriting and may condition such offer on their
acceptance of the further applicable provisions of this Section 1 (including
Section 1.12). The Company shall (together with all Holders and other persons
proposing to distribute their securities through such underwriting) enter into
an underwriting agreement in customary form with the representative of the
underwriter or underwriters selected for such underwriting by a majority in
interest of the Initiating Holders, which underwriters are reasonably acceptable
to the Company. Notwithstanding any other provision of this Section 1.2, if the
representative of the underwriters advises the Initiating Holders in writing
that marketing factors require a limitation on the number of shares to be
underwritten, then the Initiating Holders shall so advise all Holders of
Registrable Securities which would otherwise be underwritten pursuant hereto,
and the number of shares of Registrable Securities that may be included in the
underwriting shall be allocated among all Holders thereof, including the
Initiating Holders, in proportion (as nearly as practicable) to the amount of
Registrable Securities of the Company owned by each Holder; provided, however,
that any such limitation or cut back shall first be applied to all shares
proposed to be sold in such underwriting which are not Registrable Securities.
If a person who has requested inclusion in such registration as provided
above does not agree to the terms of any such underwriting, such person shall be
excluded therefrom by written notice from the Company, the underwriter or the
Initiating Holders. The securities so excluded shall also be withdrawn from
registration. Any Registrable Securities or other securities excluded shall
also be withdrawn from such registration. If shares are so withdrawn from the
registration and if the number of shares to be included in such registration was
previously reduced as a result of marketing factors pursuant to this Section
1.2(d), then the Company shall offer to all holders who have retained rights to
include securities in the registration the right to include additional
securities in the registration in an aggregate amount equal to the number of
-5-
<PAGE>
shares so withdrawn.
1.3 Company Registration.
(a) If the Company shall determine to register any of its securities either
for its own account or the account of a security holder or holders exercising
their respective demand registration rights (other than pursuant to Section 1.2
or 1.5 hereof), other than a registration relating solely to employee benefit
plans, or a registration relating solely to a Rule 145 transaction, or a
registration on any other form (other than Form S-1, S-3, S-7 or S-18) that does
not include substantially the same information as would be required to be
included in a registration statement covering the sale of Registrable
Securities, the Company will:
(i) promptly give to each Holder written notice thereof; and
(ii) use its best efforts to include in such registration (and any
related qualification under blue sky laws or other compliance), except as
set forth in Section 1.3(b) below, and in any underwriting involved therein,
all the Registrable Securities specified in a written request or requests,
made by any Holder and received by the Company within twenty (20) days after
the written notice from the Company described in clause (i) above is mailed
or delivered by the Company. Such written request may specify all or a part
of a Holder's Registrable Securities.
(b) Underwriting. If the registration of which the Company gives notice is
for a registered public offering involving an underwriting, the Company shall so
advise the Holders as a part of the written notice given pursuant to Section
1.3(a)(i). In such event, the right of any Holder to registration pursuant to
this Section 1.3 shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting to the extent provided herein. All Holders proposing to distribute
their securities through such underwriting shall (together with the Company and
the other holders of securities of the Company with registration rights to
participate therein distributing their securities through such underwriting)
enter into an underwriting agreement in customary form with the representative
of the underwriter or underwriters selected by the Company.
Notwithstanding any other provision of this Section 1.3, if the
representative of the underwriters advises the Company in writing that marketing
factors require a limitation on the number of shares to be underwritten, the
representative may (subject to the limitations set forth below) exclude all
Registrable Securities from, or limit the number of Registrable Securities to be
included in, the registration and underwriting, provided that the number of
Registrable Securities to be included in such underwriting shall not be reduced
unless all other securities proposed to be registered by shareholders of the
Company are first entirely excluded from the underwriting, and provided further
that the shares of Founders Stock, if any, proposed to be registered shall be
reduced prior to the exclusion of any other Registrable Securities in such
underwriting. If the registration is the initial public offering of the
Company's securities, the Company may limit, to the extent so advised by the
underwriters, the amount of securities (including Registrable Securities) to be
included in the registration by the Company's shareholders (including the
Holders), and such securities shall be apportioned pro rata among the selling
shareholders according to the total amount of securities entitled to be included
-6-
<PAGE>
therein owned by each selling stockholder, or the Company may exclude, to the
extent so advised by the underwriters, such underwritten securities entirely
from such registration; provided, however, that the number of Registrable
Securities to be included in such registration shall not be reduced unless all
other securities proposed to be registered are first excluded from the
underwriting, and provided further that the shares of Founders Stock, if any,
proposed to be registered shall be reduced prior to the exclusion of any other
Registrable Securities in such underwriting. If such registration is the second
or any subsequent registered offering of the Company's securities to the general
public, the Company may limit, to the extent so advised by the underwriters, the
amount of securities to be included in the registration by the Company's
shareholders (including the Holders); provided, however, that the aggregate
number of Registrable Securities to be included in such registration by the
Holders (excluding Founders Stock) may not be reduced to less than twenty
percent (20%) of the total number of Registrable Securities included in such
registration, to be apportioned pro rata among the Holders according to the
total amount of securities entitled to be included therein owned by each Holder.
If any person does not agree to the terms of any such underwriting, he shall be
excluded therefrom by written notice from the Company or the underwriter. Any
Registrable Securities or other securities excluded or withdrawn from such
underwriting shall be withdrawn from such registration.
If shares are so withdrawn from the registration or if the number of shares
of Registrable Securities to be included in such registration was previously
reduced as a result of marketing factors, the Company shall then offer to all
persons who have retained the right to include securities in the registration
the right to include additional securities in the registration in an aggregate
amount equal to the number of shares so withdrawn.
1.4 Expenses of Registration. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to
Sections 1.3 and 1.5 hereof, and the two registrations pursuant to Section 1.2
hereof and reasonable fees of one counsel for the selling shareholders shall be
borne by the Company; provided, however, that if the Holders bear the
Registration Expenses for any registration proceeding begun pursuant to Section
1.2 and subsequently withdrawn by the Holders registering shares therein, such
registration proceeding shall not be counted as a requested registration
pursuant to Section 1.2 hereof, except in the event that such withdrawal is
based upon material adverse information relating to the Company that is
different from the information known or available (upon request from the Company
or otherwise) to the Holders requesting registration at the time of their
request for registration under Section 1.2, in which event such registration
shall not be treated as a counted registration for purposes of Section 1.2
hereof, even though the Holders do not bear the Registration Expenses for such
registration. All Selling Expenses relating to securities so registered shall be
borne by the holders of such securities pro rata on the basis of the number of
shares of securities so registered on their behalf.
1.5 Registration on Form S-3
(a) After its initial public offering, the Company shall use its best
efforts to qualify for registration on Form S-3 or any comparable or successor
form or forms. After the Company has qualified for the use of Form S-3, in
addition to the rights contained in the foregoing provisions of this Section 1,
the holders of at least twenty percent (20%) of Registrable Securities
-7-
<PAGE>
shall have the right to request registrations on Form S-3 (such requests shall
be in writing and shall state the number of shares of Registrable Securities to
be disposed of and the intended methods of disposition of such shares by such
Holder or Holders), provided, however, that the Company shall not be obligated
to effect any such registration if (i) the Holders, together with the holders of
any other securities of the Company entitled to inclusion in such registration,
propose to sell Registrable Securities and such other securities (if any) on
Form S-3 at an aggregate price to the public of less than $1,000,000, or (ii) in
the event the Company shall furnish the certification described in paragraph
1.2(b)(ii) (but subject to the limitations set forth therein), or (iii) the
Company has, within the six (6) month period preceding the date of such request
already effected one registration on Form S-3 for the Holders pursuant to this
Section 1.5.
(b) If a request complying with the requirements of Section 1.5(a) hereof
is delivered to the Company, the provisions of Sections 1.2(a)(i) and (ii) and
Section 1.2(b) hereof shall apply to such registration. If the registration is
for an underwritten offering, the provisions of Sections 1.2(c) and 1.2(d)
hereof shall apply to such registration.
1.6 Registration Procedures. In the case of each registration effected by
the Company pursuant to Section 1, the Company will keep each Holder advised in
writing as to the initiation of each registration and as to the completion
thereof. At its expense, the Company will use its best efforts to:
(a) Keep such registration effective for a period of one hundred twenty
(120) days or until the Holder or Holders have completed the distribution
described in the registration statement relating thereto, whichever first
occurs; provided, however, that (i) such one hundred twenty (120) day period
shall be extended for a period of time equal to the period the Holder refrains
from selling any securities included in such registration at the request of an
underwriter of Common Stock (or other securities) of the Company; and (ii) in
the case of any registration of Registrable Securities on Form S-3 which are
intended to be offered on a continuous or delayed basis, such one hundred twenty
(120) day period shall be extended, if necessary, to keep the registration
statement effective until all such Registrable Securities are sold, provided
that Rule 415, or any successor rule under the Securities Act, permits an
offering on a continuous or delayed basis, and provided further that applicable
rules under the Securities Act governing the obligation to file a post-effective
amendment permit, in lieu of filing a post-effective amendment that (A) includes
any prospectus required by Section 10(a)(3) of the Securities Act or (B)
reflects facts or events representing a material or fundamental change in the
information set forth in the registration statement, the incorporation by
reference of information required to be included in (A) and (B) above to be
contained in periodic reports filed pursuant to Section 13 or 15(d) of the
Exchange Act in the registration statement;
(b) Prepare and file with the Commission such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement;
(c) Furnish such number of prospectuses, including a preliminary
prospectus, in conformity with the requirements of the Securities Act, and other
documents incident thereto,
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<PAGE>
including any amendment of or supplement to the prospectus, as a Holder from
time to time may reasonably request in order to facilitate the disposition of
Registrable Securities owned by them;
(d) Notify each seller of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading or incomplete in the light of the
circumstances then existing, and at the request of any such seller, prepare and
furnish to such seller a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such shares, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading or
incomplete in the light of the circumstances then existing;
(e) Cause all such Registrable Securities registered pursuant hereunder to
be listed on each securities exchange on which similar securities issued by the
Company are then listed;
(f) Provide a transfer agent and registrar for all Registrable Securities
registered pursuant to such registration statement and a CUSIP number for all
such Registrable Securities, in each case not later than the effective date of
such registration;
(g) In connection with any underwritten offering pursuant to a registration
statement filed pursuant to Section 1.2 hereof, the Company will enter into an
underwriting agreement reasonably necessary to effect the offer and sale of
Common Stock, provided such underwriting agreement contains customary
underwriting provisions and provided further that if the underwriter so requests
the underwriting agreement will contain customary contribution provisions; and
(h) Use best efforts to register and qualify the securities covered by such
registration statement under such other securities or Blue Sky laws of such
jurisdictions as shall be reasonably requested by the Holders, provided that the
Company shall not be required in connection therewith or as a condition thereto
to qualify to do business or to file a general consent to service of process in
any such states or jurisdictions.
1.7 Indemnification
(a) The Company will indemnify each Holder, each of its officers, directors
and partners, legal counsel, and accountants and each person controlling such
Holder within the meaning of the Securities Act or the Exchange Act, with
respect to which registration, qualification, or compliance has been effected
pursuant to this Section 1, and each underwriter as defined in the Securities
Act, if any, and each person who controls within the meaning of the Securities
Act or the Exchange Act any underwriter, against all expenses, claims, losses,
damages, and liabilities (or actions, proceedings, or settlements in respect
thereof) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any prospectus, offering
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<PAGE>
circular, or other document (including any related registration statement,
notification, or the like) incident to any such registration, qualification, or
compliance, or based on any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or any violation by the Company of the Securities Act,
the Exchange Act, any state securities laws or any rule or regulation thereunder
applicable to the Company and relating to action or inaction required of the
Company in connection with any such registration, qualification, or compliance,
and will reimburse each such Holder, each of its officers, directors, partners,
legal counsel, and accountants and each person controlling such Holder, each
such underwriter, and each person who controls any such underwriter, as
incurred, for any legal and any other expenses reasonably incurred in connection
with investigating and defending or settling any such claim, loss, damage,
liability, or action, provided that the Company will not be liable in any such
case to the extent that any such claim, loss, damage, liability, or expense
arises out of or is based on any untrue statement or omission based upon written
information furnished to the Company by such Holder or underwriter and stated to
be specifically for use therein. It is agreed that the indemnity agreement
contained in this Section 1.7(a) shall not apply to amounts paid in settlement
of any such loss, claim, damage, liability, or action if such settlement is
effected without the consent of the Company (which consent has not been
unreasonably withheld).
(b) Each Holder will, if Registrable Securities held by him are included in
the securities as to which such registration, qualification, or compliance is
being effected, indemnify, to the extent of the net proceeds from the sale of
Registrable Securities by such Holder in the registration, qualification or
compliance (provided that such limitation shall not apply in the case of fraud
or gross negligence by the Holder in providing information to the Company for
use by the Company in the preparation of such registration, qualification or
compliance) the Company, each of its directors, officers, partners, legal
counsel, and accountants and each underwriter, if any, of the Company's
securities covered by such a registration statement, each person who controls
the Company or such underwriter within the meaning of the Securities Act and the
Exchange Act, and each other such Holder, and each of their officers, directors,
and partners, and each person controlling such Holder, against all claims,
losses, damages and liabilities (or actions in respect thereof) arising out of
or based on any untrue statement (or alleged untrue statement) of a material
fact contained in any such registration statement, prospectus, offering
circular, or other document, or any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Company and such
Holders, directors, officers, partners, legal counsel, and accountants, persons,
underwriters, or control persons, as incurred, for any legal and any other
expenses reasonably incurred in connection with investigating or defending any
such claim, loss, damage, liability, or action, in each case to the extent, but
only to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement,
prospectus, offering circular, or other document in reliance upon and in
conformity with written information furnished to the Company by such Holder and
stated to be specifically for use therein; provided, however, that the
obligations of such Holder hereunder shall not apply to amounts paid in
settlement of any such claims, losses, damages, or liabilities (or actions in
respect thereof) if such settlement is effected without the consent of such
Holder (which consent shall not be unreasonably withheld); provided that in no
event shall any indemnity under this subsection exceed the gross proceeds from
the offering received by such Holder.
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(c) Each party entitled to indemnification under this Section 1.7 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section 1, to the extent such
failure is not prejudicial. No Indemnifying Party, in the defense of any such
claim or litigation, shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement that does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party of a release from all liability in respect to such
claim or litigation. Each Indemnified Party shall furnish such information
regarding itself or the claim in question as an Indemnifying Party may
reasonably request in writing and as shall be reasonably required in connection
with defense of such claim and litigation resulting therefrom.
(d) If the indemnification provided for in this Section 1.7 is held by a
court of competent jurisdiction to be unavailable to an Indemnified Party with
respect to any loss, liability, claim, damage, or expense referred to therein,
then the Indemnifying Party, in lieu of indemnifying such Indemnified Party
hereunder, shall contribute to the amount paid or payable by such Indemnified
Party as a result of such loss, liability, claim, damage, or expense in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party on the one hand and of the Indemnified Party on the other in connection
with the statements or omissions that resulted in such loss, liability, claim,
damage, or expense as well as any other relevant equitable considerations. The
relative fault of the Indemnifying Party and of the Indemnified Party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission to state a material fact
relates to information supplied by the Indemnifying Party or by the Indemnified
Party and the parties' relative intent, knowledge, access to information, and
opportunity to correct or prevent such statement or omission.
(e) Notwithstanding the foregoing, to the extent that the provisions on
indemnification and contribution contained in the underwriting agreement entered
into in connection with the underwritten public offering are in conflict with
the foregoing provisions, the provisions in the underwriting agreement shall
control.
(f) The obligations of the Company and Holders under this Section 1.7 shall
survive the completion of any offering of Registrable Securities in a
registration statement under this Section 1, and otherwise.
1.8 Information by Holder. Each Holder of Registrable Securities shall
furnish to the Company such information regarding such Holder and the
distribution proposed by such Holder as the Company may reasonably request in
writing and as shall be reasonably required in con-
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nection with any registration, qualification, or compliance referred to in this
Section 1.
1.9 Limitations on Registration of Issues of Securities. From and after
the date of this Agreement, the Company shall not, without the prior written
consent of a majority in interest of the Holders, enter into any agreement with
any holder or prospective holder of any securities of the Company giving such
holder or prospective holder any registration rights the terms of which are
equal to or more favorable than the registration rights granted to the Holders
hereunder.
1.10 Rule 144 Reporting. With a view to making available the benefits of
certain rules and regulations of the Commission that may permit the sale of the
Restricted Securities to the public without registration, or pursuant to a
registration on Form S-3, the Company agrees to use its best efforts to:
(a) Make and keep public information regarding the Company available as
those terms are understood and defined in Rule 144 under the Securities Act, at
all times following the effective date of the first registration under the
Securities Act filed by the Company for an offering of its securities to the
general public;
(b) File with the Commission in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act
at any time after it has become subject to such reporting requirements;
(c) So long as a Holder owns any Restricted Securities, furnish to the
Holder forthwith upon written request (i) a written statement by the Company as
to its compliance with the reporting requirements of Rule 144 (at any time from
and after ninety (90) days following the effective date of the first
registration statement filed by the Company for an offering of its securities to
the general public), and of the Securities Act and the Exchange Act (at any time
after it has become subject to such reporting requirements), or its
qualification as a registrant whose securities may be resold pursuant to Form S-
3 (at any time after it so qualifies), (ii) a copy of the most recent annual or
quarterly report of the Company, and (iii) such other reports and documents so
filed as a Holder may reasonably request in availing itself of any rule or
regulation of the Commission allowing a Holder to sell any such securities
without registration.
1.11 Transfer or Assignment of Registration Rights. The rights to cause
the Company to register securities granted to a Holder by the Company under this
Section 1 may be transferred or assigned by a Holder only to a transferee or
assignee of not less than 100,000 shares of Registrable Securities or all
Registrable Securities held by such transferor if the amount is less than
100,000 shares of Registrable Securities (as presently constituted and subject
to subsequent adjustments for stock splits, stock dividends, reverse stock
splits, and the like), provided that the Company is given written notice at the
time of or within a reasonable time after such transfer or assignment, stating
the name and address of the transferee or assignee and identifying the
securities with respect to which such registration rights are being transferred
or assigned, and, provided further, that the transferee or assignee of such
rights assumes the obligations of such Holder under this Section 1. The
foregoing 100,000 share limitation shall not apply, however, to transfers by a
Holder to shareholders, partners, retired partners or affiliates (including in
the case of a venture capital fund partners and funds affiliated with such
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fund) of the transferring Holder (including spouses and ancestors, lineal
descendants, and siblings of such partners or spouses who acquire Registrable
Securities by gift, will or intestate succession).
1.12 "Market Stand-Off" Agreement. If requested by the Company and an
underwriter of Common Stock (or other securities) of the Company, an Investor
shall not sell (including, without limitation, any short sale) or otherwise
transfer or dispose of any Common Stock (or other securities) of the Company
held by such Investor (other than those included in the registration) for a
period of up to one hundred eighty (180) days following the effective date of a
registration statement of the Company filed under the Securities Act, provided
that:
(a) such one hundred eighty (180) day "market stand-off" agreement shall
only apply to the first such registration statement of the Company, including
securities to be sold on its behalf to the public in an underwritten offering;
and
(b) all Holders and officers and directors of the Company enter into
similar agreements.
The obligations described in this Section 1.12 shall not apply to a
registration relating solely to employee benefit plans on Form S-1 or Form S-8
or similar forms that may be promulgated in the future, or a registration
relating solely to a Commission Rule 145 transaction on Form S-4 or similar
forms that may be promulgated in the future. The Company may impose stop-
transfer instructions with respect to the shares (or securities) subject to the
foregoing restriction until the end of such applicable one hundred eighty (180)
day period.
1.13 Delay of Registration. No Holder shall have any right to take any
action to restrain, enjoin, or otherwise delay any registration as the result of
any controversy that might arise with respect to the interpretation or
implementation of this Section 1.
1.14 Termination of Registration Rights. The right of any Holder to
request registration or inclusion in any registration pursuant to Section 1.2,
1.3 or 1.5 shall terminate after the earlier of (i) five (5) years following the
closing of the initial public offering of Common Stock of the Company, or (ii)
such time as Rule 144 or another similar exemption under the Securities Act is
available for the sale of all of such Holder's shares during any ninety (90) day
period.
SECTION 2
---------
Covenants of the Company
------------------------
The Company hereby covenants and agrees, so long as any Holder owns any
Registrable Shares, as follows:
2.1 Financial Information.
(a) The Company will furnish the following reports to each Holder:
As soon as practicable after the end of each fiscal year of the Company, and
in any event within ninety (90) days thereafter, an audited consolidated balance
sheet and statement of
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shareholders' equity of the Company and its subsidiaries, if any, as at the end
of such fiscal year, and audited consolidated statements of income and cash
flows of the Company and its subsidiaries, if any, for such year, prepared in
accordance with generally accepted accounting principles consistently applied
and setting forth in each case in comparative form the figures for the previous
fiscal year, all in reasonable detail and certified by independent public
accountants of recognized national standing selected by the Company.
(b) The Company shall deliver to each Major Investor:
(i) within thirty (30) days of the end of each month, an unaudited
income statement and a statement of cash flows and balance sheet for and as
of the end of such month, in reasonable detail;
(ii) as soon as practicable after the end of the first, second, and
third quarterly accounting periods in each fiscal year of the Company, and
in any event within forty-five (45) days thereafter, an unaudited
consolidated balance sheet of the Company and its subsidiaries, if any, as
of the end of each such quarterly period, and unaudited consolidated
statements of income and statement of cash flow of the Company and its
subsidiaries for such period and for the current fiscal year to date,
prepared in accordance with generally accepted accounting principles
consistently applied, subject to changes resulting from normal year-end
audit adjustments, all in reasonable detail and certified by the principal
financial or accounting officer of the Company, except that such financial
statements need not contain the notes required by generally accepted
accounting principles;
(iii) as soon as practicable, but in any event fifteen (15) days prior
to the end of each fiscal year, a business plan and a budget for the next
fiscal year, which budget shall be prepared on a monthly basis, including
balance sheets, income statements and statements of cash flows for such
months and, as soon as prepared, any revised business plans or budgets
prepared by the Company;
(iv) with respect to the financial statements called for in
subsections (a) and (b)(ii) of this Section 2.1, an instrument executed by
the Chief Financial Officer or President of the Company certifying that such
financials were prepared in accordance with generally accepted accounting
principles consistently applied with prior practice for earlier periods
(with the exception of footnotes that may be required by generally accepted
accounting principles) and fairly present the financial condition of the
Company and its results of operation for the period specified, subject to
year-end audit adjustments; and
(v) such other information relating to the financial condition,
business, prospects or corporate affairs of the Company as a Major Investor,
or upon reasonable consent of the Company, any assignee of such Major
Investor may from time to time request; provided, however, that the Company
shall not be obligated under this subsection (v) or any other subsection of
Section 2.1 to provide information that it deems in good faith to be a trade
secret or similar confidential information.
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<PAGE>
2.2 Inspection. The Company shall permit each Major Investor, at such
Investor's expense, to visit and inspect the Company's properties, to examine
its books of account and records and to discuss the Company's affairs, finances
and accounts with its officers, all at such reasonable times as may be requested
by such Major Investor; provided, however, that the Company shall not be
obligated pursuant to this Section 2.2 to provide access to any information
which it reasonably considers to be a trade secret or similar confidential
information, unless such Major Investor enters into a confidentiality agreement
in form and substance satisfactory to the Company.
2.3 Right of First Offer. The Company hereby grants to each Major Investor
and to David Hayden the right of first offer to purchase a pro rata share of New
Securities (as defined in this Section 2.3) which the Company may, from time to
time, propose to sell and issue. A Holder's pro rata share, for purposes of this
right of first offer, is the ratio of the number of shares of Common Stock owned
by such Holder immediately prior to the issuance of New Securities, assuming
full conversion of the Shares and exercise of any option or warrant held by such
Holder to the total number of shares of Common Stock outstanding immediately
prior to the issuance of New Securities, assuming full conversion of the Shares
and exercise of all outstanding rights, options and warrants to acquire Common
Stock of the Company. For purposes of this Section 2.3, Major Investor includes
any general partners and affiliates of a Major Investor. A Major Investor shall
be entitled to apportion its right of first offer hereby granted among itself
and its partners and affiliates in such proportions as it deems appropriate.
This right of first offer shall be subject to the following provisions:
(a) "New Securities" shall mean any capital stock (including Common Stock
and/or Preferred Stock) of the Company whether now authorized or not, and
rights, options or warrants to purchase such capital stock, and securities of
any type whatsoever that are, or may become, convertible into capital stock;
provided that the term "New Securities" does not include (i) securities
purchased under the Purchase Agreement; (ii) securities issued upon conversion
of the Shares; (iii) securities issued pursuant to the acquisition of another
business entity or business segment of any such entity by the Company by merger,
purchase of substantially all the assets or other reorganization whereby the
Company will own more than fifty percent (50%) of the voting power of such
business entity or business segment of any such entity; (iv) any borrowings,
direct or indirect, from financial institutions or other persons by the Company,
whether or not presently authorized, including any type of loan or payment
evidenced by any type of debt instrument, provided such borrowings do not have
any equity features including warrants, options or other rights to purchase
capital stock and are not convertible into capital stock of the Company; (v)
securities issued to employees, consultants, officers or directors of the
Company pursuant to any stock option, stock purchase or stock bonus plan,
agreement or arrangement approved by the Board of Directors; provided that such
approval of the Board of Directors must include the approval of the directors
elected by the holders of the Preferred Stock; (vi) securities issued in
connection with obtaining lease financing, whether issued to a lessor, guarantor
or other person; (vii) securities issued in a public offering pursuant to a
registration under the Securities Act which would trigger an automatic
conversion of the Preferred Stock into Common Stock pursuant to the Company's
Articles of Incorporation; (viii) securities issued in connection with any stock
split, stock dividend or recapitalization of the Company; and (ix) any right,
option or warrant to acquire
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any security convertible into the securities excluded from the definition of New
Securities pursuant to subsections (i) through (ix) above.
(b) In the event the Company proposes to undertake an issuance of New
Securities, it shall give each Holder written notice of its intention,
describing the type of New Securities, and their price and the general terms
upon which the Company proposes to issue the same. Each Holder shall have
twenty (20) days after any such notice is mailed or delivered to agree to
purchase such Holder's pro rata share of such New Securities for the price and
upon the terms specified in the notice by giving written notice to the Company
and stating therein the quantity of New Securities to be purchased. The Company
shall promptly, in writing, inform each Major Investor that elects to purchase
all the shares available to it (a "Fully-Exercising Investor") of any other
Major Investor's failure to do likewise. During the five (5) day period
commencing after such information is given, each Fully-Exercising Investor may
elect to purchase that portion of the New Securities for which Major Investors
were entitled to subscribe but which were not subscribed for by the Major
Investors that is equal to the proportion that the number of shares of Common
Stock issued and held, or issuable upon conversion of Shares then held, by such
Fully-Exercising Investor bears to the total number of shares of Common Stock
issued and held, or issuable upon conversion of the Shares then held, by all
Fully-Exercising Investors who wish to purchase some of the unsubscribed shares.
(c) In the event the Holders fail to exercise fully the right of first
refusal within such twenty (20) day period, the Company shall have ninety (90)
days thereafter to sell or enter into an agreement (pursuant to which the sale
of New Securities covered thereby shall be closed, if at all, within sixty (60)
days from the date of such agreement) to sell the New Securities respecting
which the Holders' right of first refusal option set forth in this Section 2.4
was not exercised, at a price and upon terms no more favorable to the purchasers
thereof than specified in the Company's notice to Holders pursuant to Section
2.4(b). In the event the Company has not sold within such (90) day period or
entered into an agreement to sell the New Securities in accordance with the
foregoing within sixty (60) days from the date of such agreement, the Company
shall not thereafter issue or sell any New Securities, without first again
offering such securities to the Holders in the manner provided in Section 2.4(b)
above.
(d) The right of first offer granted under this Agreement shall expire
upon, and shall not be applicable to, the first sale of Common Stock of the
Company to the public effected pursuant to a registration statement filed with,
and declared effective by, the Securities and Exchange Commission (the
"Commission") under the Securities Act, which such registration would trigger an
automatic conversion of the Preferred Stock into Common Stock pursuant to the
Company's Articles of Incorporation.
(e) The right of first refusal set forth in this Section 2.3 may not be
assigned or transferred, except that (i) such right is assignable by each Holder
to any wholly owned subsidiary or parent of, or to any corporation or entity
that is, within the meaning of the Securities Act, controlling, controlled by or
under common control with, any such Holder, and (ii) such right is assignable
between and among any of the Holders.
2.4 Employee Stock Agreements. Unless otherwise approved by the Company's
Board of Directors, including the directors elected by the holders of Preferred
Stock pursuant to the
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Company's Amended and Restated Articles of Incorporation, all service providers,
including but not limited to employees and consultants, of the Company who shall
purchase or receive options to purchase shares of the Company's Common Stock
following the date hereof shall be required to execute stock purchase or option
agreements in a form approved by the Board of Directors providing for vesting of
such shares over a forty-eight (48)-month period at the rate of twenty-five
percent (25%) of the shares one year from the date of hire and 1/48th of the
shares per month thereafter (and without acceleration of such vesting schedule
unless otherwise so agreed) and providing further for a right of repurchase in
favor of the Company or its assigns with respect to future sales of such Common
Stock by such persons .
2.5 Issuance of Additional Series B Preferred Stock. Unless otherwise
approved by the Company's Board of Directors or issued pursuant to the Series B
Preferred Stock Purchase Agreement, the Company shall not issue any shares or
warrants to purchase shares of Series B Preferred Stock following the date
hereof.
2.6 Termination of Covenants. The covenants set forth in Sections 2.1,
2.2, 2.3, 2.4 and 2.5 shall terminate and be of no further force or effect (a)
when the sale of securities pursuant to a registration statement filed by the
Company under the Securities Act in connection with the firm commitment
underwritten offering of its securities to the general public is consummated,
the aggregate gross proceeds of which (prior to deduction for underwriter's
discounts and expenses related to the issuance) exceed $12,500,000 and an
initial offering price of at least $1.312 per share (as adjusted for any
combinations, consolidations, subdivisions, splits or stock dividends with
respect to such shares of Common Stock), or (b) when the Company first becomes
subject to the periodic reporting requirements of Sections 13 or 15(d) of the
Exchange Act, whichever event shall first occur.
SECTION 3
---------
Miscellaneous
-------------
3.1 Waiver of Right of First Offer. Each Series A Shareholder and Founder
holding a right of first offer to purchase new securities of the Company
pursuant to Section 2.3 of the Original Rights Agreement, by its execution of
this Agreement, hereby waives any rights it may have pursuant to such section to
purchase a greater number of shares of Series A Preferred Stock than the number
such Series A Shareholder is purchasing under the Purchase Agreement.
3.2 Governing law. This Agreement shall be governed in all respects by the
laws of the State of California, as if entered into by and between California
residents exclusively for performance entirely within California.
3.3 Successors and Assigns. Except as otherwise expressly provided herein,
the provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.
3.4 Entire Agreement; Amendment; Waiver. This Agreement (including the
Exhibits hereto) constitutes the full and entire understanding and agreement
between the parties with regard to the subjects hereof and thereof. Neither this
Agreement nor any term hereof may be
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amended, waived, discharged or terminated, except by a written instrument signed
by the Company and the holders of at least a majority of the Registrable
Securities and any such amendment, waiver, discharge or termination shall be
binding on all the Holders, but in no event shall the obligation of any Holder
hereunder be materially increased, except upon the written consent of such
Holder.
3.5 Notices, etc. Any notice required or permitted to be given to a party
pursuant to the provisions of this Agreement shall be in writing and shall be
effective and deemed given to such party under this Agreement on the earliest of
the following: (i) the date of personal delivery; (ii) two (2) business days
after transmission by facsimile, addressed to the other party at its facsimile
number, with confirmation of transmission; (iii) four (4) business days after
deposit with a return receipt express courier for United States deliveries; or
(iv) three (3) business days after deposit in the United States mail by
registered or certified mail (return receipt requested) for United States
deliveries. All notices not delivered personally or by facsimile will be sent
with postage and/or other charges prepaid and properly addressed to the party to
be notified at the address on file with the Company or, in the case of the
Company, at 320 First Street, San Francisco,California, 94105, or at such other
address as such other party may designate by ten (10) days advance written
notice to the other parties hereto. Notices to the Company will be marked
"Attention: President."
3.6 Delays or Omissions. No delay or omission to exercise any right, power
or remedy accruing to any Holder, upon any breach or default of the Company
under this Agreement shall impair any such right, power or remedy of such Holder
nor shall it be construed to be a waiver of any such breach or default, or an
acquiescence therein, or of or in any similar breach or default thereafter
occurring; nor shall any waiver of any single breach or default be deemed a
waiver of any other breach or default therefore or thereafter occurring. Any
waiver, permit, consent or approval of any kind or character on the part of any
Holder of any breach or default under this Agreement or any waiver on the part
of any Holder of any provisions or conditions of this Agreement must be made in
writing and shall be effective only to the extent specifically set forth in such
writing. All remedies, either under this Agreement or by law or otherwise
afforded to any Holder, shall be cumulative and not alternative.
3.7 Rights; Separability. Unless otherwise expressly provided herein, each
Holder's rights hereunder are several rights, not rights jointly held with any
of the other Holders. In case any provision of this Agreement shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
3.8 Information Confidential. Each Holder acknowledges that the
information received by them pursuant hereto may be confidential and for its use
only, and it will not use such confidential information in violation of the
Exchange Act or reproduce, disclose or disseminate such information to any other
person (other than its employees or agents having a need to know the contents of
such information, and its attorneys), except in connection with the exercise of
rights under this Agreement, unless the Company has made such information
available to the public generally or such Holder is required to disclose such
information by a governmental body.
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3.9 Titles and Subtitles. The titles of the paragraphs and subparagraphs
of this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
3.10 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
3.11 Subsequent Closings. In the event that the Company shall issue, after
the date hereof, any shares of Series B Preferred Stock or grant options or
warrants therefore, any holder of such shares of Series B Preferred Stock or
securities convertible into Series B Preferred Stock pursuant to the Purchase
Agreement shall be deemed a Holder with all of the rights of a Holder under this
Agreement; provided that as a condition thereto such Investor and the Company
shall sign a counterpart signature page to this Agreement.
3.12 Expenses. If any action at law or in equity is necessary to enforce
or interpret the terms of this Agreement, the prevailing party shall be entitled
to reasonable attorneys' fees, costs and necessary disbursements in addition to
any other relief to which such party may be entitled.
3.13 Aggregation of Stock. All shares of Registrable Securities held or
acquired by affiliated entities or persons shall be aggregated together for the
purpose of determining the availability of any rights under this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Amended and
Restated Investors' Rights Agreement effective as of the day and year first
above written.
COMPANY: CRITICAL PATH, INC.
By /s/ David Hayden
----------------------------------------
David Hayden
President and Chief Executive Officer
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INVESTORS: E*TRADE Group, Inc.
By /s/
----------------------------------------
Title CFO
-------------------------------------
BENCHMARK CAPITAL PARTNERS II, L.P.
as nominee for
Benchmark Capital Partners II, L.P.,
Benchmark Founders Fund II, L.P.,
Benchmark Founders Fund II-A, L.P. and
Benchmark Members' Fund II, L.P.
By: Benchmark Capital Management Co. II,
L.L.C., general partner
By /s/
----------------------------------------
Managing Member
MOHR, DAVIDOW VENTURES V, L.P.
By: Fifth MDV Partners, L.L.C.
By______________________________________
Managing Member
Signature Page to Critical Path, Inc.
Amended & Restated Investors' Rights Agreement
-20-
<PAGE>
CMG@Ventures II, L.L.C.
By /s/
--------------------------------------
Title General Partner
-----------------------------------
SOFTBANK TECHNOLOGY VENTURES
By______________________________________
Title___________________________________
SOFTBANK TECHNOLOGY ADVISORS FUND
By______________________________________
Title___________________________________
DIGITAL MEDIA CAPITAL, LLC
By______________________________________
Title___________________________________
________________________________________
John A. Axel
________________________________________
Randy Borden
________________________________________
John Dunning
Signature Page to Critical Path, Inc.
Amended & Restated Investors' Rights Agreement
-21-
<PAGE>
________________________________________
Lori K. Fena
________________________________________
Mitchell Fong
________________________________________
Lisa Gansky
________________________________________
Hillary Hayden
________________________________________
Storey Jones
________________________________________
Brian Kambe
________________________________________
Howard T. Larkin
________________________________________
Charles Larkin, Jr.
________________________________________
Marion Larkin
________________________________________
Giles W. McNamee
________________________________________
Ullas J. Naik
Signature Page to Critical Path, Inc.
Amended & Restated Investors' Rights Agreement
-22-
<PAGE>
________________________________________
Minturn S. Osborne
________________________________________
Joseph C. Pistritto
________________________________________
Ram Shriram
________________________________________
S.D. Living Trust
Albert W. Smith, Trustee
________________________________________
Charles Swenson
________________________________________
Jorge del Calvo
________________________________________
Stanley F. Pierson
________________________________________
David Hayden
________________________________________
Wayne Correia
________________________________________
Marcy Swenson
Signature Page to Critical Path, Inc.
Amended & Restated Investors' Rights Agreement
-23-
<PAGE>
US WEST DATA INVESTMENTS, INC.
By /s/
--------------------------------------
Title___________________________________
HAMBRECHT & QUIST
By /s/ Charlie Walker
--------------------------------------
Title Attorney-In-Fact
-----------------------------------
NETWORK SOLUTIONS, INC.
By /s/
--------------------------------------
Title Chief Financial Officer and Acting
-----------------------------------
Chief Operating Officer
-----------------------------------
ATTRACTOR, L.P.
By /s/ Harvey Allison, MM
--------------------------------------
Title Attractor Ventures LLC, GP
-----------------------------------
Attractor LP
-----------------------------------
Signature Page to Critical Path, Inc.
Amended & Restated Investors' Rights Agreement
-24-
<PAGE>
ATTRACTOR DEARBORN PARTNERS, L.P.
By /s/ Harvey Allison, MM
--------------------------------------
Title Attractor Ventures LLC, GP
-----------------------------------
Attractor LP
-----------------------------------
ATTRACTOR INSTITUTIONAL
By /s/ Harvey Allison, MM
--------------------------------------
Title Attractor Ventures LLC, GP
-----------------------------------
Attractor LP
-----------------------------------
THE LEVINSON FAMILY TRUST
By /s/
--------------------------------------
Title Trustee
-----------------------------------
/s/ Jerry Gramaglia
----------------------------------------
Jerry Gramaglia
THE LEONARD C. PURKIS REVOCABLE TRUST
By /s/
--------------------------------------
Title Trustee
-----------------------------------
Signature Page to Critical Path, Inc.
Amended & Restated Investors' Rights Agreement
-25-
<PAGE>
/s/ Debra J. Chrapaty
----------------------------------------
Debra J. Chrapaty
RAMSEY BEIRNE INVESTMENT POOL II, LLC
By /s/
--------------------------------------
Title Member / CFO
-----------------------------------
/s/ Christos Cotsakos
________________________________________
Christos Cotsakos, TTEE THE
COTSAKOS REVOCABLE TRUST, UAD 9/3/87
________________________________________
Kevin Harvey
________________________________________
George Zachary
________________________________________
John Callaghan
________________________________________
Michael Rolnick
________________________________________
Steven Spurlock
________________________________________
Richard Reynaldo
________________________________________
Wayne Correia
Signature Page to Critical Path, Inc.
Amended & Restated Investors' Rights Agreement
Second Closing
-26-
<PAGE>
________________________________________
Larry Weber
________________________________________
Howard Larkin
c/o Charles Larkin, Jr.
Signature Page to Critical Path, Inc.
Amended & Restated Investors' Rights Agreement
-27-
<PAGE>
EXHIBIT A
---------
LIST OF INVESTORS
-----------------
First Closing - September 11, 1998
----------------------------------
<TABLE>
<CAPTION>
Number of Total
Series B Purchase
Investor Shares Price
- ------------------------------------------------ --------- --------------
<S> <C> <C>
E*TRADE Group, Inc.................................. 7,742,735 $15,000,000.00
Four Embarcadero
2400 Geng Road
Palo Alto, CA 94303
Attn: Michael Rolnick
Mohr, Davidow Ventures V, L.P....................... 240,025 465,000.43
2775 Sand Hill Road, Suite 240
Menlo Park, CA 94025
Attn: George Zachary
Mohr, Davidow Ventures V, L.P. as nominee for MDV
Entrepreneurs' Network Fund II(A), L. P. and MDV
Entrepreneurs' Network Fund II(B), L.P............. 18,067 35,001.20
2775 Sand Hill Road, Suite 240 --------- --------------
Menlo Park, CA 94025
Attn: George Zachary
TOTAL............................................ 8,000,827 $15,500,001.63
========= ==============
</TABLE>
Second Closing - January __, 1999
---------------------------------
<TABLE>
<CAPTION>
Number of Total
Series B Purchase
Investor Shares Price
- ------------------------------------------------ --------- --------------
<S> <C> <C>
U S West............................................ 4,129,459 $8,000,000.92
1999 Broadway, Suite 500
Denver, CO 80202
Attn: Ted Babitz
CMG@Ventures II, L.L.C.............................. 774,274 1,500,001.02
2420 Sand Hill Road
Suite 101
</TABLE>
A-1
<PAGE>
<TABLE>
<CAPTION>
Number of Total
Series B Purchase
Investor Shares Price
- ------------------------------------------------ --------- --------------
<S> <C> <C>
Menlo Park, CA 94025
Attn: John Callaghan
Hambrecht & Quist................................... 825,892 1,600,000.57
1 Bush Street
San Francisco, CA 94104
Attn: Norman Colbert
Benchmark Capital................................... 516,183 1,000,001.33
2480 Sand Hill Road
Menlo Park, CA 94025
Attn: Kevin Harvey
Network Solutions, Inc./1/.......................... 500,000 968,650.00
505 Huntmar Park Drive
Herndon, VA 20170
Attn: Robert Korzienewski
Network Solutions, Inc.............................. 500,000 774,920.00
505 Huntmar Park Drive
Herndon, VA 20170
Attn: Robert Korzienewski
Attractor LP........................................ 322,840 625,437.93
1110 Burlingame Avenue
Suite 211
Burlingame, CA 94010
Attn: Harvey Allison
Attractor Dearborn Parnters LP...................... 171,165 331,597.95
1110 Burlingame Avenue
Suite 211
Burlingame, CA 94010
Attn: Harvey Allison
Attractor Institutional............................. 22,177 42,963.50
1110 Burlingame Avenue
Suite 211
Burlingame, CA 94010
Attn: Harvey Allison
</TABLE>
_________
/1/ Network Solutions, Inc. ("NSI") is exercising its right to purchase
1,000,000 shares of Series B Preferred Stock which the Company granted to NSI in
connection with a Lease Agreement entered into between NSI and the Company.
According to such agreement, NSI has the right to purchase 500,000 shares at a
discount of 80% of the price per share for the Series B Preferred Stock
(1.54984) and the remaining 500,000 shares at the full price per share for the
Series B Preferred Stock (1.9373).
A-2
<PAGE>
<TABLE>
<CAPTION>
Number of Total
Series B Purchase
Investor Shares Price
- ------------------------------------------------ --------- --------------
<S> <C> <C>
Mohr, Davidow Ventures V, L.P....................... 240,025 465,000.43
2775 Sand Hill Road, Suite 240
Menlo Park, CA 94025
Attn: George Zachary
Mohr, Davidow Ventures V, L.P. as nominee for MDV
Entrepreneurs' Network Fund II(A), L. P. and MDV
Entrepreneurs' Network Fund II(B), L.P............. 18,067 35,001.20
2775 Sand Hill Road, Suite 240
Menlo Park, CA 94025
Attn: George Zachary
The Levinson Family Trust, Kathy Levinson and
Jennifer Levinson, trustees, 1/17/94............... 51,619 100,001.49
c/o E*TRADE Group, Inc.
2400 Geng Road
Palo Alto, CA 94303
Jerry Gramaglia..................................... 25,810 50,001.72
c/o E*TRADE Group, Inc.
2400 Geng Road
Palo Alto, CA 94303
The Leonard C. Purkis Revocable Trust, UAD 4/24/97.. 12,905 25,000.86
c/o E*TRADE Group, Inc.
2400 Geng Road
Palo Alto, CA 94303
Debra J. Chrapaty................................... 2,581 5,000.18
c/o E*TRADE Group, Inc.
2400 Geng Road
Palo Alto, CA 94303
TOTAL............................................ 8,112,997 $15,523,579.10
========= ==============
</TABLE>
EXHIBIT B
LIST OF SHAREHOLDERS
--------------------
A-3
<PAGE>
Name
----
Benchmark Capital
Mohr, Davidow Ventures
CMG@Ventures II, L.L.C.
Softbank Technology Ventures
Softbank Technology Advisors Fund
E*TRADE Group, Inc.
Digital Media Capital, LLC
David Hayden
John Dunning
Mitchell Fong
Lisa Gansky
Storey Jones
Charles Larkin, Jr.
Marian Larkin
Ram Shriram
S.D. Living Trust,
Albert W. Smith, Trustee
Brian Kambe
Howard T. Larkin
John A. Axel
Randy Borden
Hillary Hayden
Giles W. McNamee
Minturn S. Osborne
Joseph C. Pistritto
Lori K. Fena
Ullas J. Naik
Charles Swenson
Jorge del Calvo
Stanley F. Pierson
B-4
<PAGE>
EXHIBIT C
LIST OF FOUNDERS
----------------
Name
----
David Hayden
Peter Flaxman
Wayne Correia
Marcy Swenson
C-5
<PAGE>
EXHIBIT 10.7
CRITICAL PATH, INC.
AMENDMENT TO AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
THIS AMENDMENT TO AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT (the
"Amendment") is made as of January 13, 1999, by and among CRITICAL PATH, INC., a
California corporation (the "Company"), and those investors in the Company
listed on Exhibit A attached hereto (the "Series B Investors"), those
shareholders of the Company listed on Exhibit B attached hereto (the "Series A
Shareholders") and those founders listed on Exhibit C attached hereto (the
"Founders"). The Series B Investors, the Series A Shareholders and the Founders
are referred to herein individually as "Investor" and collectively as the
"Investors."
RECITALS:
A. The Company and certain Investors have entered into that certain
Amended and Restated Investors' Rights Agreement dated September 11, 1998 (the
"Investors' Rights Agreement") in connection with the Series B Preferred Stock
Financing in which the Company sold and certain Investors purchased shares of
Series B Preferred Stock of the Company (the "Series B Preferred Stock").
B. Pursuant to the Investors' Rights Agreement, the Company granted the
Investors certain registration rights, information rights and rights of first
offer in connection with the purchase and sale of Series B Preferred Stock.
C. The Company desires to sell up to 2,400,000 shares of Common Stock and
additional shares of Series B Preferred Stock (the "Additional Shares") to
certain Investors and in order to induce such Investors to purchase the
Additional Shares, the Company proposes amending relevant sections of the
Investors' Rights Agreement to provide such Investors with the same registration
rights, information rights and rights of first offer in connection with the
Additional Shares as granted pursuant to the Investors' Rights Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, and for other consideration, the receipt and adequacy of which is
hereby acknowledged, the Company and the Investors hereby agree as follows
effective upon the second closing of the Series B Preferred Stock Financing:
1. Section 1.1(g) of the Investors' Rights Agreement is hereby amended to
read in its entirety as follows:
"(g) "Registrable Securities" shall mean (i) shares of Common Stock
issued to Series A Shareholders or Series B Investors or issued or issuable
pursuant to the conversion of the Shares; (ii) any Common Stock issued as a
dividend or other distribution with respect to or in exchange for or in
replacement of the shares referenced in (i) above, provided, however, that
Registrable Securities shall not include any shares of Common Stock which
have previously
-1-
<PAGE>
been registered or which have been sold to the public; (iii) 2,400,000
shares of Common Stock issued to U.S. West Communications Services, Inc.;
and (iv) solely for the purposes of Section 1.3 hereof, Registrable
Securities shall be deemed to include shares of Common Stock of the Company
held by David Hayden, Peter Flaxman, Wayne Correia and Marcy Swenson
("Founders Stock")."
2. The first paragraph of Section 1.2(a) is hereby amended to read in its
entirety as follows:
"(a) Request for Registration. If the Company shall receive from
Initiating Holders at any time or times not earlier than the earlier of (a)
March 31, 2002 or (b) six (6) months after the effective date of the first
registration statement filed by the Company covering an underwritten
offering of any of its securities to the general public, a written request
that the Company effect any registration with respect to all or a part of
the Registrable Securities having an aggregate offering price, net of
underwriting discounts and expenses, the anticipated gross proceeds of
which (prior to deduction for underwriter's discounts and expenses related
to the issuance) exceed $12,500,000 and an initial offering price of at
least $1.312 per share (as adjusted for any combinations, consolidations,
subdivisions, splits or stock dividends with respect to such shares of
Common Stock) the Company will:"
3. Section 1.2(a)(ii)(B) of the Investors' Rights Agreement is hereby
amended to read in its entirety as follows:
"(B) After the Company has initiated two such registrations pursuant
to this Section 1.2(a) (counting for these purposes only registrations
which have been declared or ordered effective and pursuant to which not
less than 80% of the Registrable Securities included therein have been sold
and registrations which have been withdrawn by the Holders as to which the
Holders have not elected to bear the Registration Expenses pursuant to
Section 1.4 hereof and would, absent such election, have been required to
bear such expenses);"
4. Section 1.6(a) is hereby amended in its entirety to read as follows:
"(a) Keep such registration effective for a period of one hundred
twenty (120) consecutive days or until the Holder or Holders have completed
the distribution described in the registration statement relating thereto,
whichever first occurs; provided, however, that a. such one hundred twenty
(120) consecutive day period shall be extended for a period of time equal
to the period the Holder refrains from selling any securities included in
such registration at the request of an underwriter of Common Stock (or
other securities) of the Company; and b. in the case of any registration of
Registrable Securities on Form S-3 which are intended to be offered on a
continuous or delayed basis, such one hundred twenty (120) day consecutive
period shall be extended, if necessary, to keep the registration statement
effective until all such Registrable Securities are sold, provided that
Rule 415, or any successor rule under the Securities Act, permits an
offering on a continuous or delayed basis, and provided further that
applicable
-2-
<PAGE>
rules under the Securities Act governing the obligation to file a post-
effective amendment permit, in lieu of filing a post-effective amendment
that i. includes any prospectus required by Section 10(a)(3) of the
Securities Act or ii. reflects facts or events representing a material or
fundamental change in the information set forth in the registration
statement, the incorporation by reference of information required to be
included in (A) and (B) above to be contained in periodic reports filed
pursuant to Section 13 or 15(d) of the Exchange Act in the registration
statement;"
5. Section 1.14 of the Investors' Rights Agreement is hereby amended in
its entirety as follows:
"1.14 Termination of Registration Rights. The right of any Holder to
request registration or inclusion in any registration pursuant to Section
1.2, 1.3 or 1.5 shall terminate after the earlier of (i) five (5) years
following the closing of the initial public offering of Common Stock of the
Company, or (ii) at such time, following a public offering that meets the
requirements necessary to trigger an automatic conversion of Preferred
Stock under the Company's Articles of Incorporation, as amended to date, as
Rule 144 or another similar exemption under the Securities Act is available
for the sale of all of such Holder's shares during any ninety (90) day
period; provided, however, that this clause (ii) shall not apply to a
Holder of greater than 5% of the Company's Common Stock."
6. Section 2.6 of the Investors' Rights Agreement is hereby amended in
its entirety as follows:
"2.6 Termination of Covenants. The covenants set forth in Sections
2.1, 2.2, 2.3, 2.4 and 2.5 shall terminate and be of no further force or
effect (a) when the sale of securities pursuant to a registration statement
filed by the Company under the Securities Act in connection with the firm
commitment underwritten offering of its securities to the general public is
consummated, the aggregate gross proceeds of which (prior to deduction for
underwriter's discounts and expenses related to the issuance) exceed
$30,000,000 and an initial offering price of at least $7.7492 per share (as
adjusted for any combinations, consolidations, subdivisions, splits or
stock dividends with respect to such shares of Common Stock), or (b) when
the Company first becomes subject to the periodic reporting requirements of
Sections 13 or 15(d) of the Exchange Act, whichever event shall first
occur."
7. Section 3.1 of the Investors' Rights Agreement is hereby amended in
its entirety as follows:
"3.1 Waiver of Right of First Offer. Each Series A Shareholder and
Founder holding a right of first offer to purchase new securities of the
Company pursuant to Section 2.3 of the Original Rights Agreement and each
Series B Investor holding a right of first offer to purchase new securities
of the Company pursuant to Section 2.3 of this Agreement, by its execution
of this Agreement, hereby waives any rights it may have pursuant to such
section to purchase a greater number of shares of Series B Preferred Stock
than the number such
-3-
<PAGE>
Investor is purchasing under the Purchase Agreement."
8. Except as expressly modified herein, the Investors' Rights Agreement
shall remain in full force and effect.
This Amendment to the Amended and Restated Investors' Rights Agreement may
be executed in any number of counterparts, each of which shall be an original,
but all of which together shall constitute one and the same instrument.
COMPANY
CRITICAL PATH, INC., a California corporation
By /s/ Douglas Hickey
------------------------------------------
Douglas Hickey
President and Chief Executive Officer
-4-
<PAGE>
INVESTORS
E*TRADE Group, Inc.
By /s/
------------------------------------------
Title CFO
---------------------------------------
BENCHMARK CAPITAL PARTNERS II, L.P.
as nominee for
Benchmark Capital Partners II, L.P.,
Benchmark Founders Fund II, L.P.,
Benchmark Founders Fund II-A, L.P. and
Benchmark Members' Fund II, L.P.
By Benchmark Capital Management Co. II,
L.L.C., general partner
By /s/
------------------------------------------
Managing Member
US WEST DATA INVESTMENTS, INC.
By /s/
------------------------------------------
Title
---------------------------------------
HAMBRECHT & QUIST CALIFORNIA
By
------------------------------------------
Title
---------------------------------------
Signature Page to Critical Path, Inc.
Amendment to Amended and Restated Investors' Rights Agreement
-5-
<PAGE>
H&Q CRITICAL PATH INVESTORS, L.P.
By
------------------------------------------
Title
---------------------------------------
HAMBRECHT & QUIST EMPLOYEE VENTURE FUND, L.P.
By
------------------------------------------
Title
---------------------------------------
CMG@VENTURES II, L.L.C.
By /s/
------------------------------------------
Title
---------------------------------------
ATTRACTOR LP
By /s/ Harvey Allison, MM
------------------------------------------
Title Attractor Ventures LLC, GP
---------------------------------------
Attractor LP
ATTRACTOR DEARBORN PARTNERS LP
By /s/ Harvey Allison, MM
------------------------------------------
Title Attractor Ventures LLC, GP
---------------------------------------
Attractor LP
Signature Page to Critical Path, Inc.
Amendment to Amended and Restated Investors' Rights Agreement
-6-
<PAGE>
ATTRACTOR INSTITUTIONAL
By /s/ Harvey Allison, MM
------------------------------------------
Title Attractor Ventures LLC, GP
---------------------------------------
Attractor LP
NETWORK SOLUTIONS, INC.
By /s/
------------------------------------------
Title CFO and Acting COO
---------------------------------------
MOHR, DAVIDOW VENTURES V, L.P.
By Fifth MDV Partners, L.L.C.
By /s/ George Zachary
------------------------------------------
Managing Member
MOHR, DAVIDOW VENTURES V, L.P., as nominee
for MDV Entrepreneurs' Network Fund II(A),
L.P. and MDV Entrepreneurs' Network Fund
II(B), L.P.
By Fifth MDV Partners, L.L.C.
By /s/ George Zachary
------------------------------------------
Managing Member
Signature Page to Critical Path, Inc.
Amendment to Amended and Restated Investors' Rights Agreement
-7-
<PAGE>
THE LEVINSON FAMILY TRUST, KATHY LEVINSON AND
JENNIFER LEVINSON, TRUSTEES, UAD 1/17/94
By /s/
------------------------------------------
Title Trustee
---------------------------------------
/s/ Jerry Gramaglia
---------------------------------------------
Jerry Gramaglia
THE LEONARD C. PURKIS REVOCABLE TRUST, UAD
4/24/97
By /s/
------------------------------------------
Title Trustee
---------------------------------------
/s/ Debra J. Chrapaty
---------------------------------------------
Debra J. Chrapaty
RAMSEY/BEIRNE INVESTMENT POOL II, L.L.C.
By /s/
------------------------------------------
Title Member/CFO
---------------------------------------
THE COTSAKOS REVOCABLE TRUST, UAD 9/3/87
By
------------------------------------------
Signature Page to Critical Path, Inc.
Amendment to Amended and Restated Investors' Rights Agreement
-8-
<PAGE>
SOFTBANK TECHNOLOGY VENTURES
By /s/ Gary E. Rieschel
------------------------------------------
Title Managing General Partner
---------------------------------------
SOFTBANK TECHNOLOGY ADVISORS FUND
By /s/ Gary E. Rieschel
------------------------------------------
Title Managing General Partner
---------------------------------------
DIGITAL MEDIA CAPITAL, LLC
By /s/ Erin W. Jansen
------------------------------------------
Title Cheif Operating Officer
---------------------------------------
/s/ John A. Axel
---------------------------------------------
John A. Axel
/s/ Randy Borden
---------------------------------------------
Randy Borden
/s/ John Dunning
---------------------------------------------
John Dunning
/s/ Lori Fena
---------------------------------------------
Signature Path to Critical Path, Inc.
Amendment to Amended and Restated Investors' Right Agreement
-9-
<PAGE>
Lori K. Fena
/s/ Mitchell Fong
---------------------------------------------
Mitchell Fong
/s/ Lisa Gansky
---------------------------------------------
Lisa Gansky
/s/ Hillary Hayden
---------------------------------------------
Hillary Hayden
/s/ Storey Jones
---------------------------------------------
Storey Jones
/s/ Brian Kambe
---------------------------------------------
Brian Kambe
/s/ Charles Larkin, Jr.
---------------------------------------------
Charles Larkin, Jr.
---------------------------------------------
Marian Larkin
---------------------------------------------
Giles W. McNamee
/s/ Ullas J. Naik
---------------------------------------------
Ullas J. Naik
Signature Page to Critical Path, Inc.
Amendment to Amended and Restated Investors' Rights Agreement
-10-
<PAGE>
/s/ Minturn S. Osborne
---------------------------------------------
Minturn S. Osborne
/s/ Joseph C. Pistritto
---------------------------------------------
Joseph C. Pistritto
/s/ Ram Shriram
---------------------------------------------
Ram Shriram
S.D. LIVING TRUST, ALBERT W. SMITH, TRUSTEE
S.D. Living Trust
By /s/ Albert W. Smith Trustee
------------------------------------------
/s/ Charles Swenson
---------------------------------------------
Charles Swenson
/s/ Jorge del Calvo
---------------------------------------------
Jorge del Calvo
/s/ Stanley F. Pierson
---------------------------------------------
Stanley F. Pierson
/s/ David Hayden
---------------------------------------------
David Hayden
Signature Page to Critical Path, Inc.
Amendment to Amended and Restated Investors' Rights Agreement
-11-
<PAGE>
PETER FLAXMAN & CATHERINE FLAXMAN, TRUSTEES,
THE FLAXMAN 1992 REVOCABLE CHILDREN'S TRUST
By
------------------------------------------
Peter Flaxman, Trustee
By
------------------------------------------
Catherine Flaxman, Trustee
/s/ Wayne Correia
---------------------------------------------
Wayne Correia
---------------------------------------------
Marcy Swenson
/s/ Charles L. Larkin
---------------------------------------------
Charles L. Larkin III, Custodian
FBO Charles Larkin IV
/s/ Charles L. Larkin
---------------------------------------------
Charles L. Larkin III, Custodian
FBO Diana M. Larkin
---------------------------------------------
David S. Larkin, Custodian
FBO Matthiah M. Larkin
Signature Page to Critical Path, Inc.
Amendment to Amended and Restated Investors' Rights Agreement
-12-
<PAGE>
---------------------------------------------
David S. Larkin, Custodian
FBO Phoebe E. Larkin
---------------------------------------------
Sarah M. Larkin
Signature Page to Critical Path, Inc.
Amendment to Amended and Restated Investors' Rights Agreement
-13-
<PAGE>
EXHIBIT B
SERIES A SHAREHOLDERS
Benchmark Capital
Mohr, Davidow Ventures
CMG@Ventures II, L.L.C.
Softbank Technology Ventures
Softbank Technology Advisors Fund
E*TRADE Group, Inc.
Digital Media Capital, LLC
David Hayden
John Dunning
Mitchell Fong
Lisa Gansky
Storey Jones
Charles Larkin, Jr.
Marian Larkin
Ram Shriram
S.D. Living Trust,
Albert W. Smith, Trustee
Brian Kambe
Howard T. Larkin
John A. Axel
Randy Borden
Hillary Hayden
Giles W. McNamee
Minturn S. Osborne
Joseph C. Pistritto
Lori K. Fena
Ullas J. Naik
Charles Swenson
Jorge del Calvo
Stanley F. Pierson
SA-1
<PAGE>
EXHIBIT A
LIST OF INVESTORS
SB-1
<PAGE>
EXHIBIT C
LIST OF FOUNDERS
David Hayden
Peter Flaxman
Wayne Correia
Marcy Swenson
SC-1
<PAGE>
EXHIBIT 10.8
MASTER EQUIPMENT LEASE AGREEMENT
Agreement No. 203 Dated: April 28, 1998
LESSOR: LIGHTHOUSE CAPITAL PARTNERS II, L.P., a Delaware limited partnership
("Lessor"), 100 Drakes Landing Road, Suite 260, Greenbrae, California
94904-3121
LESSEE: CRITICAL PATH, INC., a California corporation ("Lessee")
ADDRESS: 320 First Street, San Francisco, California 94105.
IN CONSIDERATION of the mutual covenants contained herein, the parties
agree as follows:
1. LEASE. Lessor leases to Lessee and Lessee leases from Lessor the
personal property described in each Equipment Schedule executed pursuant hereto,
subject to the terms and conditions of this Master Equipment Lease Agreement
("Master Lease") and the applicable Lease Line Schedule (defined below). The
"Equipment" (as defined in the Lease Line Schedule) is being leased for
commercial or business purposes only, and not for personal, home, or family
purposes. The parties agree that each Lease is a "finance lease" under the
Uniform Commercial Code (as in effect in the State of California during the term
of the Lease and referred to hereafter as the "UCC").
2. LEASE LINE SCHEDULE. "Lease Line Schedule" means a Lease Line Schedule
in the form of Exhibit A, signed by Lessor and Lessee and incorporating by
reference the terms and provisions of this Master Lease.
3. EQUIPMENT SCHEDULES. "Equipment Schedule" means an Equipment Schedule
in the form of Exhibit B, signed by Lessor and Lessee and incorporating, by
reference, the terms and provisions of this Master Lease and the applicable
Lease Line Schedule. Each Equipment Schedule shall constitute a separate and
independent lease (a "Lease"); the original of such Lease shall consist of the
signed Equipment Schedule and a copy of the Master Lease and applicable Lease
Line Schedule. Capitalized terms used, but not defined, in this Master Lease
have the meanings given to such terms in the applicable Lease Line Schedule or
Equipment Schedule, as the case may be.
4. TERM AND RENTALS.
(a) Acceptance. The Lease shall commence with respect to
Equipment described on the Equipment Schedule upon the Acceptance Date. The
"Acceptance Date" shall be the date upon which Lessee executes a Delivery and
Acceptance Certificate in the form of Exhibit C.
(b) Term and Payment of Rent. The lease term for the Equipment
shall be the "Lease Term" set forth in the Equipment Schedule which shall
commence on the "Commencement Date" (as defined in the Lease Line Schedule).
Lessee agrees to pay to Lessor the "Rental Payments" for the Lease Term, in the
amounts and at the times set forth in the Equipment Schedule.
(c) Lease Termination. Lessee may terminate the Lease at the
expiration of the Lease Term or any renewal term (the "Lease Termination") by
submitting to Lessor a Notice of Election in the form of Exhibit D. If a Notice
of Election is not submitted by Lessee to Lessor during the "Advance Notice
Period" (as defined in the Lease Line Schedule), then the Lease Term or any
renewal Term will be automatically extended for an additional period equal to
the "Automatic Extension Period" (as defined in the Lease Line Schedule). The
Lease will continue to automatically extend until Lessee submits to Lessor a
Notice of Election. The Lease may only be terminated as expressly provided in
this Section, in the applicable Lease Line Schedule or in the applicable
Equipment Schedule. Lessee agrees to continue paying rent for the Equipment in
the amount of the Rental Payment set forth in the Equipment Schedule until the
later of (i) the expiration of the Lease Term, any renewal term and any
Automatic Extension Period and (ii) either (A) the purchase option price is paid
pursuant to Section 6(a), or (B) a mutually agreed renewal of the Lease takes
effect pursuant to Section 6(b), or (C) the Equipment is returned in the manner
and condition prescribed in Section 6(c), in each case after delivery of a
Notice of Election.
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(e) Net Lease. Each Equipment Schedule shall be a net lease, and
Lessee's obligation to pay all rent and other sums thereunder shall be absolute
and unconditional, and shall not be subject to any abatement, reduction, set-
off, defense, counterclaims, interruption, deferment or recoupment, for any
reason whatsoever.
5. LATE FEE. Lessee shall pay a late charge on any rent payments or other
sums due hereunder which are past due, in the amount specified in the Lease Line
Schedule, payable on demand. In addition, interest shall accrue daily at the
"Default Rate" (as defined in the Lease Line Schedule), or if such rate exceeds
the maximum rate allowed by law, then at such maximum rate, and shall be payable
on demand.
6. LEASE TERMINATION OPTIONS. Upon Lease Termination, Lessee will have the
option to purchase the Equipment, renew the term of the Lease, or return the
Equipment to Lessor, as set forth below. Lessee shall specify its election of a
Lease Termination Option in the Notice of Election.
(a) Purchase Option. If Lessee exercises the option to purchase,
then, provided no Event of Default has occurred and is then continuing, Lessee
shall at the expiration of the Lease Term, renewal term or extension, as the
case may be, purchase the Equipment. The purchase price shall be the Equipment's
then fair market value ("FMV"). FMV, as applied to a purchase option, shall be
determined by Lessor based on the price a willing buyer would pay and a willing
seller would accept (neither buyer nor seller being under compulsion to act) for
the Equipment as installed and in use, giving due consideration to its
condition, utility, revenue-producing capability, and replacement costs. If
Lessee fails to agree with Lessor's good faith determination of the FMV, Lessee
shall nevertheless pay Lessor's invoice and provide Lessor with a written
request for a determination of the FMV with or prior to such payment. Within ten
(10) days after such request Lessor and Lessee shall agree on an appraiser to
determine the FMV or, lacking such agreement, shall each tender the name of an
appraiser. The appraiser(s) shall, within thirty (30) days, either agree on the
FMV or select a third appraiser, to form a committee to determine the FMV.
Determination by the appraiser(s) shall be final and binding on both parties.
Within fifteen (15) days after such determination, Lessor shall refund any
excess received over the FMV, and/or Lessee shall pay any additional amount of
the FMV above the amount previously paid. Each party shall bear the fees and
expenses of any appraiser which it names and share equally the fees and expenses
of any appraiser(s) jointly selected. If the appraised FMV is within 5% of the
amount invoiced by Lessor, then Lessee shall pay all appraiser fees and
expenses. The purchase option price shall be paid not later than the last day of
the Lease Term.
(b) Renewal. If Lessee exercises the option to renew this Lease,
such renewal shall be upon the terms and conditions of this Master Lease and the
applicable Lease Line Schedule, for a rental period and rental amount to be
agreed upon by Lessee and Lessor.
(c) Return. If the Notice of Election specifies return of the
Equipment, Lessee at its own risk and expense (i) will immediately return the
Equipment to Lessor in the same condition as when delivered, ordinary wear and
tear excepted, at such location as Lessor shall designate; and (ii) will, on
request from Lessor, obtain from the Equipment supplier (or other maintenance
service supplier approved by Lessor) a certificate stating that the Equipment
qualifies for continued maintenance service at the standard rates and terms then
in effect.
7. USE; MAINTENANCE.
(a) Lessee, at its expense, shall make all necessary site
preparations and cause the Equipment to be operated in accordance with any
applicable operating manuals and manufacturer's instructions. Notwithstanding
any transfer or assignment by Lessor and provided Lessee is not in default
hereunder, Lessee shall have the right to quietly possess and use the Equipment
as provided herein without interference by Lessor, its assigns or any other
third party claiming through or under Lessor.
(b) Lessee shall effect and bear the expense of all necessary
repair, maintenance, operation and replacements required to be made to maintain
the Equipment in good condition, reasonable wear and tear excepted, and to
comply with all domestic and international laws to which the use and operation
of the Equipment may be or become subject. All replacement Equipment and parts
furnished in connection with such maintenance or repair shall immediately become
the property of Lessor and part of the Equipment for all purposes hereof. All
such
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maintenance, repair and replacement services shall be immediately paid for and
discharged by Lessee with the result that no lien under any applicable laws will
attach to the Equipment as a result of the performance of such services or the
provision of any such material.
8. INSURANCE. Lessee shall obtain and maintain for the Lease Term (and
any renewal term or extension), at its own expense, (a) "all risk" insurance
against loss or damage to the Equipment, (b) commercial general liability
insurance (including contractual liability, products liability and completed
operations coverage) reasonably satisfactory to Lessor, and (c) such other
insurance against such other risks of loss and with such terms, as shall in each
case be reasonably satisfactory to or reasonably required by Lessor (as to
carriers, amounts and otherwise). The amount of the "all risk" insurance shall
be greater than or equal to the Stipulated Loss Value (as defined in Section 9
below) of all Equipment outstanding under the Lease Line Schedule, and must
otherwise be reasonably satisfactory to Lessor as of each anniversary date of
this Lease. Any increase in the amount of such insurance coverage, other than
"all risk", reasonably requested by Lessor shall be put into effect on the next
succeeding renewal date of such insurance.
Each "all risk" policy shall: (i) name Lessor as sole loss payee with
respect to the Equipment, (ii) provide for each insurer's waiver of its right of
subrogation against Lessor and Lessee, and (iii) provide that such insurance
shall not be invalidated by any action of, or breach of warranty by, Lessee of a
provision of any of its insurance policies, and shall waive set-off,
counterclaim or offset against Lessor.
Each liability policy shall name Lessor as an additional insured and
provide that such insurance shall have cross-liability and severability of
interest endorsements (which shall not increase the aggregate policy limits of
Lessee's insurance).
All insurance policies shall provide that Lessee's insurance shall be
primary without a right of contribution of Lessor's insurance, if any, or any
obligation on the part of Lessor to pay premiums of Lessee, and shall contain a
clause requiring the insurer to give Lessor at least 30 days' prior written
notice of its cancellation (other than cancellation for non-payment for which 10
days' notice shall be sufficient). Lessee shall on or prior to the date of
Equipment Schedule No. 01 and prior to each policy renewal, furnish to Lessor
certificates of insurance or other evidence satisfactory to Lessor that such
insurance coverage is in effect. Lessee further agrees to give Lessor prompt
notice of any damage to, or loss of, the Equipment, or any part thereof.
9. LOSS OR DAMAGE. If any items of Equipment shall become lost, stolen,
destroyed, or damaged beyond repair for any reason, or in the event of
condemnation, confiscation, seizure or requisition of title to or use of such
items (collectively, an "Event of Loss"), Lessee shall promptly pay to Lessor
the applicable Stipulated Loss Value of the Equipment subject to the Event of
Loss. Upon payment by Lessee of the Stipulated Loss Value, Lessor will transfer
to Lessee, "AS IS, WHERE IS, WITHOUT RECOURSE, REPRESENTATION OR WARRANTY," all
of Lessor's right, title and interest, if any, in such items of Equipment. The
"Stipulated Loss Value" payable by Lessee under this Lease shall be an amount
equal to the product of (a) Lessor's Cost of the affected Equipment and (b) the
percentage set forth in the table attached to the applicable Lease Line Schedule
as Annex A opposite the Rental Payment number next following the Event of Loss.
Stipulated Loss Values and Rental Payments shall not be prorated.
10. TITLE, INSPECTION AND LOCATION.
(a) Title. Lessor and Lessee confirm their intent that title to
the Equipment shall remain in Lessor (or its successors and assigns)
exclusively. If requested by Lessor, Lessee will affix plates or markings on the
Equipment and on any operating manuals and manufacturer's instructions
indicating the interests of Lessor and its assigns therein, and Lessee will not
allow any other indicia of ownership or other interest in the Equipment to be
placed on the Equipment. Lessee shall not sell, assign, grant a security
interest in, sublet, pledge, hypothecate or otherwise encumber or suffer a lien
upon or against this Lease or the Equipment.
(b) Inspection. Lessor (through any of its officers, employees
or agents) shall have the right to inspect the Equipment during regular business
hours, with reasonable notice, and in compliance with Lessee's reasonable
security procedures; provided, that such inspections will be conducted no more
often then once every six
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(6) months unless an Event of Default, or event which, with notice or lapse of
time or both, would become an Event of Default, has occurred and is continuing.
(c) Location. In the case of Equipment other than mobile
Equipment, Lessee may move such Equipment from the installation address shown on
the Equipment Schedule (or any other location for which Lessee has complied with
this provision) only if (i) the new location is within the continental United
----
States, and (ii) Lessee gives at least 30 days' prior written notice of the
relocation and provides UCC-1 financing statements, landlord waivers or such
other documentation as Lessor reasonably requests to protect its interest in the
Equipment. In the case of mobile equipment (including, without limitation, lap-
top computers), Lessee agrees to obtain from the person using such mobile
Equipment and deliver to Lessor, an Acknowledgment in the form of Exhibit F.
(d) Lessee shall keep copies of all operating manuals and
manufacturer's instructions with respect to the Equipment in good condition at
the locations specified in Section 10(c).
11. LESSEE'S REPRESENTATIONS, WARRANTIES AND WAIVERS. Upon execution of
the Master Lease and each Equipment Schedule, Lessee warrants and represents the
following:
(a) Lessee is a corporation duly organized, validly existing and
in good standing under the laws of its state of incorporation. Lessee has full
power and authority and all necessary licenses and permits to carry on its
business as presently conducted, to own or hold under lease its properties and
to enter into this Master Lease, the Lease Line Schedule and each Equipment
Schedule and to perform its obligations thereunder; and Lessee is duly qualified
to do business as a foreign corporation and is in good standing in each
jurisdiction in which the character of its properties or the nature of its
business or the performance of its obligations under this Master Lease, the
Lease Line Schedule and any Equipment Schedule requires such qualification,
except for such jurisdictions in which failure to qualify would not have a
material adverse effect on Lessee.
(b) The execution and delivery by Lessee of this Master Lease,
the Lease Line Schedule and each Equipment Schedule and the performance by
Lessee of its obligations thereunder have been duly authorized by all necessary
corporate action on the part of Lessee; and do not and will not contravene the
provisions of, or constitute a default (either with or without notice or lapse
of time, or both) under, or result in the creation of any lien upon, the
Equipment or any property of Lessee under any indenture, mortgage, contract or
other instrument to which Lessee is a party or by which Lessee or its properties
is bound.
(c) No consent or approval of, giving of notice to, registration
with, or taking of any other action by, any state, federal, foreign or other
governmental commission, agency or regulatory authority or any other person or
entity is required for the consummation or performance by Lessee of the
transactions contemplated under this Master Lease, the Lease Line Schedule and
each Equipment Schedule.
(d) This Master Lease, the Lease Line Schedule and each Equipment
Schedule, when executed by Lessee, constitute legal, valid and binding
agreements of Lessee enforceable against Lessee in accordance with their terms,
except as limited by any bankruptcy, insolvency, reorganization, or other
similar laws of general application affecting the enforcement of creditor or
Lessor rights.
(e) There are no actions, suits or proceedings pending or
threatened against or affecting Lessee or any property of Lessee in any court,
before any arbitrator of any kind or before or by any federal state, municipal
or other government department, commission, board, bureau, agency or
instrumentality (collectively "Governmental Body"), which, if adversely
determined, would materially adversely affect the business, financial condition,
assets, or operations of Lessee, or adversely affect the ability of Lessee to
perform its obligations under this Master Lease, the Lease Line Schedule and
each Equipment Schedule; and Lessee is not in default with respect to any order
of any court, arbitrator or Governmental Body or with respect to any material
loan agreement, debt instrument or contract with a supplier or customer of
Lessee, except as disclosed in writing to Lessor.
(f) To the extent permitted by applicable law, Lessee waives any
and all rights and remedies to: (i) cancel this Lease; (ii) repudiate this
Lease; (iii) reject the Equipment; (iv) revoke acceptance of the Equipment; (v)
recover damages from Lessor for any breaches of warranty or for any other
reason; (vi) claim a security interest
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in the Equipment in Lessee's possession or control for any reason; (vii) deduct
from Rental Payments all or any part of any claimed damages resulting from
Lessor's default, if any, under this Lease; (viii) accept partial delivery of
the Equipment; (ix) "cover" by making any purchase or lease of or contract to
purchase or lease equipment in substitution for Equipment designated in the
Lease; (x) recover any direct, general, special, incidental, indirect, exemplary
or consequential damages, for any reason whatsoever; and (xi) obtain specific
performance, replevin, detinue, sequestration, claim and delivery or the like
for any Equipment identified to this Lease. To the extent permitted by
applicable law, Lessee also waives any rights now or hereafter conferred by
statute or otherwise which may require Lessor to sell, lease or otherwise use
any Equipment in mitigation of Lessor's damages or which may otherwise limit or
modify any of Lessor's rights or remedies.
12. ASSIGNMENT BY LESSOR. LESSEE ACKNOWLEDGES THAT LESSOR MAY SELL,
ASSIGN, GRANT A SECURITY INTEREST IN, OR OTHERWISE TRANSFER ALL OR ANY PART OF
ITS RIGHTS, TITLE AND INTEREST IN THIS LEASE AND THE EQUIPMENT WITHOUT NOTICE TO
OR CONSENT OF LESSEE. Upon Lessor's written notice to Lessee that this Lease,
or the right to the Rental Payments hereunder, have been assigned, Lessee shall,
if requested, pay directly to Lessor's assignee without abatement, deduction or
set-off all amounts which become due hereunder. Lessee waives and agrees it
will not assert against Lessor's assignee any counterclaim or set-off in any
action for rent under the Lease. Upon the assignment of this Lease, Lessor's
assignee shall have and be entitled to exercise any and all rights and remedies
(but none of the obligations) of Lessor hereunder, and all references herein to
Lessor shall include Lessor's assignee. Lessee acknowledges that any assignment
or transfer by Lessor does not materially change Lessee's duties or obligations
under this Lease nor materially increase the burdens or risks imposed on Lessee.
13. ASSIGNMENT BY LESSEE. LESSEE MAY NOT, WITHOUT LESSOR'S PRIOR WRITTEN
CONSENT, (i) ASSIGN THIS LEASE, WHETHER BY OPERATION OF LAW OR OTHERWISE, OR
SUBLEASE THE EQUIPMENT OR ANY PART THEREOF OR (ii) ASSIGN, GRANT A SECURITY
INTEREST IN, OR OTHERWISE TRANSFER ALL OR ANY PART OF ITS RIGHTS, TITLE AND
INTEREST IN AND TO THIS LEASE OR THE EQUIPMENT. Notwithstanding the foregoing,
in the event of a merger, sale of substantially all of the assets or other
reorganization involving Lessee in which the shareholders of Lessee immediately
prior to such transaction own less than 50% of the voting securities of the
surviving entity or purchaser of assets (or its parent) in such transaction,
Lessor shall not withhold its consent to the assignment of this Lease to the
successor entity if each of the following conditions precedent is satisfied:
(i) the successor entity as of the date of such assignment meets Lessor's
then current credit standards, as determined by Lessor in Lessor's sole
discretion;
(ii) Lessee gives Lessor at least thirty (30) days prior written notice of
such merger, sale of assets or other reorganization;
(iii) such merger, sale of assets or other reorganization does not
adversely affect the rights of Lessor;
(iv) the corporation that results from such merger or other reorganization
or which purchases the assets in the case of a sale of assets (the "Surviving
Corporation") shall have executed and delivered to Lessor an agreement in form
and substance reasonably satisfactory to Lessor, containing an assumption by
Surviving Corporation of the due and punctual performance and observance of each
covenant and condition of Lessee in the Master Lease, Lease Line Schedule and
Equipment Schedules (the "Lease Documents") and making representations and
warranties with respect to the Surviving Corporation similar in scope and
substance to the representations and warranties made by Lessee in the Lease
Documents;
(v) the Surviving Corporation executes any precautionary financing
statements or amendments thereto reasonably requested by Lessor; and
(vi) immediately after giving effect of such merger, sale of assets or
other reorganization, no Event of Default or, event which with the lapse of time
or giving of notice or both, would result in an Event of Default shall have
occurred and be continuing. In the event Lessee makes an assignment, sublease
or other transfer (to which
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Lessor has consented), Lessee shall not thereby be relieved of its duties and
obligations hereunder, for which it shall remain fully responsible and liable
(independent of its assignee).
14. TAXES.
(a) Lessee shall comply with all applicable federal, state,
local, foreign and international laws, regulations and orders relating to this
Lease. Lessee assumes liability for, and shall pay when due, and on a net after-
tax basis shall indemnify and defend Lessor against, all federal, state, local,
foreign and international fees, taxes and government charges (including, without
limitation, interest and penalties) of any nature imposed upon or in any way
relating to Lessor, Lessee, any item of Equipment or this Lease, except federal,
state and local taxes on or measured by Lessor's net income (other than any such
tax which is in substitution for or relieves Lessee from the payment of taxes it
would otherwise be obligated to pay to or reimburse Lessor for as herein
provided). Lessee shall at its expense file when due with the appropriate
authorities any and all tax and similar returns and reports required to be filed
with respect thereto or, if requested by Lessor, notify Lessor of all such
requirements and furnish Lessor with all information required for Lessor to
effect such filings, which filings shall also be at Lessee's expense. Any fees,
taxes or other charges paid by Lessor upon failure of Lessee to make such
payments shall at Lessor's option become immediately due from Lessee to Lessor.
(b) This Lease has been entered into on the assumption that
Lessor shall be entitled to all deductions, credits, and other tax benefits as
are provided in the Internal Revenue Code of 1986, including amendments as may
occur (the "Code"), to an owner of property including, without limitation,
depreciation deductions and interest deductions with respect to any debts
incurred to finance the purchase of the Equipment. If, as a result of any acts,
omissions or misrepresentations by Lessee Lessor's projected after-tax economic
return resulting from ownership and lease of the Equipment is reduced, then
Lessee's Rental Payments shall be increased in an amount (based on Lessor's
reasonable calculations) sufficient to provide the same net after-tax economic
return as if such acts or omissions or changes had not occurred. Appropriate
increases shall also be made in the applicable Stipulated Loss Values for this
Lease.
15. EQUIPMENT WARRANTIES. Lessee acknowledges that (i) Lessee has
selected the supplier of the Equipment, (ii) Lessor acquired the goods or the
right to possession and use of the goods in connection with the Lease, and (iii)
Lessee received a copy of the contract by which Lessor acquired the Equipment or
the right to possession and use of the Equipment before signing the Lease.
LESSOR MAKES NO EXPRESS OR IMPLIED WARRANTIES INCLUDING THOSE OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR USE WITH RESPECT TO THE EQUIPMENT AND DISCLAIMS THE
SAME. Lessor shall have no liability for any damages, whether direct, indirect,
general, special, incidental, exemplary or consequential, incurred by Lessee as
a result of any defect or malfunction of the Equipment. Lessee shall look
solely to the Equipment supplier for any and all claims related to the
Equipment. Lessor assigns to Lessee, for and during the Lease Term, any
warranty on the Equipment provided by the supplier, provided, that to the extent
that they are not assignable, Lessor shall, at Lessee's sole expense, take all
reasonable action to enforce any warranty on the Equipment.. Lessor and Lessee
agree that all limitations on remedies and liability contained in this Lease
represent a reasonable allocation of risks that is part of the fundamental
bargain between the parties.
16. EVENTS OF DEFAULT. An Event of Default shall occur if Lessee (i)
fails to pay any Rental Payment or other payment required under the Lease when
due and such failure continues for a period of five (5) days after written
notice from Lessor; or (ii) fails to perform or observe any other covenant,
condition or agreement to be performed or observed by it or breaches any
provision contained in the Lease or in any other document furnished to Lessor in
connection herewith, and such failure or breach continues for a period of thirty
(30) days after written notice from Lessor; or (iii) without Lessor's consent,
attempts to assign this Lease or sell, transfer, encumber, part with possession,
or sublet any item of Equipment; or (iv) makes any representation or warranty
herein or in any document furnished by Lessee in connection herewith, which
shall have been materially false or inaccurate when made or at the time to which
such representation or warranty relates; or (v) shall commit an act of
bankruptcy or become insolvent or bankrupt or make an assignment for the benefit
of creditors or consent to the appointment of a Trustee or Receiver or either
shall be appointed for Lessee or for a substantial part of its property without
its consent, or bankruptcy reorganization, or insolvency proceedings shall be
instituted by or against Lessee, and, if instituted against Lessee, shall not be
vacated or dismissed within sixty (60) days. Any Event of Default shall be
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deemed material and a substantial impairment of Lessor's interests for the
purposes of this Lease, the UCC, and any other applicable law.
17. REMEDIES. Upon the occurrences of any Events of Default and at any
time thereafter, provided such Event of Default is then continuing, Lessor may,
in its discretion, do any one or more of the following:
(a) cancel any or all Leases which reference this Master Lease or
the Lease Line Schedule, upon notice to Lessee;
(b) recover any accrued and unpaid Rental Payments and other
amounts which are due and owing under the Leases so canceled on the Rental
Payment Date immediately preceding the date on which Lessor obtains possession
of the Equipment (or such earlier date as judgment is entered in favor of
Lessor) (the "Determination Date"), plus interest at the Default Rate;
(c) with or without canceling this Lease, recover (i) such
Stipulated Loss Value as of the Rental Payment Date immediately preceding the
Determination Date, and (ii) the amount of any loss or reduction of tax benefits
which Lessor anticipated it would receive if the Lease continued for its full
Lease Term;
(d) recover any amounts due under any indemnity then
determinable, plus interest at the Default Rate;
(e) require that Lessee provide the return and certification of
the Equipment in accordance with Section 6(c) hereof;
(f) enter the premises where such Equipment is located and take
immediate possession of and remove the same, all without liability to Lessor or
its agents for such entry;
(g) sell any or all of the Equipment at public or private sale,
with or without notice to Lessee or advertisement, or otherwise dispose of,
hold, use, operate, lease to others or keep idle such Equipment, all free and
clear of any rights of Lessee and without any duty to account to Lessee for such
action or inaction or for any proceeds with respect thereto; and
(h) exercise any other right or remedy which may be available to
it under the UCC or other applicable law including the right to recover damages
for the breach hereof.
In addition, Lessee shall be liable for, and reimburse Lessor for, all
reasonable legal fees and all commercially reasonable costs and expenses
incurred by Lessor as a result of the foregoing defaults or the exercise of
Lessor's remedies, including without limitation recovering possession of the
Equipment, selling or leasing the Equipment (including broker's and sales
representative's fees and commissions), and placing any Equipment in the
condition and obtaining the certificate required by Section 6(c) hereof. No
remedy referred to in this Section is intended to be exclusive, but each shall
be cumulative and in addition to any other remedy referred to above or otherwise
available to Lessor at law or in equity. No express or implied waiver by Lessor
of any default shall constitute a waiver of any other default by Lessor, or a
waiver of any of Lessor's rights.
18. INDEMNIFICATION. Lessee assumes liability for, and shall pay when
due, and shall indemnify, reimburse and hold each Indemnified Person (defined
below) harmless from and against all Claims (defined below), directly or
indirectly relating to or arising out of the acquisition, use, manufacture,
purchase, shipment, transportation, delivery, installation, lease or sublease,
ownership, operation, possession, control, storage, return or condition of any
item of Equipment (regardless of whether such item of Equipment is at the time
in the possession of Lessee), the falsity of any non-tax representation or
warranty of Lessee or Lessee's failure to comply with the terms of the Lease
during the Lease Term. The foregoing indemnity shall cover, without limitation,
(i) any Claim in connection with a design or other defect (latent or patent) in
any item of Equipment, (ii) any Claim for infringement of any patent, copyright,
trademark or other intellectual property right, or (iii) any Claim for
negligence or strict or absolute liability in tort; provided, however, that
Lessee shall not indemnify Lessor for any liability incurred by Lessor as a
direct and sole result of Lessor's gross negligence or willful misconduct.
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"Claim" means all liabilities, losses, damages, actions, suits, demands,
claims of any kind and nature (including, without limitation, claims relating to
environmental discharge, cleanup or compliance), and all costs and expenses
whatsoever to the extent they may be incurred or suffered by an Indemnified
Person in connection therewith (including, without limitation, reasonable
attorneys' fees and expenses), fines, penalties (and other charges of applicable
governmental authorities), licensing fees relating to any item of Equipment,
damage to or loss of use of property (including, without limitation,
consequential or special damages to third parties or damages to Lessee's
property), or bodily injury to or death of any person (including, without
limitation, any agent or employee of Lessee).
"Indemnified Person" means Lessor (including without limitation, each of
its partners) and each of their respective successors, assigns, agents,
officers, directors, shareholders, partners, servants, agents and employees.
Such indemnities shall continue in full force and effect, notwithstanding
the expiration or termination of this Lease. Upon Lessor's written demand,
Lessee shall assume and diligently conduct, at its sole cost and expense, the
entire defense of any Indemnified Person against any indemnified Claim described
in this Section 18. Lessee shall not settle or compromise any Claim against or
involving Lessor without first obtaining Lessor's written consent thereto, which
consent shall not be unreasonably withheld. Lessee shall give Lessor prompt
notice of any occurrence, event or condition in connection with which Lessor may
be entitled to indemnification hereunder. The provisions of this Section 18 are
in addition to, and not in limitation of, the provisions of Section 14(b).
19. NOTICES. Any notices or demands required or permitted hereunder shall
be given to the parties in writing and by personal delivery, regular or
certified mail, facsimile or telegram at the address set forth in the Lease Line
Schedule or to such other address as the parties may hereafter substitute by
written notice given in the manner prescribed in this Section. Such notices or
demands shall be deemed given upon receipt in the case of personal delivery and
upon mailing or transmission in the case of mail, facsimile or telegram. Lessee
agrees to provide Lessor with thirty (30) days' prior written notice of (a) any
merger or consolidation with or into any other business organization, (b) any
sale, lease or other disposition of assets not in the ordinary course of
business, and (c) any other material change in Lessee's financial structure or
ownership.
20. FURTHER ASSURANCES. Lessee will promptly execute and deliver to
Lessor such further reasonable documents and take such further reasonable action
as Lessor may request in order to more effectively carry out the intent and
purpose of this Lease or an assignment of Lessor's interest herein.
21. MISCELLANEOUS. This Lease shall be binding upon and inure to the
benefit of the parties hereto, their permitted successors and assigns. Any
provision of the Lease which is unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof; and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction; provided,
however, that to the extent that the provisions of any such applicable law can
be waived, they are waived by Lessee. Time is of the essence with respect to
the Lease. The captions set forth herein are for convenience only and shall not
define or limit any of the terms hereof. THIS LEASE SHALL IN ALL RESPECTS BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
CALIFORNIA, WITHOUT REFERENCE TO CONFLICT OF LAWS PRINCIPLES. LESSOR AND LESSEE
WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY LITIGATION ARISING FROM THIS LEASE.
THIS LEASE SHALL BECOME EFFECTIVE AND BINDING ON THE PARTIES, THEIR RESPECTIVE
SUCCESSORS AND PERMITTED ASSIGNS, AND SHALL BE DEEMED EXECUTED AND PERFORMED IN
THE STATE OF CALIFORNIA, WHEN THE RELATED EQUIPMENT SCHEDULE IS ACCEPTED BY
LESSOR. LESSEE CONSENTS TO THE NON-EXCLUSIVE JURISDICTION OF THE STATE COURTS
OF CALIFORNIA FOR THE RESOLUTION OF ANY DISPUTES HEREUNDER.
8
<PAGE>
22. AMENDMENTS, MODIFICATIONS, WAIVERS. NONE OF THE PROVISIONS OF THIS
LEASE MAY BE AMENDED, MODIFIED OR WAIVED EXCEPT IN A WRITING SIGNED BY LESSOR
AND LESSEE.
INITIALS /s/ D.H (LESSEE) INITIALS /s/ R.D.S (LESSOR)
---------------- ----------------
LESSEE: LESSOR:
CRITICAL PATH, INC. LIGHTHOUSE CAPITAL PARTNERS II, L.P.
By: /s/ David Hayden By: LIGHTHOUSE MANAGEMENT
---------------------------------
PARTNERS II, L.P., its general partner
Name: David Hayden
------------------------------
By: LIGHTHOUSE CAPITAL
Title: Chief Executive Officer PARTNERS, INC., its general partner
-----------------------------
By: /s/ Richard D. Stubblefield
---------------------------------------
Name: Richard D. Stubblefield
------------------------------------
Title: Managing Director
-----------------------------------
9
<PAGE>
LEASE LINE SCHEDULE NO. 01, dated April 28, 1998 ("Lease Line Schedule"),
to
MASTER EQUIPMENT LEASE AGREEMENT NO. 203, dated April 28, 1998 ("Master Lease"),
by and between
LIGHTHOUSE CAPITAL PARTNERS II, L.P., a Delaware limited partnership ("Lessor")
and CRITICAL PATH, INC., a California corporation ("Lessee").
(All capitalized terms not otherwise defined herein shall have the meanings
given to such terms in the Master Lease.)
IN CONSIDERATION of the mutual covenants contained herein, the parties agree as
follows:
Lease Line. The total Lessor's Cost of all units of Equipment under all
Equipment Schedules pursuant to this Lease Line Schedule shall not exceed
$2,000,000 (the "Commitment"). "Lessor's Cost" means, with respect to a unit of
Equipment, the total cost to Lessor of purchasing such unit, as indicated on the
applicable Equipment Schedule. Lessor's obligation to fund Equipment Schedules
under the Commitment shall terminate on April 30, 1999 (the "Commitment
Termination Date"). The minimum Lessor's Cost for each Delivery & Acceptance
Certificate shall be $10,000.00.
Rental Factor. The Rental Factor for each Equipment Schedule will be 3.069%
of scheduled Lessor's Cost per month, payable monthly in advance. The Rental
Payment under a particular Equipment Schedule shall be an amount equal to the
product of (a) the Rental Factor and (b) the aggregate Lessor's Cost of
Equipment subject to such Equipment Schedule.
Interim Rent. None.
Eligible Equipment. All equipment to be financed under an Equipment Schedule
must be Eligible Equipment. "Eligible Equipment" means the following types of
equipment to the extent acceptable to Lessor:
Various new and used computers, peripherals, analytical and test equipment,
laboratory equipment and furniture, office furniture and equipment, software in
an amount not to exceed $600,000, and other equipment as mutually agreed to by
Lessee and Lessor, together with all replacements, parts, cables, repairs,
additions and accessories incorporated therein or affixed thereto and all
operating manuals and manufacturer's instructions (collectively hereinafter
called the "Equipment"). Such replacements, parts, cables, repairs, additions
and accessories shall (whether or not purchased by Lessor) be considered part of
the Equipment for all purposes and, when installed in or attached to the
Equipment (unless otherwise agreed), be or become the property of the Lessor.
Except as otherwise specifically provided or the context so requires, the term
"Equipment" includes operating system or other bundled software which is
delivered on or with the Equipment or is included on the Equipment Schedules.
Commencement Date. The "Commencement Date" for each Equipment Schedule shall
be the first day of the calendar month following the Acceptance Date for the
items of Equipment subject to such Equipment Schedule.
Lease Termination Options. Upon Lease Termination (as defined in the Master
Lease), Lessee will have, with respect to all but not less than all of the
Equipment governed by this Lease Line Schedule, the option to (a) purchase the
Equipment for the lesser of its then fair market value or fifteen percent (15%)
of Lessor's Cost, (b) renew the Lease or (c) return the Equipment to Lessor as
provided in Section 6 of the Master Lease.
Advance Notice Period. The "Advance Notice Period" shall be at least ninety
(90) days, but not more than 180 days, prior to Lease Termination (as defined in
the Master Lease) of Equipment Schedule No. 01 to this Lease Line Schedule.
Automatic Extension Period. The "Automatic Extension Period" shall equal
three (3) months and affects each Equipment Schedule under this Lease Line
Schedule.
1
<PAGE>
Insurance. The amount of commercial general liability insurance (other than
products liability coverage and completed operations insurance) required under
the Master Lease shall be at least $2,000,000 per occurrence. The amount of the
products liability and completed operations insurance under the Master Lease
shall be at least $2,000,000 per occurrence.
Financial Statements. Lessee shall deliver to Lessor: (a) as soon as
available, but in any event within forty five (45) days after the end of each
month, a company prepared balance sheet, income statement and cash flow
statement covering Lessee's operations during such period, certified by an
officer of Lessee reasonably acceptable to Lessor; (b) as soon as available, but
in any event within one hundred twenty (120) days after the end of Lessee's
fiscal year, audited financial statements of Lessee prepared in accordance with
generally accepted accounting principles, consistently applied, together with an
unqualified opinion on such financial statements of an independent certified
public accounting firm reasonably acceptable to Lessor; (c) promptly upon
becoming available, copies of all statements, reports, budgets, sales
projections, operating plans and notices sent or made available generally by
Lessee to its security holders; (d) immediately upon receipt of notice thereof,
a report of any material legal actions pending or threatened against Lessee; and
(e) such other financial information as Lessor may reasonably request from time
to time.
Maintenance Service Contracts. Lessee shall obtain and keep in effect at all
times during the Lease Term (and any renewal or extension thereof), maintenance
service contracts covering the Equipment with the Equipment supplier or with
suppliers of maintenance services approved by Lessor, such approval not to be
unreasonably withheld.
Installation, Handling and Delivery Charges. Any handling and delivery charge
to cover all Equipment transportation, rigging, drayage, packing, installation
and handling to and from vendor's plant and upon return to Lessor's designated
location shall be paid by Lessee.
Miscellaneous taxes. Without limitation of the provisions of the Master Lease,
Lessee agrees to pay and to indemnify Lessor for any sales or use tax and any
property tax in connection with the sale, lease or use of the Equipment.
Late Fee. Lessee shall pay a late charge on any rent payments or other sums
due hereunder which are past due, in an amount equal to 2% of the past due
amount, payable on demand.
Default Rate. The Default Rate of interest on late payments shall be eighteen
percent (18%) per annum.
Notices. All notices shall be addressed as follows:
<TABLE>
<CAPTION>
If to Lessor: If to Lessee:
<S> <C>
Lighthouse Capital Partners II, L.P. Critical Path, Inc.
100 Drake's Landing, Suite 260 320 First Street
Greenbrae, CA 94904-3121 San Francisco, CA 94105
Attn.: Contract Administration Attn.: Chief Executive Officer
Phone: (415) 925-3370 Phone: (415) 543-2800
Fax: (415) 925-3387 Fax: (415) 543-2830
</TABLE>
Conditions to the First Equipment Schedule. On or prior to the date of
execution of the first Equipment Schedule under this Lease Line Schedule, Lessor
shall have received in form and substance satisfactory to Lessor, each of the
following:
1. A Warrant substantially in the form of Exhibit H to the Master Lease.
2. Copies, certified by the Secretary or Assistant Secretary or Chief
Financial Officer of Lessee, of: (i) the Articles of Incorporation and
By-Laws of Lessee (as amended to the date of the Lease) and
2
<PAGE>
(ii) the resolutions adopted by Lessee's board of directors authorizing
the execution and delivery of this Lease, the Lease Line Schedule, the
Equipment Schedules, the Warrant and the other documents referred in
this Lease Line Schedule and the performance by Lessee of its
obligations in such documents.
3. A Good Standing Certificate (including franchise tax status) with
respect to Lessee from Lessee's state of incorporation, dated a date
reasonably close to the date of acceptance of the Lease by Lessor.
4. A Software Rider substantially in the form of Annex B to this Lease Line
Schedule.
5. Evidence of the insurance coverage required by Section 8 of the Master
Lease.
6. All necessary consents of shareholders and other third parties with
respect to the subject matter of the Master Lease, the Lease Line
Schedule, the Equipment Schedules and the Warrant.
Conditions to all fundings under all Equipment Schedules. On or prior to
each funding under each Equipment Schedule under this Lease Line Schedule, each
of the following conditions shall have been satisfied:
1. No Event of Default or event which, with notice or lapse of time or
both, would become an Event of Default, has occurred and is continuing.
2. Lessor shall have received a Software Licenses Assignment Agreement in
substantially the form of Annex B-1 to this Lease Line Schedule with
respect to each Vendor of software to be financed under this Lease Line
Schedule.
3. Lessor shall have received all necessary or desirable estoppel
certificates and UCC filings, releases or terminations.
4. Lessor shall have received a landlord waiver and consent in
substantially the form of Exhibit E to the Master Lease with respect to
each equipment location.
5. There shall not have occurred (i) any material adverse change to the
general affairs, management, results of operations, condition (financial
or otherwise) or prospects of Lessee, whether or not arising from
transactions in the ordinary course of business, or (ii) any material
adverse deviation by Lessee from the business plan of Lessee presented
to and not disapproved by Lessor, since the date of the Master Lease.
6. Lessee shall have delivered to Lessor an Equipment Schedule covering the
appropriate funding period.
7. Lessee shall have delivered to Lessor (i) in the case of a sale-
leaseback, original vendor invoices, copies of canceled checks or other
proof of payment, a Bill of Sale, a Delivery and Acceptance Certificate,
and any UCC filings or other notices deemed necessary or desirable in
connection with the sale-leaseback or (ii) at Lessor's request, in the
case of a purchase of new equipment in excess of $50,000 from an
equipment vendor, a Purchase Order and Invoice Assignment and a Delivery
and Acceptance Certificate.
3
<PAGE>
8. All terms and conditions in the Equipment Schedule shall have been
satisfied by the Acceptance Date for the Equipment under such Equipment
Schedule.
All other documents as Lessor shall have reasonably requested.
LESSEE: LESSOR:
CRITICAL PATH, INC. LIGHTHOUSE CAPITAL PARTNERS II, L.P.
By: /s/ David Hayden By: LIGHTHOUSE MANAGEMENT
----------------------------- PARTNERS II, L.P., its general partner
Name: David Hayden
------------------------
By: LIGHTHOUSE CAPITAL
Title: Chief Executive Officer PARTNERS, INC., its general partner
------------------------
By: /s/ Thomas Conneely
-----------------------------------------
Name: Thomas Conneely
------------------------------------
Title: Vice President, Operations
------------------------------------
Annex A - Stipulated Loss Value Table
4
<PAGE>
Annex A
STIPULATED LOSS VALUE TABLE
TO
LEASE LINE SCHEDULE NO. 01, dated April 28, 1998, to
MASTER EQUIPMENT LEASE AGREEMENT NO. 203, dated April 28, 1998 ("Master Lease"),
by and between LIGHTHOUSE CAPITAL PARTNERS II, L.P., a Delaware limited
partnership ("Lessor"), and CRITICAL PATH, INC., a California corporation
("Lessee").
(All capitalized terms not otherwise defined herein shall have the meanings
given to such terms in the Master Lease.)
In the case of an Event of Loss, the Stipulated Loss Value for each item of
leased Equipment is the Lessor's Cost for the item multiplied by Stipulated Loss
Value Percentage for the Rent Payment Number following the month of the Event of
Loss.
<TABLE>
<CAPTION>
Stipulated Stipulated
Rent Loss Rent Loss
Payment Value Payment Value
Number Percentage Number Percentage
- ------- ---------- ------- -----------
<S> <C> <C> <C>
1 111.88% 19 65.61%
2 109.78% 20 62.81%
3 106.95% 21 59.98%
4 104.54% 22 57.13%
5 102.11% 23 54.25%
6 99.65% 24 51.34%
7 97.18% 25 48.41%
8 94.68% 26 45.45%
9 92.16% 27 42.67%
10 89.627% 28 39.46%
11 87.01% 29 36.44%
12 84.46% 30 33.39%
13 81.84% 31 30.31%
14 79.20% 32 27.21%
15 76.53% 33 24.08%
16 73.84% 34 20.93%
17 71.12% 35 17.75%
18 68.38% 36 and thereafter 15.00%
</TABLE>
Lessee: ____________________ Lessor: ____________________
5
<PAGE>
EXHIBIT 10.9
MASTER LEASE AGREEMENT
MASTER LEASE AGREEMENT (the "Master Lease") dated May 1, 1998 by and between
COMDISCO, INC. ("Lessor") and CRITICAL PATH INC.("Lessee").
IN CONSIDERATION of the mutual agreements described below, the parties agree as
follows (all capitalized terms are defined in Section 14.18):
1. Property Leased.
Lessor leases to Lessee all of the Equipment described on each Summary Equipment
Schedule. In the event of a conflict, the terms of the applicable Schedule
prevail over this Master Lease.
2. Term.
On the Commencement Date, Lessee will be deemed to accept the Equipment, will be
bound to its rental obligations for each item of Equipment and the term of a
Summary Equipment Schedule will begin and continue through the Initial Term and
thereafter until terminated by either party upon prior written notice received
during the Notice Period. No termination may be effective prior to the
expiration of the Initial Term.
3. Rent and Payment.
Rent is due and payable in advance on the first day of each Rent Interval at the
address specified in Lessor's invoice. Interim Rent is due and payable when
invoiced. If any payment is not made when due, Lessee will pay a Late Charge on
the overdue amount. Upon Lessee's execution of each Schedule, Lessee will pay
Lessor the Advance specified on the Schedule. The Advance will be credited
towards the final Rent payment if Lessee is not then in default. No interest
will be paid on the Advance.
4. Selection; Warranty and Disclaimer of Warranties.
4.1 Selection. Lessee acknowledges that it has selected the Equipment and
disclaims any reliance upon statements made by the Lessor, other than as set
forth in the Schedule.
4.2 Warranty and Disclaimer of Warranties. Lessor warrants to Lessee that, so
long as Lessee is not in default, Lessor will not disturb Lessee's quiet and
peaceful possession, and unrestricted use of the Equipment. To the extent
permitted by the manufacturer, Lessor assigns to Lessee during the term of the
Summary Equipment Schedule any manufacturer's warranties for the Equipment.
LESSOR MAKES NO OTHER WARRANTY, EXPRESS OR IMPLIED AS TO ANY MATTER WHATSOEVER,
INCLUDING, WITHOUT LIMITATION, THE MERCHANTABILITY OF THE EQUIPMENT OR ITS
FITNESS FOR A PARTICULAR PURPOSE. Lessor is not responsible for any liability,
claim, loss, damage or expense of any kind (including strict liability in tort)
caused by the Equipment except for any loss or damage caused by the willful
misconduct or negligent acts of Lessor. In no event is Lessor responsible for
special, incidental or consequential damages.
5. Title; Relocation or Sublease; and Assignment.
5.1 Title. Lessee holds the Equipment subject and subordinate to the rights of
the Owner, Lessor, any Assignee and any Secured Party. Lessee authorizes Lessor,
as Lessee's agent, and at Lessor's expense, to prepare, execute and file in
Lessee's name precautionary Uniform Commercial Code financing statements showing
the interest of the Owner, Lessor, and any Assignee or Secured Party in the
Equipment and to insert serial numbers in Summary Equipment Schedules as
appropriate. Lessee will, at its expense, keep the Equipment free and clear from
any liens or encumbrances of any kind (except any caused by Lessor) and will
indemnify and hold the Owner, Lessor, any Assignee and Secured Party harmless
from and against any loss caused by Lessee's failure to do so, except where such
is caused by Lessor.
5.2 Relocation or Sublease. Upon prior written notice, Lessee may relocate
Equipment to any location within the continental United States provided (i) the
Equipment will not be used by an entity exempt from federal income tax, and (ii)
all additional costs (including any administrative fees, additional taxes and
insurance coverage) are reconciled and promptly paid by Lessee.
Lessee may sublease the Equipment upon the reasonable consent of the Lessor and
the Secured Party. Such consent to sublease will be granted if: (i) Lessee meets
the relocation requirements set out above, (ii) the sublease is expressly
subject and subordinate to the terms of the Schedule, (iii) Lessee assigns its
rights in the sublease to Lessor and the Secured Party as additional collateral
and security, (iv) Lessee's obligation to maintain and insure the Equipment is
not altered, (v) all financing statements required to continue the Secured
Party's prior perfected security interest are filed, and (vi) Lessee executes
sublease documents acceptable to Lessor.
No relocation or sublease will relieve Lessee from any of its obligations under
this Master Lease and the relevant Schedule.
5.3 Assignment by Lessor. The terms and conditions of each Schedule have been
fixed by Lessor in order to permit Lessor to sell and/or assign or transfer its
interest or grant a security interest in each Schedule and/or the Equipment to a
Secured Party or Assignee. In that event, the term Lessor will mean the Assignee
and any Secured Party. However, any assignment, sale, or other transfer by
Lessor will not relieve Lessor of its obligations to Lessee and will not
materially change Lessee's duties or materially increase the burdens or risks
imposed on Lessee. The Lessee consents to and will acknowledge such assignments
in a written notice given to Lessee. Lessee also agrees that:
(a) The Secured Party will be entitled to exercise all of Lessor's rights, but
will not be obligated to perform any of the obligations of Lessor. The Secured
Party will not disturb Lessee's quiet and peaceful possession and unrestricted
use of the Equipment so long as Lessee is not in default and the Secured Party
continues to receive all Rent payable under the Schedule; and
(b) Lessee will pay all Rent and all other amounts payable to the Secured
Party, despite any defense or claim which it has against Lessor. Lessee reserves
its right to have recourse directly against Lessor for any defense or claim;
(c) Subject to and without impairment of Lessee's leasehold rights in the
Equipment, Lessee holds the Equipment for the Secured Party to the extent of the
Secured Party's rights in that Equipment.
6. Net Lease; Taxes and Fees.
6.1 Net Lease. Each Summary Equipment Schedule constitutes a net lease. Lessee's
obligation to pay Rent and all other amounts due hereunder is absolute and
unconditional and is not subject to any abatement, reduction, set-off, defense,
counterclaim, interruption, deferment or recoupment for any reason whatsoever.
6.2 Taxes and Fees. Lessee will pay when due or reimburse Lessor for all taxes,
fees or any other charges (together with any related interest or penalties not
arising from the negligence of Lessor) accrued for or arising during the term of
each Summary Equipment Schedule against Lessor, Lessee or the Equipment by any
governmental authority (except only Federal, state, local and franchise taxes on
the capital or the net income of Lessor). Lessor will file all personal property
tax returns for the Equipment and pay all such property taxes due. Lessee will
reimburse Lessor for property taxes within thirty (30) days of receipt of an
invoice.
7. Care, Use and Maintenance; Inspection by Lessor.
7.1 Care, Use and Maintenance. Lessee will maintain the Equipment in good
operating order and appearance, protect the Equipment from deterioration, other
than normal wear and tear, and will not use the Equipment for any purpose other
than that for which it was designed. If commercially available and considered
common business practice for each item of Equipment, Lessee will maintain in
force a standard maintenance contract with the manufacturer of the Equipment, or
another party acceptable to Lessor, and will provide Lessor with a complete copy
of that contract. If Lessee has the Equipment maintained by a party other than
the manufacturer or self maintains, Lessee agrees to pay any costs necessary for
the manufacturer to bring the Equipment to then current release, revision and
engineering change levels, and to re-certify the Equipment as eligible for
manufacturer's maintenance at the expiration of the lease term, provided re-
certification is available and is required by Lessor. The lease term will
continue upon the same terms and conditions until recertification has been
obtained.
7.2 Inspection by Lessor. Upon reasonable advance notice, Lessee, during
reasonable business hours and subject to Lessee's security requirements, will
make the Equipment and its related log and maintenance records available to
Lessor for inspection.
8. Representations and Warranties of Lessee. Lessee hereby represents, warrants
and covenants that with respect to the Master Lease and each Schedule executed
hereunder:
(a) The Lessee is a corporation duly organized and validly existing in good
standing under the laws of the jurisdiction of its incorporation, is duly
qualified to do business in each jurisdiction (including the jurisdiction where
the Equipment is, or is to be, located) where its ownership or lease of property
or the conduct of its business requires such qualification, except for where
such lack of qualification would not have a material adverse effect on the
Company's business; and has full corporate power and authority to hold property
under the Master Lease and each Schedule and to enter into and perform its
obligations under the Master Lease and each Schedule.
(b) The execution and delivery by the Lessee of the Master Lease and each
Schedule and its performance thereunder have been duly authorized by all
necessary corporate action on the part of the Lessee, and the Master Lease and
each Schedule are not inconsistent with the Lessee's Articles of Incorporation
or Bylaws, do not
4/95
-1-
<PAGE>
contravene any law or governmental rule, regulation or order applicable to it,
do not and will not contravene any provision of, or constitute a default under,
any indenture, mortgage, contract or other instrument to which it is a party or
by which it is bound, and the Master Lease and each Schedule constitute legal,
valid and binding agreements of the Lessee, enforceable in accordance with their
terms, subject to the effect of applicable bankruptcy and other similar laws
affecting the rights of creditors generally and rules of law concerning
equitable remedies.
(c) There are no actions, suits, proceedings or patent claims pending or, to
the knowledge of the Lessee, threatened against or affecting the Lessee in any
court or before any governmental commission, board or authority which, if
adversely determined, will have a material adverse effect on the ability of the
Lessee to perform its obligations under the Master Lease and each Schedule.
(d) The Equipment is personal property and when subjected to use by the Lessee
will not be or become fixtures under applicable law.
(e) The Lessee has no material liabilities or obligations, absolute or
contingent (individually or in the aggregate), except the liabilities and
obligations of the Lessee as set forth in the Financial Statements and
liabilities and obligations which have occurred in the ordinary course of
business, and which have not been, in any case or in the aggregate, materially
adverse to Lessee's ongoing business.
(f) To the best of the Lessee's knowledge, the Lessee owns, possesses, has
access to, or can become licensed on reasonable terms under all patents, patent
applications, trademarks, trade names, inventions, franchises, licenses,
permits, computer software and copyrights necessary for the operations of its
business as now conducted, with no known infringement of, or conflict with, the
rights of others.
(g) All material contracts, agreements and instruments to which the Lessee is a
party are in full force and effect in all material respects, and are valid,
binding and enforceable by the Lessee in accordance with their respective terms,
subject to the effect of applicable bankruptcy and other similar laws affecting
the rights of creditors generally, and rules of law concerning equitable
remedies.
9. Delivery and Return of Equipment.
Lessee hereby assumes the full expense of transportation and in-transit
insurance to Lessee's premises and installation thereat of the Equipment. Upon
termination (by expiration or otherwise) of each Summary Equipment Schedule,
Lessee shall, pursuant to Lessor's instructions and at Lessee's full expense
(including, without limitation, expenses of transportation and in-transit
insurance), return the Equipment to Lessor in the same operating order, repair,
condition and appearance as when received, less normal depreciation and wear and
tear. Lessee shall return the Equipment to Lessor at 6111 North River Road,
Rosemont, Illinois 60018 or at such other address within the continental United
States as directed by Lessor, provided, however, that Lessee's expense shall be
limited to the cost of returning the Equipment to Lessor's address as set forth
herein. During the period subsequent to receipt of a notice under Section 2,
Lessor may demonstrate the Equipment's operation in place and Lessee will supply
any of its personnel as may reasonably be required to assist in the
demonstrations.
10. Labeling.
Upon request, Lessee will mark the Equipment indicating Lessor's interest with
labels provided by Lessor. Lessee will keep all Equipment free from any other
marking or labeling which might be interpreted as a claim of ownership.
11. Indemnity.
With regard to bodily injury and property damage liability only, Lessee will
indemnify and hold Lessor, any Assignee and any Secured Party harmless from and
against any and all claims, costs, expenses, damages and liabilities, including
reasonable attorneys' fees, arising out of the ownership (for strict liability
in tort only), selection, possession, leasing, operation, control, use,
maintenance, delivery, return or other disposition of the Equipment during the
term of this Master Lease or until Lessee's obligations under the Master Lease
terminate. However, Lessee is not responsible to a party indemnified hereunder
for any claims, costs, expenses, damages and liabilities occasioned by the
negligent acts of such indemnified party. Lessee agrees to carry bodily injury
and property damage liability insurance during the term of the Master Lease in
amounts and against risks customarily insured against by the Lessee on equipment
owned by it. Any amounts received by Lessor under that insurance will be
credited against Lessee's obligations under this Section.
12. Risk of Loss.
Effective upon delivery and until the Equipment is returned, Lessee relieves
Lessor of responsibility for all risks of physical damage to or loss or
destruction of the Equipment. Lessee will carry casualty insurance for each item
of Equipment in an amount not less than the Casualty Value. All policies for
such insurance will name the Lessor and any Secured Party as additional insured
and as loss payee, and will provide for at least thirty (30) days prior written
notice to the Lessor of cancellation or expiration, and will insure Lessor's
interests regardless of any breach or violation by Lessee of any representation,
warranty or condition contained in such policies and will be primary without
right of contribution from any insurance effected by Lessor. Upon the execution
of any Schedule, the Lessee will furnish appropriate evidence of such insurance
acceptable to Lessor.
Lessee will promptly repair any damaged item of Equipment unless such Equipment
has suffered a Casualty Loss. Within fifteen (15) days of a Casualty Loss,
Lessee will provide written notice of that loss to Lessor and Lessee will, at
Lessee's option, either (a) replace the item of Equipment with Like Equipment
and marketable title to the Like Equipment will automatically vest in Lessor or
(b) pay the Casualty Value and after that payment and the payment of all other
amounts due and owing with respect to that item of Equipment, Lessee's
obligation to pay further Rent for the item of Equipment will cease.
13. Default, Remedies and Mitigation.
13.1 Default. The occurrence of any one or more of the following Events of
Default constitutes a default under a Summary Equipment Schedule:
(a) Lessee's failure to pay Rent or other amounts payable by Lessee when due if
that failure continues for five (5) business days after written notice; or
(b) Lessee's failure to perform any other term or condition of the Schedule or
the material inaccuracy of any representation or warranty made by the Lessee in
the Schedule or in any document or certificate furnished to the Lessor hereunder
if that failure or inaccuracy continues for ten (10) business days after written
notice; or
(c) An assignment by Lessee for the benefit of its creditors, the failure by
Lessee to pay its debts when due, the insolvency of Lessee, the filing by Lessee
or the filing against Lessee of any petition under any bankruptcy or insolvency
law or for the appointment of a trustee or other officer with similar powers,
the adjudication of Lessee as insolvent, the liquidation of Lessee, or the
taking of any action for the purpose of the foregoing; or
(d) The occurrence of an Event of Default under any Schedule, Summary Equipment
Schedule or other agreement between Lessee and Lessor or its Assignee or
Secured Party.
13.2 Remedies. Upon the occurrence of any of the above Events of Default,
Lessor, at its option, may:
(a) enforce Lessee's performance of the provisions of the applicable Schedule
by appropriate court action in law or in equity;
(b) recover from Lessee any damages and or expenses, including Default Costs;
(c) with notice and demand, recover all sums due and accelerate and recover the
present value of the remaining payment stream of all Rent due under the
defaulted Schedule (discounted at the same rate of interest at which such
defaulted Schedule was discounted with a Secured Party plus any prepayment fees
charged to Lessor by the Secured Party or, if there is no Secured Party, then
discounted at 6%) together with all Rent and other amounts currently due as
liquidated damages and not as a penalty;
(d) with notice and process of law and in compliance with Lessee's security
requirements, Lessor may enter on Lessee's premises to remove and repossess the
Equipment without being liable to Lessee for damages due to the repossession,
except those resulting from Lessor's, its assignees', agents' or
representatives' negligence; and
(e) pursue any other remedy permitted by law or equity.
The above remedies, in Lessor's discretion and to the extent permitted by law,
are cumulative and may be exercised successively or concurrently.
13.3 Mitigation. Upon return of the Equipment pursuant to the terms of Section
13.2, Lessor will use its best efforts in accordance with its normal business
procedures (and without obligation to give any priority to such Equipment) to
mitigate Lessor's damages as described below. EXCEPT AS SET FORTH IN THIS
SECTION, LESSEE HEREBY WAIVES ANY RIGHTS NOW OR HEREAFTER CONFERRED BY STATUTE
OR OTHERWISE WHICH MAY REQUIRE LESSOR TO MITIGATE ITS DAMAGES OR MODIFY ANY OF
LESSOR'S RIGHTS OR REMEDIES STATED HEREIN. Lessor may sell, lease or otherwise
dispose of all or any part of the Equipment at a public or private sale for cash
or credit with the privilege of purchasing the Equipment. The proceeds from any
sale, lease or other disposition of the Equipment are defined as either:
(a) if sold or otherwise disposed of, the cash proceeds less the Fair Market
Value of the Equipment at the expiration of the Initial Term less the Default
Costs; or
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(b) if leased, the present value (discounted at three percent (3%) over the
U.S. Treasury Notes of comparable maturity to the term of the re-lease) of the
rentals for a term not to exceed the Initial Term, less the Default Costs.
Any proceeds will be applied against liquidated damages and any other sums due
to Lessor from Lessee. However, Lessee is liable to Lessor for, and Lessor may
recover, the amount by which the proceeds are less than the liquidated damages
and other sums due to Lessor from Lessee.
14. Additional Provisions.
14.1 Board Attendance. Upon invitation of Lessee, one representative of Lessor
will have the right to attend Lessee's corporate Board of Directors meetings and
Lessee will give Lessor reasonable notice in advance of any special Board of
Directors meeting, which notice will provide an agenda of the subject matter to
be discussed at such board meeting. Lessee will provide Lessor with a certified
copy of the minutes of each Board of Directors meeting within thirty (30) days
following the date of such meeting held during the term of this Master Lease.
14.2 Financial Statements. As soon as practicable at the end of each month (and
in any event within thirty (30) days), Lessee will provide to Lessor the same
information which Lessee provides to its Board of Directors, but which will
include not less than a monthly income statement, balance sheet and statement of
cash flows prepared in accordance with generally accepted accounting principles,
consistently applied (the "Financial Statements"). As soon as practicable at the
end of each fiscal year, Lessee will provide to Lessor audited Financial
Statements setting forth in comparative form the corresponding figures for the
fiscal year (and in any event within ninety (90) days), and accompanied by an
audit report and opinion of the independent certified public accountants
selected by Lessee. Lessee will promptly furnish to Lessor any additional
information (including, but not limited to, tax returns, income statements,
balance sheets and names of principal creditors) as Lessor reasonably believes
necessary to evaluate Lessee's continuing ability to meet financial obligations.
After the effective date of the initial registration statement covering a public
offering of Lessee's securities, the term "Financial Statements" will be deemed
to refer to only those statements required by the Securities and Exchange
Commission.
14.3 Obligation to Lease Additional Equipment. Upon notice to Lessee, Lessor
will not be obligated to lease any Equipment which would have a Commencement
Date after said notice if: (i) Lessee is in default under this Master Lease or
any Schedule; (ii) Lessee is in default under any loan agreement, the result of
which would allow the lender or any secured party to demand immediate payment of
any material indebtedness; (iii) there is a material adverse change in Lessee's
credit standing; or (iv) Lessor determines (in reasonable good faith) that
Lessee will be unable to perform its obligations under this Master Lease or any
Schedule.
14.4 Merger and Sale Provisions. Lessee will notify Lessor of any proposed
Merger at least sixty (60) days prior to the closing date. Lessor may, in its
discretion, either (i) consent to the assignment of the Master Lease and all
relevant Schedules to the successor entity, or (ii) terminate the Master Lease
and all relevant Schedules. If Lessor elects to consent to the assignment,
Lessee and its successor will sign the assignment documentation provided by
Lessor. If Lessor elects to terminate the Master Lease and all relevant
Schedules, then Lessee will pay Lessor all amounts then due and owing and a
termination fee equal to the present value (discounted at 6%) of the remaining
Rent for the balance of the Initial Term(s) of all Schedules, and will return
the Equipment in accordance with Section 9. Lessor hereby consents to any Merger
in which the acquiring entity has a Moody's Bond Rating of BA3 or better or a
commercially acceptable equivalent measure of creditworthiness as reasonably
determined by Lessor.
14.5 Entire Agreement. This Master Lease and associated Schedules and Summary
Equipment Schedules supersede all other oral or written agreements or
understandings between the parties concerning the Equipment including, for
example, purchase orders. ANY AMENDMENT OF THIS MASTER LEASE OR A SCHEDULE, MAY
ONLY BE ACCOMPLISHED BY A WRITING SIGNED BY THE PARTY AGAINST WHOM THE AMENDMENT
IS SOUGHT TO BE ENFORCED.
14.6 No Waiver. No action taken by Lessor or Lessee will be deemed to constitute
a waiver of compliance with any representation, warranty or covenant contained
in this Master Lease or a Schedule. The waiver by Lessor or Lessee of a breach
of any provision of this Master Lease or a Schedule will not operate or be
construed as a waiver of any subsequent breach.
14.7 Binding Nature. Each Schedule is binding upon, and inures to the benefit of
Lessor and its assigns. LESSEE MAY NOT ASSIGN ITS RIGHTS OR OBLIGATIONS.
14.8 Survival of Obligations. All agreements, obligations including, but not
limited to those arising under Section 6.2, representations and warranties
contained in this Master Lease, any Schedule, Summary Equipment Schedule or in
any document delivered in connection with those agreements are for the benefit
of Lessor and any Assignee or Secured Party and survive the execution, delivery,
expiration or termination of this Master Lease.
14.9 Notices. Any notice, request or other communication to either party by the
other will be given in writing and deemed received upon the earlier of (1)
actual receipt or (3) three days after mailing if mailed postage prepaid by
regular or airmail to Lessor (to the attention of "the Comdisco Venture Group")
or Lessee, at the address set out in the Schedule, (3) one day after it is sent
by courier or (4) on the same day as sent via facsimile transmission, provided
that the original is sent by personal delivery or mail by the sending party.
14.10 Applicable Law. THIS MASTER LEASE HAS BEEN, AND EACH SCHEDULE WILL HAVE
BEEN MADE, EXECUTED AND DELIVERED IN THE STATE OF ILLINOIS AND WILL BE GOVERNED
AND CONSTRUED FOR ALL PURPOSES IN ACCORDANCE WITH THE LAWS OF THE STATE OF
ILLINOIS WITHOUT GIVING EFFECT TO CONFLICT OF LAW PROVISIONS. NO RIGHTS OR
REMEDIES REFERRED TO IN ARTICLE 2A OF THE UNIFORM COMMERCIAL CODE WILL BE
CONFERRED ON LESSEE UNLESS EXPRESSLY GRANTED IN THIS MASTER LEASE OR A SCHEDULE.
14.11 Severability. If any one or more of the provisions of this Master Lease or
any Schedule is for any reason held invalid, illegal or unenforceable, the
remaining provisions of this Master Lease and any such Schedule will be
unimpaired, and the invalid, illegal or unenforceable provision replaced by a
mutually acceptable valid, legal and enforceable provision that is closest to
the original intention of the parties.
14.12 Counterparts. This Master Lease and any Schedule may be executed in any
number of counterparts, each of which will be deemed an original, but all such
counterparts together constitute one and the same instrument. If Lessor grants a
security interest in all or any part of a Schedule, the Equipment or sums
payable thereunder, only that counterpart Schedule marked "Secured Party's
Original" can transfer Lessor's rights and all other counterparts will be marked
"Duplicate."
14.13 Licensed Products. Lessee will obtain no title to Licensed Products which
will at all times remain the property of the owner of the Licensed Products. A
license from the owner may be required and it is Lessee's responsibility to
obtain any required license before the use of the Licensed Products. Lessee
agrees to treat the Licensed Products as confidential information of the owner,
to observe all copyright restrictions, and not to reproduce or sell the Licensed
Products.
14.14 Secretary's Certificate. Lessee will, upon execution of this Master Lease,
provide Lessor with a secretary's certificate of incumbency and authority. Upon
the execution of each Schedule with a purchase price in excess of $1,000,000,
Lessee will provide Lessor with an opinion from Lessee's counsel in a form
acceptable to Lessor regarding the representations and warranties in Section 8.
14.15 Electronic Communications. Each of the parties may communicate with the
other by electronic means under mutually agreeable terms.
14.16 Landlord/Mortgagee Waiver. Lessee agrees to provide Lessor with a
Landlord/Mortgagee Waiver with respect to the Equipment. Such waiver shall be in
a form satisfactory to Lessor.
14.17 Equipment Procurement Charges/Progress Payments. Lessee hereby agrees that
Lessor shall not, by virtue of its entering into this Master Lease, be required
to remit any payments to any manufacturer or other third party until Lessee
accepts the Equipment subject to this Master Lease.
14.18 Definitions.
Advance - means the amount due to Lessor by Lessee upon Lessee's execution of
- -------
each Schedule.
Assignee - means an entity to whom Lessor has sold or assigned its rights as
- --------
owner and Lessor of Equipment.
Casualty Loss - means the irreparable loss or destruction of Equipment.
- -------------
Casualty Value - means the greater of the aggregate Rent remaining to be paid
- --------------
for the balance of the lease term or the Fair Market Value of the Equipment
immediately prior to the Casualty Loss. However, if a Casualty Value Table is
attached to the relevant Schedule its terms will control.
Commencement Date - is defined in each Schedule.
- -----------------
Default Costs - means reasonable attorney's fees and remarketing costs resulting
- -------------
from a Lessee default or Lessor's enforcement of its remedies.
Delivery Date - means date of delivery of Inventory Equipment to Lessee's
- -------------
address.
Equipment - means the property described on a Summary Equipment Schedule and any
- ---------
replacement for that property required or permitted by this Master Lease or a
Schedule.
Event of Default - means the events described in Subsection 13.1.
- ----------------
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Fair Market Value - means the aggregate amount which would be obtainable in an
- -----------------
arm's-length transaction between an informed and willing buyer/user and an
informed and willing seller under no compulsion to sell.
Initial Term - means the period of time beginning on the first day of the first
- ------------
full Rent Interval following the Commencement Date for all items of Equipment
and continuing for the number of Rent Intervals indicated on a Schedule.
Interim Rent - means the pro-rata portion of Rent due for the period from the
- ------------
Commencement Date through but not including the first day of the first full Rent
Interval included in the Initial Term.
Late Charge - means the lesser of five percent (5%) of the payment due or the
- -----------
maximum amount permitted by the law of the state where the Equipment is located.
Licensed Products - means any software or other licensed products attached to
- -----------------
the Equipment.
Like Equipment - means replacement Equipment which is lien free and of the same
- --------------
model, type, configuration and manufacture as Equipment.
Merger - means any consolidation or merger of the Lessee with or into any other
- ------
corporation or entity, any sale or conveyance of all or substantially all of the
assets or stock of the Lessee by or to any other person or entity in which
Lessee is not the surviving entity.
Notice Period - means not less than ninety (90) days nor more than twelve (12)
- -------------
months prior to the expiration of the lease term.
Owner - means the owner of Equipment.
- -----
Rent - means the rent Lessee will pay for each item of Equipment expressed in a
- ----
Summary Equipment Schedule either as a specific amount or an amount equal to the
amount which Lessor pays for an item of Equipment multiplied by a lease rate
factor plus all other amounts due to Lessor under this Master Lease or a
Schedule.
Rent Interval - means a full calendar month or quarter as indicated on a
- -------------
Schedule.
Schedule - means either an Equipment Schedule or a Licensed Products Schedule
- --------
which incorporates all of the terms and conditions of this Master Lease.
Secured Party - means an entity to whom Lessor has granted a security interest
- -------------
for the purpose of securing a loan.
Summary Equipment Schedule - means a certificate provided by Lessor summarizing
- --------------------------
all of the Equipment for which Lessor has received Lessee approved vendor
invoices, purchase documents and/or evidence of delivery during a calendar
quarter which will incorporate all of the terms and conditions of the related
Schedule and this Master Lease and will constitute a separate lease for the
equipment leased thereunder.
IN WITNESS WHEREOF, the parties hereto have executed this Master Lease on or as
of the day and year first above written.
<TABLE>
<CAPTION>
CRITICAL PATH INC. COMDISCO, INC.,
as Lessee as Lessor
<S> <C>
By:______________________________ By:______________________________
Title:___________________________ Title:___________________________
</TABLE>
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ADDENDUM TO THE
MASTER LEASE AGREEMENT DATED AS OF MAY 1, 1998
BETWEEN CRITICAL PATH INC., AS LESSEE
AND COMDISCO, INC., AS LESSOR
The undersigned hereby agree that the terms and conditions of the above-
referenced Master Lease are hereby modified and amended as follows:
1) Section 3., "RENT AND PAYMENT"
In line 3, after "is not made" insert "within 5 business days after its due
date,".
2) Section 4.2., "WARRANTY AND DISCLAIMER OF WARRANTIES"
After the second sentence, insert "To the extent they are not assignable,
Lessor hereby appoints Lessee its agent solely for the purposes of
asserting from time to time in the name of Lessor but for the benefit of
Lessee, at Lessee's expense, any such warranty. In the event Lessee is
unable to pursue any claim or right hereunder, Lessor will, at Lessee's
cost, enforce such claims or rights as directed from time to time by
Lessee.
3) Section 5.2., "RELOCATION OR SUBLEASE"
In the second paragraph, line 8, after "sublease documents" insert
"reasonably".
4) Section 6.1., "NET LEASE"
To the end of this section insert "Notwithstanding the foregoing, nothing
herein shall be deemed to limit Lessee's rights and remedies as against
Lessor in any independent action or proceeding."
5) Section 6.2., "TAXES AND FEES"
To the last sentence, insert "and evidence that such taxes were paid by
Lessor."
6) Section 7.1., "CARE, USE AND MAINTENANCE"
In the last sentence, after "The lease term" insert "with respect to such
Equipment".
7) Section 11., "INDEMNITY"
In line 9, after "negligent" insert "or willful".
<PAGE>
8) Section 12., "RISK OF LOSS"
In the first sentence, after "Effective upon" delete "delivery" and replace
with "the Commencement Date".
9) Section 13.1., "DEFAULT"
In subparagraph (b), in the last line, delete "for ten (10)" and replace
with "twenty (20) ".
In subparagraph (c), in the forth line, after "with similar powers" insert
", which is not dismissed within sixty (60) days,"
10) Section 14.1., "BOARD ATTENDANCE"
Delete this section in its entirety.
10) Section 14.2., "FINANCIAL STATEMENTS"
In the second line, delete "thirty (30)" and replace with "forty-five
(45)".
In the second line, delete "the same information which Lessee provides to
its Board of Directors, but which shall not include less than"
In the eighth line, delete "ninety (90)" and replace with "one hundred and
twenty (120)".
11) Section 14.4., MERGER AND SALE PROVISIONS"
In line 2, delete "sixty (60)" and replace with "thirty (30)".
To the last sentence insert at the beginning, "Unless Lessee chooses to
exercise its Purchase Option".
12) Section 14.7., "BINDING NATURE"
To the end of this section add "EXCEPT WITH LESSORS WRITTEN CONSENT".
13) Section 14.10., "APPLICABLE LAW"
Delete "Illinois" every where it appears and replace with "California".
<PAGE>
14) Section 14.14., SECRETARY'S CERTIFICATE
Delete the last sentence.
15) Section 14.16., "LANDLORD WAIVER"
In line 2, after "with respect to the Equipment" insert "upon request".
CRITICAL PATH INC. COMDISCO, INC.
AS LESSEE AS LESSOR
By: ___________________________ By: ___________________________
Title: ________________________ Title: ________________________
Date: _________________________ Date: _________________________
<PAGE>
EXHIBIT 10.10
STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE--GROSS
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
1. Basic Provisions ("Basic Provisions").
-------------------------------------
1.1 Parties. The Lease ("Lease"), dated for reference purposes only,
-------
June 20, 1997, is made by and between 501 Folsom Street Building ("Lessor") and
Digital Postal Service Corporation ("Lessee"), (collectively the "Parties," or
individually a "Party").
1.2(a) Premises. That certain portion of the Building, including all
--------
improvements therein or to be provided by Lessor under the terms of this Lease,
commonly known by the street address of 501 Folsom Street, located in the City
of San Francisco, County of San Francisco, State of California, with zip code
94105, as outlined on Exhibit N/A attached hereto ("Premises"). The "Building"
is that certain building containing the Premises and generally described as
(describe briefly the nature of the Building): +/- 8,750 sq.ft. comprised of
entire first floor, storage room adjacent to loading dock, and basement storage
area (see paragraph #49). In addition to Lessee's rights to use and occupy the
Premises as hereinafter specified, Lessee shall have non-exclusive rights to the
Common Areas (as defined in Paragraph 2.7 below) as hereinafter specified, but
shall not have any rights to the roof, exterior walls or utility raceways of the
Building or to any other buildings in the Industrial Center. The Premises, the
Building, the Common Areas, the land upon which they are located, along with all
other buildings and improvements thereon, are herein collectively referred to as
the "Industrial Center." (Also see Paragraph 2.)
1.2(b) Parking. N/A unreserved vehicle parking spaces ("Unreserved
-------
Parking Spaces"); and N/A reserved vehicle parking spaces ("Reserved Parking
Spaces"). (Also see Paragraph 2.6.)
1.3 Term. 5 years and 0 months ("Original Term") commencing July 1,
----
1997 ("Commencement Date") and ending June 30, 2002 ("Expiration Date"). (Also
see Paragraphs 3.2 and 3.3.)
1.4 Early Possession. N/A ("Early Possession Date"). (Also see
----------------
Paragraphs 3.2 and 3.3.)
1.5 Base Rent. $7,250.00 per month ("Base Rent"), payable on the first
---------
day of each month commencing September 14, 1997. (Also see Paragraph 4.)
[X] If this box is checked, this Lease provides for the Base Rent to be
adjusted per Addendum 1 attached hereto.
1.6(a) Base Rent Paid Upon Execution. $7.250 as Base Rent for the period
-----------------------------
September 14, 1997--October 13, 1997.
1.6(b) Lessee's Share of Common Area Operating Expenses. N/A Percent
------------------------------------------------
(___%) ("Lessee's Share") as determined by [_] prorata square footage of the
Premises as compared to the total square footage of the Building or [_] other
criteria as described in Addendum _____.
1.7 Security Deposit. $7,250.00 ("Security Deposit"). (Also see
----------------
Paragraph 5.)
1.8 Permitted Use. General Office Use ("Permitted Use") (Also see
-------------
Paragraph 6.)
1.9 Insuring Party. Lessor is the "Insuring Party." (Also see
--------------
Paragraph 8.)
1.10(a) Real Estate Brokers. The following real estate broker(s)
-------------------
(collectively, the "Brokers") and brokerage relationships exist in this
transaction and are consented to by the Parties (check applicable boxes):
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<PAGE>
[_] ________________________ represents Lessor exclusively ("Lessor's Broker");
[_] ________________________ represents Lessee exclusively ("Lessee's Broker");
[X] D. Klein/J. Lewerenz, Cushman & Wakefield represents both Lessor and Lessee
("Dual Agency"). (Also see Paragraph 15.)
1.10(b) Payment to Brokers. Upon the execution of this Lease by both
------------------
Parties, Lessor shall pay to said Broker(s) jointly, or in such separate shares
as they may mutually designate in writing, a fee as set forth in a separate
written agreement between Lessor and said Broker(s) (or in the event there is no
separate written agreement between Lessor and said Broker(s), the sum of $N/A)
for brokerage services rendered by said Broker(s) in connection with this
transaction.
1.11 Guarantor. The obligations of the Lessee under this Lease are to
---------
be guaranteed by David Hayden ("Guarantor"). (Also see Paragraph 37.)
1.12 Addenda and Exhibits. Attached hereto is an Addendum or Addenda
--------------------
consisting of Paragraphs 49 through 56, and Exhibits N/A through N/A, all of
which constitute a part of this Lease.
2. Premises, Parking and Common Area.
---------------------------------
2.1 Letting. Lessor hereby leases to Lessee, and Lessee hereby leases
-------
from Lessor, the Premises, for the term, at the rental, and upon all of the
terms, covenants and conditions set forth in this Lease. Unless otherwise
provided herein, any statement of square footage set forth in this Lease, or
that may have been used in calculating rental and/or Common Area Operating
Expenses, is an approximation which Lessor and Lessee agree is reasonable and
the rental and Lessee's Share (as defined in Paragraph 1.6(b)) based thereon is
not subject to revision whether or not the actual square footage is more or
less.
2.2 Condition. Lessor shall deliver the Premises to lessee clean and
---------
free of debris on the Commencement Date and warrants to Lessee that the existing
plumbing, electrical systems, fire sprinkler system, lighting, air conditioning
and hearing systems and loading doors, if any, in the Premises, other than those
constructed by Lessee, shall be in good operating condition on the Commencement
Date. If a non-compliance with said warranty exists as of the Commencement Date,
Lessor shall, except as otherwise provided in this Lease, promptly after receipt
of written notice form Lessee setting forth with specificity the nature and
extent of such non-compliance, rectify same at Lessor's expense. If Lessee does
not give Lessor written notice of a non-compliance with this warranty within
thirty (30) days after the Commencement Date, correction of that non-compliance
shall be the obligation of Lessee at Lessee's sole cost and expense.
2.3 Compliance with Covenants, Restrictions and Building Code. Lessor
---------------------------------------------------------
warrants that nay improvements (other than those constructed by Lessee or at
Lessee's direction) on or in the Premises which have been constructed or
installed by Lessor or with Lessor's consent or at Lessor's direction shall
comply with all applicable covenants or restrictions of record and applicable
building codes, regulations and ordinances in effect on the Commencement Date.
Lessor further warrants to Lessee that Lessor has no knowledge of any claim
having been made by any governmental agency that a violation or violations of
applicable building codes, regulations, or ordinances exist with regard to the
Premises as of the Commencement Date. Said warranties shall not apply to any
Alterations or utility Installations (defined in Paragraph 7.3(a)) made or to be
made by Lessee. If the Premises do not comply with said warranties, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice form Lessee given within six (6) months following the
Commencement Date and setting forth with specificity the nature and extent of
such non-compliance, take such action, at Lessor's expense, as may be reasonable
or appropriate to rectify the non-compliance. Lessor makes no warranty that the
Permitted Use in Paragraph 1.8 is permitted for the Premises under Applicable
Laws (as defined in Paragraph 2.4).
-2-
<PAGE>
2.4 Acceptance of Premises. Lessee hereby acknowledges: (a) that it has
----------------------
been advised by the Broker(s) to satisfy itself with respect to the condition of
the Premises (including but not limited to the electrical and fire sprinkler
systems, security, environmental aspects, seismic and earthquake requirements,
and compliance with the Americans with Disabilities Act and applicable zoning,
municipal, county, state and federal laws, ordinances and regulations and any
covenants or restrictions of record (collectively, "Applicable Laws") and the
present and future suitability of the Premises for Lessee's intended use; (b)
that Lessee has made such investigation as it deems necessary with reference to
such matters, is satisfied with reference thereto, and assumes all
responsibility therefor as the same relate to Lessee's occupancy of the Premises
and/or the terms of this Lease; and (c) that neither Lessor, nor any of Lessor's
agents, has made nay oral or written representations or warranties with respect
to said matters other than as set forth in this Lease.
2.5 Lessee as Prior Owner/Occupant. The warranties made by lessor in
------------------------------
this Paragraph 2 shall be of no force or effect if immediately prior to the date
set forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises. In
such event, Lessee shall, at Lessee's sole cost and expense, correct any non-
compliance of the Premises with said warranties.
2.6 Vehicle Parking. Lessee shall be entitled to use the number of
---------------
Unreserved Parking Spaces and Reserved Parking Spaces specified in Paragraph
1.2(b) on those portions of the Common Areas designated from time to time by
Lessor for parking. Lessee shall not use more parking spaces than said number.
Said parking spaces shall be used for parking by vehicles no larger than full-
size passenger automobiles or pick-up trucks, herein called "Permitted Size
Vehicles." Vehicles other than Permitted Size Vehicles shall be parked and
loaded or unloaded as directed by Lessor in the Rules and Regulations (as
defined in Paragraph 40) issued by Lessor. (Also see Paragraph 2.9.)
(a) Lessee shall not permit or allow any vehicles that belong to or are
controlled by Lessee or Lessee's employees, suppliers, shippers, customers,
contractors or invitees to be loaded, unloaded, or parked in areas other than
those designated by Lessor for such activities.
(b) If Lessee permits or allows any of the prohibited activities described
in this Paragraph 2.6, then Lessor shall have the right, without notice, in
addition to such other rights and remedies that it may have, to remove or tow
away the vehicle involved and charge the cost to Lessee, which cost shall be
immediately payable upon demand by Lessor.
(c) Lessor shall at the Commencement Date of this Lease, provide the
parking facilities required by Applicable Law.
2.7 Common Areas--Definition. The term "Common Areas" is defined as all
------------------------
areas and facilities outside the Premises and within the exterior boundary line
of the Industrial Center and interior utility raceways within the Premises that
are provided and designated by the Lessor from time to time for the general
nonexclusive use of Lessor, Lessee and other lessees of the Industrial Center
and their respective employees, suppliers, shippers, customers, contractors and
invitees, including parking areas, loading and unloading areas, trash areas,
roadways, sidewalks, walkways, parkways, driveways and landscaped areas.
2.8 Common Amos-Lessee's Rights. Lessor hereby grants to Lessee, for the
---------------------------
benefit of Lessee and its employees, suppliers, shippers, contractors, customers
and invitees, during the term of this Lease, the non-exclusive right to use, in
common with otters entitled to such use, the Common Areas as they exist from
time to time, subject to any rights, powers, and privileges reserved by Lessor
under the terms hereof or under the terms at any rules and regulations or
restrictions governing the use of the Industrial Center. Under no circumstances
shall the right herein granted to use the Common Areas be deemed to include the
right to store any property, temporarily or permanently, in the Common Areas.
Any such storage shall be permitted only by the prior written consent of Lessor
or Lessor's designated agent, which consent may be revoked at any time. In the
event that any unauthorized storage shall occur then Lessor shall have the
right without notice, in addition
-3-
<PAGE>
to such other rights and remedies that it may have, to remove the property and
charge the cost to Lessee, which cost shall be immediately payable upon demand
by Lessor.
2.9 Common Areas-Rules and Regulations. Lessor or such other person(s) as
----------------------------------
Lessor may appoint shall have the exclusive control and management of the Common
Areas and shall have the right, from time to time, to establish, modify, amend
and enforce reasonable Rules and Regulations with respect thereto in accordance
with Paragraph 40. Lessee agrees to abide by and conform to all such Rules and
Regulations, and to cause its employees, suppliers, shippers, customers,
contractors and invitees to so abide and conform. Lessor shall not be
responsible to Lessee for the non-compliance with said rules and regulations by
other lessees of the Industrial Center.
2.10 Common Areas-Changes. Lessor shaft have the right, in Lessor's sole
--------------------
discretion, from time to time:
(a) To make changes to the Common Areas, including, without limitation,
changes in the location, size, shape and number of driveways, entrances, parking
spaces, parking areas, loading and unloading areas, ingress, egress, direction
of traffic, landscaped areas, walkways and utility raceways;
(b) To close temporarily any of the Common Areas for maintenance purposes
so long as reasonable access to the Premises remains available;
(c) To designate other land outside the boundaries of the Industrial
Center to be a part of the Common Areas;
(d) To add additional buildings and improvements to the Common Areas;
(e) To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Industrial Center, or any portion
thereof; and
(f) To do and perform such other acts and make such other changes in, to
or with respect to the Common Areas and Industrial Center as Lessor may, in the
exercise of sound business judgment, deem to be appropriate.
3. Term.
----
3.1 Term. The Commencement Date, Expiration Date and Original Term of
----
this Lease are as specified in Paragraph 1.3.
3.2 Early Possession. It an Early Possession Date is specified in
----------------
Paragraph 1.4 and if Lessee totally or partially occupies the Premises after the
Early Possession Date but prior to the Commencement Date, the obligation to pay
Base Rent shall be abated for the period at such early occupancy. All other
terms of this Lease, however, (including but not limited to the obligations to
pay Lessee s Share of Common Area Operating Expenses and to carry the insurance
required by Paragraph 8) shall be in effect during such period. Any such early
possession shall not affect nor advance the Expiration Date of the Original
Term.
3.3 Delay In Possession. It for any reason Lessor cannot deliver
-------------------
possession of the Premises to Lessee by the Early Possession Date, if one is
specified in Paragraph 1.4, or it no Early Possession Date is specified, by the
Commencement Date, Lessor shall not be subject to any liability therefor, nor
shall such failure affect the validity of this Lease, or the obligations of
Lessee hereunder, or extend the term hereof, but in such case, Lessee shall not,
except as otherwise provided herein, be obligated to pay rent or perform any
other obligation of Lessee under the terms of this Lease until Lessor delivers
possession of the Premises to Lessee. If possession of the Premises is not
delivered to Lessee within sixty (60) days after the Commencement Date, Lessee
may, at its option, by notice in writing to Lessor within ten (10) days after
the end of said sixty (60) day period, cancel this
-4-
<PAGE>
Lease, in which event the parties shall be discharged from all obligations
hereunder: provided further, however, that it such written notice of Lessee is
not received by Lessor within said ten (10) day period, Lessee's right to cancel
this Lease hereunder shall terminate and be of no further force or effect.
Except as may be otherwise provided, and regardless of when the Original Term
actually commences, it possession is not tendered to Lessee when required by
this Lease and Lessee does not terminate this Lease, as aforesaid, the period
tree of the obligation to pay Base Rent, if any, that Lessee would otherwise
have enjoyed shall run from the date of delivery of possession and continue for
a period equal to the period during which the Lessee would have otherwise
enjoyed under the terms hereof, but minus any days of delay caused by the acts,
changes or omissions of Lessee.
4. Base Rent. Lessee shall pay Base Rent and other rent or charges, as
---------
the same may be adjusted from time to time, to Lessor in lawful money of the
United States, without offset or deduction, on or before the day on which it is
due under the terms of this Lease. Base Rent and all other rent and charges for
any period during the term hereof which is for less than one full month shall
be prorated based upon the actual number of days of the month involved. Payment
of Base Rent and other charges shall be made to Lessor at its address stated
herein or to such other persons or at such other addresses as Lessor may from
time to time designate in writing to Lessee.
5. Security Deposit. Lessee shall deposit with Lessor upon Lessee's
----------------
execution hereof the Security Deposit set forth in Paragraph 1.7 as security for
Lessee's faithful performance of Lessee's obligations under this Lease, if
Lessee fails to pay Base Rent or other rent or charges due hereunder, or
otherwise Defaults under this Lease (as defined in Paragraph 13.1), Lessor may
use, apply or retain all or any portion of said Security Deposit for the payment
of any amount due Lessor or to reimburse or compensate Lessor for any liability,
cost, expense, loss or damage (including attorneys' fees) which Lessor may
suffer or incur by reason thereof. If Lessor uses or applies all or any portion
of said Security Deposit, Lessee shall within ten (110) days after written
request therefore deposit monies with Lessor sufficient to restore said Security
Deposit to the full amount required by this Lease. Any time the Base Rent
increases during the term of this Lease, Lessee shall, upon written request from
Lessor, deposit additional monies with Lessor as an addition to the Security
Deposit so that the total amount of the Security Deposit shall at all times bear
the same proportion to the then current Base Rent as the initial Security
Deposit bears to the initial Base Rent set forth in Paragraph 1.5. Lessor shall
not be required to keep all or any part of the Security Deposit separate from
its general accounts. Lessor shall, at the expiration or earlier termination of
the term hereof and after Lessee has vacated the Premises, return to Lessee (or,
at Lessor's option, to the last assignee, if any, of Lessee's interest herein),
that portion of the Security Deposit not used or applied by Lessor. Unless
otherwise expressly agreed in writing by Lessor, no part of the Security Deposit
shall be considered to be held in trust, to bear interest or other increment for
its use, or to be prepayment for any monies to be paid by Lessee under this
Lease.
6. Use.
---
6.1 Permitted Use.
-------------
(a) Lessee shall use and occupy the Premises only for the Permitted Use
set forth in Paragraph 1.8, or any other legal use which is reasonably
comparable thereto, and for no other purpose. Lessee shall not use or permit
the use of the Premises in a manner that is unlawful, creates waste or a
nuisance, or that disturbs owners and/or occupants of, or causes damage to the
Premises or neighboring premises or properties.
(b) Lessor hereby agrees to not unreasonably withhold or delay its consent
to any written request by Lessee, Lessee's assignees or subtenants, and by
prospective assignees and subtenants of Lessee, its assignees and subtenants,
for a modification of said Permitted Use, so long as the same will not impair
the structural integrity of the improvements on the Premises or in the Building
or the mechanical or electrical systems therein, does not conflict with uses by
other lessees, is not significantly more burdensome to the Premises or the
Building and the improvements thereon, and is otherwise permissible pursuant to
this Paragraph 6. It Lessor elects to withhold such consent, Lessor shall
within five (5) business days after such request give a written notification of
same. which notice shall include an explanation of Lessor's reasonable
objections to the change in use.
-5-
<PAGE>
6.2 Hazardous Substances.
--------------------
(a) Reportable Uses Require Consent. The term "Hazardous Substance" as
-------------------------------
used in this Lease shall mean any product, substance, chemical, material or
waste whose presence, nature, quantity and/or intensity of existence, use,
manufacture, disposal, transportation, spill, release or effect, either by
itself or in combination with other materials expected to be on the Premises, is
either: (i) potentially injurious to the public health, safety or welfare, the
environment, or the Premises; (ii) regulated or monitored by any governmental
authority; or (iii) a basis for potential liability of Lessor to any
governmental agency or third party under any applicable statute or common law
theory. Hazardous Substance shall include, but not be limited to, hydrocarbons,
petroleum, gasoline, crude oil or any products or by-products thereof. Lessee
shall not engage in any activity in or about the Premises which constitutes a
Reportable Use (as hereinafter defined) of Hazardous Substances without the
express prior written consent of Lessor and compliance in a timely manner (at
Lessee's sole cost and expense) with all Applicable Requirements (as defined in
Paragraph 6.3). "Reportable Use" shall mean (i) the installation or use of any
above or below ground storage tank, (ii) the generation, possession, storage,
use, transportation, or disposal of a Hazardous Substance that requires a permit
from, or with respect to which a report, notice, registration or business plan
is required to be filed with, any governmental authority, and (iii) the presence
in, on or about the Premises of a Hazardous Substance with respect to which any
Applicable Laws require that a notice be given to persons entering or occupying
the Premises or neighboring properties. Notwithstanding the foregoing, Lessee
may, without Lessor's prior consent, but upon notice to Lessor and in compliance
with all Applicable Requirements, use any ordinary and customary materials
reasonably required to be used by Lessee in the normal course of the Permitted
Use, so long as such use is not a Reportable Use and does not expose the
Premises or neighboring properties to any meaningful risk of contamination or
damage or expose Lessor to any liability therefor. In addition, Lessor may (but
without any obligation to do so) condition its consent to any Reportable Use of
any Hazardous Substance by Lessee upon Lessee's giving Lessor such additional
assurances as Lessor, in its reasonable discretion, deems necessary to protect
itself, the public, the Premises and the environment against damage,
contamination or injury and/or liability therefor, including but not limited to
the installation (and, at Lessor's option, removal on or before Lease expiration
or earlier termination) of reasonably necessary protective modifications to the
Premises (such as concrete encasements) and/or the deposit of an additional
Security Deposit under Paragraph 5 hereof.
(b) Duty to Inform Lessor. If Lessee knows, or has reasonable cause to
---------------------
believe, that a Hazardous Substance has come to be located in, on, under or
about the Premises or the Building, other than as previously consented to by
Lessor, Lessee shall immediately give Lessor written notice thereof, together
with a copy to any statement, report, notice, registration, application, permit,
business plan, license, claim, action, or proceeding given to, or received from,
any governmental authority or private party concerning the presence, spill,
release, discharge of, or exposure to, such Hazardous Substance including but
not limited to all such documents as may be involved in any Reportable Use
involving the Premises. Lessee shall not cause or permit any Hazardous
Substance to be spilled or released in. on, under or about the Premises
(including, without limitation, through the plumbing or sanitary sewer system).
(c) Indemnification. Lessee shall indemnity, protect, defend and hold
---------------
Lessor, its agents, employees, lenders and ground lessor, it any, and the
Premises, harmless from and against any and all damages, liabilities, judgments,
costs, claims, liens, expenses, penalties, loss of permits and attorneys' and
consultants' fees arising out of or involving any Hazardous Substance brought
onto the Premises by or for Lessee or by anyone under Lessee's control.
Lessee's obligations under this Paragraph 6.2(c) shall include, but not be
limited to, the effects of any contamination or injury to person, property or
the environment created or suffered by Lessee, and the cost of investigation
(including consultants' and attorneys' tees and testing), removal, remediation,
restoration and/or abatement thereof, or of any contamination therein involved,
and shall survive the expiration or earlier termination of this Lease. No
termination, cancellation or release agreement entered into by Lessor and Lessee
shall release Lessee from its obligations under this Lease with respect to
Hazardous Substances, unless specifically so agreed by Lessor in writing at the
time of such agreement.
-6-
<PAGE>
6.3 Lessee's Compliance with Requirements. Lessee shall, at Lessee's sole
-------------------------------------
cost and expense, fully, diligently and in a timely manner, comply with all
"Applicable Requirements," which term is used in this Lease to mean all laws.
rules, regulations, ordinances, directives, covenants, easements and
restrictions of record, permits, the requirements of any applicable fire
insurance underwriter or rating bureau, and the recommendations of Lessor's
engineers and/or consultants, relating in any manner to the Premises (including
but not limited to matters pertaining to (i) industrial hygiene, (ii)
environmental conditions on, in, under or about the Premises, including soil and
groundwater conditions, and (iii) the use, generation, manufacture, production,
installation, maintenance, removal, transportation, storage, spill, or release
of any Hazardous Substance), now in effect or which may hereafter come into
effect. Lessee shall, within five (5) days after receipt of Lessor's written
request, provide Lessor with copies of all documents and information, including
but not limited to permits, registrations, manifests, applications, reports and
certificates, evidencing Lessee's compliance with any Applicable Requirements
specified by Lessor, and shall immediately upon receipt, notify Lessor in
writing (with copies of any documents involved) of any threatened or actual
claim, notice, citation, warning, complaint or report pertaining to or involving
failure by Lessee or the Premises to comply with any Applicable Requirements.
6.4 Inspection; Compliance with Law. Lessor, Lessor's agents, employees,
-------------------------------
contractors and designated representatives, and the holders of any mortgages,
deeds of trust or ground leases on the Premises ("Lenders") shall have the right
to enter the Premises at any time in the case of an emergency, and otherwise at
reasonable times, for the purpose of inspecting the condition of the Premises
and for verifying compliance by Lessee with this Lease and all Applicable
Requirements (as defined in Paragraph 6.3), and Lessor shall be entitled to
employ experts and/or consultants in connection therewith to advise Lessor with
respect to Lessee's activities, including but not limited to Lessee's
installation, operation, use, monitoring, maintenance, or removal of any
Hazardous Substance on or from the Premises. The costs and expenses of any such
inspections shall be paid by the party requesting same, unless a Default or
Breach of this Lease by Lessee or a violation of Applicable Requirements or a
contamination, caused or materially contributed to by Lessee, is found to exist
or to be imminent, or unless the inspection is requested or ordered by a
governmental authority as the result of any such existing or imminent violation
or contamination. In such case, Lessee shall upon request reimburse Lessor or
Lessor's Lender, as the case may be, for the costs and expenses of such
inspections.
7. Maintenance, Repairs, Utility Installations, Trade Fixtures and
---------------------------------------------------------------
Alterations.
- -----------
7.1 Lessee's Obligations.
--------------------
(a) Subject to the provisions of Paragraphs 2.2 (Condition), 2.3
(Compliance with Covenants, Restrictions and Building Code), 7.2 (Lessors
Obligations), 9 (Damage or Destruction), and 14 (Condemnation), Lessee shall, at
Lessee's sole cost and expense and at all times, keep the Premises and every
part thereof in good order, condition and repair except for reasonable wear and
tear (whether or not such portion of the Premises requiring repair, or the means
of repairing the same, are reasonably or readily accessible to Lessee, and
whether or not the need for such repairs occurs as a result of Lessee's use, any
prior use, the elements or the age of such portion of the Premises), including,
without limiting the generality of the foregoing, all equipment or facilities
specifically serving the Premises, such as plumbing, heating, air conditioning,
ventilating, electrical, lighting facilities, boilers, fired or unfired pressure
vessels, tire hose connections it within the Premises, fixtures, interior walls,
interior surfaces of exterior walls, ceilings, floors, windows, doors, plate
glass, and skylights, but excluding any items which are the responsibility of
Lessor pursuant to Paragraph 7.2 below. Lessee, in keeping the Premises in good
order, condition and repair, shall exercise and perform good maintenance
practices. Lessee's obligations shall include restorations, replacements or
renewals when necessary to keep the Premises and all improvements thereon or a
part thereof in good order, condition and state of repair.
(b) Lessee shall, at Lessee's sole cost and expense, procure and maintain
a contract, with copies to Lessor, in customary form and substance for and with
a contractor specializing and experienced in the inspection, maintenance and
service of the heating, air conditioning and ventilation system for the
Premises. However, Lessor reserves the right, upon notice to Lessee, to procure
and maintain the contact for the heating, air
-7-
<PAGE>
conditioning and ventilating systems, and if Lessor so elects, Lessee shall
reimburse Lessor, upon demand, for the cost thereof.
(c) If Lessee tails to perform Lessee's obligations under this Paragraph
7.1, Lessor may enter upon the Promises after ten (10) days' prior written
notice to Lessee (except in the case of an emergency, in which case no notice
shall be required), perform such obligations on Lessee's behalf, and put the
Premises in good order, condition and repair, in accordance with Paragraph 13.2
below.
7.2 Lessor's Obligations. Subject to the provisions of Paragraphs 2.2
--------------------
(Condition), 2.3 (Compliance with Covenants, Restrictions and Building Code),
4.2 (Common Area Operating Expenses), 6 (Use), 7.1 (Lessee's Obligations), 9
(Damage or Destruction) and 14 (Condemnation), Lessor shall keep in good order,
condition and repair the foundations, exterior walls, structural condition of
interior bearing walls, exterior roof, fire sprinkler and/or standpipe and hose
(it located in the Common Areas) or other automatic fire extinguishing system
including tire alarm and/or smoke detection systems and equipment, tire
hydrants, parking lots, walkways, parkways, driveways, landscaping, fences,
signs and utility systems serving the Common Areas and all parts thereof, as
well as providing the services for which there is a Common Area Operating
Expense pursuant to Paragraph 4.2, Lessor shall not be obligated to paint the
exterior or interior surfaces of exterior walls nor shall Lessor be obligated to
maintain, repair or replace windows, doors or plate glass of the Premises.
Lessee expressly waives the benefit of any statute now or hereafter in effect
which would otherwise afford Lessee the right to make repairs at Lessor's
expense or to terminate this Lease because of Lessor's failure to keep the
Building, Industrial Center or Common Areas in good order, condition and repair.
7.3 Utility Installations, Trade Fixtures, Alterations.
--------------------------------------------------
(a) Definitions; Consent Required. The term "Utility Installations" is
-----------------------------
used in this Lease to refer to all air lines, power panels, electrical
distribution, security, fire protection systems, communications systems,
lighting fixtures, heating, ventilating and air conditioning equipment,
plumbing, and fencing in, on or about the Premises. The term "Trade Fixtures"
shall mean Lessee's machinery and equipment which can be removed without doing
material damage to the Premises. The term "Alterations" shall mean any
modification of the improvements on the Premises which are provided by Lessor
under the terms of this Lease, other than Utility installations or Trade
Fixtures. "Lessee-Owned Alterations and/or Utility Installations" are defined
as Alterations and/or Utility installations made by Lessee that are not yet
owned by Lessor pursuant to Paragraph 7.4(a). Lessee shall not make nor cause
to be made any Alterations or Utility Installations in, on, under or about the
Premises without Lessor's prior written consent. Lessee may, however, make non-
structural Utility Installations to the interior of the Premises (excluding the
roof) without Lessor's consent but upon notice to Lessor, so long as they are
not visible from the outside of the Premises, do not involve puncturing,
relocating or removing the roof or any existing walls, or changing or
interfering with the tire sprinkler or fire detection systems and the cumulative
cost thereof during the term of this Lease as extended does not exceed
$2,500.00.
(b) Consent. Any Alterations or Utility Installations that Lessee shall
-------
desire to make and which require the consent of the Lessor shall be presented to
Lessor in written form with detailed plans. All consents given by Lessor
whether by virtue of Paragraph 7.3(a) or by subsequent specific consent, shall
be deemed conditioned upon: (i) Lessee's acquiring all applicable permits
required by governmental authorities; (ii) the furnishing of copies of such
permits together with a copy of the plans and specifications for the Alteration
or Utility Installation to Lessor prior to commencement of the work thereon: and
(iii) the compliance by Lessee with all conditions of said permits in a prompt
and expeditious manner Any Alterations or Utility Installations by Lessee during
the term of this Lease shall be done in a good and workmanlike manner, with good
and sufficient materials, and be In compliance with all Applicable Requirements.
Lessee shall promptly upon completion thereof furnish Lessor with as-built plans
and specifications therefor. Lessor may, (but without obligation to do so)
condition its consent to any requested Alteration or Utility Installation that
costs $2,500.00 or more upon Lessee's providing Lessor with a lien and
completion bond in an amount equal to one and one-half times the estimated cost
of such Alteration or Utility Installation.
-8-
<PAGE>
(c) Lien Protection. Lessee shall pay when due all claims for labor or
---------------
materials furnished or alleged to have been furnished to or for Lessee at or for
use on the Premises, which claims are or may be secured by any mechanic's or
materialmen's lien against the Premises or any interest therein. Lessee shall
give Lessor not less than ten (10) days' notice prior to the commencement of any
work in, on, or about the Premises, and Lessor shall have the right to post
notices of non-responsibility in or on the Premises as provided by law. If
Lessee shall, in good faith, contest the validity to any such lien, claim or
demand, then Lessee shall, at its sole expense, defend and protect itself,
Lessor and the Premises against the same and shall pay and satisfy any such
adverse judgment that may be rendered thereon before the enforcement thereof
against the Lessor or the Premises. It Lessor shall require, Lessee shall
furnish to Lessor a surety bond satisfactory to Lessor in an amount equal to one
and one-half times the amount of such contested lien claim or demand,
indemnifying Lessor against liability for the same. as required by law for the
holding of the Premises free from the effect of such lien or claim. In
addition, Lessor may require Lessee to pay Lessor's attorneys' fees and costs in
participating in such action if Lessor shall decide it is to its best interest
to do so.
7.4 Ownership, Removal, Surrender, and Restoration.
----------------------------------------------
(a) Ownership. Subject to Lessor's right to require their, removal and to
---------
cause Lessee to become the owner thereof as hereinafter provided in this
Paragraph 7.4, all Alterations and Utility Installations made to the Premises by
Lessee shall be the property of and owned by Lessee, but considered a part of
the Premises. Lessor may, at any time and at its option, elect in writing to
Lessee *o be the owner of all or any specified part of the Lessee-Owned
Alterations and Utility Installations. Unless otherwise instructed per
Subparagraph 7.4(b) hereof, all Lessee-Owned Alterations and Utility
Installations shall, at the expiration or earlier termination of this Lease,
become the property of Lessor and remain upon the Premises and be surrendered
with the Premises by Lessee.
(b) Removal. Unless otherwise agreed in writing, Lessor may require that
-------
any or all Lessee-Owned Alterations or Utility Installations be removed by the
expiration or earlier termination of this Lease, notwithstanding that their
installation may have been consented to by Lessor. Lessor may require the
removal at any time of all or any part of any Alterations or Utility
Installations made without the required consent of Lessor.
(c) Surrender/Restoration. Lessee shall surrender the Premises by the end
---------------------
of the last day of the Lease term or any earlier termination date, clean and
free of debris and in good operating order, condition and state of repair,
ordinary wear and tear excepted. Ordinary wear and tear shall not include any
damage or deterioration that would have been prevented by good maintenance
practice or by Lessee performing all of its obligations under this Lease.
Except as otherwise agreed or specified herein, the Premises, as surrendered,
shall include the Alterations and Utility Installations. The obligation of
Lessee shall include the repair of any damage occasioned by the installation,
maintenance or removal of Lessee's Trade Fixtures, furnishings, equipment, and
Lessee-Owned Alterations and Utility Installations, as well as the removal of
any storage tank installed by or for Lessee, and the removal, replacement, or
remediation of any soil, material or ground water contaminated by Lessee, all as
may then be required by Applicable Requirements and/or good practice. Lessee's
Trade Fixtures shall remain the property of Lessee and shall be removed by
Lessee subject to its obligation to repair and restore the Premises per this
Lease.
8. Insurance; Indemnity.
--------------------
8.1 Payment of Premium Increases.
----------------------------
(a) As used herein, the term "Insurance Cost Increase" is defined as any
increase in the actual cost of the insurance applicable to the Building and
required to be carried by Lessor pursuant to Paragraphs 8.2(b), 8.3(a) and 8
3(b), ("Required Insurance"), over and above the Base Premium, as hereinafter
defined, calculated on an annual basis. "Insurance Cost Increase" shall
include, but not be limited to, requirements of the holder of a mortgage or deed
of trust covering the Premises, increased valuation of the Premises, and/or a
general premium rate increase. The term "Insurance Cost Increase" shall not,
however, include any premium increases resulting
-9-
<PAGE>
from the nature of the occupancy of any other lessee of the Building. If the
parties insert a dollar amount in Paragraph 1.9, such amount shall be considered
the "Base Premium." If a dollar amount has not been inserted in Paragraph 1.9
and if the Building has been previously occupied during the twelve (12) month
period immediately preceding the Commencement Date, the "Base Premium" shall be
the annual premium applicable to such twelve (12) month period. It the Building
was not fully occupied during such twelve (12) month period, the "Base Premium"
shall be the lowest annual premium reasonably obtainable for the Required
Insurance as of the Commencement Date, assuming the most nominal use possible of
the Building. In no event, however, shall Lessee be responsible for any portion
of the premium cost attributable to liability insurance coverage in excess of
$1,000,000 procured under Paragraph 8.2(b).
(b) Lessee shall pay any Insurance Cost Increase to Lessor Premiums for
policy periods commencing prior to, or extending beyond, the term of this Lease
shall be prorated to coincide with the corresponding Commencement Date or
Expiration Date.
8.2 Liability Insurance.
-------------------
(a) Carried by Lessee. Lessee shall obtain and keep in force during the
-----------------
term of this Lease a Commercial General Liability policy of insurance protecting
Lessee, Lessor and any Lender(s) whose names have been provided to Lessee in
writing (as additional insureds) against claims for bodily injury, personal
injury and property damage based upon, involving or arising out of the
ownership, use, occupancy or maintenance of the Premises and all areas
appurtenant thereto. Such insurance shall be on an occurrence basis providing
single limit coverage in an amount not less than $1,000,000 per occurrence with
an "Additional Insured--Managers or Lessors of Premises" endorsement and contain
the "Amendment of the Pollution Exclusion" endorsement for damage caused by
heat, smoke or fumes from a hostile tire. The policy shall not contain any
intra-insured exclusions as between insured persons or organizations, but shall
include coverage for liability assumed under this Lease as an "insured contract"
for the performance of Lessee's indemnity obligations under this Lease. The
limits of said insurance required by this Lease or as carried by Lessee shall
not, however, limit the liability of Lessee nor relieve Lessee of any obligation
hereunder. All insurance to be carried by Lessee shall be primary to and not
contributory with any similar insurance carried by Lessor, whose insurance shall
be considered excess insurance only.
(b) Carried by Lessor. Lessor shall also maintain liability insurance
-----------------
described in Paragraph 8.2(a) above, in addition to and not in lieu of, the
insurance required to be maintained by Lessee. Lessee shall not be named as an
additional insured therein.
8.3 Property Insurance-Building, Improvements and Rental Value.
----------------------------------------------------------
(a) Building and Improvements. Lessor shall obtain and keep in force
-------------------------
during the term of this Lease a policy or policies in the name of Lessor, with
loss payable to Lessor and to any Lender(s), insuring against loss or damage to
the Premises. Such insurance shall be for full replacement cost, as the same
shall exist from time to time, or the amount required by any Lender(s), but in
no event more than the commercially reasonable and available insurable value
thereof 6, by reason of the unique nature or age of the improvements involved,
such latter amount is less than full replacement cost. Lessee-Owned Alterations
and Utility Installations, Trade Fixtures and Lessee's personal property shall
be insured by Lessee pursuant to Paragraph 8.4. If the coverage is available
and commercially appropriate, Lessor's policy or policies shall insure against
all risks of direct physical loss or damage (except the perils of flood and/or
earthquake unless required by a Lender or included in the Base Premium),
including coverage for any additional costs resulting from debris removal and
reasonable amounts of coverage for the enforcement of any ordinance or law
regulating the reconstruction or replacement of any undamaged sections of the
Building required to be demolished or removed by reason of the enforcement of
any building, zoning, safety or land use laws as the result of a covered loss,
but not including plate glass insurance. Said policy or policies shall also
contain an agreed valuation provision in lieu of any co-insurance clause, waiver
of subrogation, and inflation guard protection causing an increase in the annual
property insurance coverage
-10-
<PAGE>
amount by a factor of not less than the adjusted U.S. Department of Labor
Consumer Price Index for All Urban Consumers for the city nearest to where the
Premises are located.
(b) Adjacent Premises. Lessee shall pay for any increase in the premiums
-----------------
for the property insurance of the Building and for the Common Areas or other
buildings in the Industrial Center if said increase is caused by Lessee's acts,
omissions, use or occupancy of the Premises.
(c) Lessee's Improvements. Since Lessor is the Insuring Party, Lessor
---------------------
shall not be required to insure Lessee-Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease.
8.4 Lessee's Property Insurance. Subject to the requirements of Paragraph
---------------------------
8.5, Lessee at its cost shall either by separate policy or, at Lessor's option,
by endorsement to a policy already carried, maintain insurance coverage on all
of Lessee's personal property, Trade Fixtures and Lessee-Owned Alterations and
Utility Installations in, on, or about the Premises similar in coverage to that
carried by Lessor as the Insuring Party under Paragraph 8.3(a). Such insurance
shall be full replacement cost coverage with a deductible not to exceed $1,000
to $2,500 per occurrence. The proceeds from any such insurance shall be used by
Lessee for the replacement of personal property and the restoration of Trade
Fixtures and Lessee-Owned Alterations and Utility Installations. Upon request
from Lessor, Lessee shall provide Lessor with written evidence that such
insurance is in force.
8.5 Insurance Policies. Insurance required hereunder shall be in
------------------
companies duly licensed to transact business in the state where the Promises are
located, and maintaining during the policy term a "General Policyholders Rating"
of at least B+, V, or such other rating as may be required by a Lender, as set
forth in the most current issue of "Best's Insurance Guide." Lessee shall not
do or permit to be done anything which shall invalidate the insurance policies
referred to in this Paragraph 8. Lessee shall cause to be delivered to Lessor,
within seven (7) days after the earlier of the Early Possession Date or the
Commencement Date. certified copies of, or certificates evidencing the
existence and amounts of, the insurance required under Paragraph 8.2(a) and 8.4.
No such policy shall be cancelable or subject to modification except after
thirty (30) days' prior written notice to Lessor. Lessee shall at least thirty
(30) days prior to the expiration of such policies, furnish Lessor with evidence
of renewals or "insurance binders" evidencing renewal thereof, or Lessor may
order such insurance and charge the cost thereof to Lessee, which amount shall
be payable by Lessee to Lessor upon demand.
8.6 Waiver of Subrogation. Without affecting any other rights or
---------------------
remedies, Lessee and Lessor each hereby release and relieve the other, and waive
their entire right to recover damages (whether in contract or in tort) against
the other, for loss or damage to their property arising out of or incident to
the perils required to be insured against under Paragraph 8. The effect of such
releases and waivers of the right to recover damages shall not be limited by the
amount of insurance carried or required, or by any deductibles applicable
thereto. Lessor and Lessee agree to have their respective insurance companies
issuing property damage insurance waive any right to subrogation that such
companies may have against Lessor or Lessee, as the case may be, so long as the
insurance is not invalidated thereby.
8.7 Indemnity. Except for Lessor's negligence, intentional acts and/or
---------
breach of express warranties, Lessee shall indemnity, protect, defend and hold
harmless the Premises, Lessor and its agents, Lessor's master or ground lessor,
partners and Lenders, from and against any and all claims, loss of rents and/or
damages, costs, liens, judgments, penalties, loss of permits, attorneys' and
consultants' fees, expenses and/or liabilities arising out of, involving, or in
connection with, the occupancy of the Premises by Lessee, the conduct of
Lessee's business, any act, omission or neglect of Lessee, its agents,
contractors, employees or invitees, and out of any Default or Breach by Lessee
in the performance in a timely manner of any obligation on Lessee's part to be
performed under this Lease. The foregoing shall include, but not be limited to,
the defense or pursuit of any claim or any action or proceeding involved
therein, and whether or not (in the case of claims made against Lessor)
litigated and/or reduced to judgment. In case any action or proceeding be
brought against Lessor by reason of any of the foregoing matters, Lessee upon
notice from Lessor shall defend the same at Lessee's expense by counsel
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reasonably satisfactory to Lessor and Lessor shall cooperate with Lessee in such
defense. Lessor need not have first paid any such claim in order to be so
indemnified.
8.8 Exemption of Lessor from Liability. Lessor shall not be liable for
----------------------------------
injury or damage to the person or goods, wares, merchandise or other property of
Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of pipes, fire sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether said injury or damage results from conditions arising upon the
Premises or upon other portions of the Building of which the Premises are a
part, from other sources or places, and regardless of whether the cause of such
damage or injury or the means of repairing the same is accessible or not.
Lessor shall not be liable for any damages arising from any act or neglect of
any other lessee of Lessor nor from the failure by Lessor to enforce the
provisions of any other lease in the Industrial Center. Notwithstanding
Lessor's negligence or breach of this Lease, Lessor shall under no circumstances
be liable for injury to Lessee's business or for any loss of income or profit
therefrom.
9. Damage or Destruction.
---------------------
9.1 Definitions.
-----------
(a) "Premises Partial Damage" shall mean damage or destruction to the
Premises, other than Lessee-Owned Alterations and Utility Installations, the
repair cost of which damage or destruction is less than fifty percent (50%) of
the then Replacement Cost (as defined in Paragraph 9.1 (d)) of the Premises
(excluding Lessee-Owned Alterations and Utility Installations and Trade
Fixtures) immediately prior to such damage or destruction.
(b) "Premises Total Destruction" shall mean damage or destruction to the
Premises, other than Lessee-Owned Alterations and Utility Installations, the
repair cost of which damage or destruction is fifty percent (50%) or more of the
then Replacement Cost of the Premises (excluding Lessee-Owned Alterations and
Utility Installations and Trade Fixtures) immediately prior to such damage or
destruction. In addition, damage or destruction to the Building, other than
Lessee-Owned Alterations and Utility Installations and Trade Fixtures of any
lessees of the Building, the cost of which damage or destruction is fifty
percent (50%) or more of the then Replacement Cost (excluding Lessee-Owned
Alterations and Utility Installations and Trade Fixtures of any lessees of the
Building) of the Building shall, at the option of Lessor, be deemed to be
Premises Total Destruction.
(c) "Insured Loss" shall mean damage or destruction to the Premises, other
than Lessee-Owned Alterations and Utility Installations and Trade Fixtures,
which was caused by an event required to be covered by the insurance described
in Paragraph 8.3(a) irrespective of any deductible amounts or coverage limits
involved.
(d) "Replacement Cost" shall mean the cost to repair or rebuild the
improvements owned by Lessor at the time of the occurrence to their condition
existing immediately prior thereto, including demolition, debris removal and
upgrading required by the operation of applicable building codes, ordinances or
laws, and without deduction for depreciation.
(e) "Hazardous Substance Condition" shall mean the occurrence or discovery
of a condition involving the presence of, or a contamination by, a Hazardous
Substance as defined in Paragraph 6.2(a), in, on, or under the Premises.
9.2 Premises Partial Damage-Insured Loss. If Premises Partial Damage that
------------------------------------
is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such
damage (but not Lessee's Trade Fixtures or Lessee-Owned Alterations and Utility
Installations) as soon as reasonably possible and this Lease shall continue in
full force and effect. In the event, however, that there is a shortage of
insurance proceeds and such shortage is due to the tact
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<PAGE>
that, by reason of the unique nature of the improvements in the Premises, full
replacement cost insurance coverage was not commercially reasonable and
available, Lessor shall have no obligation to pay for the shortage in insurance
proceeds or to fully restore the unique aspects of the Premises unless Lessee
provides Lessor with the funds to cover same, or adequate assurance thereof,
within ten (10) days following receipt of written notice of such shortage and
request therefor. It Lessor receives said funds or adequate assurance thereof
within said ten (10) day period, Lessor shall complete them as soon as
reasonably possible and this Lease shall remain in full force and effect. If
Lessor does not receive such funds or assurance within said period, Lessor may
nevertheless elect by written notice to Lessee within ten (10) days thereafter
to make such restoration and repair as is commercially reasonable with Lessor
paying any shortage in proceeds, in which case this Lease shall remain in full
force and effect. If Lessor does not receive such funds or assurance within
such ten (10) day period, and if Lessor does not so elect to restore and repair,
then this Lease shall terminate sixty (60) days following the occurrence of the
damage or destruction. Unless otherwise agreed, Lessee shall in no event have
any right to reimbursement from Lessor for any funds contributed by Lessee to
repair any such damage or destruction. Premises Partial Damage due to flood or
earthquake shall be subject to Paragraph 9.3 rather than Paragraph 9.2,
notwithstanding that there may be some insurance coverage, but the net proceeds
of any such insurance shall be made available for the repairs if made by either
Party.
9.3 Partial Damage-Uninsured Loss. It Premises Partial Damage that is not
-----------------------------
an Insured Loss occurs, unless caused by a negligent or willful act of Lessee
(in which event Lessee shall make the repairs at Lessee's expense and this Lease
shall continue in full force and effect), Lessor may at Lessor's option, either
(i) repair such damage as soon as reasonably possible at Lessor's expense, in
which event this Lease shall continue in full force and effect, or (ii) give
written notice to Lessee within thirty (30) days after receipt by Lessor of
knowledge of the occurrence of such damage of Lessor's desire to terminate this
Lease as of the date sixty (60) days following the date of such notice. In the
event Lessor elects to give such notice of Lessor's intention to terminate this
Lease, Lessee shall have the right within ten (10) days after the receipt of
such notice to give written notice to Lessor of Lessee's commitment to pay for
the repair of such damage totally at Lessee's expense and without reimbursement
from Lessor. Lessee shall provide Lessor with the required funds or
satisfactory assurance thereof within thirty (30) days following such commitment
from Lessee. In such event this Lease shall continue in full force and effect,
and Lessor shall proceed to make such repairs as soon as reasonably possible
after the required funds are available. If Lessee does not give such notice and
provide the funds or assurance thereof within the times specified above, this
Lease shall terminate as of the date specified in Lessor's notice of
termination.
9.4 Total Destruction. Notwithstanding any other provision hereof, it
-----------------
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the damage
or destruction is an Insured Loss or was caused by a negligent or willful act of
Lessee. In the event, however, that the damage or destruction was caused by
Losses, Lessor shall have the right to recover Lessor's damages from Lessee
except as released and waived in Paragraph 9.7.
9.5 Damage Near End of Term. It at any time during the last six (6)
-----------------------
months of the term of this Lease there is damage for which the cost to repair
exceeds one month's Base Rent, whether or not an Insured Loss, Lessor may, at
Lessor's option, terminate this Lease effective sixty (60) days following the
date of occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the date of occurrence of such
damage. Provided, however, if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve this
Lease by (a) exercising such option, and (b) providing Lessor with any shortage
in insurance proceeds (or adequate assurance thereof) needed to make the repairs
on or before the earlier of (i) the date which is ten (10) days after Lessee's
receipt of Lessor's written notice purporting to terminate this Lease, or (ii)
the day prior to the date upon which such option expires. If Lessee duly
exercises such option during such period and provides Lessor with funds (or
adequate assurance thereof) to cover any shortage in insurance proceeds, Lessor
shall, at Lessor's expense repair such damage as soon as reasonably possible and
this Lease shall continue in full force and effect. If Lessee tails
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<PAGE>
to exercise such option and provide such funds or assurance during such period,
then this Lease shall terminate as of the date set forth in the first sentence
of this Paragraph 9.5.
9.6 Abatement of Rent; Lessee's Remedies.
------------------------------------
(a) In the event of (i) Premises Partial Damage or (ii) Hazardous
Substance Condition for which Lessee is not legally responsible, the Base Rent,
Common Area Operating Expenses and other charges, if any, payable by Lessee
hereunder for the period during which such damage or condition, its repair,
remediation or restoration continues, shall be abated in proportion to the
degree to which Lessee's use of the Premises is impaired, but not in excess of
proceeds from insurance required to be carried under Paragraph 8.3(b). Except
for abatement of Base Rent, Common Area Operating Expenses and other charges, if
any, as aforesaid, all other obligations of Lessee hereunder shall be performed
by Lessee, and Lessee shall have no claim against Lessor for any damage suffered
by reason of any such damage, destruction, repair, remediation or restoration.
(b) If Lessor shall be obligated to repair or restore the Premises under
the provisions of this Paragraph 9 and Shall not commence, in a substantial and
meaningful way, the repair or restoration of the Promises within ninety (90)
days after such obligation shall accrue, Lessee may, at any time prior to the
commencement of such repair or restoration, give written notice to Lessor and to
any Lenders of which Lessee has actual notice of Lessee's election to terminate
this Lease on a date not less than sixty (60) days following the giving of such
notice. If Lessee gives such notice to Lessor and such Lenders and such repair
or restoration is not commenced within thirty (30) days after receipt of such
notice, this Lease shall terminate as of the date specified in said notice. If
Lessor or a Lender commences the repair or restoration of the Premises within
thirty (30) days after the receipt of such notice, this Lease shall continue in
full force and effect. "Commence" as used in this Paragraph 9.6 shall mean
either the unconditional authorization of the preparation of the required plans,
or the beginning of the actual work on the Premises, whichever occurs first.
9.7 Hazardous Substance Conditions. If a Hazardous Substance Condition
------------------------------
occurs, unless Lessee is legally responsible therefor (in which case Lessee
shall make the investigation and remediation thereof required by Applicable
Requirements and this Lease shall continue in full force and effect, but subject
to Lessor's rights under Paragraph 6.2(C) and Paragraph 13), Lessor may at
Lessor's option either (i) investigate and remediate such Hazardous Substance
Condition, it required, as soon as reasonably possible at Lessor's expense, in
which event this Lease shall continue in full force and effect, or (ii) if the
estimated cost to investigate and remediate such condition exceeds twelve (12)
times the then monthly Base Rent or $100.000 whichever is greater, give written
notice to Lessee within thirty (30) days after receipt by Lessor of knowledge of
the occurrence of such Hazardous Substance Condition of Lessor's desire to
terminate this Lease as of the date sixty (60) days following the date of such
notice. In the event Lessor elects to give such notice of Lessor's intention to
terminate this Lease, Lessee shall have the right within ten (10) days after the
receipt of such notice to give written notice to Lessor of Lessee's commitment
to pay for the excess costs of (a) investigation and remediation of such
Hazardous Substance Condition to the extent required by Applicable Requirements,
over (b) an amount equal to twelve (12) times the then monthly Base Rent or
$100,000, whichever is greater Lessee shall provide Lessor with the funds
required of Lessee or satisfactory assurance thereof within thirty (30) days
following said commitment by Lessee. In such event this Lease shall continue in
full force and effect, and Lessor shall proceed to make such investigation and
remediation as soon as reasonably possible after the required funds are
available. If Lessee does not give such notice and provide the required funds
or assurance thereof within the time period specified above, this Lease shall
terminate as of the date specified in Lessor's notice of termination.
9.8 Termination-Advance Payments. Upon termination of this Lease pursuant
----------------------------
to this Paragraph 9, Lessor shall return to Lessee any advance payment made by
Lessee to Lessor and so much of Lessee's Security Deposit as has not been, or is
not then required to be, used by Lessor under the terms of this Lease.
9.9 Waiver of Statutes. Lessor and Lessee agree that the terms of this
------------------
Lease shall govern the effect of any damage to or destruction of the Premises
and the Building with respect to the termination of this Lease and hereby waive
the provisions of any present or future statute to the extent it is inconsistent
herewith.
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<PAGE>
10. Real Property Taxes.
-------------------
10.1 Payment of Taxes. Lessor shall pay the Real Property Taxes. as
----------------
defined in Paragraph 10.2(a), applicable to the Industrial Center, and except as
otherwise provided in Paragraph 10.3, any increases in such amounts over the
Base Real Property Taxes shall be included in the calculation of Common Area
Operating Expenses in accordance with the provisions of Paragraph 4.2.
10.2 Real Property Tax Definitions.
-----------------------------
(a) As used herein, the term "Real Property Taxes" shall include any form
of real estate tax or assessment, general, special, ordinary or extraordinary,
and any license fee, commercial rental tax, improvement bond or bonds, levy or
tax (other than inheritance, personal income or estate taxes) imposed upon the
Industrial Center by any authority having the direct or indirect power to tax,
including any city, state or federal government, or any school, agricultural,
sanitary, fire, street, drainage, or other improvement district thereof, levied
against any legal or equitable interest of Lessor in the Industrial Center or
any portion thereof, Lessor's right to rent or other income therefrom, and/or
Lessor's business of leasing the Premises. The term "Real Property Taxes" shall
also include any tax, fee, levy, assessment or charge, or any Increase therein,
imposed by reason of events occurring, or changes in Applicable Law taking
effect, during the term of this Lease, including but not limited to a change in
the ownership of the Industrial Center or in the improvements thereon, the
execution of this Lease, or any modification, amendment or transfer thereof, and
whether of riot contemplated by the Parties.
(b) As used herein, the term "Base Real Property Taxes" shall be the
amount of Real Property Taxes, which are assessed against the Premises, Building
or Common Areas in the calendar year during which the Lease is executed. In
calculating Real Property Taxes for any calendar year, the Real Property Taxes
for any real estate tax year shall be included in the calculation of the Real
Property Taxes for such calendar year based upon the number of days which such
calendar year and tax year have in common.
10.3 Additional Improvements. Notwithstanding Paragraph 10.1 hereof,
-----------------------
Lessee shall, however, pay to Lessor the entirety of any increase in Real
Property Taxes if assessed solely by reason of Alterations., Trade Fixtures or
Utility Installations placed upon the Premises by Lessee or at Lessee's request.
10.4 Joint Assessment. If the Building is not separately assessed, Real
----------------
Property Taxes allocated to the Building shall be an equitable proportion of the
Real Property Taxes for all of the land and improvements included within the tax
parcel assessed, such proportion to be determined by Lessor from the respective
valuations assigned in the assessor's work sheets or such other information as
may be reasonably available. Lessor's reasonable determination thereof, in good
faith, shall be conclusive.
10.5 Lessee's Property Taxes. Lessee shall pay prior to delinquency all
-----------------------
taxes assessed against and levied upon Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or stored within the Industrial Center.
When possible, Lessee shall cause its Lessee-Owned Alterations and Utility
Installations, Trade Fixtures. furnishings, equipment and all other personal
property to be assessed and billed separately from the real property of Lessor
It any of Lessee's said property shall be assessed with Lessor's real property,
Lessee shall pay Lessor the taxes attributable to Lessee's property within ten
(10) days after receipt of a written statement setting forth the taxes
applicable to Lessee's property.
11. Utilities. Lessee shall pay directly for all utilities and services
---------
supplied to the Premises, including but not limited to electricity, telephone,
security, gas and cleaning of the Premises, together with any taxes thereon. If
any such utilities or services are not separately metered to the Premises or
separately billed to the Premises. Lessee shall pay to Lessor a reasonable
proportion to be determined by Lessor of all such charges jointly metered or
billed with other premises in the Building, in the manner and within the time
periods set forth in Paragraph 4.2(d).
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<PAGE>
12. Assignment and Subletting.
-------------------------
12.1 Lessor's Consent Required.
-------------------------
(a) Lessee shall not voluntarily or by operation of law assign, transfer,
mortgage or otherwise transfer or encumber (collectively, "assign") or sublet
all or any part of Lessee's interest in this Lease or in the Premises without
Lessor's prior written consent given under and subject to the terms of Paragraph
36.
(b) A change in the control of Lessee shall constitute an assignment
requiring Lessor's consent. The transfer, on a cumulative basis, of twenty-five
percent (25%) or more of the voting control of Lessee shall constitute a change
in control for this purpose.
(c) The involvement of Lessee or its assets in any transaction, or series
of transactions (by way of merger, sale, acquisition, financing, refinancing,
transfer, leveraged buy-out or otherwise), whether or not a formal assignment or
hypothecation of this Lease of Lessee's assets occurs, which results or will
result in a reduction of the Net Worth of Lessee, as hereinafter defined, by an
amount equal to or greater than twenty-five percent (25%) of such Net Worth of
Lessee as it was represented to Lessor at the time of full execution and
delivery of this Lease or at the time of the most recent assignment to which
Lessor has consented, or as it exists immediately prior to said transaction or
transactions constituting such reduction. at whichever time said Net Worth of
Lessee was or is greater, shall be considered an assignment of this Lease by
Lessee to which Lessor may reasonably withhold its consent. "Not Worth of
Lessee" for purposes of this Lease shall be the net worth of Lessee (excluding
any Guarantors) established under generally accepted accounting principles
consistently applied.
(d) An assignment or subletting of Lessee's interest in this Lease without
Lessor's specific prior written consent shall, at Lessor's option, be a Default
curable after notice per Paragraph 13.1, or a non-curable Breach without the
necessity of any notice and grace period. If Lessor elects to treat such
unconsented to assignment or subletting as a non-curable Breach, Lessor shall
have the right to either: (i) terminate this Lease, or (ii) upon thirty (30)
days' written notice ("Lessor's Notice"), increase the monthly Base Rent for the
Premises to the greater of the then fair market rental value of the Premises, as
reasonably determined by Lessor, or one hundred ten percent (110%) of the Base
Rent then in effect. Pending determination of the new fair market rental value,
if disputed by Lessee. Lessee shall pay the amount set forth in Lessor's
Notice, with any overpayment credited against the next installment(s) of Base
Rent coming due, and any underpayment for the period retroactively to the
effective date of the adjustment being due and payable immediately upon the
determination thereof. Further, in the event of such Breach and rental
adjustment, (i) the purchase price of any option to purchase the Premises held
by Lessee shall be subject to similar adjustment to the then fair market value
as reasonably determined by Lessor (without the Lease being considered an
encumbrance or any deduction for depreciation or obsolescence, and considering
the Premises at its highest and best use and in good condition) or one hundred
ten percent (I 10%) of the price previously in effect, (ii) any index-oriented
rental or price adjustment formulas contained in this Lease shall be adjusted to
require that the base index be determined with reference to the index applicable
to the time of such adjustment, and (iii) any fixed rental adjustments scheduled
during the remainder of the Lease term shall be increased in the same ratio as
the new rental bears to the Bass Rent in effect immediately prior to the
adjustment specified in Lessor's Notice.
(e) Lessee's remedy for any breach of this Paragraph 12.1 by Lessor shall
be limited to compensatory damages and/or injunctive relief.
12.2 Terms and Conditions Applicable to Assignment and Subletting.
------------------------------------------------------------
(a) Regardless of Lessor's consent, any assignment or subletting shall not
(i) be effective without the express written assumption by such assignee or
sublessee of the obligations of Lessee under this Lease, (ii) release Lessee of
ny obligations hereunder, nor (iii) alter the primary liability of Lessee for
the payment of
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<PAGE>
Base Rent and other sums due Lessor hereunder or for the performance of any
other obligations to be performed by Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's obligations from
any person other than Lessee pending approval or disapproval of an assignment.
Neither a delay in the approval or disapproval of such assignment nor the
acceptance of any rent for performance shall constitute a waiver or estoppel of
Lessor's right to exercise its remedies for the Default or Breach by Lessee of
any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee or to
any subsequent or successive assignment or subletting by the assignee or
sublessee. However, Lessor may consent to subsequent sublettings and assigns is
of the sublease or any amendments or modifications thereto without notifying
Lessee or anyone else liable under this Lease or the sublease and without
obtaining their consent, and such action shall not relieve such persons from
liability under this Lease or the sublease.
(d) In the event of any Default or Breach of Lessee's obligation under
this Lease, Lessor may proceed directly against Lessee, any Guarantors or anyone
else responsible for the performance of the Lessee's obligations under this
Lease, including any sublessee, without first exhausting Lessor's remedies
against any other person or entity responsible therefor to Lessor, or any
security held by Lessor.
(e) Each request for consent to an assignment or subletting shall be in
writing, accompanied by information relevant to Lessor's determination as to the
financial and operational responsibility and appropriateness of the proposed
assignee or sublessee, including but not limited to the intended use and/or
required modification of the Premises, it any, together with a non-refundable
deposit of $1,000 or ten percent (100/6) of the monthly Base Rent applicable to
the portion of the Premises which is the subject of the proposed assignment or
sublease, whichever is greater, as reasonable consideration for Lessor's
considering and processing the request for consent. Lessee agrees to provide
Lessor with such other or additional information and/or documentation as may be
reasonably requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by reason of
accepting such assignment or entering into such sublease, be deemed, for the
benefit of Lessor, to have assumed and agreed to conform and comply with each
arid every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other than
such obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented in writing.
(g) The occurrence of a transaction described in Paragraph 12.2(c) shall
give Lessor the right (but not the obligation) to require that the Security
Deposit be increased by an amount equal to six (6) times the then monthly Base
Rent, and Lessor may make the actual receipt by Lessor of the Security Deposit
increase a condition to Lessor's consent to such transaction.
(h) Lessor, as a condition to giving its consent to any assignment or
subletting, may require that the amount and adjustment schedule of the rent
payable under this Lease be adjusted to what is then the market value and/or
adjustment schedule for-property similar to the Promises as then constituted, as
determined by Lessor.
12.3 Additional Terms and Conditions Applicable to Subletting. The
--------------------------------------------------------
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's interest
in all rentals and income arising from any sublease of all or a portion of the
Premises heretofore or hereafter made by Lessee, and Lessor may collect such
rent and income and apply same toward Lessee's obligations under this Lease;
provided,
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<PAGE>
however, that until a Breach (as defined in Paragraph 13.1) shall occur in the
performance of Lessee's obligations under this Lease, Lessee may, except as
otherwise provided in this Lease, receive, collect and enjoy the rents accruing
under such sublease. Lessor shall not, by reason of the foregoing provision or
any other assignment of such sublease to Lessor, nor by reason of the collection
of the rents from a sublessee, be deemed liable to the sublessee for any failure
of Lessee to perform and comply with any of Lessee's obligations to such
sublessee under such Sublease. Lessee hereby irrevocably authorizes and directs
any such sublessee, upon receipt of a written notice from Lessor stating that a
Breach exists in the performance of Lessee's obligations under this Lease, to
pay to Lessor the rents and other charges due and to become due under the
sublease. Sublessee shall rely upon any such statement and request from Lessor
and shall pay such rents and other charges to Lessor without any obligation or
right to inquire as to whether such Breach exists and notwithstanding any notice
from or claim from Lessee to the contrary, Lessee shall have no right or claim
against such sublessee, or, until the Breach has been cured, against Lessor, for
any such rents and other charges so paid by said sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of the sublessor under such sublease from the
time of the exercise of said option to the expiration of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or security
deposit paid by such sublessee to such sublessor or for any other prior defaults
or breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor under a
sublease shall also require the consent of Lessor herein.
(d) No sublessee under a sublease approved by Lessor shall further assign
or sublet all or any part of the Premises without Lessor's prior written
consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach by
Lessee to the sublessee, who shall have the right to cure the Default of Lessee
within the grace period, if any, specified in such notice. The sublessee shall
have a right of reimbursement and offset from and against Lessee for any such
Defaults cured by the sublessee.
13. Default; Breach; Remedies.
-------------------------
13.1 Default; Breach. Lessor and Lessee agree that it an attorney is
---------------
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default, and that Lessor may include the cost of such services and costs in said
notice as rent due and payable to cure said default. A "Default" by Lessee is
defined as a failure by Lessee to observe, comply with or perform any of the
terms, covenants, conditions or rules applicable to Lessee under this Lease. A
"Breach" by Lessee is defined as the occurrence of any one or more of the
following Defaults, and. where a grace period for cure after notice is
specified herein, the failure by Lessee to cure such Default prior to the
expiration of the applicable grace period, and shall entitle Lessor to pursue
the remedies set forth in Paragraphs 13.2 and/or 13.3.
(a) The vacating of the Premises without the intention to reoccupy same,
or the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the failure by
Lessee to make any payment of Base Rent, Lessee's Share of Common Area Operating
Expenses, or any other monetary payment required to be made by Lessee hereunder
as and when due, the failure by Lessee to provide Lessor with reasonable
evidence of insurance or surety bond required under this Lease, or the failure
of Lessee to fulfill any obligation under this Lease which endangers or
threatens lite or property, where such failure continues for a period of three
(3) days following written notice thereof by or on behalf of Lessor to Lessee.
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(c) Except as expressly otherwise provided in this Lease, the failure by
Lessee to provide Lessor with reasonable written evidence (in duly executed
original form, if applicable) of (i) compliance with Applicable Requirements per
Paragraph 6.3, (ii) the inspection, maintenance and service contracts required
under Paragraph 7.1 (b), (iii) the rescission of an unauthorized assignment or
subletting per Paragraph 12.1, (iv) a Tenancy Statement per Paragraphs 16 or 37,
(v) the subordination or non-subordination of this Lease per Paragraph 30, (vi)
the guaranty of the performance of Lessee's obligations under this Lease if
required under Paragraphs 1, 11 and 37, (vii) the execution of any document
requested under Paragraph 42 (easements), or (viii) any other documentation or
information which Lessor may reasonably require of Lessee under the terms of
this lease, where any such failure continues for a period of ten (10) days
following written notice by or on behalf of Lessor to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof that
are to be observed, complied with or performed by Lessee, other than those
described in Subparagraphs 13.1 (a), (b) or (c), above, where such Default
continues for a period of thirty (30) days after written notice thereof by or on
behalf of Lessor to Lessee; provided, however, that it the nature of Lessee's
Default is such that more than thirty (30) days are reasonably required for its
cure, then it shall not be deemed to be a Breach of this Lease by Lessee if
Lessee commences such cure within said thirty (30) day period and thereafter
diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) the making by
Lessee of any general arrangement or assignment for the benefit of creditors;
(ii) Lessee's becoming a "debtor" as defined in 11 U.S. Code Section 101 or any
successor statute thereto (unless, in the case of a petition filed against
Lessee, the same is dismissed within sixty (60) days); (iii) the appointment of
a trustee or receiver to take possession of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where possession
is not restored to Lessee within thirty (30) days; or (iv) the attachment,
execution or other judicial seizure of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within thirty (30) days; provided, however, in the
event that any provision of this Subparagraph 13.1(e) is contrary to any
applicable law, such provision shall be of no force or effect, and shall not
affect the validity of the remaining provisions.
(f) The discovery by Lessor that any financial statement of Lessee or of
any Guarantor, given to Lessor by Lessee or any Guarantor, was materially false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of a Guarantor, (ii) the termination of a Guarantor's
liability with respect to this Lease other than in accordance with the terms of
such guaranty, (iii) a Guarantor's becoming insolvent or the subject of a
bankruptcy filing, (iv) a Guarantor's refusal to honor the guaranty, or (v) a
Guarantor's breach of its guaranty obligation on an anticipatory breach basis,
and Lessee's failure, within sixty (60) days following written notice by or on
behalf of Lessor to Lessee of any such event, to provide Lessor with written
alternative assurances of security, which, when coupled with the then existing
resources of Lessee, equals or exceeds the combined financial resources of
Lessee and the Guarantors that existed at the time of execution of this Lease.
13.2 Remedies. If lessee tails to perform any affirmative duty or
--------
obligation of Lessee under this Lease, within ten (10) days after written notice
to Lessee (or in case of an emergency, without notice), Lessor may at its option
(but without obligation to do so), perform such duty or obligation on Lessee's
behalf, including but not limited to the obtaining of reasonably required bonds,
insurance policies, or governmental licenses, permits or approvals. The costs
and expenses of any such performance by Lessor shall be due and payable by
Lessee to Lessor upon invoice therefor. If any check given to Lessor by Lessee
shall not be honored by the bank upon which it is drawn, Lessor, at its own
option, may require all future payments to be made under this Lease by Lessee to
be made only by cashier's check. In the event of a Breach of this Lease by
Lessee (as defined in Paragraph 13.1), with or without further notice or demand,
and without limiting Lessor in the exercise of any right or remedy which Lessor
may have by reason of such Breach, Lessor may:
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(a) Terminate Lessee's right to possession of the Premises by any lawful
means, in which case this Lease and the term hereof shall terminate and Lessee
shall immediately surrender possession of the Premises to Lessor. In such event
Lessor shall be entitled to recover from Lessee: (i) the worth at the time of
the award of the unpaid rent which had been earned at the time of termination;
(ii) 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 that the Lessee proves could have been reasonably
avoided; (iii) the worth at the time of award of the amount by which the unpaid
rent for the balance of the term after the time of award exceeds the amount of
such rental loss that the Lessee proves could be reasonably avoided; and (iv)
any other amount necessary to compensate Lessor for all the detriment
proximately caused by the Lessee's failure to perform its obligations under this
Lease or which in the ordinary course of things would be likely to result
therefrom, including but not limited to the cost of recovering possession of the
Premises, expenses of reletting, including necessary renovation and alteration
of the Premises, reasonable attorneys' fees, and that portion of any leasing
commission paid by Lessor in connection with this Lease applicable to the
unexpired term of this Lease. The worth at the time of award of the amount
referred to in provision (iii) of the immediately preceding sentence shall be
computed by discounting such amount at the discount rate of the Federal Reserve
Bank of San Francisco or the Federal Reserve Bank District in which the Premises
are located at the time of award plus one percent (1%). Efforts by Lessor to
mitigate damages caused by Lessee's Default or Breach of this Lease shall not
waive Lessor's right to recover damages under this Paragraph 13.2. If
termination of this Lease is obtained through the provisional remedy of unlawful
detainer, Lessor shall have the right to recover in such proceeding the unpaid
rent and damages as are recoverable therein, or Lessor may reserve the right to
recover all or any part thereof in a separate suit for such rent and/or damages.
It a notice and grace period is required under Subparagraph 13.1 (b), (c) or (d)
was not previously given a notice to pay rent or quit, or to perform or quit, as
the case may be, given to Lessee under any statute authorizing the forfeiture of
leases for unlawful detainer shall also constitute the applicable notice for
grace period purposes required by Subparagraph 13.1 (b),(c) or (d). In such
case, the applicable grace period under the unlawful detainer statute shall run
concurrently after the one such statutory notice, and the failure of Lessee to
cure the Default within the greater of the two (2) such grace periods Shall
constitute both an unlawful detainer and a Breach of this Lease entitling Lessor
to the remedies provided for in this Lease and/or by said statute.
(b) Continue the Lease and Lessee's right to possession in effect (in
California under California Civil Code Section 1951.4) after Lessee's Breach and
recover the rent as it becomes due, provided Lessee has the right to sublet or
assign, subject only to reasonable limitations. Lessor and Lessee agree that
the limitations on assignment and subletting in this Lease are reasonable. Acts
of maintenance or preservation. efforts to relet the Premises. or the
appointment of a receiver to protect the Lessor's interest under this Lease,
shall not constitute a termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor under the
laws or judicial decisions of the state wherein the Premises are located.
(d) The expiration or termination of this Lease and/or the termination of
Lessee's right to possession shall not relieve Lessee from liability under any
indemnity provisions of this Lease as to matters occurring or accruing during
the term hereof or by reason of Lessee's occupancy of the Premises.
13.3 Inducement Recapture in Event of Breach. Any agreement by Lessor for
---------------------------------------
tree or abated rent or other charges applicable to the Premises, or for. the
giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease. all of which
concessions are hereinafter referred to as "Inducement Provisions" shall be
deemed conditioned upon Lessee's full and faithful performance of all of the
terms, covenants and conditions of this Lease to be performed or observed by
Lessee during the term hereof as the same may be extended. Upon the occurrence
of a Breach (as defined in Paragraph 13.1) of this Lease by Lessee, any such
Inducement Provision shall automatically be deemed deleted from this Lease and
of no further force or effect, and any rent, other charge, bonus, inducement or
consideration theretofore abated, given or paid by Lessor under such an
Inducement Provision shall be immediately due and payable by Lessee to Lessor,
and recoverable by Lessor, as additional rent due under this Lease,
notwithstanding
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any subsequent cure of said Breach by Lessee. The acceptance by Lessor of rent
or the cure of the Breach which initiated the operation of this Paragraph 13.3
shall not be deemed a waiver by Lessor of the provisions of this Paragraph 13.3
unless specifically so stated in writing by Lessor at the time of such
acceptance.
13.4 Late Charges. Lessee hereby acknowledges that late payment by Lessee
------------
to Lessor of rent and other sums due hereunder will cause Lessor to incur costs
not contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed upon Lessor by the
terms of any ground lease, mortgage or deed of trust covering the Premises.
Accordingly, if any installment of rent or other sum due from Lessee shall not
be received by Lessor or Lessor's designee within ten (10) days after such
amount shall be due, then, without any requirement for notice to Lessee, Lessee
shall pay to Lessor a late charge equal to six percent (6%) of such overdue.
amount. The parties hereby agree that such late charge represents a fair and
reasonable estimate of the costs Lessor will incur by reason of late payment by
Lessee. Acceptance of such late charge by Lessor shall in no event constitute a
waiver of Lessee's Default or Breach with respect to such overdue amount. nor
prevent Lessor from exercising any of the other rights and remedies granted
hereunder. In the event that a late charge is payable hereunder, whether or not
collected, for three (3) consecutive installments of Base Rent, then
notwithstanding Paragraph 4.1 or any other provision of this Lease to the
contrary, Base Rent shall. at Lessor's option, become due and payable quarterly
in advance.
13.5 Breach by Lessor. Lessor shall not be deemed in breach of this Lease
----------------
unless Lessor fails within a reasonable time to perform an obligation required
to be performed by Lessor. For purposes of this Paragraph 13.5, a reasonable
time shall in no event be less than thirty (30) days after receipt by Lessor,
and by any Lender(s) whose name and address shall have been furnished to Lessee
in writing for such purpose, of written notice specifying wherein such
obligation of Lessor has not been performed; provided, however, that if the
nature of Lessor's obligation is such that more than thirty (30) days after such
notice are reasonably required for its performance, then Lessor shall not be in
breach of this Lease if performance is commenced within such thirty (30) day
period and thereafter diligently pursued to completion.
14. Condemnation. If the Premises or any portion thereof are taken under
------------
the power of eminent domain or sold under the threat of the exercise of said
power (all c! which are herein called "condemnation"), this Lease shall
terminate as to the part so taken as of the date the condemning authority takes
title or possession, whichever first occurs. It more than ten percent (10%) of
the floor area of the Premises, or more than twenty-five percent (25%) of the
portion of the Common Areas designated for Lessee's parking, is taken by
condemnation, Lessee may, at Lessee's option, to be exercised in writing within
ten (10) days after Lessor shall have given Lessee written notice of such taking
(or in the absence of such notice. within ten (10) days after the condemning
authority shall have taken possession) terminate this Lease as of the date the
condemning authority takes such possession. If Lessee does not terminate this
Lease in accordance with the foregoing, this Lease shall remain in full force
and affect as to the portion of the Premises remaining, except that the Base
Rent shall be reduced in the same proportion as the rentable floor area of the
Premises taken bears to the total rentable floor area of the Premises. No
reduction of Base Rent shall occur if the condemnation does not apply to any
portion of the Premises. Any award for the taking of all or any part of the
Premises under the power of eminent domain or any payment made under threat of
the exercise of such power shall be the property of Lessor, whether such award
shall be made as compensation for diminution of value of the leasehold or for
the taking of the fee, or as severance damages; provided, however, that Lessee
shall be entitled to any compensation, separately awarded to Lessee for Lessee's
relocation expenses and/or loss of Lessee's Trade Fixtures. In the event that
this Lease is not terminated by reason of such condemnation, Lessor shall to the
extent of its net severance damages received, over and above Lessee's Share of
the legal and other expenses incurred by Lessor in the condemnation matter,
repair any damage to the Premises caused by such condemnation authority. Lessee
shall be responsible for the payment of any amount in excess of such net
severance damages required to complete such repair.
15. Brokers' Fees.
-------------
15.1 Procuring Cause. The Broker(s) named in Paragraph 1.10 is/are the
---------------
procuring cause of this Lease.
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15.2 Additional Terms. Unless Lessor and Broker(s) have otherwise agreed
----------------
in writing, Lessor agrees that: (a) it Lessee exercises any Option (as defined
in Paragraph 39.1) granted under this Lease or any Option subsequently granted,
or (b) it Lessee acquires any rights to the Premises or other premises in which
Lessor has an interest, or (c) it Lessee remains in possession of the Premises
with the consent of Lessor after the expiration of the term of this Lease after
having failed to exercise an Option, or (d) if said Brokers are the procuring
cause of any other lease or sale entered into between the Parties pertaining to
the Premises and/or any adjacent property in which Lessor has an interest, or
(e) if Base Rent is increased, whether by agreement or operation of an
escalation clause herein, then as to any of said transactions, Lessor shall pay
said Broker(s) a fee in accordance with the schedule of said Broker(s) in effect
at the time of the execution of this Lease.
15.3 Assumption of Obligations. Any buyer or transferee of Lessor's
-------------------------
interest in this Lease, whether such transfer is by agreement or by operation of
law, shall be deemed to have assumed Lessor's obligation under this Paragraph
15. Each Broker shall be an intended third party beneficiary of the provisions
of Paragraph 1.10 and of this Paragraph 15 to the extent of its interest in any
commission Arising from this Lease and may enforce that right directly against
Lessor and its successors.
15.4 Representations and Warranties. Lessee and Lessor each represent and
------------------------------
warrant to the other that it has had no dealings with any person, firm, broker
or finder other than as named in Paragraph 1. 1 0(a) in connection with the
negotiation of this Lease and/or the consummation of the transaction
contemplated hereby, and that no broker or other person, firm or entity other
than said named Broker(s) is entitled to any commission or tinder's fee in
connection with said transaction. Lessee and Lessor do each hereby agree to
indemnity, protect, defend and hold the other harmless from and against
liability for compensation or charges which may be claimed by any such unnamed
broker, finder or other similar party by reason.of any dealings or actions of
the indemnifying Party, including any costs, expenses, and/or attorneys' fees
reasonably incurred with respect thereto.
16. Tenancy and Financial Statements.
--------------------------------
16.1 Tenancy Statement. Each Party (as "Responding Party") shall within
-----------------
ten (10) days after written notice from the other Party (the "Requesting Party")
execute, acknowledge and deliver to the Requesting Party a statement in writing
in a form similar to the then most current "Tenancy Statement" form published by
the American Industrial Real Estate Association, plus such additional
information, confirmation and/or statements as may be reasonably requested by
the Requesting Party.
16.2 Financial Statement. If Lessor desires to finance, refinance, or
-------------------
sell the Premises or the Building, or any part thereof, Lessee and all
Guarantors shall deliver to any potential lender or purchaser designated by
Lessor such financial statements of Lessee and such Guarantors as may be
reasonably required by such lender or purchaser, including but not limited to
Lessee's financial statements for the past three (3) years. All such financial
statements shall be received by Lessor and such lender or purchaser in
confidence and shall be used only for the purposes herein set forth.
17. Lessor's Liability. The term "Lessor" as used herein shall mean the
------------------
owner or owners at the time in question of the fee title to the Premises. In
the event of a transfer of Lessor's title or interest in the Promises or in this
Lease, Lessor shall deliver to the transferee or assignee (in cash or by credit)
any unused Security Deposit held by Lessor at the time of such transfer or
assignment. Except as provided in Paragraph 15.3, upon such transfer or
assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor
shall be, relieved of all liability with respect to the obligations and/or
covenants under this Lease thereafter to be performed by the Lessor. Subject to
the foregoing, the obligations and/or covenants in this Lease to be performed by
the Lessor shall be binding only upon the Lessor as hereinabove defined.
18. Severability. The invalidity of any provision of this Lease, as
------------
determined by a court of competent jurisdiction, shall in no way affect the
validity of any other provision hereof.
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19. Interest on Past-Due Obligations. Any monetary payment due Lessor
--------------------------------
hereunder, other than late charges, not received by Lessor within ten (110) days
following the date on which it was due, shall bear interest from the date due at
the prime rate charged by the largest state chartered bank in the state in which
the Premises are located plus four percent (4%) per annum, but not exceeding the
maximum rate allowed by law, in addition to the potential late charge provided
for in Paragraph 13.4.
20. Time of Essence. Time is of the essence with respect to the
---------------
performance of all obligations to be performed or observed by the Parties under
this Lease.
21. Rent Defined. All monetary obligations of Lessee to Lessor under the
------------
terms of this Lease are deemed to be rent.
22. No Prior or other Agreements; Broker Disclaimer. This Lease contains
-----------------------------------------------
afl agreements between the Parties with respect to any matter mentioned herein,
and no other prior or contemporaneous agreement or understanding shall be
effective. Lessor and Lessee each represents and warrants to the Brokers that
it has made, and is relying solely upon, its own investigation as to the nature,
quality, character and financial responsibility of the other Party to this Lease
and as to the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by either party. Each Broker shall be an intended third party
beneficiary of the provisions of this Paragraph 22.
23. Notices.
-------
23.1 Notice Requirements. All notices required or permitted by this Lease
-------------------
shall be in writing and may be delivered in person (by hand or by messenger or
courier service) or may be sent by regular, certified or registered mail or U.S.
Postal Service Express Mail, with postage prepaid, or by facsimile transmission
during normal business hours, and shall be deemed sufficiently given it served
in a manner specified in this Paragraph 23. The addresses noted adjacent to a
Party's signature on this Lease shall be that Party's address for delivery or
mailing of notice purposes. Either Party may by written notice to the other
specify a different address for notice purposes, except that upon Lessee's
taking possession of the Premises, the Premises shall constitute Lessee's
address for the purpose of mailing or delivering notices to Lessee. A copy of
all notices required or permitted to be given to Lessor hereunder shall be
concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate by written notice to Lessee.
23.2 Date of Notice. Any notice sent by registered or certified mail,
--------------
return receipt requested, shall be deemed given on the date of delivery shown on
the receipt card, or it no delivery date is shown, the postmark thereon. If
sent by regular mail, the notice shall be deemed given forty-eight (48) hours
after the same is addressed as required herein and mailed with postage prepaid.
Notices delivered by United States Express Mail or overnight courier that
guarantees next day delivery shall be deemed given twenty-four (24) hours after
delivery of the same to the United States Postal Service or courier. If any
notice is transmitted by facsimile transmission or similar means, the same shall
be deemed served or delivered upon telephone or facsimile confirmation of
receipt of the transmission thereof, provided a copy is also delivered via
delivery or mail. It notice is received on a Saturday or a Sunday or a legal
holiday, it shall be deemed received on the next business day.
24. Waivers. No waiver by Lessor of the Default or Breach of any term.
-------
covenant or condition hereof by Lessee, shall be deemed a waiver of any other
term, covenant or condition hereof, or of any subsequent Default or Breach by
Lessee of the same or any other term, covenant or condition hereof. Lessor's
consent to, or approval of, any such act shall not be deemed to render
unnecessary the obtaining of Lessor's consent to, or approval of. any
subsequent or similar act by Lessee, or be construed as the basis of an estoppel
to enforce the provision or provisions of this Lease requiring such consent.
Regardless of Lessor's knowledge of a Default or Breach at the time of accepting
rent, the acceptance of rent by Lessor shall not be a waiver of any Default or
Breach by Lessee of any provision hereof. Any payment given Lessor by Lessee
may be accepted by Lessor on account of moneys or damages due Lessor,
notwithstanding any qualifying statements or conditions made by
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Lessee in connection therewith, which such statements and/or conditions shall be
of no force or effect whatsoever unless specifically agreed to in writing by
Lessor at or before the time of deposit of such payment.
25. Recording. Either Lessor or Lessee shall, upon request of the other,
---------
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any tees or taxes applicable thereto.
26. No Right To Holdover. Lessee has no right to retain possession of the
--------------------
Premises or any part thereof beyond the expiration or earlier termination of
this Lease. In the event that Lessee holds over in violation of this Paragraph
26 then the Base Rent payable from and after the time of the expiration or
earlier termination of this Lease shall be increased to two hundred percent
(200%) of the Base Rent applicable during the month immediately preceding such
expiration or earlier termination. Nothing contained herein shall be construed
as a consent by Lessor to any holding over by Lessee.
27. Cumulative Remedies. No remedy or election hereunder shall be deemed
-------------------
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. Covenant and Conditions. All provisions of this Lease to be observed
-----------------------
or performed by Lessee are both covenants and conditions.
29. Binding Effect; Choice of Law. This Lease shall be binding upon the
-----------------------------
Parties, their personal representatives, successors and assigns and be governed
by the laws of the State in which the Premises are located. Any litigation
between the Parties hereto concerning this Lease shall be initiated in the
county in which the Premises are located.
30. Subordination; Attornment; Non-Disturbance.
------------------------------------------
30.1 Subordination. This Lease and any Option granted hereby shall be
-------------
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "Security Device"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof. Lessee
agrees that the Lenders holding any such Security Device shall have no duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default pursuant
to Paragraph 13.5. It any Lender shall elect to have this Lease and/or any
Option granted hereby superior to the lien of its Security Device and shall give
written notice thereof to Lessee. this Lease and such Options shall be deemed
prior to such Security Device, notwithstanding the relative dates of the
documentation or recordation thereof.
30.2 Attornment. Subject to the non-disturbance provisions of Paragraph
----------
30.3. Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device. and
that in the event of such foreclosure, such new owner shall not: (i) be liable
for any act or omission of any prior lessor or with respect to events occurring
prior to acquisition of ownership, (ii) be subject to any offsets or defenses
which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one month's rent.
30.3 Non-Disturbance. With respect to Security Devices entered into by
---------------
Lessor after the execution of this lease. Lessee's subordination of this Lease
shall be subject to receiving assurance (a "non-disturbance agreement") from the
Lender that Lessee's possession and this Lease, including any options to extend
the term hereof, will not be disturbed so long as Lessee is not in Breach hereof
and attorns to the record owner of the Premises.
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30.4 Sell-Executing. The agreements contained in this Paragraph 30 shall
--------------
be effective i without the execution of any further documents; provided,
however, that upon written request from Lessor or a Lender in connection with a
sale, financing or refinancing of Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or non-subordination, attornment and/or non-disturbance agreement
as is provided for herein.
31. Attorneys' Fees. If any Party or Broker brings an action or
---------------
proceeding to enforce the terms hereof or declare rights hereunder, the
Prevailing Party (as hereafter defined) in any such proceeding, action, or
appeal thereon,'shall be entitled to reasonable attorneys' fees. Such tees may
be awarded in the same suit or recovered in a separate suit, whether or not such
action or proceeding is pursued to decision or judgment. The term "Prevailing
Party" shall include, without limitation, a Party or Broker who substantially
obtains or defeats the relief sought. as the case may be, whether by
compromise, settlement, judgment, or the abandonment by the other Party or
Broker of its claim or defense. The attorneys' fee award shall not be computed
in accordance with any court fee schedule, but shall be such as to fully
reimburse all attorneys' fees reasonably incurred. Lessor shall be entitled to
attorneys' fees, costs and expenses incurred in preparation and service of
notices of Default and consultations in connection therewith, whether or not a
legal action is subsequently commenced in connection with such Default or
resulting Breach. Broker(s) shall be intended third party beneficiaries of this
Paragraph 31.
32. Lessor's Access; Showing Promises; Repairs. Lessor and Lessor's
------------------------------------------
agents shall have the right to enter the Premises at any time. in the case of
an emergency, and otherwise at reasonable times for the purpose of showing the
same to prospective purchasers, lenders, or lessees, and making such
alterations, repairs, improvements or additions to the Premises or to the
Building, as Lessor may reasonably deem necessary. Lessor may at any time place
on or about the Premises or Building any ordinary *For Sale" signs and Lessor
may at any time during the last one hundred eighty (180) days of the term hereof
place on or about the Premises any ordinary "For Lease" signs. All such
activities of Lessor shall be without abatement of rent or liability to Lessee.
33. Auctions. Lessee shall not conduct, nor permit to be conducted,
--------
either voluntarily or involuntarily, any auction upon the Premises without first
having obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. Signs. Lessee shall not place any sign upon the exterior of the
-----
Premises or the Building, except that Lessee may, with Lessor's prior written
consent, install (but not on the roof) such signs -as are reasonably required to
advertise Lessee's own business so long as such signs are in a location
designated by Lessor and comply with Applicable Requirements and the signage
criteria established for the Industrial Center by Lessor. The installation of
any sign on the Premises by or for Lessee shall be subject to the provisions of
Paragraph 7 (Maintenance,. Repairs, Utility Installations, Trade Fixtures and
Alterations). Unless otherwise expressly agreed herein, Lessor reserves all
rights to the use of the roof of it* Building, and the right to install
advertising signs on the Building, including the roof, which do not unreasonably
interfere with the conduct of Lessee's business; Lessor shall be entitled to all
revenues from such advertising signs.
35. Termination; Merger. Unless specifically stated otherwise in writing
-------------------
by Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, Lessor shall. in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
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<PAGE>
36. Consents.
--------
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise provided
herein, wherever in this Lease the consent of a Party is required to an act by
or for the other Party, such consent shall not be unreasonably withheld or
delayed. Lessor's actual reasonable costs and expenses (including but not
limited to architects', attorneys', engineers' and other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Promises, including but not
limited to consents to an assignment a subletting or the presence or use of a
Hazardous Substance, shall be paid by Lessee to Lessor upon receipt of an
invoice and supporting documentation therefor. In addition to the deposit
described in Paragraph 12.2(o), Lessor may, as a condition to considering any
such request by Lessee, require that Lessee deposit with Lessor an amount of
money (in addition to the Security Deposit held under Paragraph 5) reasonably
calculated by Lessor to represent the cost Lessor will incur in considering and
responding to Lessee's request. Any unused portion of said deposit shall be
refunded to Lessee without interest. Lessor's consent to any act, assignment of
this Lease or subletting of the Premises by Lessee shall not constitute an
acknowledgment that no Default or Breach by Lessee of this Lease exists, nor
shall such consent be deemed a waiver of any then existing Default or Breach,
except as may be otherwise specifically stated in writing by Lessor at the time
of such consent.
(b) All conditions to Lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable. The failure to specify herein any
particular condition to Lessor's consent shall not preclude the impositions by
Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
37. Guarantor.
---------
37.1 Form of Guaranty. If there are to be any Guarantors of this Lease
----------------
per Paragraph 1.11, the form of the guaranty to be executed by each such
Guarantor shall be in the form most recently published by the American
Industrial Real Estate Association, and each such Guarantor shall have the same
obligations as Lessee under this lease, including but not limited to the
obligation to provide the Tenancy Statement and information required in
Paragraph 16.
37.2 Additional Obligations of Guarantor. It shall constitute a Default
-----------------------------------
of the Lessee under this Lease it any such Guarantor fails or refuses, upon
reasonable request by Lessor to give: (a) evidence of the due execution of the
guaranty called for by this Lease, including the authority of the Guarantor (and
of the party signing on Guarantor's behalf) to obligate such Guarantor on said
guaranty, and resolution of its board of directors authorizing the making of
such guaranty. together with a certificate of incumbency showing the signatures
of the persons authorized to sign on its behalf, (b) current financial
statements of Guarantor as may from time to time be requested by Lessor, (c) a
Tenancy Statement, or (d) written confirmation that the guaranty is still in
effect.
38. Quiet Possession. Upon payment by Lessee of the rent for the Premises
----------------
and the performance of all of the covenants, conditions and provisions on
Lessee's part to be observed and performed under this Lease, Lessee shall have
quiet possession of the Premises for the entire term hereof subject to all of
the provisions of this Lease.
39. Options.
-------
39.1 Definition. As used in this Lease, the word "Option" has the
----------
following meaning: (a) the right to extend the term of this Lease or to renew
this Lease or to extend or renew any lease that Lessee has on other property of
Lessor; (b) the right of first refusal to lease the Premises or the right of
first offer to lease the Premises or the right of first refusal to lease other
prop" of Lessor or the right of first offer to lease other property of Lessor;
(c) the right to purchase the Promises, or the right of first refusal to
purchase the Premises, or the right of first offer to purchase the Premises, or
the right to purchase other property of Lessor, or the right
-26-
<PAGE>
of first refusal to purchase other property of Lessor, or the right of first
offer to purchase other property of Lessor.
39.2 Options Personal to Original Lessee. Each Option granted to Lessee
-----------------------------------
in this Lease is personal to the original Lessee named in Paragraph 1.1 hereof,
and cannot be voluntarily or involuntarily assigned or exercised by any person
or entity other than said original Lessee while the original Lessee is in full
and actual possession of the Premises and without the intention of thereafter
assigning or subletting. The Options, it any, herein granted to Lessee are not
assignable. either as a part of an assignment of this Lease or separately or
apart therefrom, and no Option may be separated from this Lease in any manner,
by reservation or otherwise.
39.3 Multiple Options. In the event that Lessee has any multiple Options
----------------
to extend or renew this Lease, a later option cannot be exercised unless the
prior Options to extend or renew this Lease have been validly exercised.
39.4 Effect of Default on Options.
----------------------------
(a) Lessee shall have no right to exercise an Option, notwithstanding any
provision in the grant of Option to the contrary: (i) during the period
commencing with the giving of any notice of Default under Paragraph 13.1 and
continuing unfit the noticed Default is cured, or (ii) during the period of time
any monetary obligation due Lessor from Lessee is unpaid (without regard to
whether notice thereof is given Lessee), or (iii) during the time Lessee is in
Breach of this Lease, or (iv) in the event that Lessor has given to Lessee three
(3) or more notices of separate Defaults under Paragraph 13.1 during the twelve
(12) month period immediately preceding the exercise of the Option, whether or
not the Defaults are cured.
(b) The period of time within which an Option may be exercised shall not
be extended or enlarged by reason of Lessee's inability to exercise an Option
because of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall terminate
and be of no further force or effect, notwithstanding Lessee's due and timely
exercise of the Option, if, after such exercise and during the term of this
Lease: (i) Lessee tails to pay to Lessor a monetary obligation of Lessee for a
period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessor gives to
Lessee three (3) or more notices of separate Defaults under Paragraph 13.1
during any twelve (12) month period. whether or not the Defaults are cured, or
(iii) if Lessee commits a Breach of this Lease.
40. Rules and Regulations. Lessee agrees that it will abide by. and keep
---------------------
and observe all reasonable rules and regulations ("Rules and Regulations") which
Lessor may make from time to time for the management, safety, care. and
cleanliness of the grounds, the parking and unloading of vehicles and the
preservation of good order, as well as for the convenience of other occupants or
tenants of the Building and the Industrial Center and their invitees.
41. Security Measures. Lessee hereby acknowledges that the rental payable
-----------------
to Lessor hereunder does not. include the cost of guard service or other
security measures, and that Lessor shall have no obligation whatsoever to
provide same. Lessee assumes all responsibility for the protection of the
Premises, Lessee, its agents and invitees and their property from the acts of
third parties.
42. Reservations. Lessor reserves the right, from time to time. to
------------
grant. without the consent or joinder of Lessee, such easements, rights of way,
utility raceways, and dedications that Lessor deems necessary, and to cause the
recordation of parcel maps and restrictions, so long as such easements, rights
of way, utility raceways, dedications, maps and restrictions do not reasonably
interfere with the use of the Premises by Lessee. Lessee agrees to sign any
documents reasonably requested by Lessor to effectuate any such easement rights,
dedication, map or restrictions.
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<PAGE>
43. Performance Under Protest. If at any time a dispute shall wise as to
-------------------------
any amount or sum of money to be paid by one Party to the other under the
provisions hereof, the Party against whom the obligation to pay the money is
asserted shall have the right to make payment "under protest" and such payment
shall not be regarded as a voluntary payment and there shall survive the right
on the pan of said Party to institute suit for recovery of such sum. If it
shall be adjudged that there was no legal obligation on the part of said Party
to pay such sum or any part thereof, said Party shall be entitled to recover
such sum or so much thereof as it was not legally required to pay under the
provisions of this Lease.
44. Authority. If either Party hereto is a corporation, trust, or general
---------
or limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. Conflict. Any conflict between the printed provisions of this Lease
--------
and the typewritten or handwritten provisions shall be controlled by the
typewritten or handwritten provisions.
46. Offer. Preparation of this Lease by either Lessor or Lessee or
-----
Lessor's agent or Lessee's agent and submission of same to Lessee or Lessor
shall not be deemed an offer to lease. This Lease is not intended to be binding
until executed and delivered by all Parties hereto.
47. Amendments. This Lease may be modified only in writing, signed by the
----------
parties in interest at the time of the modification. The Parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional insurance company or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the property
of which the Premises are a part.
48. Multiple Parties. Except as otherwise expressly provided herein, it
----------------
more than one person or entity is named herein as either Lessor or Lessee, the
obligations of such multiple parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.
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<PAGE>
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR YOUR
ATTORNEY'S REVIEW AND APPROVAL. FURTHER, EXPERTS SHOULD BE
CONSULTED TO EVALUATE THE CONDITION OF THE PROPERTY FOR THE
POSSIBLE PRESENCE OF ASBESTOS, UNDERGROUND STORAGE TANKS OR
HAZARDOUS SUBSTANCES. NO REPRESENTATION OR RECOMMENDATION IS MADE
BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL
ESTATE BROKERS OR THEIR CONTRACTORS, AGENTS OR EMPLOYEES AS TO
THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS
LEASE OR THE TRANSACTION TO WHICH IT RELATES; THE PARTIES SHALL
RELY SOLELY UPON THE ADVICE OF THEIR OWN COUNSEL AS TO THE LEGAL
AND TAX CONSEQUENCES OF THIS LEASE. IF THE SUBJECT PROPERTY IS IN
A STATE OTHER THAN CALIFORNIA, AN ATTORNEY FROM THE STATE WHERE
THE PROPERTY IS LOCATED SHOULD BE CONSULTED.
The parties hereto have executed this Lease at the place and on the dates
specified above their respective signatures.
Executed at:_________________________ Executed at:___________________________
on: 6/24/97 on: June 24, 1997
---------------------------------- ------------------------------------
By LESSOR: By LESSEE:
501 Folsom Street Building Digital Postal Service Corporation
- ------------------------------------- --------------------------------------
_____________________________________ ______________________________________
By: /s/ David Bruck By: /s/ David Hayden
---------------------------------- -----------------------------------
Name: Printed: David Bruck Name: Printed: David Hayden
---------------------- -----------------------
Title: PARTNER Title: CEO
------------------------------- --------------------------------
By:__________________________________ By:___________________________________
Name Printed:________________________ Name Printed:_________________________
Title:_______________________________ Title:________________________________
c/o Starrbruck
Address: 732 D. Addison Street Address:______________________________
-----------------------------
Berkeley, Ca. 94710
- ------------------------------------- ______________________________________
Telephone: (510) 841-0929 Telephone: ( )______________________
--------------------
Facsimile: (510) 845-1597 Facsimile: ( )______________________
--------------------
BROKER: BROKER:
Executed at:_________________________ Executed at:__________________________
on:__________________________________ on:___________________________________
By:__________________________________ By:___________________________________
Name Printed:________________________ Name Printed:_________________________
Title:_______________________________ Title:________________________________
Address:_____________________________ Address:______________________________
_____________________________________ ______________________________________
Telephone: ( )_____________________ Telephone: ( )______________________
Facsimile: ( )_____________________ Facsimile: ( )______________________
Note: These forms are often modified to meet changing requirements of law and
needs of the industry. Always write or call to make sure you are utilizing
the most current form: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 700
South Flower Street, Suite 600, Loss Angeles, CA 90017, (213) 687-8777.
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<PAGE>
GUARANTY OF LEASE
Whereas, 501 Folsom Street Building hereinafter referred to as "Lessor",
and Digital Postal Service Corporation hereinafter referred to as "Lessee", are
about to execute a document entitled "Lease" dated June 3,1997 concerning the
premises commonly known as 501 Folsom Street, San Francisco, California wherein
Lessor will lease the premises to Lessee, and
Whereas, David Hayden, hereinafter referred to as "Guarantor" has a
financial interest in Lessee, and
Whereas, Lessor would not execute the Lease if Guarantor did not execute
and deliver to Lessor this Guarantee of Lease.
Now therefore, for and in consideration of the execution of the foregoing
Lease by Lessor and as a material inducement to Lessor to execute said Lease,
Guarantor hereby jointly, severally, unconditionally and irrevocably guarantee
the prompt payment by Lessee of all rentals and all other sums payable by Lessee
under said Lease of all rentals and all other sums payable by Lessee under said
Lease and the faithful and prompt performance by Lessee of each and every one of
the terms, conditions and covenants of said Lease to be kept and performed by
Lessee.
It is specifically agreed and understood that the terms of the foregoing
Lease may be altered, affected, modified or changed by agreement between Lessor
and Lessee, or by a course of conduct, and said Lease may be assigned by Lessor
or any assignee of Lessor without consent or notice to Guarantor and that this
Guaranty shall thereupon and thereafter guarantee the performance of said Lease
as so changed, modified, altered or assigned.
This Guaranty shall not be released, modified or affected by failure or
delay on the part of Lessor to enforce any of the rights or remedies of the
Lessor under said Lease, whether pursuant to the terms thereof or at law or in
equity.
No notice of default need be given to guarantor, it being specifically
agreed and understood that the guarantee of the undersigned is a continuing
guarantee under which Lessor may proceed forthwith and immediately against
Lessee or against guarantors following any breach or default by Lessee or for
the enforcement of any rights which Lessor may have as against Lessee pursuant
to or under the terms of the within Lease or at law or in equity. Lessor shall
have the right to proceed against Guarantor hereunder following any breach or
default by Lessee without first proceeding against Lessee and without previous
notice to or demand upon either lessee or Guarantor.
Guarantor hereby waives (a) notice of acceptance of this Guaranty, (b)
demand of payment presentation and protest, (c) all rights to assert or plead
any statute of limitations as to or relating to this Guaranty and the Lease, (d)
any right to require the Lessor to proceed against the Lessee or any other
Guarantors or require Lessor to apply to any default any security deposit or
other security it may hold under the lease, (f) any right to require Lessor to
proceed under any other remedy Lessor may have before proceeding against
Guarantor, (g) any right of subrogation.
Guarantor does hereby subrogate all existing or future indebtedness of
Lessee to Guarantor as to the obligations owed to Lessor under the Lease and
this Guaranty.
Any Married woman who signs this Guaranty expressly agrees that recourse
may be had against her separate property for all of her obligations hereunder.
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<PAGE>
The obligations of Lessee under the Lease to execute and deliver estoppel
statements and financial statements, as therein provided, shall be deemed to
also require the Guarantor hereunder to do and provide the same relative to
Guarantor.
The term "Lessor" whenever hereinabove used refers to and means the Lessor
in the foregoing Lease specifically named and also any assignee of said Lessor,
whether by outright assignment or by assignment for security, and also any
successor to the interest of said Lessor or of any assignee in such lease or any
part thereof, whether by assignment or otherwise. So long as the Lessor's
interest in or to the leased premises or the rents, issues and profits
therefrom, or in, to or under said Lease, are subject to any mortgage or deed of
trust or assignment for security, no acquisition by Guarantor of the Lessor's
interest in the leased premises or under said Lease shall affect the continuing
obligation of Guarantor under this Guaranty which shall nevertheless continue in
full force and effect for the benefit of the mortgagee, beneficiary, trustee or
assignee under such mortgage, deed of trust or assignment, or any purchase at
sale by judicial foreclosure or under private power of sale, and of the
successors and assigns of any such mortgagee, beneficiary, trustee, assignee or
purchaser.
The term "Lessee" whenever hereinabove used refers to and means the Lessee
in the foregoing Lease specifically named and also any assignee or sublessee or
said Lease and also any successor to the interests of said Lessee, assignee or
sublessee of such Lease or any part thereof, whether by assignment, sublease or
otherwise.
In the event any action be brought by said Lessor against Guarantor
hereunder to enforce the obligation of Guarantor hereunder, the unsuccessful
party in such action shall pay to the prevailing party therein a reasonable
attorney's fee which shall be fixed by the court.
/s/ David Hayden
---------------------------------
David Hayden
Executed at____________________________
on June 24, 1997
------------------------------------
Address________________________________
_______________________________________
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<PAGE>
ADDENDUM I
This Addendum I is entered into by and between 501 Folsom Street Building,
as Lessor, and Digital Postal Service Corporation, as Lessee, and is intended to
modify and supplement the terms of that certain Standard Industrial-Commercial
Multi Tenant Lease-Gross entered into of even date herewith by and between
Lessor and Lessee ("the Lease") with respect to the premises located at 501
Folsom Street, first floor, San Francisco, California ("the Premises"). The
terms used herein shall have the same definitions as set forth in the Lease. The
provisions of Addendum I shall supersede any inconsistent or conflicting
provisions of the Lease.
49. Size of Premises. Any references in the Lease relating to the size of
----------------
the Premises are an estimate only based on the industrial character of the
Premises and are used for reference purposes only. It is agreed for purposes of
the Lease and for assessment of rent that the Premises contain 8,750 square feet
regardless of actual size and are comprised of the following spaces:
First Floor 7,500 square feet
Storage Room Behind Loading Dock 750 square feet
Basement Storage Area 500 square feet
The basement storage area will be an area designated by Lessor.
50. Rent Commencement and Rent Schedule. Lessee shall pay to Lessor as
-----------------------------------
monthly rent in the sum of $7,250.00 which sum is subject to adjustment as
provided below, per month in advance on the first day of each month, commencing
seventy five (75) days after the term commences and continuing for twelve (12)
months. Monthly rent for the first month shall be paid upon execution of the
Lease. Monthly rent for any partial month shall be prorated at the rate of
1/30th of the monthly rent per day.
The monthly rent shall be increased to the following amounts for the
periods set forth below:
Months 13-24 $7,850.00
Months 25-36 $8,375.00
Months 37-48 $8,975.00
Months 49-60 $9,500.00
51. Option to Extend Term. Lessee is given the option to extend the term
---------------------
on all the provisions contained in the Lease, except for monthly rent, for a
five (5) year period ("extended term") following the expiration of the initial
term, by giving written notice of exercise of the option ("option notice") to
Lessor at least 180 days but not more than 365 days before the expiration of the
term. Provided that, if Lessee is in default on the date of giving the option
notice, the option notice shall be totally ineffective, or if Lessee is in
default on the date the extended term is to commence, the extended term shall
not commence and this lease shall expire at the end of the initial term.
The monthly rent for the first year of the extended term shall be the then
prevailing market rent of comparable premises within close proximity of the
Premises ("Extended Term Rent") and shall be agreed upon.by the parties. The
parties shall have thirty (30) days after Lessor receives the option notice in
which to agree on the Extended Term Rent. If the parties agree on the Extended
Term Rent during that period, they shall immediately execute an amendment to
this lease stating the Extended Term Rent. In no case shall the monthly rent be
less than the monthly rent for month 60 of the Lease as provided in paragraph 50
herein.
If the parties are unable to agree on the Extended Term Rent within the
period specified herein, then within ten (10) days after the expiration of that
period the parties shall appoint a mutually acceptable real estate appraiser or
broker with at least five (5) years full time commercial real estate experience
in the area in which
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<PAGE>
the Premises are located to appraise and set the Extended Term Rent. Any
associated costs will be split equally between the parties.
If the parties cannot agree on the appointment of a mutually acceptable
real estate appraiser or broker within the time period specified, then each
party shall have ten (10) days to select a real estate appraiser or broker of
its choice to establish the Extended Term Rent within thirty (30)-days of his or
her selection. Each party shall be responsible for payment of compensation to
the appraiser or broker chosen by that party. If for any reason either one of
the appraisals is not completed within thirty (30) days, as provided herein,
then the appraisal that is completed at that time shall establish the Extended
Term Rent. If both appraisals are completed and the two appraisers /brokers
cannot agree on the monthly rent for the extended term, then they shall select a
third mutually acceptable appraiser or broker to establish a third Extended Term
Rent within thirty (30) days of his or her selection. The average of the two
appraisals closest in value shall then become the Extended Term Rent. The costs
of the third appraisal shall be split equally between the parties.
The monthly rent for the extended term shall be subject to adjustment at
the commencement of the second year of the extended term and each year
thereafter ("the adjustment date") as follows: the base for computing the
adjustment is the Consumer Price Index for All Urban Consumers for San Francis
co-Oakland-San Jose published by the U.S. Department of Labor, Bureau of Labor
Statistics ("Index") which is in effect on the date the extended term commences
("Beginning Index"). The Index published two months prior to the adjustment
date in question ("Extension Index") is to be used in determining the amount of
the adjustment. If the Extension Index has increased over the Beginning Index,
the monthly rent for the following year shall be set by multiplying the monthly
rent for the previous year by a fraction, the numerator of which is the
Extension Index and the denominator of which is the Beginning Index. In no case
shall the monthly rent be less than the monthly rent in effect immediately prior
to the adjustment date then occurring.
52. Improvements by Lessor. Lessor, at its cost, shall construct and
----------------------
complete the following improvements to the Premises. These improvements shall
be completed on or before Term Commencement. Upon notification of completion of
these improvements, Lessee shall have one (1) day to inspect and accept the
condition of the Premises. If the improvements are not substantially completed
by Term Commencement, Lessee shall receive rent abatement of $241-67 per day for
up to fifteen (15) days:
a) Sand and seal wood floors;
b) Sandblast brick walls, ceiling and columns;
c) Complete all seismic retrofit and ADA work to the Premises and lobby.
53. Improvements by Lessee. Lessee, at its cost, shall construct and
----------------------
complete improvements to the Premises of an amount equal to or greater than
$18,125.00 (the amount received by Lessee as a rent credit). If Lessee does not
complete improvements equal to this amount, Lessee shall pay Lessor the
differential between $18,125.00 and the actual amount spent on improvements to
the Premises. Lessee shall be responsible for the cost of all architectural
services, plans, specifications and drawings relating to said improvements.
54. Expansion of Lessee's Premises. Lessor shall notify Lessee during the
------------------------------
first five year term only of the availability of additional space ("Expansion
Space") in the building whenever space becomes vacant (excluding the third
floor) and is within Lessor's control. The rental rate shall be commensurate
with the current rental rate Lessee is paying for the first floor. Lessee must
respond in writing to Lessor's notice of availability within fifteen (15) days.
The lease term for the Expansion Space shall be coterminous with the term of the
lease for the Premises. Lessor shall construct the same improvements to the
expansion space as provided in paragraph 52 a & b herein.
55. Release of Guarantor. Beginning in month thirty-one (31) of the
--------------------
initial lease term, Lessor will conduct periodic reviews of corporate financial
information provided by Lessee and consider releasing David Hayden as guarantor
of the lease.
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<PAGE>
56. CECO Disclosure. The San Francisco Commercial Energy Conservation
---------------
Ordinance requires that the Premises meet certain energy conservation standards
at the time of an addition, renovation or sale. Any required energy audit,
retrofit, inspection or documentation needed to satisfy said ordinance and
caused by Lessee's improvements, shall be the responsibility of Lessee.
LESSOR: LESSEE:
501 Folsom St. Building Digital Postal Service Corp.
by /s/ David Bruck by /s/ David Hayden
------------------------- -------------------------
David Bruck David Hayden
Partner Chief Executive Officer
Date: 6/24/97 Date: June 24, 1997
----------------------- -----------------------
Lessor /s/ David Bruck Lessee /s/ David Hayden
---------------- -----------------
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<PAGE>
EXHIBIT 10.11
October 1, 1998
Mr. Douglas Hickey
1850 Warf Road
Capitola, CA 95010
Dear Doug:
We are extremely pleased to offer you the position of President and Chief
Executive Officer of Critical Path, Inc. (the "Company"). The terms of your
employment with the Company are set forth below.
1. Position.
--------
(a) You will become the President and Chief Executive Officer and a member
of the Board of Directors of the Company, working out of the Company's offices
in San Francisco, California. You will report to the Company's Board of
Directors. Your start date will be within 30 days of the date of this letter,
with the specific date to be mutually agreed upon by you and the Company.
(b) You agree to the best of your ability and experience that you will at
all times loyally and conscientiously perform all of the duties and obligations
required of you pursuant to the express and implicit terms hereof, and to the
reasonable satisfaction of the Company. During the term of your employment, you
further agree that you will devote all of your business time and attention to
the business of the Company, unless the Company expressly agrees otherwise. You
are not permitted to engage in any business activity that competes with the
Company's business.
2. Compensation.
------------
(a) Salary. Your salary will be $250,000.00 on an annualized basis, and
------
you will be paid a monthly salary of $20,833.33 (payable semi-monthly), less
regular payroll deductions, which covers all hours worked. Your salary will be
reviewed annually as part of the Company's normal salary review process.
(b) Bonus upon Change of Control. In the event that while you are a full-
----------------------------
time employee of the Company and prior to the closing of the Company's initial
public offering, a Change of Control occurs (as defined in Appendix A), you will
receive for each Share of
<PAGE>
Mr. Douglas Hickey
October 1, 1998
Page 2
Common Stock then held by you (and issued in conjunction with this Agreement)
and each vested option (including options that vest by virtue of such Change of
Control) a bonus equal to the difference, if any, between the value of the
consideration per share to be received by the Company's Series B Preferred
stockholders in the transaction (calculated taking into account the payment of
this bonus to you) and the value of the consideration per share to be received
by the Company's Common stockholders in such transaction (net of the payment of
this bonus to you). This bonus shall be payable at the Company's option in cash
or in the same consideration received by the Company's Series B Preferred
stockholders in such Change of Control transaction. The bonus will be payable
up to a maximum amount equal to $8 million less the consideration payable in the
transaction with respect to your Shares. The portion of this bonus attributable
to any unvested Shares of Common Stock held by you after the closing of such
transaction, shall be placed in escrow and paid to you if and when such Shares
would have vested in accordance with Section 3 below.
(c) Loan. The Company will extend you a loan in the principal amount of
----
$500,000 (the "Loan"). The Loan will bear interest at the applicable federal
rate, will be due upon the earlier of five years or thirty days following
termination of your employment, and will be secured by shares of the Company's
Common Stock held by you. The Loan will be non-recourse, unless you terminate
your employment voluntarily.
3. Stock Options. The Company will grant you an option to purchase
-------------
5,668,828 shares (the "Shares") of Common Stock (an amount currently equal to 8%
of the Company's fully diluted capitalization, based on all of the Company's
outstanding capital stock, options, warrants and all other outstanding
securities, convertible, exchangeable or exercisable for shares of capital
stock, after taking into account this grant). The option will be exercisable at
the fair market value of the Common Stock (currently $0.38 per share) and will
vest in equal monthly installments over four years (118,100.5 Shares per month).
The specific terms of the option will be set forth in an option agreement to be
issued pursuant to the Company's stock option plan and shall provide for, among
other items, the early exercise of up to all of the options granted to you prior
to vesting of such options.
In the event of a Change of Control of the Company, 1,417,207 of the
unvested Shares (or such lesser amount as is then remaining unvested) will vest
immediately preceding such Change of Control, and if you are terminated without
Cause (as defined in Appendix A) within 12 months following a Change of Control,
a like number of additional Shares will vest.
In the event you are terminated by the Company (or any successor to the
Company) without Cause or if you terminate your employment for Good Reason (as
defined in Appendix A) you will receive payment of severance benefits equal to
your regular monthly salary for nine months from the date of termination, and
you will also vest as to an additional six months of Shares; provided that as a
condition to such severance and vesting acceleration,
<PAGE>
Mr. Douglas Hickey
October 1, 1998
Page 3
you execute an agreement in form acceptable to the Company providing for a
mutual release of any claims you or the Company may have against the Company,
its officers, directors, stockholders, agents and affiliates, on the one hand,
and you, on the other hand.
The Company will allow you to exercise all or a portion of your option at
any time for the Shares by execution of a full-recourse promissory note and
security agreement (a full recourse note is required for tax purposes to
commence the capital gains holding period). The note will bear interest at the
applicable federal rate and will be due upon the earlier of five years from
issuance or ninety (90) days after the termination of your employment.
The option grants and the $500,000 loan described above have been approved
by the Board of Directors. The loan will be subject to approval by the
shareholders of the Company under California law.
4. Benefits.
--------
(a) You will be eligible for paid vacation, sick leave and holidays. You
will be provided with health insurance benefits as provided in our benefit
plans. These benefits may change from time to time. You will be covered by
workers' compensation insurance and State Disability Insurance, as required by
state law.
(b) The Company will provide you with standard medical and dental
insurance benefits and paid vacation in accordance with Company policy.
(c) The Company will pay the cost of an apartment in the San Francisco Bay
area (not to exceed $3,000 per month) and will pay the reasonable costs of
leasing a car for your use.
(d) The Company will provide at its expense (or reimburse you for)
continuation of your existing financial planning services through AYCO Company.
(e) The Company will expeditiously enter into an indemnification agreement
in form reasonably acceptable to you, which agreement shall provide that the
Company will indemnify, defend, protect and hold you harmless from any claims or
actions arising out of your actions as an officer or director of the Company.
5. Proprietary Information Agreement. You will be required to sign and
---------------------------------
abide by the terms of Critical Path's standard proprietary information
agreement, which is incorporated into this agreement by reference. You will also
represent and warrant to Critical Path that the performance of your duties will
not violate any agreements with or trade secrets of any other person or entity.
<PAGE>
Mr. Douglas Hickey
October 1, 1998
Page 4
6. Immigration Documentation. Please be advised that your employment is
-------------------------
contingent on your ability to prove your identity and authorization to work in
the U.S. for Critical Path. You must comply with the Immigration and
Naturalization Service's employment verification requirements.
7. Term of Employment. Your employment with Critical Path is "at-will."
------------------
In other words, either you or Critical Path can terminate your employment at any
time for any reason, with or without Cause and with or without notice.
8. Dispute Resolution Procedure. The parties agree that any dispute
----------------------------
arising out of or related to the employment relationship between them, including
the termination of that relationship and any allegations of unfair or
discriminatory treatment arising under state or federal law or otherwise, shall
be resolved by final and binding arbitration, except where the law specifically
forbids the use of arbitration as a final and binding remedy.
(a) The party claiming to be aggrieved shall furnish to the other party a
written statement of the grievance identifying any witnesses or documents that
support the grievance and the relief requested or proposed.
(b) If the other party does not agree to furnish the relief requested or
proposed, or otherwise does not satisfy the demand of the party claiming to be
aggrieved, the parties shall submit the dispute to non-binding mediation before
a mediator to be jointly selected by the parties. Critical Path will pay the
cost of such mediation.
(c) If the mediation does not produce a resolution of the dispute, the
parties agree that the dispute shall be resolved by final and binding
arbitration. The parties shall attempt to agree to the identity of an
arbitrator, and, if they are unable to do so, they will obtain a list of
arbitrators from the Federal Mediation and Conciliation Service and select an
arbitrator by striking names from that list.
The arbitrator shall have the authority to determine whether the conduct
complained of in paragraph (a) of this section violates the rights of the
complaining party and, if so, to grant any relief authorized by law; provided,
however, the parties agree, that for violations of the employee's trade secret
obligations, the Company retains the right to seek preliminary injunctive relief
in court in order to preserve the status quo or prevent irreparable injury
before the matter can be heard in arbitration. The arbitrator shall not have
the authority to modify, change or refuse to enforce the terms of any employment
agreement between the parties. In addition, the arbitrator shall not have the
authority to require Critical Path to change any lawful policy or benefit plan.
<PAGE>
Mr. Douglas Hickey
October 1, 1998
Page 5
Critical Path shall bear the costs of the arbitration if the employee
prevails. If Critical Path prevails, the employee will pay half the cost of the
arbitration or $500, whichever is less. Each party shall be responsible for
paying its own attorneys' fees.
Arbitration shall be the exclusive final remedy for any dispute between the
parties, including but not limited to disputes involving claims for
discrimination or harassment (such as claims under the Fair Employment and
Housing Act, Title VII of the Civil Rights Act of 1964, the Americans with
Disabilities Act, or the Age Discrimination in Employment Act), wrongful
termination, breach of contract, breach of public policy, physical or mental
harm or distress or any other disputes, and the parties agree that no dispute
shall be submitted to arbitration where the party claiming to be aggrieved has
not complied with the preliminary steps provided for in paragraphs (a) and (b)
above.
The parties agree that the arbitration award shall be enforceable in any
court having jurisdiction to enforce this Agreement and Release of Claims, so
long as the arbitrator's findings of fact are supported by substantial evidence
on the whole and the arbitrator has not made errors of law.
(d) Critical Path reserves the right to modify, change or cancel this
provision upon 30 days written notice. However, such cancellation shall not
affect matters that have already been submitted to arbitration.
9. Integrated Agreement. Please note that this Agreement supersedes any
--------------------
prior agreements, representations or promises of any kind, whether written,
oral, express or implied between the parties hereto with respect to the subject
matters herein. This Agreement, constitutes the full, complete and exclusive
agreement between you and Critical Path with respect to the subject matters
herein. This agreement cannot be changed unless in writing, signed by you and
another officer of Critical Path.
10. Severability. If any term of this Agreement is held to be invalid,
------------
void or unenforceable, the remainder of this Agreement shall remain in full
force and effect and shall in no way be affected; and, the parties shall use
their best efforts to find an alternative way to achieve the same result.
11. Counterparts. This Agreement may be signed in counterparts.
------------
Doug, as you know, we are very excited about the contribution you can make
to the future success of Critical Path, and we look forward to your joining our
organization. In order to confirm your agreement with and acceptance of these
terms, please sign a copy of
<PAGE>
Mr. Douglas Hickey
October 1, 1998
Page 6
this letter and return it to me. If there is any matter in this letter that you
wish to discuss further, please do not hesitate to call me.
Sincerely,
/s/ David Hayden
David Hayden
For the Board of Directors
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
I accept Critical Paths' offer under the terms expressed in this letter. I
understand that this is not an employment contract for any fixed period, and
that, subject to the provisions of this letter agreement, either party may end
the employment relationship at any time for any reason.
/s/ Douglas Hickey
- ------------------------------ ------------------------------
Douglas Hickey Date
<PAGE>
APPENDIX A
----------
DEFINITIONS
-----------
"Change of Control" shall mean the consummation of one of the following:
(i) the acquisition of 50% or more of the outstanding stock of the
Company pursuant to a tender offer validly made under any federal or state
law (other than a tender offer by the Company);
(ii) a merger, consolidation or other reorganization of the Company
(other than a reincorporation of the Company), if after giving effect to
such merger, consolidation or other reorganization of the Company, the
shareholders of the Company immediately prior to such merger, consolidation
or other reorganization do not represent a majority in interest of the
holders of voting securities (on a fully diluted basis) with the ordinary
voting power to elect directors of the surviving entity after such merger,
consolidation or other reorganization;
(iii) the sale of all or substantially all of the assets of the
Company to a third party who is not an affiliate of the Company.
"Cause" shall mean (i) failure or refusal to perform a directive of the
-----
Board of Directors of the Company that is consistent with your duties and
responsibilities as set forth in paragraph 1 hereof (provided, that the Company
provides to you written notice specifying the nature of such failure or refusal
and the actions needed to be taken by you to cure the same and such failure or
refusal is not cured by you within thirty (30) days of receipt of such notice),
(ii) you shall have been determined to be guilty of willful misconduct or be in
material violation of your fiduciary obligations to the Company (provided, that
the Company provides to you written notice specifying the nature of such breach
and actions needed to be taken by you to cure same and such breach is not cured
by you within ten (10) days of receipt of such notice), (iii) you perform your
duties in a grossly negligent manner, or (iv) are convicted of any crime that
has a material adverse impact on (A) your ability to perform your duties
hereunder, (B) the Company or (C) the Company's business.
"Good Reason" shall be deemed to occur if (a)(1) there is a material
-----------
adverse change in employee's position causing such position to be of
significantly less stature or of significantly less responsibility, (2) a
reduction of more than twenty percent (20%) of employee's base compensation
unless in connection with similar decreases of other similarly situated
employees of the Company, or (3) employee's refusal to relocate to a facility or
location more than fifty (50) miles from the Company's current location; and (b)
within the thirty (30) day period immediately following such material change or
reduction employee elects to terminate his employment voluntarily.
<PAGE>
EXHIBIT 10.12
PROMISSORY NOTE
$1,065,638.94 San Francisco, California
Dated as of November 6, 1998
FOR VALUE RECEIVED, the undersigned, Douglas Hickey, promises to pay to the
order of Critical Path, Inc., a California corporation (the "Company"), the
principal sum of one million sixty-five thousand six hundred thirty-eight
dollars and ninety-four cents ($1,065,638.94), with interest from the date
hereof on the unpaid principal at the rate of Four and 51/100 percent (4.51%)
per annum (the applicable federal rate), compounded annually. The entire unpaid
balance of principal and interest shall be payable on the earlier of (i) five
(5) years from the date hereof or (ii) ninety (90) days following termination of
the undersigned's service to the Company for any reason.
If payment is not made when due, and if action is instituted on this note,
the undersigned agrees to pay the Company reasonable attorneys' fees and costs
of suit, as fixed by court.
The undersigned shall have the right to prepay all or any part of the
unpaid principal amount of this note, without premium, at any time prior to the
maturity hereof on ten (10) days' prior written notice.
This note is a full-recourse note originally secured by a pledge of Common
Stock of the Company pursuant to a Security Agreement of even date herewith,
which is on file with the Secretary of the Company.
This note shall be governed by and construed in accordance with the laws of
the State of California.
IN WITNESS WHEREOF, the undersigned has signed, dated and delivered this
note as of the date and year first above written.
/s/ Douglas Hickey
-----------------------------------
Douglas Hickey
<PAGE>
SECURITY AGREEMENT
THIS SECURITY AGREEMENT, entered into as of November 6, 1998, between
CRITICAL PATH, INC., a California corporation (the "Company"), and DOUGLAS
- ------------------- -------
HICKEY (the "Purchaser"),
- ------
W I T N E S S E T H:
WHEREAS, the Purchaser has purchased from the Company 2,804,313 shares of
---------
the Company's Common Stock; and
WHEREAS, the Company has loaned to the Purchaser the sum of $1,065,638.94
------------
which the Purchaser has used to pay the purchase price of the Common Stock; and
WHEREAS, the Purchaser has executed and delivered to the Company a full-
recourse promissory note evidencing such loan (the "Note") and has agreed to
pledge all of the Common Stock to the Company as security for the payment of the
Note:
NOW, THEREFORE, it is agreed as follows:
1. The Purchaser hereby delivers to the Company one or more certificates
representing the Common Stock, together with one Assignment Separate From
Certificate signed by the Purchaser. The Purchaser hereby pledges and grants a
security interest in the Common Stock, including any shares into which the
Common Stock may be converted and all proceeds of the Common Stock, as security
for the timely payment of all of the Purchaser's obligations under the Note and
for the Purchaser's performance of all of its obligations under this Agreement.
In the event of a default in payment of the Note, the Purchaser hereby appoints
the Company as his true and lawful attorney to take such action as may be
necessary or appropriate to cause the Common Stock to be transferred into the
name of the Company or any assignee of the Company and to take any other action
on behalf of the Purchaser permitted hereunder or under applicable law.
2. The Company agrees to hold the Common Stock as security for the timely
payment of all of the Purchaser's obligations under the Note and for the
Purchaser's performance of all of its obligations under this Agreement, as
provided herein. At no time shall the Company dispose of or encumber the Common
Stock, except as otherwise provided in this Agreement.
3. At all times while the Company is holding the Common Stock as security
under this Agreement, the Company shall:
(a) Collect any dividends that may be declared on the Common Stock
and credit such dividends against any accrued interest or unpaid principal
under the Note, as part payment;
(b) Collect and hold any shares that may be issued upon conversion of
the Common Stock; and
-1-
<PAGE>
(c) Collect and hold any other securities or other property that may
be distributed with respect to the Common Stock.
Such shares and other securities or property shall be subject to the security
interest granted in Section 1 of this Agreement and shall be held by the Company
under this Agreement.
4. While the Company holds the Common Stock as security under this
Agreement, the Purchaser shall have the right to vote the Common Stock at all
meetings of the Company's shareholders; provided that the Purchaser is not in
default in the performance of any term of this Agreement or in any payment due
under the Note. In the event of such a default, the Company shall have the
right to the extent permitted by law to vote and to give consents, ratifications
and waivers and take any other action with respect to the Common Stock with the
same force and effect as if the Company were the absolute and sole owner of the
Common Stock.
5. Upon payment in full of the outstanding principal balance of the Note
and all interest and other charges due under the Note, the Company shall release
from pledge and redeliver to the Purchaser the certificate(s) representing the
Common Stock and the Assignment Separate From Certificate forms.
6. In the event that the Purchaser fails to perform any term of this
Agreement or fails to make any payment when due under the Note, the Company
shall have all of the rights and remedies of a creditor and secured party at law
and in equity, including (without limitation) the rights and remedies provided
under the California Uniform Commercial Code. Without limiting the foregoing,
the Company may, after giving ten (10) days' prior written notice to the
Purchaser by certified mail at his residence or business address, sell any or
all of the Common Stock in such manner and for such price as the Company may
determine, including (without limitation) through a public or private sale or at
any broker's board or on any securities exchange, for cash, upon credit or for
future delivery. The Company is authorized at any such sale, if it deems it
advisable to do so, to restrict the prospective bidders or purchasers of any of
the Common Stock to persons who will represent and agree that they are
purchasing for their own account for investment, and not with a view to the
distribution or sale of any of the Common Stock, to restrict the prospective
bidders or purchasers and the use any purchaser may make of the Common Stock and
impose any other restriction or condition that the Company deems necessary or
advisable under the federal and state securities laws. Upon any such sale the
Company shall have the right to deliver, assign and transfer to the purchaser
thereof the Common Stock so sold. Each purchaser at any such sale shall hold
the Common Stock so sold absolute, free from any claim or right of any kind. In
case of any sale of any or all of the Common Stock on credit or for future
delivery, the Common Stock so sold may be retained by the Company until the
selling price is paid by the purchaser thereof, but the Company shall not incur
any liability in case of the failure of such purchaser to take up and pay for
the Common Stock so sold and, in case of any such failure, such Common Stock may
again be sold under the terms of this section. The Purchaser hereby agrees that
any disposition of any or all of the Common Stock by way of a private placement
or other method which in the opinion of the Company is required or advisable
under Federal and state securities laws is commercially reasonable. At any
public sale, the Company may (if it is the highest bidder) purchase all or any
part of the Common Stock at such
-2-
<PAGE>
price as the Company deems proper. Out of the proceeds of any sale, the Company
may retain an amount sufficient to pay all amounts then due under the Note,
together with the expenses of the sale and reasonable attorneys' fees. The
Company shall pay the balance of such proceeds, if any, to the Purchaser. The
Purchaser shall be liable for any deficiency that remains after the Company has
exercised its rights under this Agreement.
7. This Agreement shall be governed by and construed in accordance with
the laws of the State of California. This Agreement shall inure to the benefit
of, and be binding upon, the Company and its successors and assigns and be
binding upon the purchaser and the Purchaser's legal representative, heirs,
legatees, distributees, assigns and transferees by operation of law. This
Agreement contains the entire security agreement between the Company and the
Purchaser. The Purchaser will execute any additional agreements, assignments or
documents or take any other actions reasonably required by the Company to
preserve and perfect the security interest in the Common Stock granted to the
Company herein and otherwise to effectuate this Agreement.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed on
its behalf by its duly authorized officer, and the Purchaser has personally
executed this Agreement.
CRITICAL PATH, INC.
By /s/ David Hayden
-----------------------------------------
Title Chairman
--------------------------------------
/s/ Douglas Hickey
--------------------------------------------
Douglas Hickey
-3-
<PAGE>
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED and pursuant to that certain ____________ Agreement
dated as of __________, 199_, the undersigned hereby sells, assigns and
transfers unto ______________________________ (__________) shares of the Common
Stock of Critical Path, Inc., a California corporation, standing in the
undersigned's name on the books of said corporation represented by certificate
No. _________ herewith, and does hereby irrevocably constitute and appoint
____________________ attorney-in-fact to transfer the said stock on the books of
the said corporation with full power of substitution in the premises.
Dated: __________, 19__.
/s/ Douglas Hickey
----------------------------
Signature
Spousal Consent (if applicable)
-------------------------------
________________ (Purchaser's spouse) indicates by the execution of this
Assignment his or her consent to be bound by the terms herein as to his or her
interests, whether as community property or otherwise, if any, in the Shares.
__________________________
Signature
<PAGE>
EXHIBIT 10.13
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT"), OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT
BE SOLD OR TRANSFERRED UNLESS SUCH SALE OR TRANSFER IS IN ACCORDANCE WITH THE
REGISTRATION REQUIREMENTS OF SUCH ACT AND APPLICABLE LAWS OR SOME OTHER
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND APPLICABLE LAWS IS
AVAILABLE WITH RESPECT THERETO.
WARRANT AGREEMENT
To Purchase Shares of the Series A Preferred Stock of
CRITICAL PATH INC.
Dated as of April 28, 1998 (the "Effective Date")
WHEREAS, Critical Path Inc., a California corporation (the "Company") has
entered into a Master Equipment Lease Agreement dated as of April 28, 1998, and
related documents (collectively, the "Leases") with Lighthouse Capital Partners
II, L.P., a Delaware limited partnership (the "Warrantholder"); and
WHEREAS, the Company desires to grant to Warrantholder, in consideration
for such Leases, the right to purchase shares of its Series A Preferred Stock;
NOW, THEREFORE, in consideration of the Warrantholder executing and
delivering such Leases and in consideration of mutual covenants and agreements
contained herein, the Company and Warrantholder agree as follows:
1. GRANT OF THE RIGHT TO PURCHASE PREFERRED STOCK.
----------------------------------------------
The Company hereby grants to the Warrantholder, and the Warrantholder is
entitled, upon the terms and subject to the conditions hereinafter set forth, to
subscribe to and purchase, from the Company, 213,415 fully paid and non-
assessable shares of the Company's Series A Preferred Stock ("Preferred Stock")
at a purchase price of $0.328 per share (the "Exercise Price"). The number and
purchase price of such shares are subject to adjustment as provided in Section 8
hereof.
2. TERM OF THE WARRANT AGREEMENT.
-----------------------------
Except as otherwise provided for herein, the term of this Warrant Agreement
and the right to purchase Preferred Stock as granted herein shall commence on
the Effective Date and shall be exercisable for a period of (i) seven (7) years
or (ii) five (5) years from the effective date of the Company's initial public
offering, whichever is shorter.
3. EXERCISE OF THE PURCHASE RIGHTS.
-------------------------------
The purchase rights set forth in this Warrant Agreement are exercisable by
the Warrantholder, in whole or in part, at any time, or from time to time, prior
to the expiration of the term set forth in Section 2 above, by tendering to the
Company at its principal office a notice of exercise in the form attached hereto
as Exhibit I (the "Notice of Exercise"), duly completed and executed. Promptly
upon receipt of the Notice of Exercise and the payment of the purchase price in
accordance with the terms set forth below, and in no event later than twenty-one
(21) days thereafter, the Company shall issue to the Warrantholder a certificate
for the number of shares of Preferred Stock purchased and shall execute the
acknowledgment of exercise in the form attached hereto as Exhibit II (the
"Acknowledgment of Exercise") indicating the number of shares which remain
subject to future purchases, if any.
1
<PAGE>
The Exercise Price may be paid at the Warrantholder's election either (i)
by cash or check, or (ii) by surrender of Warrants ("Net Issuance") as
determined below. If the Warrantholder elects the Net Issuance method, the
Company will issue Preferred Stock in accordance with the following formula:
X = Y(A-B)
------
A
Where: X = the number of shares of Preferred Stock to be issued to the
Warrantholder.
Y = the number of shares of Preferred Stock requested to be
exercised under this Warrant Agreement.
A = the fair market value of one (1) share of Preferred Stock.
B = the Exercise Price.
For purposes of the above calculation, current fair market value of
Preferred Stock shall mean with respect to each share of Preferred Stock:
(i) if the exercise is in connection with an initial public offering of
the Company's Common Stock, and if the Company's Registration Statement
relating to such public offering has been declared effective by the SEC,
then the fair market value per share shall be the product of (x) the
initial "Price to Public" specified in the final prospectus with respect to
the offering and (y) the number of shares of Common Stock into which each
share of Preferred Stock is convertible at the time of such exercise;
(ii) if this Warrant is exercised after, and not in connection with the
Company's initial public offering, and:
(a) if traded on a securities exchange, the fair market value
shall be the average of the closing prices over a five (5) day period
ending five days before the day the current fair market value of the
securities is being determined; or
(b) if actively traded over-the-counter, the fair market value
shall be deemed to be the average of the closing bid and asked prices
quoted on the NASDAQ system (or similar system) over the five (5) day
period ending five days before the day the current fair market value
of the securities is being determined;
(iii) if at any time the Common Stock is not listed on any securities
exchange or quoted in the NASDAQ System or the over-the-counter market, the
current fair market value of Preferred Stock shall be the product of (x)
the highest price per share which the Company could obtain from a willing
buyer (not a current employee or director) for shares of Common Stock sold
by the Company, from authorized but unissued shares, as determined in good
faith by its Board of Directors and (y) the number of shares of Common
Stock into which each share of Preferred Stock is convertible at the time
of such exercise, unless the Company shall become subject to a merger,
acquisition or other consolidation pursuant to which the Company is not the
surviving party, in which case the fair market value of Preferred Stock
shall be deemed to be the value received by the holders of the Company's
Preferred Stock on a common equivalent basis pursuant to such merger or
acquisition.
Upon partial exercise by either cash or Net Issuance, the Company shall
promptly issue an amended Warrant Agreement representing the remaining number of
shares purchasable hereunder. All other terms and conditions of such amended
Warrant Agreement shall be identical to those contained herein, including, but
not limited to the Effective Date hereof.
4. RESERVATION OF SHARES.
---------------------
-2-
<PAGE>
(a) Authorization and Reservation of Shares. During the term of this
---------------------------------------
Warrant Agreement, the Company will at all times have authorized and reserved a
sufficient number of shares of its Preferred Stock to provide for the exercise
of the rights to purchase Preferred Stock as provided for herein.
(b) Registration or Listing. If any shares of Preferred Stock required to
-----------------------
be reserved hereunder require registration with or approval of any governmental
authority under any Federal or State law (other than any registration under the
Securities Act of 1933, as amended ("1933 Act"), as then in effect, or any
similar Federal statute then enforced, or any state securities law, required by
reason of any transfer involved in such conversion), or listing on any domestic
securities exchange, before such shares may be issued upon conversion, the
Company will, at its expense and as expeditiously as possible, use its best
efforts to cause such shares to be duly registered, listed or approved for
listing on such domestic securities exchange, as the case may be.
5. NO FRACTIONAL SHARES OR SCRIP.
-----------------------------
No fractional shares or scrip representing fractional shares shall be
issued upon the exercise of the Warrant, but in lieu of such fractional shares
the Company shall make a cash payment therefor upon the basis of the Exercise
Price then in effect.
6. NO RIGHTS AS SHAREHOLDER.
------------------------
This Warrant Agreement does not entitle the Warrantholder to any voting
rights or other rights as a shareholder of the Company prior to the exercise of
the Warrant.
7. WARRANTHOLDER REGISTRY.
----------------------
The Company shall maintain a registry showing the name and address of the
registered holder of this Warrant Agreement.
8. ADJUSTMENT RIGHTS.
-----------------
The purchase price per share and the number of shares of Preferred Stock
purchasable hereunder are subject to adjustment, as follows:
(a) Merger and Sale of Assets. If at any time there shall be a capital
-------------------------
reorganization of the shares of the Company's stock (other than a combination,
reclassification, exchange or subdivision of shares otherwise provided for
herein), or a merger or consolidation of the Company with or into another
corporation whether or not the Company is the surviving corporation, or the sale
of all or substantially all of the Company's properties and assets to any other
person in each case involving the issuance to shareholders of the Company of
securities of a successor corporation (hereinafter referred to as a "Merger
Event"), then, as a part of such Merger Event, lawful provision shall be made so
that the Warrantholder shall thereafter be entitled to receive, upon exercise of
the Warrant, the number of shares of preferred stock or other securities of the
successor corporation resulting from such Merger Event, equivalent in value to
that which would have been issuable if Warrantholder had exercised this Warrant
immediately prior to the Merger Event. In any such case, appropriate adjustment
(as determined in good faith by the Company's Board of Directors) shall be made
in the application of the provisions of this Warrant Agreement with respect to
the rights and interest of the Warrantholder after the Merger Event to the end
that the provisions of this Warrant Agreement (including adjustments of the
Exercise Price and number of shares of Preferred Stock purchasable) shall be
applicable to the greatest extent practicable.
(b) Reclassification of Shares. If the Company at any time shall, by
--------------------------
combination, reclassification, exchange or subdivision of securities or
otherwise, change any of the securities as to which purchase rights under this
Warrant Agreement exist into the same or a different number of securities of any
other class or classes, this Warrant Agreement shall thereafter represent the
right to acquire such number and kind of securities as would have been issuable
as the result of such change with respect to the securities which were subject
to the purchase rights under this Warrant Agreement immediately prior to such
combination, reclassification, exchange, subdivision or other change.
-3-
<PAGE>
(c) Subdivision or Combination of Shares. If the Company at any time shall
------------------------------------
combine or subdivide its Preferred Stock, the Exercise Price shall be
proportionately decreased in the case of a subdivision, or proportionately
increased in the case of a combination.
(d) Stock Dividends. If the Company at any time shall pay a dividend
---------------
payable in, or make any other distribution (except any distribution specifically
provided for in the foregoing subsections (a) or (b)) of the Company's stock,
then the Exercise Price shall be adjusted, from and after the record date of
such dividend or distribution, to that price determined by multiplying the
Exercise Price in effect immediately prior to such record date by a fraction (i)
the numerator of which shall be the total number of all shares of the Company's
stock outstanding immediately prior to such dividend or distribution, and (ii)
the denominator of which shall be the total number of all shares of the
Company's stock outstanding immediately after such dividend or distribution.
The Warrantholder shall thereafter be entitled to purchase, at the Exercise
Price resulting from such adjustment, the number of shares of Preferred Stock
(calculated to the nearest whole share) obtained by multiplying the Exercise
Price in effect immediately prior to such adjustment by the number of shares of
Preferred Stock issuable upon the exercise hereof immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment.
(e) Right to Purchase Additional Stock. If, the Warrantholder's total cost
----------------------------------
of equipment leased pursuant to the Leases exceeds $2,000,000.00, Warrantholder
shall have the right to purchase from the Company, at the Exercise Price
(adjusted as set forth herein), an additional number of shares, which number
shall be determined by (i) multiplying the amount by which the Warrantholder's
total equipment cost exceeds $2,000,000.00 by 3.5%, and (ii) dividing the
product thereof by the Exercise Price per share referenced above.
(f) Antidilution Rights. Additional antidilution rights applicable to the
-------------------
Preferred Stock purchasable hereunder are as set forth in the Company's Articles
of Incorporation, as amended through the Effective Date, a true and complete
copy of which is attached hereto as Exhibit IV (the "Articles"). The Company
shall promptly provide the Warrantholder with copies of any restatement,
amendment, modification or waiver of the Articles. The Company shall provide
Warrantholder with copies of prompt written notice of any issuance of its stock
or other equity security to occur after the Effective Date of this Warrant,
which notice shall include (a) the price at which such stock or security is to
be sold, (b) the number of shares to be issued, and (c) such other information
as necessary for Warrantholder to determine if a dilutive event has occurred.
Notwithstanding the foregoing such notice shall not be required for issuances of
equity securities that are excluded from the definition of "Additional Stock"
under Section A (4) Articles.
(g) Notice of Adjustments. If: (i) the Company shall declare any dividend
---------------------
or distribution upon its stock, whether in cash, property, stock or other
securities; (ii) the Company shall offer for subscription prorata to the holders
of any class of its Preferred or other convertible stock any additional shares
of stock of any class or other rights; (iii) there shall be any Merger Event;
(iv) there shall be an initial public offering; or (v) there shall be any
voluntary dissolution, liquidation or winding up of the Company; then, in
connection with each such event, the Company shall send to the Warrantholder:
(A) at least twenty (20) days' prior written notice of the date on which the
books of the Company shall close or a record shall be taken for such dividend,
distribution, subscription rights (specifying the date on which the holders of
Preferred Stock shall be entitled thereto) or for determining rights to vote in
respect of such Merger Event, dissolution, liquidation or winding up; (B) in the
case of any such Merger Event, dissolution, liquidation or winding up, at least
twenty (20) days' prior written notice of the date when the same shall take
place (and specifying the date on which the holders of Preferred Stock shall be
entitled to exchange their Preferred Stock for securities or other property
deliverable upon such Merger Event, dissolution, liquidation or winding up); and
(C) in the case of a public offering, the Company shall give the Warrantholder
at least twenty (20) days written notice prior to the effective date thereof.
Each such written notice shall set forth, in reasonable detail, if
applicable,(i) the event requiring the adjustment, (ii) the amount of the
adjustment, (iii) the method by which such adjustment was calculated, (iv) the
Exercise Price, and (v) the number of shares subject to purchase hereunder after
giving effect to such adjustment, and shall be given by first class mail,
postage prepaid, addressed to the Warrantholder, at the address as shown on the
books of the Company.
-4-
<PAGE>
(h) Timely Notice. Failure to timely provide such notice required by
-------------
subsection (g) above shall entitle Warrantholder to retain the benefit of the
applicable notice period notwithstanding anything to the contrary contained in
any insufficient notice received by Warrantholder. The notice period shall begin
on the date Warrantholder actually receives such a written notice.
9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.
--------------------------------------------------------
(a) Reservation of Preferred Stock. The Preferred Stock issuable upon
------------------------------
exercise of the Warrantholder's rights has been duly and validly reserved and,
when issued in accordance with the provisions of this Warrant Agreement, will be
validly issued, fully paid and non-assessable, and will be free of any taxes,
liens, charges or encumbrances of any nature whatsoever; provided, however, that
the Preferred Stock issuable pursuant to this Warrant Agreement may be subject
to restrictions on transfer under state and/or Federal securities laws. The
Company has made available to the Warrantholder true, correct and complete
copies of its Articles and Bylaws, as amended. The issuance of certificates for
shares of Preferred Stock upon exercise of the Warrant Agreement shall be made
without charge to the Warrantholder for any issuance tax in respect thereof, or
other cost incurred by the Company in connection with such exercise and the
related issuance of shares of Preferred Stock. The Company shall not be required
to pay any tax which may be payable in respect of any transfer involved and the
issuance and delivery of any certificate in a name other than that of the
Warrantholder.
(b) Due Authority. The execution and delivery by the Company of this
-------------
Warrant Agreement and the performance of all obligations of the Company
hereunder, including the issuance to Warrantholder of the right to acquire the
shares of Preferred Stock, have been duly authorized by all necessary corporate
action on the part of the Company, and the Leases and this Warrant Agreement are
not inconsistent with the Company's Articles or Bylaws, do not contravene any
law or governmental rule, regulation or order applicable to it, do not and will
not contravene any provision of, or constitute a default under, any indenture,
mortgage, contract or other instrument to which it is a party or by which it is
bound, and the Leases and this Warrant Agreement constitute legal, valid and
binding agreements of the Company, enforceable in accordance with their
respective terms.
(c) Consents and Approvals. No consent or approval of, giving of notice
----------------------
to, registration with, or taking of any other action in respect of any state,
Federal or other governmental authority or agency is required with respect to
the execution, delivery and performance by the Company of its obligations under
this Warrant Agreement, except for the filing of notices pursuant to Regulation
D under the 1933 Act and any filing required by applicable state securities law,
which filings, if required, will be effective by the time required thereby.
(d) Issued Securities. All issued and outstanding shares of Common Stock,
-----------------
Preferred Stock or any other securities of the Company have been duly authorized
and validly issued and are fully paid and nonassessable. All outstanding shares
of Common Stock, Preferred Stock and any other securities were issued in full
compliance with all Federal and state securities laws. In addition:
(i) The authorized capital of the Company consists of (A) 60,000,000
shares of Common Stock, of which 13,763,158 shares are issued and
outstanding, and (B) 29,250,768 shares of preferred stock, of which
25,957,317 shares are issued and outstanding and are convertible into
13,763,158 shares of Common Stock at $.328 per share.
(ii) The Company has reserved (A) 13,426,606 shares of Common Stock for
issuance under its 1998 Stock Option Plan, under which 5,962,606 options
are outstanding. Except as set forth above and except for the right of
first refusal to offer contained in Section 2.3 of the Investors' Right
Agreement dated April 1, 1998 between the Company and certain shareholders
of the Company, (the "Rights Agreement"), there are no other options,
warrants, conversion privileges or other rights presently outstanding to
purchase or otherwise acquire any authorized but unissued shares of the
Company's capital stock or other securities of the Company.
(iii) In accordance with the Company's Articles, no shareholder of the
Company has preemptive rights to purchase new issuances of the Company's
capital stock.
-5-
<PAGE>
(e) Insurance. The Company has in full force and effect insurance
---------
policies, with extended coverage, insuring the Company and its property and
business against such losses and risks, and in such amounts, as are customary
for corporations engaged in a similar business and similarly situated and as
otherwise may be required pursuant to the terms of any other contract or
agreement.
(f) Other Commitments to Register Securities. Except as set forth in the
----------------------------------------
Rights Agreement and in this Warrant Agreement, the Company is not, pursuant to
the terms of any other agreement currently in existence, under any obligation to
register under the 1933 Act any of its presently outstanding securities or any
of its securities which may hereafter be issued.
(g) Exempt Transaction. Subject to the accuracy of the Warrantholder's
------------------
representations in Section 10 hereof, the issuance of the Preferred Stock upon
exercise of this Warrant will constitute a transaction exempt from (i) the
registration requirements of Section 5 of the 1933 Act, in reliance upon Section
4(2) thereof, and (ii) the qualification requirements of the applicable state
securities laws.
(h) Compliance with Rule 144. At the written request of the Warrantholder,
------------------------
who proposes to sell Preferred Stock issuable upon the exercise of the Warrant
in compliance with Rule 144 promulgated by the Securities and Exchange
Commission, the Company shall furnish to the Warrantholder, within ten days
after receipt of such request, a written statement confirming the Company's
compliance with the filing requirements of the Securities and Exchange
Commission as set forth in such Rule, as such Rule may be amended from time to
time.
10. REPRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER.
--------------------------------------------------
This Warrant Agreement has been entered into by the Company in reliance
upon the following representations and covenants of the Warrantholder:
(a) Investment Purpose. The right to acquire Preferred Stock or the
------------------
Preferred Stock issuable upon exercise of the Warrantholder's rights contained
herein will be acquired for investment and not with a view to the sale or
distribution of any part thereof, and the Warrantholder has no present intention
of selling or engaging in any public distribution of the same except pursuant to
a registration or exemption.
(b) Private Issue. The Warrantholder understands (i) that the Preferred
-------------
Stock issuable upon exercise of this Warrant is not registered under the 1933
Act or qualified under applicable state securities laws on the ground that the
issuance contemplated by this Warrant Agreement will be exempt from the
registration and qualifications requirements thereof, and (ii) that the
Company's reliance on such exemption is predicated on the representations set
forth in this Section 10.
(c) Disposition of Warrantholder's Rights. In no event will the
-------------------------------------
Warrantholder make a disposition of any of its rights to acquire Preferred Stock
or Preferred Stock issuable upon exercise of such rights unless and until (i) it
shall have notified the Company of the proposed disposition, and (ii) if
requested by the Company, it shall have furnished the Company with an opinion of
counsel (which counsel may either be inside or outside counsel to the
Warrantholder) satisfactory to the Company and its counsel to the effect that
(A) appropriate action necessary for compliance with the 1933 Act has been
taken, or (B) an exemption from the registration requirements of the 1933 Act is
available. Notwithstanding the foregoing, the restrictions imposed upon the
transferability of any of its rights to acquire Preferred Stock or Preferred
Stock issuable on the exercise of such rights do not apply to transfers from the
beneficial owner of any of the aforementioned securities to its nominee or from
such nominee to its beneficial owner, and shall terminate as to any particular
share of Preferred Stock when (1) such security shall have been effectively
registered under the 1933 Act and sold by the holder thereof in accordance with
such registration or (2) such security shall have been sold without registration
in compliance with Rule 144 under the 1933 Act, or (3) a letter shall have been
issued to the Warrantholder at its request by the staff of the Securities and
Exchange Commission or a ruling shall have been issued to the Warrantholder at
its request by such Commission stating that no action shall be recommended by
such staff or taken by such Commission, as the case may be, if such security is
transferred without registration under the 1933 Act in accordance with the
conditions set forth in such letter or ruling and such letter or ruling
specifies that no subsequent restrictions on transfer are required. Whenever the
-6-
<PAGE>
restrictions imposed hereunder shall terminate, as hereinabove provided, the
Warrantholder or holder of a share of Preferred Stock then outstanding as to
which such restrictions have terminated shall be entitled to receive from the
Company, without expense to such holder, one or more new certificates for the
Warrant or for such shares of Preferred Stock not bearing any restrictive
legend.
(d) Financial Risk. The Warrantholder has such knowledge and experience in
--------------
financial and business matters as to be capable of evaluating the merits and
risks of its investment, and has the ability to bear the economic risks of its
investment.
(e) Risk of No Registration. The Warrantholder understands that if the
-----------------------
Company does not register with the Securities and Exchange Commission pursuant
to Section 12 of the 1934 Act (the "1934 Act"), or file reports pursuant to
Section 15(d), of the 1934 Act", or if a registration statement covering the
securities under the 1933 Act is not in effect when it desires to sell (i) the
rights to purchase Preferred Stock pursuant to this Warrant Agreement, or (ii)
the Preferred Stock issuable upon exercise of the right to purchase, it may be
required to hold such securities for an indefinite period. The Warrantholder
also understands that any sale of its rights of the Warrantholder to purchase
Preferred Stock or Preferred Stock which might be made by it in reliance upon
Rule 144 under the 1933 Act may be made only in accordance with the terms and
conditions of that Rule.
(f) Accredited Investor. Warrantholder is an "accredited investor" within
-------------------
the meaning of the Securities and Exchange Rule 501 of Regulation D, as
presently in effect.
11. REQUESTS FOR REGISTRATION
-------------------------
Warrantholder and Company agree that all shares of Preferred Stock subject to
the Warrant Agreement shall have the same registration rights and be subject to
the same terms and conditions with respect to the registration and sale of such
stock as possessed by the Series A Shareholders as provided for in the Rights
Agreement attached hereto as Exhibit V.
12. TRANSFERS.
---------
Subject to the terms and conditions contained in Section 10 hereof, this
Warrant Agreement and all rights hereunder are transferable in whole or in part
by the Warrantholder and any successor transferee, provided, however, in no
event shall the number of transfers of the rights and interests in all of the
Warrants exceed three (3) transfers. The transfer shall be recorded on the
books of the Company upon receipt by the Company of a notice of transfer in the
form attached hereto as Exhibit III (the "Transfer Notice"), at its principal
offices and the payment to the Company of all transfer taxes and other
governmental charges imposed on such transfer.
13. MISCELLANEOUS.
-------------
(a) Effective Date. The provisions of this Warrant Agreement shall be
--------------
construed and shall be given effect in all respects as if it had been executed
and delivered by the Company on the date hereof. This Warrant Agreement shall
be binding upon any successors or assigns of the Company.
(b) Attorney's Fees. In any litigation, arbitration or court proceeding
---------------
between the Company and the Warrantholder relating hereto, the prevailing party
shall be entitled to attorneys' fees and expenses and all costs of proceedings
incurred in enforcing this Warrant Agreement.
(c) Governing Law. This Warrant Agreement shall be governed by and
-------------
construed for all purposes under and in accordance with the laws of the State of
California.
(d) Counterparts. This Warrant Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(e) Notices. Any notice required or permitted hereunder shall be given in
-------
writing and shall be deemed effectively given upon personal delivery, facsimile
transmission (provided that the original is sent by
-7-
<PAGE>
personal delivery or mail as hereinafter set forth) or seven (7) days after
deposit in the United States mail, by registered or certified mail, addressed
(i) to the Warrantholder at 100 Drakes Landing Road, Suite 260 Greenbrae,
California 94904-3121, Attention: Contract Administration, (and/or, if by
facsimile, (415) 925-3387 and (ii) to the Company at 320 First Street, San
Francisco, California 94105, Attention: Chief Executive Officer (and/or if by
facsimile, (415) 543-2830 or at such other address as any such party may
subsequently designate by written notice to the other party.
(f) Remedies. In the event of any default hereunder, the non-defaulting
--------
party may proceed to protect and enforce its rights either by suit in equity
and/or by action at law, including but not limited to an action for damages as a
result of any such default, and/or an action for specific performance for any
default where Warrantholder will not have an adequate remedy at law and where
damages will not be readily ascertainable. The Company expressly agrees that it
shall not oppose an application by the Warrantholder or any other person
entitled to the benefit of this Agreement requiring specific performance of any
or all provisions hereof or enjoining the Company from continuing to commit any
such breach of this Agreement.
(g) No Impairment of Rights. The Company will not, by amendment of its
-----------------------
Articles or through any other means, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
actions as may be necessary or appropriate in order to protect the rights of the
Warrantholder against impairment.
(h) Survival. The representations, warranties, covenants and conditions of
--------
the respective parties contained herein or made pursuant to this Warrant
Agreement shall survive the execution and delivery of this Warrant Agreement.
(i) Severability. In the event any one or more of the provisions of this
------------
Warrant Agreement shall for any reason be held invalid, illegal or
unenforceable, the remaining provisions of this Warrant Agreement shall be
unimpaired, and the invalid, illegal or unenforceable provision shall be
replaced by a mutually acceptable valid, legal and enforceable provision, which
comes closest to the intention of the parties underlying the invalid, illegal or
unenforceable provision.
(j) Amendments. Any provision of this Warrant Agreement may be amended by
----------
a written instrument signed by the Company and by the Warrantholder.
(k) Additional Documents. The Company, upon execution of this Warrant
--------------------
Agreement, shall provide the Warrantholder with certified resolutions with
respect to the representations, warranties and covenants set forth in
subparagraphs (a) through (d), and (g) of Section 9 above. The Company shall
also supply such other documents as the Warrantholder may from time to time
reasonably request.
14. VALUE.
-----
The Company and the Warrantholder agree that the value of this Warrant on the
date of grant is $100.
THIS SPACE IS INTENTIONALLY BLANK
-8-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Warrant Agreement
to be executed by its officers thereunto duly authorized as of the Effective
Date.
Company
CRITICAL PATH INC.
By: /s/ David Hayden
----------------------------
Name: David Hayden
--------------------------
Title: Chief Executive Officer
-------------------------
WARRANTHOLDER:
LIGHTHOUSE CAPITAL PARTNERS II, L.P.
By: LIGHTHOUSE MANAGEMENT PARTNERS II, L.P.,
its general partner
By: LIGHTHOUSE CAPITAL PARTNERS, INC.,
its general partner
By: /s/ Richard D. Stubblefield
-------------------------------
Name: Richard D. Stubblefield
-----------------------------
Title: Managing Director
----------------------------
-9-
<PAGE>
EXHIBIT I
NOTICE OF EXERCISE
To: ____________________________
(1) The undersigned Warrantholder hereby elects to purchase _______ shares of
the Series A Preferred Stock of _________________, pursuant to the terms of
the Warrant Agreement dated the first day of May, 1998 (the "Warrant
Agreement") between Critical Path, Inc. and the Warrantholder, and tenders
herewith payment of the purchase price for such shares in full, together
with all applicable transfer taxes, if any.
(2) In exercising its rights to purchase the Series A Preferred Stock of
Critical Path, Inc., the undersigned hereby confirms and acknowledges the
investment representations and warranties made in Section 10 of the Warrant
Agreement.
(3) Please issue a certificate or certificates representing said shares of
Series A Preferred Stock in the name of the undersigned or in such other
name as is specified below.
_________________________________
(Name)
_________________________________
(Address)
LIGHTHOUSE CAPITAL PARTNERS II, L.P.
By: LIGHTHOUSE MANAGEMENT PARTNERS II, L.P.,
its general partner
By: LIGHTHOUSE CAPITAL PARTNERS, INC.,
its general partner
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
Date: __________________
-10-
<PAGE>
EXHIBIT II
ACKNOWLEDGMENT OF EXERCISE
The undersigned ____________________________________, hereby
acknowledge receipt of the "Notice of Exercise" from Lighthouse Capital Partners
II, L.P., To purchase ____ shares of the Series A Preferred Stock of
_________________, pursuant to the terms of the Warrant Agreement, and further
acknowledges that ______ shares remain subject to purchase under the terms of
the Warrant Agreement.
Company:
CRITICAL PATH INC.
By:
------------------------------
Title:
------------------------------
Date:
------------------------------
-11-
<PAGE>
EXHIBIT III
TRANSFER NOTICE
(To transfer or assign the foregoing Warrant Agreement execute this form and
supply required information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant Agreement and all rights
evidenced thereby are hereby transferred and assigned to
- ---------------------------------------------------------
(Please Print)
whose address is
-----------------------------------------
- ---------------------------------------------------------
Dated:
----------------------------
Holder's Signature:
---------------
Holder's Address:
-----------------
----------------------------------
Signature Guaranteed:
---------------------------------------------
NOTE: The signature to this Transfer Notice must correspond with the name as it
appears on the face of the Warrant Agreement, without alteration or
enlargement or any change whatever. Officers of corporations and those
acting in a fiduciary or other representative capacity should file proper
evidence of authority to assign the foregoing Warrant Agreement.
-12-
<PAGE>
EXHIBIT 10.14
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AS
AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
RELATED THERETO OSamir P. MasterFinancial Printing GroupTHESE SECURITIES HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AS AMENDED, OR ANY STATE
SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT RELATED
THERETO OR AN OPINION OF COUNSEL (WHICH MAY BE COMPANY COUNSEL) REASONABLY
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS.
WARRANT AGREEMENT
To Purchase Shares of the Series A Preferred Stock of
CRITICAL PATH INC.
Dated as of May 1, 1998 (the "Effective Date")
WHEREAS, Critical Path Inc., a California corporation (the "Company") has
entered into a Master Lease Agreement dated as of May 1, 1998, Equipment
Schedule No. VL-1 and VL-2 dated as of May 1, 1998, and related Summary
Equipment Schedules (collectively, the "Leases") with Comdisco, Inc., a Delaware
corporation (the "Warrantholder"); and
WHEREAS, the Company desires to grant to Warrantholder, in consideration
for such Leases, the right to purchase shares of its Series A Preferred Stock;
NOW, THEREFORE, in consideration of the Warrantholder executing and
delivering such Leases and in consideration of mutual covenants and agreements
contained herein, the Company and Warrantholder agree as follows:
1. GRANT OF THE RIGHT TO PURCHASE PREFERRED STOCK.
----------------------------------------------
The Company hereby grants to the Warrantholder, and the Warrantholder is
entitled, upon the terms and subject to the conditions hereinafter set forth, to
subscribe to and purchase, from the Company, 533,536 fully paid and non-
assessable shares of the Company's Series A Preferred Stock ("Preferred Stock")
at a purchase price of $.328per share (the "Exercise Price"). The number and
purchase price of such shares are subject to adjustment as provided in Section 8
hereof.
2. TERM OF THE WARRANT AGREEMENT.
-----------------------------
Except as otherwise provided for herein, the term of this Warrant Agreement
and the right to purchase Preferred Stock as granted herein shall commence on
the Effective Date and shall be exercisable for a period of (i) seven (7) years
or (ii) five (5) years from the effective date of the Company's initial public
offering, whichever is shorter.
3. EXERCISE OF THE PURCHASE RIGHTS.
-------------------------------
The purchase rights set forth in this Warrant Agreement are exercisable by
the Warrantholder, in whole or in part, at any time, or from time to time, prior
to the expiration of the term set forth in Section 2 above, by tendering to the
Company at its principal office a notice of exercise in the form attached hereto
as Exhibit I (the "Notice of Exercise"), duly completed and executed. Promptly
upon receipt of the Notice of Exercise and the payment of the purchase price in
accordance with the terms set forth below, and in no event later than twenty-one
(21) days thereafter, the Company shall issue to the Warrantholder a certificate
for the number of shares of Preferred Stock purchased and shall execute the
acknowledgment of exercise in the form attached hereto as Exhibit II (the
"Acknowledgment of Exercise") indicating the number of shares which remain
subject to future purchases, if any.
The Exercise Price may be paid at the Warrantholder's election either (i)
by cash or check, or (ii) by surrender of Warrants ("Net Issuance") as
determined below. If the Warrantholder elects the Net Issuance method, the
Company will issue Preferred Stock in accordance with the following formula:
X = Y(A-B)
------
A
-1-
<PAGE>
Where: X = the number of shares of Preferred Stock to be issued to the
Warrantholder.
Y = the number of shares of Preferred Stock requested to
be exercised under this Warrant Agreement.
A = the fair market value of one (1) share of Preferred
Stock.
B = the Exercise Price.
For purposes of the above calculation, current fair market value of
Preferred Stock shall mean with respect to each share of Preferred Stock:
(i) if the exercise is in connection with an initial public offering
of the Company's Common Stock, and if the Company's Registration Statement
relating to such public offering has been declared effective by the SEC,
then the fair market value per share shall be the product of (x) the
initial "Price to Public" specified in the final prospectus with respect to
the offering and (y) the number of shares of Common Stock into which each
share of Preferred Stock is convertible at the time of such exercise;
(ii) if this Warrant is exercised after, and not in connection with
the Company's initial public offering, and:
(a) if traded on a securities exchange, the fair market value
shall be deemed to be the product of (x) the average of the closing
prices over a twenty-one (21) day period ending three days before the
day the current fair market value of the securities is being
determined and (y) the number of shares of Common Stock into which
each share of Preferred Stock is convertible at the time of such
exercise; or
(b) if actively traded over-the-counter, the fair market value
shall be deemed to be the product of (x) the average of the closing
bid and asked prices quoted on the NASDAQ system (or similar system)
over the twenty-one (21) day period ending three days before the day
the current fair market value of the securities is being determined
and (y) the number of shares of Common Stock into which each share of
Preferred Stock is convertible at the time of such exercise;
(iii) if at any time the Common Stock is not listed on any securities
exchange or quoted in the NASDAQ System or the over-the-counter market, the
current fair market value of Preferred Stock shall be the product of (x)
the highest price per share which the Company could obtain from a willing
buyer (not a current employee or director) for shares of Common Stock sold
by the Company, from authorized but unissued shares, as determined in good
faith by its Board of Directors and (y) the number of shares of Common
Stock into which each share of Preferred Stock is convertible at the time
of such exercise, unless the Company shall become subject to a merger,
acquisition or other consolidation pursuant to which the Company is not the
surviving party, in which case the fair market value of Preferred Stock
shall be deemed to be the value received by the holders of the Company's
Preferred Stock on a common equivalent basis pursuant to such merger or
acquisition.
Upon partial exercise by either cash or Net Issuance, the Company shall
promptly issue an amended Warrant Agreement representing the remaining number of
shares purchasable hereunder. All other terms and conditions of such amended
Warrant Agreement shall be identical to those contained herein, including, but
not limited to the Effective Date hereof.
4. RESERVATION OF SHARES.
---------------------
(a) Authorization and Reservation of Shares. During the term of this
---------------------------------------
Warrant Agreement, the Company will at all times have authorized and reserved a
sufficient number of shares of its Preferred Stock to provide for the exercise
of the rights to purchase Preferred Stock as provided for herein.
(b) Registration or Listing. If any shares of Preferred Stock required to
-----------------------
be reserved hereunder require registration with or approval of any governmental
authority under any Federal or State law (other than any registration under the
Securities Act of 1933, as amended ("1933 Act"), as then in effect, or any
similar Federal statute then enforced, or any state securities law, required by
reason of any transfer involved in such conversion), or
-2-
<PAGE>
listing on any domestic securities exchange, before such shares may be issued
upon conversion, the Company will, at its expense and as expeditiously as
possible, use its best efforts to cause such shares to be duly registered,
listed or approved for listing on such domestic securities exchange, as the case
may be.
5. NO FRACTIONAL SHARES OR SCRIP.
-----------------------------
No fractional shares or scrip representing fractional shares shall be
issued upon the exercise of the Warrant, but in lieu of such fractional shares
the Company shall make a cash payment therefor upon the basis of the Exercise
Price then in effect.
6. NO RIGHTS AS SHAREHOLDER.
------------------------
This Warrant Agreement does not entitle the Warrantholder to any voting
rights or other rights as a shareholder of the Company prior to the exercise of
the Warrant.
7. WARRANTHOLDER REGISTRY.
----------------------
The Company shall maintain a registry showing the name and address of the
registered holder of this Warrant Agreement.
8. ADJUSTMENT RIGHTS.
-----------------
The purchase price per share and the number of shares of Preferred Stock
purchasable hereunder are subject to adjustment, as follows:
(a) Merger and Sale of Assets. If at any time there shall be a capital
-------------------------
reorganization of the shares of the Company's stock (other than a combination,
reclassification, exchange or subdivision of shares otherwise provided for
herein), or a merger or consolidation of the Company with or into another
corporation whether or not the Company is the surviving corporation, or the sale
of all or substantially all of the Company's properties and assets to any other
person in each case involving the issuance to shareholders of the Company of
securities of a successor corporation(hereinafter referred to as a "Merger
Event"), then, as a part of such Merger Event, lawful provision shall be made so
that the Warrantholder shall thereafter be entitled to receive, upon exercise of
the Warrant, the number of shares of preferred stock or other securities of the
successor corporation resulting from such Merger Event, equivalent in value to
that which would have been issuable if Warrantholder had exercised this Warrant
immediately prior to the Merger Event. In any such case, appropriate adjustment
(as determined in good faith by the Company's Board of Directors) shall be made
in the application of the provisions of this Warrant Agreement with respect to
the rights and interest of the Warrantholder after the Merger Event to the end
that the provisions of this Warrant Agreement (including adjustments of the
Exercise Price and number of shares of Preferred Stock purchasable) shall be
applicable to the greatest extent practicable..
(b) Reclassification of Shares. If the Company at any time shall, by
--------------------------
combination, reclassification, exchange or subdivision of securities or
otherwise, change any of the securities as to which purchase rights under this
Warrant Agreement exist into the same or a different number of securities of any
other class or classes, this Warrant Agreement shall thereafter represent the
right to acquire such number and kind of securities as would have been issuable
as the result of such change with respect to the securities which were subject
to the purchase rights under this Warrant Agreement immediately prior to such
combination, reclassification, exchange, subdivision or other change.
(c) Subdivision or Combination of Shares. If the Company at any time shall
------------------------------------
combine or subdivide its Preferred Stock, the Exercise Price shall be
proportionately decreased in the case of a subdivision, or proportionately
increased in the case of a combination.
(d) Stock Dividends. If the Company at any time shall pay a dividend
---------------
payable in, or make any other distribution (except any distribution specifically
provided for in the foregoing subsections (a) or (b)) of the Company's stock,
then the Exercise Price shall be adjusted, from and after the record date of
such dividend or distribution, to that price determined by multiplying the
Exercise Price in effect immediately prior to such record date by a fraction (i)
the numerator of which shall be the total number of all shares of the Company's
stock outstanding immediately prior to such dividend or distribution, and (ii)
the denominator of which shall be the total number of all shares of the
Company's stock outstanding immediately after such dividend or distribution.
The Warrantholder shall thereafter be entitled to purchase, at the Exercise
Price resulting from such adjustment, the number of shares of Preferred Stock
(calculated to the nearest whole share) obtained by multiplying the Exercise
Price in effect immediately prior to such
-3-
<PAGE>
adjustment by the number of shares of Preferred Stock issuable upon the exercise
hereof immediately prior to such adjustment and dividing the product thereof by
the Exercise Price resulting from such adjustment.
(e) Right to Purchase Additional Stock. If, the Warrantholder's total cost
----------------------------------
of equipment leased pursuant to the Leases exceeds $5,000,000.00, Warrantholder
shall have the right to purchase from the Company, at the Exercise Price
(adjusted as set forth herein), an additional number of shares, which number
shall be determined by (i) multiplying the amount by which the Warrantholder's
total equipment cost exceeds $5,000,000.00 by 3.5%, and (ii) dividing the
product thereof by the Exercise Price per share referenced above.
(f) Antidilution Rights. Additional antidilution rights applicable to the
-------------------
Preferred Stock purchasable hereunder are as set forth in the Company's
Certificate of Incorporation, as amended through the Effective Date, a true and
complete copy of which is attached hereto as Exhibit IV (the "Charter"). The
--
Company shall promptly provide the Warrantholder with copies of any restatement,
amendment, modification or waiver of the Charter. The Company shall provide
Warrantholder with copies of prompt written notice of any issuance of its stock
or other equity security to occur after the Effective Date of this Warrant,
which notice shall include (a) the price at which such stock or security is to
be sold, (b) the number of shares to be issued, and (c) such other information
as necessary for Warrantholder to determine if a dilutive event has occurred.
Notwithstanding the foregoing such notice shall not be required for issuances of
equity securities that are excluded from the definition of "Additional stock
under Section A(4) Charter.
(g) Notice of Adjustments. If: (i) the Company shall declare any dividend
---------------------
or distribution upon its stock, whether in cash, property, stock or other
securities; (ii) the Company shall offer for subscription prorata to the holders
of any class of its Preferred or other convertible stock any additional shares
of stock of any class or other rights; (iii) there shall be any Merger Event;
(iv) there shall be an initial public offering; or (v) there shall be any
voluntary dissolution, liquidation or winding up of the Company; then, in
connection with each such event, the Company shall send to the Warrantholder:
(A) at least twenty (20) days' prior written notice of the date on which the
books of the Company shall close or a record shall be taken for such dividend,
distribution, subscription rights (specifying the date on which the holders of
Preferred Stock shall be entitled thereto) or for determining rights to vote in
respect of such Merger Event, dissolution, liquidation or winding up; (B) in the
case of any such Merger Event, dissolution, liquidation or winding up, at least
twenty (20) days' prior written notice of the date when the same shall take
place (and specifying the date on which the holders of Preferred Stock shall be
entitled to exchange their Preferred Stock for securities or other property
deliverable upon such Merger Event, dissolution, liquidation or winding up); and
(C) in the case of a public offering, the Company shall give the Warrantholder
at least twenty (20) days written notice prior to the effective date thereof.
Each such written notice shall set forth, in reasonable detail, if
applicable,(i) the event requiring the adjustment, (ii) the amount of the
adjustment, (iii) the method by which such adjustment was calculated, (iv) the
Exercise Price, and (v) the number of shares subject to purchase hereunder after
giving effect to such adjustment, and shall be given by first class mail,
postage prepaid, addressed to the Warrantholder, at the address as shown on the
books of the Company.
(h) Timely Notice. Failure to timely provide such notice required by
-------------
subsection (g) above shall entitle Warrantholder to retain the benefit of the
applicable notice period notwithstanding anything to the contrary contained in
any insufficient notice received by Warrantholder. The notice period shall begin
on the date Warrantholder actually receives such a written notice.
9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.
--------------------------------------------------------
(a) Reservation of Preferred Stock. The Preferred Stock issuable upon
------------------------------
exercise of the Warrantholder's rights has been duly and validly reserved and,
when issued in accordance with the provisions of this Warrant Agreement, will be
validly issued, fully paid and non-assessable, and will be free of any taxes,
liens, charges or encumbrances of any nature whatsoever; provided, however, that
the Preferred Stock issuable pursuant to this Warrant Agreement may be subject
to restrictions on transfer under state and/or Federal securities laws. The
Company has made available to the Warrantholder true, correct and complete
copies of its Charter and Bylaws, as amended. The issuance of certificates for
shares of Preferred Stock upon exercise of the Warrant Agreement shall be made
without charge to the Warrantholder for any issuance tax in respect thereof, or
other cost incurred by the Company in connection with such exercise and the
related issuance of shares of Preferred Stock. The Company shall not be required
to pay any tax which may be payable in respect of any transfer involved and the
issuance and delivery of any certificate in a name other than that of the
Warrantholder.
-4-
<PAGE>
(b) Due Authority. The execution and delivery by the Company of this
-------------
Warrant Agreement and the performance of all obligations of the Company
hereunder, including the issuance to Warrantholder of the right to acquire the
shares of Preferred Stock, have been duly authorized by all necessary corporate
action on the part of the Company, and the Leases and this Warrant Agreement are
not inconsistent with the Company's Charter or Bylaws, do not contravene any law
or governmental rule, regulation or order applicable to it, do not and will not
contravene any provision of, or constitute a default under, any indenture,
mortgage, contract or other instrument to which it is a party or by which it is
bound, and the Leases and this Warrant Agreement constitute legal, valid and
binding agreements of the Company, enforceable in accordance with their
respective terms.
(c) Consents and Approvals. No consent or approval of, giving of notice
----------------------
to, registration with, or taking of any other action in respect of any state,
Federal or other governmental authority or agency is required with respect to
the execution, delivery and performance by the Company of its obligations under
this Warrant Agreement, except for the filing of notices pursuant to Regulation
D under the 1933 Act and any filing required by applicable state securities law,
which filings, if required, will be effective by the time required thereby.
(d) Issued Securities. All issued and outstanding shares of Common Stock,
-----------------
Preferred Stock or any other securities of the Company have been duly authorized
and validly issued and are fully paid and nonassessable. All outstanding shares
of Common Stock, Preferred Stock and any other securities were issued in full
compliance with all Federal and state securities laws. In addition:
(i) The authorized capital of the Company consists of (A) 60,000,000
shares of Common Stock, of which 13,763,158 shares are issued and
outstanding, and (B) 29,250,768 shares of preferred stock, of which
25,957,317 shares are issued and outstanding and are convertible into
13,763,158 shares of Common Stock at $.328 per share.
(ii) The Company has reserved (A) 13,426,606 shares of Common Stock
for issuance under its 1998 Stock Option Plan, under which 5,962,606
options are outstanding. Except as set forth above and except for the right
of first refusal to offer contained in Section 2.3 of the Investors' Right
Agreement dated April 1, 1998 between the Company and certain shareholders
of the Company, the "Rights Agreement"), there are no other options,
warrants, conversion privileges or other rights presently outstanding to
purchase or otherwise acquire any authorized but unissued shares of the
Company's capital stock or other securities of the Company.
(iii) In accordance with the Company's Articles of Incorporation, no
shareholder of the Company has preemptive rights to purchase new issuances
of the Company's capital stock.
(e) Insurance. The Company has in full force and effect insurance
---------
policies, with extended coverage, insuring the Company and its property and
business against such losses and risks, and in such amounts, as are customary
for corporations engaged in a similar business and similarly situated and as
otherwise may be required pursuant to the terms of any other contract or
agreement.
(f) Other Commitments to Register Securities. Except as set forth in the
----------------------------------------
Rights Agreement and in this Warrant Agreement, the Company is not, pursuant to
the terms of any other agreement currently in existence, under any obligation to
register under the 1933 Act any of its presently outstanding securities or any
of its securities which may hereafter be issued.
(g) Exempt Transaction. Subject to the accuracy of the Warrantholder's
------------------
representations in Section 10 hereof, the issuance of the Preferred Stock upon
exercise of this Warrant will constitute a transaction exempt from (i) the
registration requirements of Section 5 of the 1933 Act, in reliance upon Section
4(2) thereof, and (ii) the qualification requirements of the applicable state
securities laws.
(h) Compliance with Rule 144. At the written request of the Warrantholder,
------------------------
who proposes to sell Preferred Stock issuable upon the exercise of the Warrant
in compliance with Rule 144 promulgated by the Securities and Exchange
Commission, the Company shall furnish to the Warrantholder, within ten days
after receipt of such request, a written statement confirming the Company's
compliance with the filing requirements of the Securities and Exchange
Commission as set forth in such Rule, as such Rule may be amended from time to
time.
10. REPRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER.
--------------------------------------------------
This Warrant Agreement has been entered into by the Company in reliance
upon the following representations and covenants of the Warrantholder:
-5-
<PAGE>
(a) Investment Purpose. The right to acquire Preferred Stock or the
------------------
Preferred Stock issuable upon exercise of the Warrantholder's rights contained
herein will be acquired for investment and not with a view to the sale or
distribution of any part thereof, and the Warrantholder has no present intention
of selling or engaging in any public distribution of the same except pursuant to
a registration or exemption.
(b) Private Issue. The Warrantholder understands (i) that the Preferred
-------------
Stock issuable upon exercise of this Warrant is not registered under the 1933
Act or qualified under applicable state securities laws on the ground that the
issuance contemplated by this Warrant Agreement will be exempt from the
registration and qualifications requirements thereof, and (ii) that the
Company's reliance on such exemption is predicated on the representations set
forth in this Section 10.
(c) Disposition of Warrantholder's Rights. In no event will the
-------------------------------------
Warrantholder make a disposition of any of its rights to acquire Preferred Stock
or Preferred Stock issuable upon exercise of such rights unless and until (i) it
shall have notified the Company of the proposed disposition, and (ii) if
requested by the Company, it shall have furnished the Company with an opinion of
counsel (which counsel may either be inside or outside counsel to the
Warrantholder) satisfactory to the Company and its counsel to the effect that
(A) appropriate action necessary for compliance with the 1933 Act has been
taken, or (B) an exemption from the registration requirements of the 1933 Act is
available. Notwithstanding the foregoing, the restrictions imposed upon the
transferability of any of its rights to acquire Preferred Stock or Preferred
Stock issuable on the exercise of such rights do not apply to transfers from the
beneficial owner of any of the aforementioned securities to its nominee or from
such nominee to its beneficial owner, and shall terminate as to any particular
share of Preferred Stock when (1) such security shall have been effectively
registered under the 1933 Act and sold by the holder thereof in accordance with
such registration or (2) such security shall have been sold without registration
in compliance with Rule 144 under the 1933 Act, or (3) a letter shall have been
issued to the Warrantholder at its request by the staff of the Securities and
Exchange Commission or a ruling shall have been issued to the Warrantholder at
its request by such Commission stating that no action shall be recommended by
such staff or taken by such Commission, as the case may be, if such security is
transferred without registration under the 1933 Act in accordance with the
conditions set forth in such letter or ruling and such letter or ruling
specifies that no subsequent restrictions on transfer are required. Whenever
the restrictions imposed hereunder shall terminate, as hereinabove provided, the
Warrantholder or holder of a share of Preferred Stock then outstanding as to
which such restrictions have terminated shall be entitled to receive from the
Company, without expense to such holder, one or more new certificates for the
Warrant or for such shares of Preferred Stock not bearing any restrictive
legend.
(d) Financial Risk. The Warrantholder has such knowledge and experience in
--------------
financial and business matters as to be capable of evaluating the merits and
risks of its investment, and has the ability to bear the economic risks of its
investment.
(e) Risk of No Registration. The Warrantholder understands that if the
-----------------------
Company does not register with the Securities and Exchange Commission pursuant
to Section 12 of the 1934 Act (the "1934 Act"), or file reports pursuant to
Section 15(d), of the 1934 Act", or if a registration statement covering the
securities under the 1933 Act is not in effect when it desires to sell (i) the
rights to purchase Preferred Stock pursuant to this Warrant Agreement, or (ii)
the Preferred Stock issuable upon exercise of the right to purchase, it may be
required to hold such securities for an indefinite period. The Warrantholder
also understands that any sale of its rights of the Warrantholder to purchase
Preferred Stock or Preferred Stock which might be made by it in reliance upon
Rule 144 under the 1933 Act may be made only in accordance with the terms and
conditions of that Rule.
(f) Accredited Investor. Warrantholder is an "accredited investor" within
-------------------
the meaning of the Securities and Exchange Rule 501 of Regulation D, as
presently in effect.
11. REQUESTS FOR REGISTRATION
-------------------------
Warrantholder and Company agree that all shares of Preferred Stock subject to
the Warrant Agreement shall have the same registration rights and be subject to
the same terms and conditions with respect to the registration and sale of such
stock as possessed by the Series A Shareholders as provided for in the Rights
Agreement attached hereto as Exhibit A..
12. TRANSFERS.
---------
Subject to the terms and conditions contained in Section 10 hereof, this
Warrant Agreement and all rights hereunder are transferable in whole or in part
by the Warrantholder and any successor transferee, provided,
-6-
<PAGE>
however, in no event shall the number of transfers of the rights and interests
in all of the Warrants exceed three (3) transfers. The transfer shall be
recorded on the books of the Company upon receipt by the Company of a notice of
transfer in the form attached hereto as Exhibit III (the "Transfer Notice"), at
its principal offices and the payment to the Company of all transfer taxes and
other governmental charges imposed on such transfer.
13. MISCELLANEOUS.
-------------
(a) Effective Date. The provisions of this Warrant Agreement shall be
--------------
construed and shall be given effect in all respects as if it had been executed
and delivered by the Company on the date hereof. This Warrant Agreement shall
be binding upon any successors or assigns of the Company.
(b) Attorney's Fees. In any litigation, arbitration or court proceeding
---------------
between the Company and the Warrantholder relating hereto, the prevailing party
shall be entitled to attorneys' fees and expenses and all costs of proceedings
incurred in enforcing this Warrant Agreement.
(c) Governing Law. This Warrant Agreement shall be governed by and
-------------
construed for all purposes under and in accordance with the laws of the State of
California.
(d) Counterparts. This Warrant Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(e) Notices. Any notice required or permitted hereunder shall be given in
-------
writing and shall be deemed effectively given upon personal delivery, facsimile
transmission (provided that the original is sent by personal delivery or mail as
hereinafter set forth) or seven (7) days after deposit in the United States
mail, by registered or certified mail, addressed (i) to the Warrantholder at
6111 North River Road, Rosemont, Illinois 60018, Attention: Venture Lease
Administration, cc: Legal Department, Attention.: General Counsel, (and/or, if
by facsimile, (847) 518-5465 and (847)518-5088) and (ii) to the Company at 320
First Street, San Francisco, CA 94105, Attention: President(and/or if by
facsimile, (415) 543-2830 or at such other address as any such party may
subsequently designate by written notice to the other party.
(f) Remedies. In the event of any default hereunder, the non-defaulting
--------
party may proceed to protect and enforce its rights either by suit in equity
and/or by action at law, including but not limited to an action for damages as a
result of any such default, and/or an action for specific performance for any
default where Warrantholder will not have an adequate remedy at law and where
damages will not be readily ascertainable. The Company expressly agrees that it
shall not oppose an application by the Warrantholder or any other person
entitled to the benefit of this Agreement requiring specific performance of any
or all provisions hereof or enjoining the Company from continuing to commit any
such breach of this Agreement.
(g) No Impairment of Rights. The Company will not, by amendment of its
-----------------------
Charter or through any other means, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
actions as may be necessary or appropriate in order to protect the rights of the
Warrantholder against impairment.
(h) Survival. The representations, warranties, covenants and conditions of
--------
the respective parties contained herein or made pursuant to this Warrant
Agreement shall survive the execution and delivery of this Warrant Agreement.
(i) Severability. In the event any one or more of the provisions of this
------------
Warrant Agreement shall for any reason be held invalid, illegal or
unenforceable, the remaining provisions of this Warrant Agreement shall be
unimpaired, and the invalid, illegal or unenforceable provision shall be
replaced by a mutually acceptable valid, legal and enforceable provision, which
comes closest to the intention of the parties underlying the invalid, illegal or
unenforceable provision.
(j) Amendments. Any provision of this Warrant Agreement may be amended by
----------
a written instrument signed by the Company and by the Warrantholder.
(k) Additional Documents. The Company, upon execution of this Warrant
--------------------
Agreement, shall provide the Warrantholder with certified resolutions with
respect to the representations, warranties and covenants set forth in
subparagraphs (a) through (d), and (g) of Section 9 above. The Company shall
also supply such other documents as the Warrantholder may from time to time
reasonably request.
-7-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Warrant Agreement
to be executed by its officers thereunto duly authorized as of the Effective
Date.
Company: CRITICAL PATH INC.
By: _______________________
Title: ____________________
Warrantholder: COMDISCO, INC.
By: _______________________
Title: ____________________
-8-
<PAGE>
EXHIBIT I
NOTICE OF EXERCISE
To: ____________________________
(1) The undersigned Warrantholder hereby elects to purchase _______ shares of
the Series A Preferred Stock of _________________, pursuant to the terms of
the Warrant Agreement dated the ______ day of ________________________,
19__ (the "Warrant Agreement") between
_____________________________________ and the Warrantholder, and tenders
herewith payment of the purchase price for such shares in full, together
with all applicable transfer taxes, if any.
(2) In exercising its rights to purchase the Series A Preferred Stock of
________________________________________, the undersigned hereby confirms
and acknowledges the investment representations and warranties made in
Section 10 of the Warrant Agreement.
(3) Please issue a certificate or certificates representing said shares of
Series A Preferred Stock in the name of the undersigned or in such other
name as is specified below.
_________________________________
(Name)
_________________________________
(Address)
Warrantholder: COMDISCO, INC.
By: ____________________________
Title: _________________________
Date: __________________________
-9-
<PAGE>
EXHIBIT II
ACKNOWLEDGMENT OF EXERCISE
The undersigned ____________________________________, hereby acknowledge
receipt of the "Notice of Exercise" from Comdisco, Inc., to purchase ____ shares
of the Series A Preferred Stock of _________________, pursuant to the terms of
the Warrant Agreement, and further acknowledges that ______ shares remain
subject to purchase under the terms of the Warrant Agreement.
Company: CRITICAL PATH, INC.
By: _____________________________
Title: __________________________
Date: ___________________________
-10-
<PAGE>
EXHIBIT III
TRANSFER NOTICE
(To transfer or assign the foregoing Warrant Agreement execute this form and
supply required information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant Agreement and all rights
evidenced thereby are hereby transferred and assigned to
__________________________________________________________
(Please Print)
whose address is__________________________________________
__________________________________________________________
Dated: _____________________________________________
Holder's Signature: ________________________________
Holder's Address: ________________________________
_____________________________________________________
Signature Guaranteed: ___________________________________
NOTE: The signature to this Transfer Notice must correspond with the name as it
appears on the face of the Warrant Agreement, without alteration or
enlargement or any change whatever. Officers of corporations and those
acting in a fiduciary or other representative capacity should file proper
evidence of authority to assign the foregoing Warrant Agreement.
-11-
<PAGE>
EXHIBIT 10.15
MASTER SERVICES AGREEMENT
U S WEST Communications Services, Inc.("Customer") and Critical Path, Inc.
("Supplier") agree as follows:
- --------------------------------------------------------------------------------
1. Scope: This Master Services Agreement ("Agreement") provides the
general terms and conditions that shall apply to the services (the "Services")
and the deliverables developed specifically for Customer at Customer's request
(the "Deliverables") to be provided by Supplier to Customer under this
Agreement. The Services and Deliverables will be provided pursuant to
statements of work and other addenda (collectively, "Statements of Work")
attached to and made a part of this Agreement, each of which shall describe the
functional specifications ("Specifications"), other requirements and additional
terms and conditions relating to the Services and/or Deliverables. In the event
of a conflict between a provision or provisions of this Agreement and a
provision or provisions of a Statement of Work, the Statement of Work shall
apply with respect to the Services and/or Deliverables specified in such
Statement of Work. Customer's Affiliates may purchase Services and Deliverables
under the terms and conditions of this Agreement. "Affiliate" means any entity
which directly or indirectly controls, or is controlled by, or is under common
control with, Customer. "Control" means (i) for corporate entities, direct or
indirect ownership of fifty percent (50%) or more of the stock or shares
entitled to vote for the election of the board of directors or other governing
body of the entity; and (ii) for non-corporate entities, direct or indirect
ownership of fifty percent (50%) or greater of the equity interest.
2. Term: This Agreement shall be effective on December 10th, 1998 and shall
expire on December 31st, 1999. The Agreement may be extended by the parties by
executing a separate written agreement of extension prior to the expiration of
the term.
3. Invoices and Payments: Supplier will issue invoices within thirty (30)
days following completion of Services or on a monthly basis for ongoing
Services, unless otherwise specified in the Statement of Work. Invoices will
contain an itemized description of Services performed, expenses, charges, costs,
and all state, federal, sales, or other applicable taxes separately. Undisputed
invoices will be paid within thirty (30) days of receipt. Payment shall not
constitute acceptance or approval of Services. All late payments shall bear
interest at the rate of one and one-half percent (1-1/2 percent) per month or,
if lower, the maximum amount allowable under applicable law, with interested
accruing from the date due until the amount due is paid.
4. Warranty: Services shall be performed in a professional manner, consistent
with industry standards. With respect to each Deliverables, unless otherwise
specified in the Statement of Work, Supplier warrants that, for a period of six
weeks commencing on the acceptance of the Deliverable (the "Warranty Period"),
the Deliverable under normal use will operate substantially in accordance with
the functional Specifications during the Warranty Period. Customer acknowledges
that the development of computer software is not an exact science and the
Supplier does not warrant that the Deliverables will operate at all times
without interruption or will be error-free. Supplier's entire liability and the
Customer's exclusive remedy for any breach of the foregoing remedy shall be that
Supplier, at Supplier's own expense, shall exercise commercially reasonable
efforts to repair any reproducible defect in the Deliverable reported to
Supplier by the Customer during the Warranty Period that causes the Deliverable
not to operate substantially in accordance with the functional Specifications.
If Supplier is unable to so repair the Deliverable within thirty (30) days of
notice by Customer of such defect, Customer shall be entitled to a refund of the
development fees paid under this Agreement to Supplier, in an amount that
Customer and Supplier reasonably determine is the amount by which the value of
the Deliverable is reduced due to its defects.
OTHER THAN THE FOREGOING, THE SERVICES AND ALL DELIVERABLES ARE PROVIDED BY
SUPPLIER TO CUSTOMER AND CUSTOMER'S USERS "AS IS" AND SUPPLIER AND ITS SUPPLIERS
MAKE NO WARRANTY OF ANY KIND, WHETHER EXPRESS OR IMPLIED, REGARDING THE SERVICES
OR THE DELIVERABLES AND SPECIFICALLY DISCLAIM THE WARRANTIES OF MERCHANTABILITY,
FITNESS FOR A PARTICULAR PURPOSE AND AGAINST INFRINGEMENT, TO THE MAXIMUM EXTENT
POSSIBLE BY LAW.
5. Confidential Information and Property: "Confidential Information" shall
mean any and all business, technical or third-party information (including but
not limited to marketing plans, financial data, specifications, drawings
sketches, models, samples, computer programs, or documentation) marked or
otherwise designated as confidential or proprietary and provided, disclosed or
made available under this Agreement. All Confidential Information shall remain
the property of the disclosing party. The parties shall restrict access to the
Confidential Information to employees or agents who have a "need to know". The
parties, employees or agents, shall not disclose the Confidential Information to
any third party and shall treat the Confidential Information in the same way it
treats its own Confidential Information of like kind. This provision will not
apply to information which is in the public domain, is previously known to the
receiving party without obligation of confidentiality, is independently
developed by the receiving party or is obtained by the receiving party from a
third party that does not have an obligation to keep the information
confidential. The parties will not make any copies of the Confidential
Information and Supplier will not remove any property from Customer's premises
without prior approval.
6. Work Product: Unless otherwise specified in the Statement of Work, and
subject to Supplier's ownership of the Background Technology (as defined below),
all Deliverables, in any medium, that are specifically identified in a Statement
of Work and prepared or originated specifically for Customer at Customer's
request under this Agreement shall be the property of Customer and are deemed
works for hire, and to the extent they may not be works for hire, Supplier
assigns to Customer all rights, title and interest in and to such Deliverables
("Work Product"), including rights to copyright. If the Deliverables include
any code, data, modules, components, designs, utilities, subsets, objects,
processes, tools, features, functionality, interfaces, technology or other items
(a) previously developed, owned, copyrighted or otherwise used by Supplier or
its subcontractors, or (b) that are not specifically identified as a Deliverable
in the
Page 1
[**] CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN
INFORMATION CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT
CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THE PUBLIC FILING AND HAVE
BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
Statement of Work and prepared or originated specifically for Customer at
Customer's request, such items ("Background Technology") shall be and remain the
property of Supplier and its subcontractors or suppliers. Supplier grants to
Customer a royalty-free, non-transferable, non-exclusive license to copy and use
the Background Technology only in connection with use of the Deliverables for
their intended purpose as specified in the Statement of Work.
7. Independent Contractor: Supplier certifies that it is engaged in an
independent business and will perform its obligations under this Agreement as an
independent contractor and not as the agent or employee of Customer; that it has
no authority to act for or bind Customer; that Supplier may and does work for
other customers; that any persons provided by Supplier shall be solely the
employees or agents of Supplier under its sole and exclusive direction and
control. Supplier is solely responsible for the hours of work, methods of
performance and payment of its employees and agents. Supplier is solely
responsible for providing worker's compensation, unemployment, disability
insurance and social security withholding for its employees and agents, and
shall comply with all other federal, state and local, rules and regulations.
Supplier is responsible for and shall pay all assessable federal and state
income tax on amounts paid under this Agreement.
8. Indemnification: Each party (the "Indemnitor") shall indemnify, hold
harmless and defend, the other party, its officers, directors, Affiliates,
agents and employees (the "Indemnitees") from any and all claims, demands,
litigation, expenses and liabilities (including costs and attorneys' fees)
("Liabilities") arising from or incident to any act, omission, negligence or
performance under this Agreement by the Indemnitor, its customers, agents or
representatives. This indemnity shall not apply to the extent the Liability is
the result of the negligence or misconduct of the Indemnitee, its customers,
agents or representatives, or to the extent liability is disclaimed or limited
by either party under this Agreement. The indemnity obligations set forth in
this Article are contingent upon: (a) the Indemnitee giving prompt written
notice to the Indemnitor of any such claim(s); (b) the Indemnitor having sole
control of the defense or settlement of the claim; and (c) at the Indemnitor's
request and expense, the Indemnitee cooperating in the investigation and defense
of such claim(s).
9. Infringement: If the Services or Deliverables are held to be infringing, or
where Supplier believes any Services or Deliverables may be infringing, or where
Customer's use of Services or Deliverables is restricted as a result of a claim
of infringement, then Customer's sole and exclusive remedy and Supplier's sole
and exclusive liability, shall be, at Supplier's expense, to either obtain the
right for Customer to continue using the Services or Deliverables or replace or
modify the Services or Deliverables with a non-infringing service or deliverable
of equivalent functionality. If neither of the alternatives is reasonably
possible, then with respect to infringing Deliverables, Supplier shall refund a
pro-rata portion of the fees paid by Customer to Supplier for the Deliverables
out of which the claim arose, and with respect to infringing Services, this
Agreement or the applicable Statement of Work may be terminated by either party.
10. Limitation of Liability; Except for breach of Article 5, entitled
"Confidential Information and Property", and except for liability under Article
8, "Indemnification", neither party is liable to the other for consequential,
incidental, indirect, punitive or special damages, including commercial loss and
lost profits, however caused and regardless of legal theory or foreseeability,
directly or indirectly arising under this Agreement, even if a party has been
advised of the possibility of such damages.
11. Insurance: Supplier and any subcontractors, shall maintain insurance as
follows: (a) Commercial General Liability covering claims for bodily injury,
death, personal injury or property damage with minimum limits of $1 million each
occurrence with a General Aggregate limit of $2 million and naming Customer as
an additional insured as its interest may appear with respect to this Agreement;
(b) Comprehensive Automobile Liability covering ownership, operation and
maintenance of all owned, non-owned and hired automobiles used in connection
with the performance of this Agreement, with minimum limits of $1 million each
occurrence; (c) Worker's Compensation with statutory limits as required in the
state where the Services are being provided and Employers' Liability or "Stop
Gap" coverage with limits of $100,000 each accident. Customer shall be given
thirty (30) days advance written notification of any cancellation or material
change of the policy. Supplier shall forward certificate(s) of insurance to
Customer prior to commencement of Services and upon renewal of insurance during
the term of this Agreement.
12. Safety, Health and Accident Reports: The safety and health of Supplier's
employees and agents brought on Customer's premises shall be the sole
responsibility of Supplier. While on Customer's premises, Supplier shall comply
with all local, state and federal environmental, health and safety requirements,
including those relating to the use and handling of hazardous materials.
Supplier shall report all accidents, injury-inducing occurrences or property
damage arising from the performance of Services at Customer's premises.
Supplier's employees and agents on Customer's premises shall comply with all
plant rules and regulations provided by Customer to Supplier.
13. Compliance With Laws: Each party shall, at its expense, obtain all
permits and licenses, pay all fees, and comply with all federal, state and local
laws, ordinances, rules, regulations and orders applicable to the party's
performance under this Agreement. Supplier acknowledges that any Services
provided under this Agreement may be subject to The Telecommunications Act of
1996.
14. Termination for Convenience; Cancellation: Either party may terminate
this Agreement, in whole or in part (unless otherwise provided in a Statement of
Work), for its convenience upon thirty (30) days prior written notice.
Supplier shall be entitled to payment for the Services and Deliverables
completed in accordance with the terms and conditions herein as of the date of
termination or cancellation. Customer shall be entitled to receive all Work
Product in progress or completed as of the date of termination or cancellation.
Customer shall have no other liability arising out of termination or
cancellation of this Agreement. Either party may cancel this Agreement
immediately, in whole or in part, for default, breach, insolvency, bankruptcy,
inability to pay debts, or similar financial
Page 2
<PAGE>
circumstances by the other. If the default or breach is reasonably capable of
cure, the non-defaulting party shall give the other party written notice and
reasonable opportunity to cure. The provisions of the Articles on Confidential
Information and Property, Work Product, Indemnification, Limitation of
Liability, Compliance with Laws and Dispute Resolution, shall survive the
termination or cancellation of this Agreement or any Statement of Work. In
addition, if this Agreement is terminated prior to the termination of any
Statement of Work, all applicable provisions of this Agreement shall survive
until expiration or termination of the Statement of Work.
15. Dispute Resolution: Any dispute, controversy or claim concerning or
relating to this Agreement shall be resolved in the following manner:
15.1 The parties agree to use all reasonable efforts to initially resolve
all claims, controversies and disputes ("Dispute") between the parties
through direct discussions. To that end, either party may give the
other party written notice of any dispute not resolved in the normal
course of business. Upon such notice, the parties shall attempt in
good faith to resolve the dispute promptly by negotiation between
executives who have authority to settle the controversy and who are at
a higher level of management than the persons with direct
responsibility for administration of this Agreement.
15.2 If the parties are unable to resolve the Dispute by such means within
30 days of the notice date, or such other time period as mutually
agreed, then either party may commence arbitration pursuant to the
then-current Rules of Commercial Arbitration of the American
Arbitration Association ("AAA"), as modified or supplemented under
this Section 15. The Federal Arbitration Act, 9 U.S.C. Sec. 1-16
shall govern the arbitrability of all Disputes. The arbitrator shall
not have authority to award punitive damages. All expedited
procedures prescribed by the AAA rules shall apply. The arbitrator's
decision and award shall be final and binding and judgment may be
entered in any court having jurisdiction thereof. Each party shall
bear its own costs and attorneys' fees, and shall share equally in the
fees and expenses of the arbitrator. If the arbitration of the
Dispute is initiated by Customer, the laws of the State of California
shall govern the construction and interpretation of this Agreement,
and the arbitration shall occur in San Francisco, California. If the
arbitration of the Dispute is initiated by Supplier, the laws of the
State of Colorado shall govern the construction and interpretation of
this Agreement, and the arbitration shall occur in Denver, Colorado.
15.3 The arbitration proceedings contemplated by this Section shall be as
confidential and private as permitted by law. To that end, the
parties shall not disclose the existence, contents or results of any
proceedings conducted in accordance with this Section, and materials
submitted in connection with such proceedings shall not be admissible
in any other proceedings, provided, however, that this confidentiality
provision shall not prevent a petition to vacate or enforce an
arbitral award, and shall not bar disclosures required by law. The
parties agree that any decision or award results from proceedings in
accordance with this Section shall have no preclusive effect in any
other matter involving third parties.
15.4 Notwithstanding any of the foregoing, either party may request
injunctive and/or equitable relief either from the arbitrators or from
a court in order to protect the rights or property of the party,
pending the resolution of the dispute by arbitration as provided
hereunder.
16. Force Majeure: Neither party is liable to the other party for any delay,
error, failure in performance or interruption of performance resulting from
causes beyond their control whether or not foreseeable or identified, including
without limitation acts of God, strikes, lockouts, riots, acts of war,
governmental regulations, fire, power failure, earthquakes, severe weather,
floods or other natural disease or the other party's or any third party's
hardware, software or communications equipment or facilities ("Force Majeure
Event"). Upon the occurrence of a Force Majeure Event, the party whose
performance is affected thereby ("affected party") shall promptly notify the
other party of such Event, and the parties agree to work together to resolve any
issues arising as a result of such Force Majeure Event. The affected party
agrees to resume performance as soon as reasonably possible. Notwithstanding the
foregoing, if the Force Majeure Event lasts for a continuous period of 90 days
or more, either party may elect to terminate this Agreement and/or any Order
affected by such Force Majeure Event upon written notice without penalty or
other consideration.
17. Remedies: Subject to the Article on Dispute Resolution contained in
this Agreement, the remedies stated in this agreement are cumulative and are in
addition to any other rights available in law or in equity.
18. Records and Audits: With respect to any Deliverables developed under a
Statement of Work for which Supplier is compensated on a time-and-materials
basis or otherwise reimbursed for expenses (rather than paid on a flat fee basis
for such development), Supplier shall maintain complete and accurate records of
all charges for such expenses incurred by Customer ("Reimbursable Expense
Records"), in accordance with generally accepted accounting principles, for a
period of twenty-four (24) months from the date of termination, cancellation or
expiration of this Agreement. Upon request, Supplier agrees to submit a copy
of receipts or other documentation of such expenses and copies of invoices
previously submitted to Customer. In addition, during Supplier's normal
business hours or as otherwise mutually agreed, Customer, through an independent
third-party auditor, may inspect and make copies of such Reimbursable Expense
Records only upon no less than 10 days prior written notice.
In addition, each party shall submit with each of its payments to the other
party a detailed report of the calculation of each such payment. Each party
will retain records relevant to its calculations of the payments made to the
other party during the term of this Agreement and for a two (2) year period
thereafter. Each party shall have the right, at its expense, acting through an
independent
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<PAGE>
third-party auditor, to examine and audit such records at all reasonable times,
on at least ten (10) days notice to the other party, but no more than once every
six (6) months.
19. Assignment and Delegation: Neither party shall assign this Agreement,
in whole or in part without the prior written consent of the other party; and
any attempted assignment by such party shall be void; provided, however, that a
party may assign this Agreement to an affiliate, or to a successor to a majority
of the party's voting stock or to an entity that acquires all or substantially
all of the party's assets without having to obtain the other party's prior
written consent; and provided, further, that Supplier may delegate or
subcontract to a third party any or all of its obligations under this Agreement.
This Agreement shall be binding upon and inure to the benefit of the parties,
their successors and permitted assigns.
20. Notices: Any notices required under this Agreement shall be sent to the
addresses of the parties stated below. Notice will be deemed given (1) as of
the day they are deposited with an overnight courier, charges prepaid, return
receipt requested, with a confirming telefax; or (2) as of the day of receipt if
they are deposited in first class U.S. Mail, charges prepaid, return receipt
requested; or (3) as of the day of receipt if they are hand delivered.
21. Advertising, Publicity: Neither party shall use the other party's
names, marks, codes, drawings or Specifications in any advertising, promotional
efforts or publicity of any kind without the prior written permission of the
other party, which permission shall not be unreasonably withheld, conditioned or
delayed.
22. Waivers: No waiver of any provision of this Agreement or any right or
obligation of a party shall be effective unless in writing, signed by the
parities. The failure of either party to enforce a right shall not constitute a
waiver.
23. Modifications or Amendments: Modifications and amendments to this
Agreement shall be in writing and signed by the parties.
24. Nonexclusive Agreement: This Agreement is nonexclusive and Customer
does not make any commitment or guarantee for any minimum or maximum amount of
purchases.
25. Severability: Any term of this Agreement which is held to be invalid,
illegal, unenforceable or void will in no way affect any other provision.
26. Several Liability: If more than one party is referred to as Customer,
then their obligations and liabilities shall be several, not joint.
27. M/WBE Subcontracting Plan: Support of Minority and Women Businesses is
part of Customer's ongoing business strategy. If required by Customer, Supplier
agrees and commits to use reasonable efforts to subcontract in accordance with
its subcontracting plan mutually agreed-upon by the parties, and such
subcontracting plan shall be incorporated herein as an attachment to the
Agreement entitled "M/WBE Subcontracting Plan."
28. Electronic Data Interchange ("EDI"): It is Customer's objective to
procure Services utilizing EDI. If Supplier is EDI capable, Customer and
Supplier shall enter into a Trading Partner Arrangement to implement EDI
transactions and such arrangement will be incorporated herein as an attachment
to the Agreement entitled "Electronic Data Interchange."
29. Year 2000 Compliance. Supplier warrants that Supplier's provision of
Services to Customer, and any related Deliverables provided to Customer under
this Agreement, will not be adversely affected by the occurrence or use of dates
before, on, or after January 1, 2000 A.D., including dates and leap years
between the twentieth and twenty-first centuries ("Millennial Dates"). Any
deliverables (including any software, hardware or firmware product(s) delivered
by Supplier to Customer) will without error or omission, create, receive, store,
process and output (collectively, "Compute") information related to Millennial
Dates. This warranty includes, without limitation, that the deliverables will
accurately, and without performance degradation, compute Millennial Dates, date-
dependent data, date-related interfaces, or other date-related functions
(including, without limitation, calculating, comparing, and sequencing such
functions). At Customer's request, Supplier will provide written evidence
sufficient to demonstrate adequate testing and conversion of the deliverable to
meet the foregoing requirements. The foregoing warranty is conditioned upon the
software, hardware, network and systems (other than Supplier's) with which the
Services and deliverables interface or interoperate also being unaffected by
Millennial Dates.
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<PAGE>
30. Entire Agreement: This Agreement and all Statements of Work hereunder
constitutes the entire agreement between the parties for the Services and
Deliverables to be provided. Any prior oral or written communications or
agreements of the parties with respect to the Services or Deliverables not
expressly set forth in this Agreement or any Statement of Work are of no force
or effect. Any additional or inconsistent terms in any acknowledgment or
acceptance of an order, or any other document not in compliance with Article 23,
are of no effect.
- --------------------------------------------------------------------------------
The Parties, intending to be legally bound, have caused this Agreement to be
executed by their authorized representatives on the dates set forth below.
U S WEST Communications Services, Inc. Critical Path, Inc.
- ------------------------------------ -----------------------------------
(Authorized Signature) (Authorized Signature)
Joseph R. Zell
- ------------------------------------ -----------------------------------
(Print or Type Name of Signatory) (Print or Type Name of Signatory)
President, U S WEST !NTERPRISE
- ------------------------------------ -----------------------------------
(Title) (Title)
December 9, 1998
- ------------------------------------ -----------------------------------
(Execution Date) (Execution Date)
Address for Purposes of Notices: Address for Purposes of Notices:
700 W. Mineral Ave.
- ------------------------------------ -----------------------------------
Mailstop: CO H6 320 First Street
- ------------------------------------ -----------------------------------
Littleton, Colorado 80120 San Francisco, California 94105
- ------------------------------------ -----------------------------------
Page 5
<PAGE>
STATEMENT OF WORK #1 DATED DECEMBER 7, 1998
-------------------------------------------
To the
------
MASTER SERVICES AGREEMENT DATED DECEMBER 7, 1998
------------------------------------------------
E-MAIL SERVICES
---------------
(WEB-BASED E-MAIL)
THIS Statement of Work #1 for Email Services ("Email Agreement") is attached to
and made part of the Master Services Agreement. In the event any terms and
conditions of this Email Agreement conflict with the Master Services Agreement,
this Email Agreement shall control for the purposes of this Email Agreement
only.U S WEST
1. Provision of Services.
---------------------
1.1 Services to be Provided. Under the terms and conditions of this Email
-----------------------
Agreement, CP shall provide, and U S WEST hereby accepts, e-mail outsourcing
services described in Exhibit A ("Services") which U S WEST may resell to
users ("Users") of U S WEST's Customer service ("U S WEST Service"). U S WEST
hereby agrees that it will access, re-sell and make the Services available to
Users only pursuant to Exhibit C attached to this Email Agreement, as may be
modified by CP from time to time upon notice to U S WEST, or under similar
terms and conditions as agreed to in advance by CP ("Terms of Use").
1.2 Services Introduction. The parties agree to work together in an
---------------------
expeditious and transparent manner to launch or transition Users to CP's e-
mail messaging system through which CP provides the Services ("CP System"). U
S WEST shall provide to CP information and materials, such as the domain name,
e-mail addresses and passwords, ("User Information") necessary for CP perform
the set-up and other initial services ("CP Transition Services") to launch or
transition the Users' to the CP System. Upon completion of the CP Transition
Services, U S WEST shall perform any necessary changes to the U S WEST Service
("U S WEST Transition Services") before Users will have access to the
Services.
1.3 Privacy. CP has a corporate policy to respect the privacy of its
-------
partners and their e-mail messages that are transmitted through the CP System
or by means of the Services. CP will only access and disclose information as
necessary to comply with applicable laws and government orders or requests, to
provide the Services, to operate or maintain its systems or to protect itself
or its customers.
1.4 Suspension or Termination. If CP becomes aware of or suspects any
-------------------------
violation of the Terms of Use by U S WEST or any User, CP first shall attempt
to notify U S WEST and provide reasonable detail of such violation. The
parties shall use best efforts to promptly resolve the matter. However, CP
reserves the right to immediately suspend or terminate the provision of
Services to the User as reasonably necessary to protect CP's interests.
1.5 Modification of Services. During the term of this Email Agreement, CP
------------------------
will not, without U S WEST's prior consent (which consent shall not be
unreasonably withheld, delayed or conditioned), delete any of the features of
the Services identified in Exhibit A, Paragraph I, except that CP may without
U S WEST's consent substitute such features with new features that have
similar or improved functionality or as necessary to meet any applicable
legal, regulatory or industry-standard requirements or demands. CP may, and
reserves the right to modify the features and functionality of the CP System
from time to time. However, CP will not modify the CP System in a manner that
would significantly affect Users' use of or ability to use the Services,
without providing reasonable prior notice to U S WEST of any such
modification, no less than thirty (30) days.
1.6 Advertisements and Commercial Use. The parties agree that U S WEST may
---------------------------------
include U S WEST's own internal advertisements or advertisements for an
affiliate of U S WEST for display on U S WEST's Web Mail Page to Users and
that U S WEST shall not be obligated to pay CP any amounts for such
advertisements. As used in this Section, "affiliate" means an entity that
controls, is controlled by or is under common control with, U S WEST.
"Control" means having fifty percent or more of a corporate entity's voting
stock entitled to vote for its governing body or fifty percent or more equity
interest of a non-corporate entity. However, if U S WEST solicits any third
parties for advertisements to be included for display on U S WEST's Web Mail
Page, then U S WEST shall provide prompt written notice to CP, and CP shall
have the right to also solicit third parties for such advertisements. The
parties shall share in the net advertising revenues resulting from such third-
party advertisements in percentages to be mutually agreed but which shall be
proportionate to the effort, resources and services provided by each party
with respect to such advertising. The parties' respective shares and other
terms and conditions relating to such revenues (including payments and
reporting) shall be included in an addendum to this Email Agreement. Each
party shall be solely responsible for all obligations, liabilities and duties
under any and all agreements with third parties with regard to such
advertisements, unless otherwise expressly agreed in writing by the other
party. U S WEST agrees that it will resell the Services only bundled with
other U S WEST products and services and not as a stand-alone service or
product offering. In particular, and without limiting the generality of the
foregoing, U S WEST agrees that it will not resell the Services to, and that
none of the Users include or will include, an Internet service provider, a web
hosting company, or an email service
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<PAGE>
provider. Other than such permitted resale as part of a bundled offering and
obtaining advertising to be included on U S WEST's Web Mail Page as provided
under this Email Agreement, U S WEST agrees that it will not otherwise make
commercial use of or generate income from the Services or the CP System.
In addition, U S WEST will assist in the sales of advertising inventory
through its sales channels for CP's customers that do not have the capability
to sell all of the advertising inventory for their Web-Email site(s), as
mutually agreed by the parties and subject to CP's customer approval if
necessary. Advertising revenues achieved through this relationship will be
split as required under the agreement between CP and CP's customers, and CP's
share after such split will be shared between U S WEST and CP as mutually
agreed.
2. Pricing and Payment.
-------------------
Pricing and Payment. Exhibit A specifies CP's charges for the Services and
-------------------
other payment provisions. All amounts payable hereunder are exclusive of any
sales, use, excise, property or any other taxes associated with the provision
of Services or of U S WEST's or Users' access to or use of the CP System. U S
WEST is responsible for payment of any and all such taxes (excluding taxes
based on CP's net income).2.2
3. Disclaimer of Warranties.
------------------------
3.1 CP and its suppliers make no warranties regarding the quality,
reliability, timeliness or security of the Services or the CP System or that
the Services or the CP System will be uninterrupted or error free. CP and its
suppliers assume no responsibility or liability for the deletion or failure
to store, or to store properly, e-mail messages. U S WEST and Users assume
the entire risk in downloading or otherwise accessing any data, files or
other materials obtained from third parties as part of the Services or by
means of the CP System, even if U S WEST or User has paid for virus
protection services from CP.
3.2 U S WEST shall be solely responsible for any warranties provided to Users
with respect to the Services or the CP System.
4. Service Outage Credit.
---------------------
4.1 In the event of disruption of provision of the Services or availability
of the CP System (other than any disruption from a Force Majeure Event) for a
continuous period longer than twenty-four (24) hours, U S WEST's sole remedy
shall be refund of a pro rata portion of the price paid for the affected
Services during such period of disruption. CP's entire liability, and U S
WEST's and Users' entire and exclusive remedy, under this Email Agreement for
any damages from any cause whatsoever, regardless of form or action, whether
in contract, negligence or otherwise, shall in no event exceed an amount
equal to the price paid for the Services out of which the claim arose.
5. Term and Termination.
--------------------
5.1 Term. This Email Agreement shall continue in effect from the Effective
----
Date for [**] period, and thereafter shall renew automatically for
successive one (1) year periods unless either party gives the other party at
least sixty (60) days prior written notice of its intent not to renew the.
5.2 Termination for Convenience. Notwithstanding the foregoing, either party
---------------------------
may terminate this Email Agreement at any time, without cause, upon ninety
(90) days prior written notice to the other party.
5.3 Termination for Breach. Notwithstanding the foregoing, either party may
----------------------
terminate this Email Agreement by giving to the other party written notice of
such termination and an opportunity to cure within thirty (30) days after
receipt of such notice, upon the occurrence of any of the following events:
(i) the other party materially breaches or defaults in any of the material
terms or conditions of this Email Agreement, (ii) the other party makes any
assignment for the benefit of creditors, is insolvent or unable to pay its
debts as they mature in the ordinary course of business, or (iii) any
proceedings are instituted by or against the other party in bankruptcy or
under any insolvency laws or for reorganization, receivership or dissolution.
5.4 Effect of Termination. Notwithstanding the foregoing, upon any notice of
---------------------
termination, CP shall provide reasonable assistance to U S WEST in the
migration of its e-mail system to a setup as reasonably requested by U S
WEST, and U S WEST agrees to pay for all Services rendered to U S WEST until
the migration is complete. If termination of this Email Agreement is due to U
S WEST's breach, U S WEST shall, in addition to payment of all Services fees,
be required to pay for CP's assistance in such migration at CP's then-current
time and materials rate and shall pay any out-of-pocket expenses incurred by
CP in connection with such migration. After migration, CP shall delete all
stored e-mail messages of U S WEST and Users on the CP System, cease
providing all Services and access by U S WEST and Users to the CP System.
Within thirty (30) days of the later of termination of this Email Agreement
or the date of migration completion, each party shall pay to the other all
accrued and unpaid fees.
5.5 Survival. Sections 2, 3, 4, 7.4, 7.5, and 9 and Exhibit A (as to
--------
amounts accrued but unpaid and paragraph B.3) shall survive any expiration
or termination of this Email Agreement.
Page 3
[**] CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN
INFORMATION CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT
CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THE PUBLIC FILING AND HAVE
BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
6. Ownership. CP owns and retains all right, title and interest in and to the
---------
Services provided, and the CP System made available, hereunder. As between U S
WEST and CP, U S WEST shall own all right, title and interest in the User
Information, subject to CP's right to use such User Information in performing
under, or as otherwise expressly permitted by, this Email Agreement. Further,
as between U S WEST and CP, U S WEST shall be responsible for all acts and
omissions of Users.
- --------------------------------------------------------------------------------
The Parties, intending to be legally bound, have caused this Agreement to be
executed by their authorized representatives on the dates set forth below.
U S WEST Communications Services, Inc. Critical Path, Inc.
- ------------------------------------ -----------------------------------
(Authorized Signature) (Authorized Signature)
Joseph R. Zell
- ------------------------------------ -----------------------------------
(Print or Type Name of Signatory) (Print or Type Name of Signatory)
President, U S WEST !NTERPRISE
- ------------------------------------ -----------------------------------
(Title) (Title)
December 9, 1998
- ------------------------------------ -----------------------------------
(Execution Date) (Execution Date)
Address for Purposes of Notices: Address for Purposes of Notices:
700 W. Mineral Ave.
- ------------------------------------ -----------------------------------
Mailstop: CO H6 320 First Street
- ------------------------------------ -----------------------------------
Littleton, Colorado 80120 San Francisco, California 94105
- ------------------------------------ -----------------------------------
- ------------------------------------ -----------------------------------
Page 4
<PAGE>
EXHIBIT A
---------
SERVICES, CHARGES AND PAYMENT
-----------------------------
This Exhibit A is attached to and made a part of the E-mail Agreement between U
S WEST and CP (the "Email Agreement") and is subject to the terms and conditions
of the Email Agreement.
A. Basic Services Fees - U S WEST agrees to pay CP a fee of [**] ("Mailbox
Fee") per mailbox per month for the first 500,000 web-based email accounts
provided to Users during the term of the Email Agreement. The price per
mailbox per month that U S WEST pays to CP shall decrease to [**] upon U S
WEST purchasing its 500,001 concurrent mailbox and shall decrease to [**]
per mailbox per month upon U S WEST purchasing its 1,000,001 concurrent
mailbox and will remain at this rate for so long as such level is
maintained or upon the occurrence of the MFC-Plus condition listed in
Section B below. The decreased price per mailbox shall be effective the
first day of the month following the month in which the applicable
threshold is reached As used herein, "concurrent" means that as of the
date the threshold level is reached, U S WEST shall have the applicable
number (threshold level) of mailboxes available for use by Users. For
example, in order for U S WEST to qualify to the [**] per mailbox monthly
fee, U S WEST at that time must have, and be paying CP for, no fewer than
500,001 mailboxes.
B. MFC-Plus Pricing: U S WEST is to receive Most Favored Customer-Plus ("MFC-
Plus") mailbox pricing with respect to webmail services provided hereunder
as follows: If after the Effective Date of this Email Agreement, CP enters
into an agreement with any U.S.-based portal ("Other Customer") that
provides a more favorable price package to such Other Customer for similar
webmail Services, in similar quantities, with similar mailbox requirements
and features and under similar terms and conditions as those provided under
this Email Agreement, U S WEST will have the option to adopt such a package
in addition to receiving [**] discount off the webmail fees specified in
Paragraph A above.
C. Joint Development: The parties may, from time to time, agree to jointly
develop certain products, features, services or other projects. Any
product to be produced by a joint development project undertaken by U S
WEST and CP will be governed by the terms and conditions of a separate
written agreement which shall, at a minimum, include the following terms:
. U S WEST and CP will jointly develop a project resource plan for any
proposed joint development.
. For any jointly developed product agreed upon by the parties, U S WEST
will receive a time-to-market advantage or no less than [**] before the
product is made generally available to other CP customers.
. At such time as jointly developed products are made available to any
3rd parties, U S WEST and CP will share in the royalty fees, and/or
usage fees associated with the licensing or use of the development
works, as mutually agreed, based upon the percentage of effort, funding
and intellectual property that U S WEST and CP has invested into the
development effort. Such royalty sharing may be perpetual for the life
of the product and any derivative products substantially based on such
work.
D. Premium Features Fees - U S WEST and CP agree to negotiate the fees for
future Premium Features ordered by U S WEST as referred to in Addendum 1 of
this Exhibit A.
E. Demographic Services and Fees -
1. For hosting and reporting services with respect to demographic
information of U S WEST's webmail users ("Demographic Services"), U S WEST
agrees to pay CP a non-recurring consulting fee for the development of
such Services, and upon development and availability of such Services, U S
WEST agrees to pay CP a monthly fee for ongoing Demographic Services. The
detailed scope and description of the Demographic Services, applicable
functional and performance specifications, reporting requirements, fees,
key assumptions and similar information with respect to the Demographic
Services will be mutually agreed to by the parties and specified in an
exhibit to be attached hereto.
2. Sale of Demographic Information. U S WEST intends to disclose its
Users' demographic information collected by CP hereunder to certain third-
party vendors who may desire to place or display advertisements and similar
promotional materials to such Users through the Services. U S WEST agrees
that it will share, as the parties shall mutually determine, the revenues
that U S WEST receives from such third-party vendors for any and all such
advertising and promotions. The parties agree that each party's share of
such revenues shall be proportionate to the effort, resources and services
provided by each party with respect to such advertising.
Page 5
[**] CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN
INFORMATION CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT
CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THE PUBLIC FILING AND HAVE
BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
3. Certain Responsibilities. The parties agree that the data
collected using the Demographic Services may be subject to applicable
privacy and similar laws and all use of the such data shall be in
accordance with all applicable laws, rules and regulations. U S WEST
agrees to indemnify CP for any and all claims, losses, damages, expenses or
liabilities ("Claims") arising out of the collection of such data (except
to the extent any such Claim is based upon CP's gross negligence or willful
misconduct) and U S WEST's disclosure and use of the Demographic
Information collected using the Demographic Services and reported by CP to
U S WEST.
F. Branding
1. Fees - U S WEST will pay to CP a one-time fee [**] for CP's
----
branding of the Web Mail Page. U S WEST will pay CP a one-time fee of [**]
for the development of an automatic sign-up page (at U S WEST's option)
and [**] for permanent signatures. Once approved (as provided in paragraph
2 below), CP shall only be obligated to make one change to the look and
feel of the branded Web Mail Page and the automatic sign-up page, if
applicable, at no additional charge. Any additional services or any
customization above and beyond the basic branding and development of the
Web Mail Page, automatic sign-up page, and signatures will be billed at $75
per hour, with a minimum of one hour per request.
2. Provision, Development and Approval - U S WEST shall provide CP
-----------------------------------
with all text and images ("Branding Materials") necessary for CP to brand
U S WEST's Web Mail Page. U S WEST warrants and represents to CP that U S
WEST has full power and authority to provide to CP, and to authorize CP's
use of, the Branding Materials provided by U S WEST for branding the Web
Mail Page, and agrees to defend and indemnify CP with respect to any claims
arising from CP's use of such Branding Materials. CP shall develop the
branded Web Mail Page using such Branding Materials and shall provide, or
otherwise make available to U S WEST, such developed Web Mail Page for U S
WEST's review and approval, which approval shall not be unreasonably
withheld, delayed or conditioned. U S WEST's approval shall be deemed
given if U S WEST does not provide to CP notice of its rejection of the
branded Web Mail Page within seventy two (72) hours of CP's provision of
it.
3. Proprietary Rights - U S WEST grants to CP a non-exclusive,
------------------
nontransferable, worldwide, royalty-free, irrevocable (during the term of
the Email Agreement) license to reproduce, display, perform, modify,
prepare derivative works of and otherwise use the Branding Materials for
the purpose of branding U S WEST's Web Mail Page and making such Web Mail
Page available through the CP Services to Users. U S WEST shall retain all
other proprietary right it may have in and to the Branding Materials. CP
shall retain all proprietary rights in and to the CP Services (not
including the Branding Materials as incorporated into U S WEST's Web Mail
Page) and all development tools, routines, subroutines, applications,
software and other materials (not including the Branding Materials) that CP
may use in connection with branding the Web Mail Page.
G. Support - As part of the Services, CP shall provide 2nd tier telephone
support to U S WEST twenty-four (24) hours a day, seven (7) days a week. In
addition, the parties agree that 1st tier support to Users shall be outsourced
to a third party jointly selected and managed by CP and U S WEST. CP shall
periodically invoice U S WEST, and U S WEST agrees to pay all such invoices, for
such 1st tier support.
H. Payment by U S WEST to CP - All fees for Services shall be applicable for
any month, or portion thereof, in which such Services are rendered.
Notwithstanding the foregoing, the fees for Services shall begin accruing, and
be payable by U S WEST to CP, upon the earlier of completion of the U S WEST
Transition Services or thirty (30) days after completion of the CP Transition
Services, as provided in Section 1.2 of the Email Agreement. CP will invoice U
S WEST each month for fees that have accrued during the previous month. All
fees are payable by U S WEST within thirty (30) days of the invoice date in
accordance with this Exhibit and the Email Agreement. In addition, if during
the previous month, CP performed any work on the branding of the Web Mail Page
as provided herein, CP will include in the monthly invoice, and U S WEST shall
pay, the applicable fees for such work. Payments received by CP after the due
date shall be subject to a late fee of one and one-half percent (1.5%) per
month, or, if less, the maximum amount allowed by applicable law.
I. Storage Capacity - Each mailbox provided hereunder shall have a maximum
storage capacity of 2.5 MB. U S WEST may purchase additional storage space from
CP upon payment of CP's then-current fees. CP shall notify any User that User's
mailbox is approaching or exceeds the maximum limit. Thereafter, if such User
exceeds the maximum storage capacity, CP may delete e-mail messages from the
affected mailboxes, at CP's discretion.
[**]
Page 6
[**] CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN
INFORMATION CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT
CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THE PUBLIC FILING AND HAVE
BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
ADDENDUM 1
TO
EXHIBIT A
PREMIUM FEATURES
From time to time, CP makes available optional features ("Premium Features") of
the Services that, if ordered by U S WEST, shall be chargeable in addition to
the Mailbox Fee specified in Exhibit A. Upon availability of each Premium
Feature ordered by U S WEST, U S WEST agrees to pay CP the following fee:
----------------------------------------------------------
Additional Storage [**]/ add'l 5 MBs/month
----------------------------------------------------------
POP3 e-mail hosting [**]/year
----------------------------------------------------------
Pricing for future features to be agreed and negotiated separately. U S WEST
shall have the right to set its own retail prices at which U S WEST resells such
Premium Features to Users.
Page 7
[**] CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN
INFORMATION CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT
CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THE PUBLIC FILING AND HAVE
BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
EXHIBIT B
---------
SERVICE LEVEL AGREEMENT
-----------------------
1. Performance
a) Average less than [**] seconds response time for [**] of requests. Measures
server response time only, not network transmission time.
b) Average [**] up time.
c) Post an approved message in the event of a system outage.
2. Monitoring/Reporting
a) Provide details on the method used to monitor performance times.
b) Provide monthly reporting which details server up time with the following
details per period:
. average response
. actual daily response time detail
. average server up time
. actual daily up time
This information will be emailed to U S WEST on third working day of each month
for the previous month's reports.
3. Escalation Procedures
a) Notify U S WEST via the following email addresses in case of a service
outage:
. [email protected]
b) Notify U S WEST within [**] minutes of a service outage. Status information
to include:
. reason for the outage.
. ETA for service restoral.
. Frequency of outage updates
c) If U S WEST experiences a service outage and has not been notified by email
by Critical Path, U S WEST will contact the Senior System Administrator at
Critical Path by pager at 415/764-6203 and will be given the information
listed in 3.b).
d) Continue to notify U S WEST with updated status for the duration of the
outage.
e) Provide a post-incident summary. This summary should include:
. the cause of the problem.
. method used to correct the problem.
. measures Critical Path will take to prevent further occurrences.
4. Business Resumption
a) Critical Path must prove the ability to switch processing from the primary
server to a hot backup server within 30 minutes. Testing of this procedure
will be conducted as requested by U S WEST on a designated weekend by both
Critical Path and U S WEST personnel during Critical Path's maintenance
window.
b) Any modifications (by U S WEST) and/or network configuration changes
(including system maintenance) as well as upgrades and removal of devices
that impact the production and network connectivity need to be advised of
before they occur by designated/qualified personnel.
Page 8
[**] CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN
INFORMATION CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT CONFIDENTIAL
PORTIONS HAVE BEEN OMITTED FROM THE PUBLIC FILING AND HAVE BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
EXHIBIT C
---------
TERMS OF USE
------------
Please read the following agreement carefully.
You must accept the agreement to be able to use the U S WEST Service.
1. Acceptance of Terms of Use
U S WEST's mail service ("U S WEST Service") is provided free of charge to
registered users (each, a "User") under these Terms of Use. BY COMPLETING THE
REGISTRATION PROCESS AND CLICKING THE "I ACCEPT" BUTTON, YOU ARE INDICATING YOUR
AGREEMENT TO BE BOUND BY THESE TERMS OF USE. These Terms of Use are the entire
agreement between you and U S WEST with respect to the services provided by U S
WEST.
2. Registration Information; Disclosure
User agrees that U S WEST may disclose to third parties certain information, in
the aggregate, contained in users' registration applications, including User's
application. U S WEST will not disclose User's name, address, e-mail address or
telephone number, without User's prior written consent, except to the extent
necessary or appropriate to comply with applicable laws or regulations or in
legal or administrative proceedings where such information is relevant. U S WEST
reserves the right to terminate any User's account if U S WEST learns that such
User has provided U S WEST false or misleading registration information.
3. Modifications of these Terms of Use
U S WEST may modify these Terms of Use from time to time in its sole discretion.
U S WEST will provide User with reasonable notice of any such changes, and
User's continued use of the U S WEST Service will be deemed to constitute User's
acceptance of any such changes.
4. U S WEST's Rights
U S WEST may modify or discontinue User's account or the U S WEST Service with
or without notice to User, without liability to User or any third party. Content
presented to User or otherwise available through the U S WEST Service provided
by U S WEST or a supplier is protected by copyright, trademark, service marks,
patents or other proprietary rights or laws. User shall only be permitted to
use this content as expressly authorized by the provider. User may not copy,
distribute or create derivative works from such contents without express
permission.
5. Contents of Messages
It is U S WEST's policy to respect the privacy of its Users. U S WEST does not,
and cannot, monitor, censor or edit the contents of User's e-mail messages. User
alone is responsible for the contents of User's messages, and the consequences
of any such messages. User agrees that it will not transmit or disseminate:
(i) advertising, chain letters, spam, junk mail or any other type of unsolicited
e-mailing (whether commercial or informational) to persons or entities that have
not agreed to be part of such mailings; (ii) harassing, libelous, abusive,
threatening, obscene or otherwise objectionable materials or materials which
infringe or violate any third party's copyright, trademark, trade secret,
privacy or other proprietary or property right, or that could constitute a
criminal offense, give rise to civil liability or otherwise violate any
applicable law or regulation; or (iii) viruses or other harmful, disruptive or
destructive files. User agrees that it will not use or attempt to use another
person's or entity's account, service or system without authorization from the
owner, nor will User interfere with the security of, or otherwise abuse, the U S
WEST Service, system resources or accounts, or any network or another user's use
or enjoyment of the mail services. User may not forge header or address
information. U S WEST will only access and disclose information as necessary to
comply with applicable laws and government orders or requests, to provide the
services, to operate or maintain its systems or to protect itself or its
suppliers
If U S WEST becomes aware and determines, in its sole discretion, that User is
violating any of these Terms of Use, U S WEST and its suppliers reserve the
right to terminate User's account, impose fines and/or termination charges, and
take any other action to enforce U S WEST's and its suppliers' rights.
6. Account and Password
User is responsible for maintaining the confidentiality of its account number
and password. User shall be responsible for all uses of its account, whether or
not authorized by User. User agrees to immediately notify U S WEST of any
unauthorized use of its account.
Page 9
<PAGE>
7. Disclaimer of Warranties
USER EXPRESSLY AGREES THAT USE OF THE CUSTOMER SERVICE IS AT USER'S SOLE RISK.
THE CUSTOMER SERVICE IS PROVIDED ON AN "AS IS" AND "AS AVAILABLE" BASIS.
CUSTOMER DISCLAIMS ALL WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING
WITHOUT LIMITATION ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR
PURPOSE OR NON-INFRINGEMENT. CUSTOMER DOES NOT MAKE ANY WARRANTY THAT THE
CUSTOMER SERVICE WILL MEET USER'S REQUIREMENTS, OR THAT THE CUSTOMER SERVICE
WILL BE UNINTERRUPTED, TIMELY, SECURE, OR ERROR FREE; NOR DOES CUSTOMER MAKE ANY
WARRANTY AS TO THE RESULTS THAT MAY BE OBTAINED FROM THE USE OF THE CUSTOMER
SERVICE OR AS TO THE ACCURACY OR RELIABILITY OF ANY INFORMATION OBTAINED THROUGH
THE CUSTOMER SERVICE. USER UNDERSTANDS AND AGREES THAT ANY MATERIAL AND/OR DATA
DOWNLOADED OR OTHERWISE OBTAINED THROUGH THE USE OF THE CUSTOMER SERVICE IS AT
USER'S OWN DISCRETION AND RISK AND THAT USER WILL BE SOLELY RESPONSIBLE FOR ANY
DAMAGE TO USER'S COMPUTER SYSTEM OR LOSS OF DATA THAT RESULTS FROM THE DOWNLOAD
OF SUCH MATERIAL AND/OR DATA. CUSTOMER DOES NOT MAKE ANY WARRANTY REGARDING ANY
GOODS OR SERVICES PURCHASED OR OBTAINED THROUGH THE CUSTOMER SERVICE OR ANY
TRANSACTIONS ENTERED INTO BY USE OF OR THROUGH THE CUSTOMER SERVICE. NO ADVICE
OR INFORMATION, WHETHER ORAL OR WRITTEN, OBTAINED BY USER FROM CUSTOMER OR
THROUGH THE CUSTOMER SERVICE SHALL CREATE ANY WARRANTY NOT EXPRESSLY MADE
HEREIN.
8. Limitation of Liability
CUSTOMER AND ITS SUPPLIERS SHALL NOT BE LIABLE FOR ANY DIRECT, INDIRECT,
INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES, RESULTING FROM THE USE OR THE
INABILITY TO USE THE CUSTOMER SERVICE OR FOR THE COST OF PROCUREMENT OF
SUBSTITUTE GOODS AND SERVICES OR RESULTING FROM ANY GOODS OR SERVICES PURCHASED
OR OBTAINED OR MESSAGES RECEIVED OR TRANSACTIONS ENTERED INTO BY MEANS OF OR
THROUGH THE CUSTOMER SERVICE OR RESULTING FROM UNAUTHORIZED ACCESS TO OR
ALTERATION OF USER'S TRANSMISSIONS OR DATA, INCLUDING BUT NOT LIMITED TO,
DAMAGES FOR LOSS OF PROFITS, USE, DATA OR OTHER INTANGIBLE, EVEN IF CUSTOMER OR
ITS SUPPLIER HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
9. E-mail Message Storage
U S WEST does not assume any responsibility for the deletion or failure to store
e-mail messages. If User exceeds the maximum permitted storage space, U S WEST
reserves the right to delete e-mail messages from the affected mailboxes, at its
discretion.
10. Promotional Messages
U S WEST and/or third parties may, from time to time, send e-mail messages to
User containing advertisements, promotions, etc. U S WEST does not make any
representation or warranty with respect to any such e-mail messages or any goods
or services which may be obtained from such third parties, and User agrees that
U S WEST shall have no liability with respect thereto.
11. Indemnification
User agrees to indemnify and hold U S WEST, its suppliers and their respective
affiliates, officers, directors, employees and agents, harmless from any claim,
action or demand, including reasonable attorneys' fees, made by any third party
due to, arising out of or related to User's use of the U S WEST Service or the
violation of these Terms of Use by User, including without limitation the
infringement by User, or any other user of User's account, of any intellectual
property or other right of any person or entity.
12. Applicable Law
These Terms of Use shall be governed by and construed in accordance with the
laws of the State of Colorado, without giving effect to its conflict of law
provisions.
13. Third Party Beneficiary
Critical Path Inc., as a supplier of U S WEST, shall be a third party
beneficiary of these Terms of Use and entitled to the rights and remedies
available to third party beneficiaries.
14. Age Consent
"I hereby attest to the fact that I have read and understand the Terms of Use.
I voluntarily accept and will comply with all terms and conditions. I am at
least eighteen (18) years on the date of such acceptance, or a parent or
guardian has read and understands the Terms of Use and will ensure that any use
by a minor will comply with such Terms of Use."
I ACCEPT/I DECLINE
Page 10
<PAGE>
STATEMENT OF WORK # 2 DATED December 10th, 1998
-------------------
to the
SERVICES AGREEMENT DATED December 10th, 1998
-------------------
This Statement of Work #2 is attached to and made part of the Services
Agreement. In the event any terms and conditions of this Statement of Work
conflict with the Services Agreement, this Statement of Work shall control for
the purposes of this Statement of Work only.
- --------------------------------------------------------------------------------
Scope of Services: This Statement of Work #2 specifies the Deliverables and
additional Services to be provided by Supplier to Customer with respect to the
Email Services provided under Statement of Work #1 as follows:
Deliverables:
1. Software that allows Customer's users and prospective users of
Customer's email services to register for an email account, and login
to such account, over the internet. Advertising banners will be
displayed whereby a user or prospective user can click and be
redirected to the advertiser's web site.
2. A database (design and content) of demographic information provided by
each user of the registration and login pages.
3. The license to use NT and SQL servers for the database.
4. The application front-end source code (used to build the web pages),
connectivity source code (code which communicates to Supplier's APP to
create a mailbox).
Deliverables #1 and 2 and 3 shall be considered to be Work Product, and
Deliverable #4 shall be considered Background Technology, as defined in and
pursuant to the terms and conditions of Article 6 of the Agreement. In
addition, deliverable #4 shall be considered Confidential Information of
supplier, as defined in and pursuant to the terms and conditions of Article 5 of
the Services Agreement.
Services:
1. Supplier will provide the web hosting of the account registration and
login pages (Deliverable #1) until Customer is able to itself host
such information which should be within 6 months from the date
Services are launched.
2. Supplier shall provide reports to Customer of the demographic
information obtained though the account registration and login pages
on a weekly basis. In addition, statistics regarding the
advertisements included on such pages (number of click throughs and
user demographics) will be sent to Customer as part of the weekly
report. Reports will be generated and provided to Customer in flat
file format.
Service Sites: Services will be performed at the following locations:
Xuma Technologies LLC Critical Path
655 Fourth Street 320 First Street
San Francisco, CA 94107 San Francisco, CA 94105
Page 11
<PAGE>
Service Specifications/Performance Standards: Services shall be performed by
Supplier according to the following Specifications and Performance Standards.
(Include all technical, functional, operational and/or performance
Specifications. Include all materials to be furnished to Customer. This may be
in the form of an Exhibit if too large to include as part of the Statement of
Work.)
US West will be provided with a web application, database and technical
environment to:
- Capture US West customer registration & demographic information
- Interface to Critical Path's Application Provisioning Protocol
- Display Advertising & provide redirection on a user login page
- Host this environment in the Xuma Data Center
- Provide Weekly reports to US West
- Provide a foundation for future interactive lookup of this information by
US West and their customers
1 Registration & Login Application
1.1 Registration Page:
This will be a hosted page where a US West customer enters demographic data:
- name/password
- zipcode
- phone
- gender selection
- age range selection
- hobbies
- frequency of offers
- offer categories (e.g. fast food, travel, computing, sports, automotive
- identify whether customer would like to receive coupons
- registration information can be updated
(US West will provide a zip code database to be cross referenced. If user is
not within US West's region, then a message will be displayed that they are
outside of the territory and a mail box cannot be established. Statistics for
these users will still be kept.)
1.2 Create Mailbox:
- Once the user has registered, a mailbox will be created through a java
interface to Critical Path's APP. Mailbox accounts can be updated
through the Mail Administration Center
Page 12
<PAGE>
1.3 Login Page:
Once the customer has registered, they will be taken to a login page to
enter their id and password.
- On the login page, six ad banners will appear.
- User will be redirected to proper URL based on ad selection.
- Click-through & hits per banner statistics will be kept for each user.
- The login page will allow users to select Spanish or English
1.4 Reporting:
A weekly report will be delivered to US West in flat file format that
identifies:
- Ad Statistics (click-throughs & hits per banner)
- Demographic data per user
1.5 Technology:
The technology platform for hosting this information will be:
- Windows NT version 4.0
- Microsoft SQL Server database
- Java Bean interface to Critical Path's APP Server
1.6 Testing:
The application will be tested at Xuma and Critical Path.
2 Web Hosting Services
2.1 Description:
Xuma's web hosting services for the US West website include all of the
following full service features to allow US West to maximize it's internet
investment while maintaining a state of the art website. These features
include:
. Connectivity
- High-capacity, fault tolerant UUNET connectivity
. Data Center Provisions
- Highly scalable data center facility, fully secured
- Advanced firewall and network security management and protection
- Full UPS and customer-dedicate circuit breaker power protection
. Commerce Server Specifications
Page 13
<PAGE>
- Nightly tape backup of customer data and database logs. Offsite storage
and rotation.
- Experience ecommerce engineers available onsite to add additional
functionality upon request.
. Site Monitoring
- Detailed hit count and activity tracking with customized reports.
- Comprehensive traffic and trend analysis of web server logs.
- First class database administration support with regularly scheduled
maintenance.
- Proactive database performance diagnosis and tuning via scheduled
database optimization scripts.
- Custom database activity tracking and reporting.
Assumptions
. All relevant specifications, business rules, data and html are made
available in a timely manner.
. A US West contact is available to clarify any questions/issues regarding
the application functionality.
. Xuma does not have any rights to use, sell, reproduce, distribute,
perform, display, prepare derivative works based on, modify or otherwise
exploit US West's specific content or rules.
. US West can migrate the entire production and development environment (Web
pages, database and APP communications) to US West's Data Centeras part of
a separate phase of this project.
This Statement of Work #2 identifies only the Deliverables and Services, and
applicable fees, for the first phase of a potentially multi-phased project. Any
additional phases, and any additional deliverables, services and fees as part of
such phases, shall be separately addressed in a different Statement of Work as
mutually agreed.
Service Fees: During the term of this Agreement, fees for Services rendered
under this Agreement shall be held firm and are as follows:
A not to exceed fee of $60,000 to develop the Deliverables in accordance with
the Specifications. Monthly fee not to exceed $3,000 for web hosting (bandwidth,
reports, 4 hours of free maintenance). All maintenance work beyond 4 hours per
month will be charged at $175 per hour.
Labor, Tools, Equipment and Materials: Supplier will be responsible for
supplying all labor, tools, equipment and materials necessary to provide the
Services.
Acceptance: Upon receipt of each Deliverable, Customer shall have seven (7)
days in which to inspect and test such Deliverable and to notify Supplier if
such Deliverable does not materially conform to the Specifications of this
Statement of Work. If such notice is provided within such time period, Supplier
shall promptly correct such nonconforming Services at its own expense. If no
notice is received within such time period, or if Customer uses the Deliverable
for commercial purposes, the Deliverable will be deemed accepted.
- --------------------------------------------------------------------------------
Project Managers:
Customer: Supplier:
--------- ---------
Rich Majerus Bill Meehan
612 664 3136 415-777-9641
[email protected] Stephanie Dunlea
415-808-8715
[email protected]
Status Reports: Supplier will provide Customer with written Status Reports on a
weekly (weekly, monthly . . etc.) basis detailing the progress of the Services
- ------
and any problems that may affect the milestone dates for completion of Services.
Project Changes: Any changes to the Scope of Services requested under this
Agreement must be in writing signed by both parties.
- --------------------------------------------------------------------------------
The parties, intending to be legally bound, have caused this Statement of Work
to be executed by their authorized representatives on the dates set forth below.
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<PAGE>
U S WEST Communications Services, Inc. Critical Path, Inc.
- ------------------------------------ -----------------------------------
(Authorized Signature) (Authorized Signature)
Joseph R. Zell
- ------------------------------------ -----------------------------------
(Print or Type Name of Signatory) (Print or Type Name of Signatory)
President, U S WEST !NTERPRISE
- ------------------------------------ -----------------------------------
(Title) (Title)
December 9th, 1998
- ------------------------------------ -----------------------------------
(Execution Date) (Execution Date)
- --------------------------------------------------------------------------------
Page 15
<PAGE>
EXHIBIT 10.16
E-MAIL SERVICES AGREEMENT
THIS E-MAIL SERVICES AGREEMENT ("Agreement") is entered into as of the 27th
day of May, 1998 ("Effective Date"), by and between CRITICAL PATH, INC., a
California corporation having a principal place of business at 320 First Street,
San Francisco, CA 94105 ("CP"), and NETWORK SOLUTIONS, INC., a Delaware
corporation, having a principal place of business at 505 Huntmar Park Drive,
Herndon, VA 20170 ("NSI"). CP and NSI may also be referred to as a "Party" or
collectively as the "Parties" throughout this Agreement.
RECITALS:
WHEREAS, CP provides Internet e-mail services, such as Web-based e-mail
reader, spam blocking, virus scanning and protection, integrated fax and voice-
messaging technologies, permanent archiving and secure certified e-mail delivery
to its customers;
WHEREAS, NSI is an Internet domain name registration services provider and
also provides network consulting and implementation services to businesses that
desire to establish or enhance their Internet presence ("NSI Services"); and
WHEREAS, subject to the terms and conditions of this Agreement, the Parties
desire that CP host e-mail services for NSI which NSI may offer to its customers
as part of the NSI Services.
NOW, THEREFORE, in consideration of the mutual promises, benefits, and
covenants contained herein and for other good and valuable consideration, the
receipt, adequacy and sufficiency of which are hereby acknowledged, CP and NSI
hereby agree as follows:
ARTICLE 1. DEFINITIONS
1.1 "Advertising Revenues" shall mean the revenue received by either Party from
third party advertisements included on the Web Mail Page, less any commissions,
credits, or refunds paid to such third party advertisers with respect to such
revenues.
1.2 "CP System" means CP's E-mail messaging system through which CP provides E-
mail Hosting Services.
1.3 "E-mail Hosting Revenues" shall mean all gross revenue of NSI from sales of
the E-mail Hosting Services to NSI Customers.
1.4 "E-mail Hosting Services" shall mean the e-mail hosting services provided
by CP to NSI for sale to NSI Customers, as more fully described in Article 2 and
Exhibit B below.
1.5 "Proprietary Rights" shall mean any and all patents, inventions,
copyrights, trademarks, mask works, trade secrets, proprietary information or
any other intellectual property rights in any country of the world or contract
rights having the equivalent effect.
1.6 "Proprietary Information" shall include, but not be limited to, either
Party's data, database, product plans, designs, protocols, products, costs,
prices, names, finances, marketing plans, business opportunities, personnel, and
research and development originated by the disclosing
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[**] CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN
INFORMATION CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT
CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THE PUBLIC FILING AND HAVE
BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
Party, not previously published or otherwise disclosed to the general public,
not previously available without restriction to the receiving Party, nor
normally furnished to others without restriction, and which the disclosing Party
desires to protect against unrestricted disclosure or competitive use. All
information regarding the terms of this Agreement shall be deemed "Proprietary
Information." "Proprietary Information" shall not include information that (i)
is or enters the public domain through no fault of the receiving Party; (ii) is
known and has been reduced to tangible form by the receiving Party prior to the
time of disclosure and is not subject to restriction; (iii) is independently
developed by the receiving Party without access to or use of the Proprietary
Information; (iv) is lawfully obtained by a third Party who has the fight to
make such disclosure; (v) is compelled by a court or otherwise required to be
disclosed by law or regulation; or (vi) is made generally available by the
disclosing Party without restriction on disclosure.
1.7 "Registrar" shall mean the entity acting as an interface between domain
name registrants and the Internet top level domain registry providing
registration and value added services in the domain name system.
1.8 Registry" shall mean the entity who is responsible for maintaining a top
level domain's zone files which contain the domain name of each second-level
domain name in that top level domain and each second-level domain name's
Internet Protocol number.
1.9 "NSI Customer" shall mean each of NSI's customers who choose to receive
the E-mail Hosting Services through NSI's web site.
1.10 "Web Mail Page" means NSI's web mail page available through the CP System
as part of the E-mail Hosting Services
ARTICLE 2. CP OBLIGATIONS
2.1 Services to be Provided. Under the terms and conditions of this Agreement,
-----------------------
CP shall provide and NSI hereby accepts the right to offer the E-mail Hosting
Services through the CP System to NSI Customers. Except for entities already
under contract with CP on the Effective Date, NSI shall be CP's exclusive
Internet Registrar distributor of the E-mail Hosting Services through the CP
System for the .com, org and net top-level domains ("TLDs") for a period from
the Effective Date through March 31, 1999. CP shall not provide the same or
similar E-Mail Hosting Services to any other Internet Registrar for the .com,
.org or .net TLDs during such time period. For the Term of this Agreement, if CP
offers domain name registration services as part of its e-mail hosting services
to its customers, then NSI shall be CP's exclusive Internet Registrar for the
.com, .org and .net TLDs for such new service.
2.2 Privacy. CP shall respect the privacy of the NSI Customers and their
-------
e-mail messages that are transmitted through the CP System or by means of the E-
mail Hosting Services. CP shall only access and disclose information as
necessary to comply with applicable laws and government orders or requests, to
provide the E-mail Hosting Services, to operate or maintain its systems or to
protect itself or NSI's Customers. CP shall not commingle NSI Customer data and
e-mail messages with the data or e-mail messages of CP or CP's other customers.
In addition, CP shall provide an account provisioning system through which NSI
may access and view NSI Customer data at its convenience. In the event NSI
wishes to view any NSI Customer data that is not available through the account
provisioning system, then CP shall provide or make such data
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<PAGE>
available to NSI within 48 hours of NSI's written request for such data. Except
for the foregoing stated limited purposes, CP shall not use, sell, license or
disclose any NSI Customer information without the prior written consent of NSI.
2.3 Suspension or Termination. If CP becomes aware of or suspects any violation
------------- -----------
of NSI's Terms of Use by any NSI Customer, CP shall immediately notify NSI and
provide reasonable detail of such violation. The Parties shall use their best
efforts to promptly resolve the violation or suspected violation. However, CP
reserves the right to immediately suspend or terminate the provision of E-mail
Hosting Services to the violating NSI Customer as reasonably necessary to
protect CP's interests.
2.4 Modification of the E-mail Hosting Services.
--------------- ---------------------------
2.4.1 CP Changes or Modifications to the Services or the CP System. CP shall
------------------------------------------------------------
provide 90 days prior written notice to NSI of any proposed change or
modification ("Change") by CP to the E-mail Hosting Services or the CP
System that will materially affect the CP System functionality, the
Application Program Interface ("API"), or the NSI Customers' use of or
ability to use the E-mail Hosting Services. In the event NSI objects to
such Change in writing to CP within 30 days after receipt of CP's notice,
then CP shall ensure that such Change is compatible with the previous
version of the E-mail Hosting Services, CP System or API for a period of
6 months from the date of implementation of such Change to permit NSI a
period of time to adjust to such Change.
2.4.2 NSI Requested Changes or Modifications. During the term of the Agreement,
------------------------ -------------
NSI may request reasonable functional enhancements or changes to the E-
mail Hosting Services or the API. The Parties shall work together to
process, develop, and integrate such enhancements or changes, and to
develop a mutually agreeable time frame for implementation of such
enhancements or changes. Except for enhancements or changes solely
developed by NSI or jointly developed by the Parties, NSI acknowledges
and agrees that all Proprietary Rights in and to such enhancements and
changes shall be owned exclusively by CP, and NSI agrees to execute and
deliver to CP all further instruments and documents and take such
reasonable action that may be necessary or desirable as reasonably
requested by CP to effectuate CP's exclusive ownership. For enhancements
or changes solely developed by NSI, CP acknowledges and agrees that all
Proprietary Rights in and to such enhancements and changes shall be owned
exclusively by NSI, and CP agrees to execute and deliver to NSI all
further instruments and documents and take such reasonable action that
may be necessary or desirable as reasonably requested by NSI to
effectuate NSI's exclusive ownership. NSI hereby grants to CP a non-
exclusive, non-transferable, royalty-free, worldwide right to use such
NSI-owned enhancements and changes to provide the E-mail Hosting Services
and to otherwise perform under this Agreement. Such license shall
terminate upon any termination or expiration of this Agreement, subject
to survival as provided under Section 10.4. For proposed enhancements or
changes that will be jointly developed by the Parties, the responsibility
for developing such enhancements or changes and the ownership of such
enhancements or changes will be the subject of a separate addendum to
this Agreement.
2.5 Cash Escrow. Within sixty (60) days of the Effective Date of this
-----------
Agreement, or such other time period as mutually agreed by the parties, CP and
NSI shall enter into an escrow deposit agreement ("Escrow Agreement") with a
mutually agreeable escrow agent for the establishment of an escrow account. CP
shall deposit the amount of Two Hundred Fifty Thousand Dollars (US
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<PAGE>
$250,000) (the "Deposit") in such escrow account and shall list NSI as the
beneficiary thereof upon occurrence of a Release Condition as defined below. NSI
agrees to pay all applicable fees for the establishment and maintenance of the
escrow account.
The parties agree that NSI shall be entitled to release of the Deposit only if
any of the following conditions (the "Release Conditions") shall occur during
the term of this Agreement: (i) CP materially breaches or defaults in any of the
material terms or conditions of this Agreement and CP ceases to provide to NSI
the E-mail Hosting Services, (ii) CP makes any assignment for the benefit of
creditors, is insolvent or unable to pay its debts as they mature in the
ordinary course of business and CP ceases to provide to NSI the E-mail Hosting
Services, (iii) proceedings are instituted by or against CP in bankruptcy or
under any insolvency laws or for receivership or dissolution and CP ceases to
provide to NSI the E-mail Hosting Services or support thereof in accordance with
this Agreement, or (iv) CP is subject to an Adverse Change of Control. As used
in this Section 2.5, "Adverse Change of Control" means a change in ownership of
CP so a majority of the voting stock in CP is held by an entity that offers
Internet Registrar or Registry services that compete with NSI's services.
2.6 IP Address Space. CP shall maintain an inventory of Internet Protocol
----------------
("IP") address space sufficient to satisfy NSI's quarterly projections of NSI
Customers of the E-mail Hosting Services. Within 5 business days of the
Effective Date and no later than 15 days before the first day of each calendar
quarter commencing July 1, 1998, NSI will provide CP its quarterly projections
of the anticipated number of mailboxes to be hosted by CP for NSI Customers for
such quarter. Within 5 days after the beginning of each calendar quarter, CP
shall have available for use by NSI sufficient IP address space inventory to
meet NSI's quarterly projections. CP's failure to maintain the necessary
inventory of IP address space to meet NSI's quarterly projections shall
constitute a material breach of the Agreement pursuant to Article 10.3 below.
2.7 Branding of Web Mail Page. Within 10 days from the receipt of all necessary
-------------------------
logos, texts and images ("Branding Materials") from NSI pursuant to Article
3.3.1 below, CP shall develop a branded Web Mail Page and shall provide, or
otherwise make available to NSI, such developed Web Mail Page for NSI's review
and approval. Once approved, CP shall only be obligated to make one change to
the look and feel of the branded Web Mail Page at no additional charge.
ARTICLE 3. NSI OBLIGATIONS
3.1 Requirements. NSI hereby agrees that it will offer, access, and make the E-
------------
mail Hosting Services available to NSI Customers pursuant to a Terms of Use
Agreement similar in content
and no less protective of CP's rights than the one set forth in Exhibit D to
this Agreement, as may be modified by NSI from time to time upon notice to CP
("Terms of Use"). NSI agrees to obtain consent from each NSI Customer of the
Terms of Use prior to such Customer's initial use of the E-mail Hosting
Services.
3.2 New Account Transition of Existing Account. NSI will provide to CP
------------------------------------------
information, such as the domain name, e-mail addresses and passwords ("Customer
Information") necessary for CP to open a new account or transition the NSI
Customers' current e-mail systems to CP's System. Upon receipt of Customer
Information from NSI for each NSI Customer, CP shall perform the set-up and
other initial services before such NSI Customer will have access to the CP
System. The Parties agree to work together to achieve a transition to the CP
System that is transparent to NSI Customers.
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<PAGE>
3.3 Branding of Web Mail Page
-------------------------
3.3.1 Provision. Development and Approval - NSI shall provide CP with all
-----------------------------------
Branding Materials necessary for CP to brand NSI's Web Mail Page. NSI
warrants and represents to CP that NSI has full power and authority to
provide to CP, and to authorize CP's use of, the Branding Materials
provided by NSI for branding the Web Mail Page, and agrees to defend and
indemnify CP with respect to any claims arising from CP's use of such
Branding Materials.
3.3.2 Proprietary Rights - NSI grants to CP a non-exclusive, non-transferable,
------------------
worldwide, royalty-free, license to reproduce, display, perform, modify,
and otherwise use the Branding Materials for the purpose of branding the
Web Mail Page and making such Web Mail Page available through the E-mail
Hosting Services to NSI Customers and no other purpose. NSI shall retain
all Proprietary Rights it may have in and to the Branding Materials. CP
shall retain all Proprietary Rights in and to the CP Services (not
including the Branding Materials as incorporated into NSI's Web Mail
Page) and all development tools, routines, subroutines, applications,
software and other materials (not including the Branding Materials) that
CP may use in connection with branding the Web Mail Page.
ARTICLE 4. PROGRAM MANAGERS/MEETINGS
4.1 CP Program Manager. [**]
------------------
to manage the relationship established by this Agreement (the "CP Program
Manager") who will: (a) have overall managerial responsibility for the E-mail
Hosting Services; (b) participate in required NSI scheduled meetings and
planning sessions relating to the E-mail Hosting Services as reasonably
requested by NSI; (c) serve as CP's primary liaison to NSI for the E-mail
Hosting Services; and (d) coordinate, oversee, and monitor CP's performance of
the E-mail Hosting Services with the applicable CP managers responsible for such
performance. CP may change the Program Manager by providing 14 days prior
written notice to NSI. In addition to the CP Program Manager, upon mutual
agreement of the Parties, CP shall provide, at no cost to NSI, a customer
support FTE who will be located in an office provided by NSI in its Herndon, VA
operations center to resolve escalations.
4.2 NSI Program Managers. [**] (the "NSI Program Managers") who will: (a) have
--------------------
overall managerial responsibility for NSI's responsibilities under this
Agreement; (b) serve as the primary liaisons to the CP Program Manager; (c) have
direct access to NSI's key decision makers; and (d) be able to call upon the
experience, expertise and resources of NSI as needed to properly perform its
duties hereunder. At any time, NSI may change the NSI Program Managers by
providing notice to CP.
4.3 Status Meetings. The Parties hereby agree to have meetings involving the
---------------
senior management of each Party no less than once per calendar year quarter to
review the status of performance of the E-mail Hosting Services and resolve any
outstanding issues relating to the Agreement or the E-mail Hosting Services. In
addition, the Parties agree to have regular (no less than bi-monthly) marketing
and strategic review meetings at which mutual business opportunities will be
identified and marketing programs defined.
ARTICLE 5. PRICING/PAYMENT AND OTHER CONSIDERATION
Page 5
[**] CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN
INFORMATION CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT CONFIDENTIAL
PORTIONS HAVE BEEN OMITTED FROM THE PUBLIC FILING AND HAVE BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
5.1 Pricing and Payment. Exhibit B specifies CP's prices for the E-mail Hosting
-------------------
Services and other payment provisions. Such prices are valid for the Term of
this Agreement and any extensions thereto. CP hereby certifies that the prices
contained in Exhibit B for the E-mail Hosting Services are no higher than those
charged to Comparable Customers. For purposes of this Article 5.1, "Comparable
Customers" means other CP customers that purchase similar services in similar
quantities with similar mailbox requirements and features, but does not include
any web hosting companies with similar e-mail volumes or any free e-mail
providers. In the event CP enters into an e-mail services agreement ("Comparable
Agreement") with any Comparable Customer which charges prices to the Comparable
Customer that are lower than the corresponding prices set forth in Exhibit B, CP
shall also reduce the prices of its E-Mail Hosting Services to NSI. Any price
reduction to NSI shall be effective as of the commencement of services under the
Comparable Agreement. All amounts payable hereunder are exclusive of any sales,
use, excise, property or any other taxes associated with the NSI Customers'
access to or use of the CP System. NSI is responsible for payment of any and all
such taxes (excluding taxes based on CP's net income).
5.2 [**]
[**]
As further consideration, during the Term of the Agreement, CP agrees to provide
NSI with one seat on its Technical Advisory Committee to the CP Board of
Directors.
5.3 Reports and Audit. Each Party shall submit with each of its payments to the
-----------------
other Party a detailed report of the calculation of each such payment at the
request of the other Party. Each Party will retain records relevant to its
calculations of the payments made to the other Party during the term of this
Agreement and for a two-year period thereafter. Each Party shall have the right,
at its expense, acting through a certified public accountant, to examine and
audit such records at all reasonable times, on at least ten (10) days prior
notice to the other Party, but no more than once every six (6) months.
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[**] CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN
INFORMATION CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT CONFIDENTIAL
PORTIONS HAVE BEEN OMITTED FROM THE PUBLIC FILING AND HAVE BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
ARTICLE 6. WARRANTIES
6.1 NSI Warranties. NSI represents and warrants that: (a) it is a corporation
--------------
duly organized, validly existing and in good standing under the laws of the
State of Delaware; (b) it has all requisite power and authority to execute this
Agreement and to perform its obligations hereunder; (c) the execution, delivery
and performance of this Agreement has been duly authorized and this Agreement is
a valid and binding contract enforceable in accordance with its terms, and; (d)
CP's use of any data, information, or materials, including without limitation
the Branding Materials, provided by NSI does not and will not infringe, or
constitute an infringement or misappropriation of any Proprietary Right of any
third party. NSI hereby grants to CP a non-exclusive, non-transferable, fully
paid license to use the NSI Proprietary Rights only in accordance with the terms
and conditions of this Agreement. Such license shall expire upon the termination
of this Agreement.
6.2 CP Warranties. CP represents and warrants that: (a) it is a corporation
-------------
duly organized, validly existing and in good standing under the laws of the
State of California; (b) it has all requisite power and authority to execute
this Agreement and to perform its obligations hereunder; (c) the execution,
delivery and performance of this Agreement has been duly authorized and this
Agreement is a valid and binding contract enforceable in accordance with its
terms; (d) CP shall perform the E-mail Hosting Services in accordance with the
terms set forth in this Agreement; (e) CP's E-mail Hosting Services do not
infringe, or constitute an infringement or misappropriation of, any Proprietary
Right of any third party; and (f) the E-mail Hosting Services, the CP System and
all software and hardware relating to the services and the system support the
year 2000 and are capable of correctly processing, providing and receiving date
data, as well as properly exchanging accurate date data with all products and
services (e.g., hardware, software and firmware) with which the services and the
system are designed to be used.
ARTICLE 7. LIMITATION OF LIABILITY
7.1 IN NO EVENT SHALL EITHER PARTY, OR ITS SUPPLIERS, BE LIABLE TO THE
OTHER PARTY, OR TO ANY THIRD PARTY, FOR CONSEQUENTIAL, EXEMPLARY,
INDIRECT, SPECIAL OR INCDENTAL DAMAGES, INCLUDING, WITHOUT
LIMITATION, LOST PROFITS, EVEN if THE PARTY OTHERWISE LIABLE HAS BEEN
ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
7.2 CP shall not be responsible for any delays, errors, failures to perform,
interruptions or disruptions in the E-mail Hosting Services or the CP Systems
caused by or resulting from any act, omission or condition beyond CP's
reasonable control, whether or not foreseeable or identified, including without
limitation acts of God, strikes, lockouts, riots, acts of war, governmental
regulations, fire, power failure, earthquakes, severe weather, floods or other
natural disaster or NSI's, NSI Customer's or any third party's hardware,
software or communications equipment or facilities.
ARTICLE 8. PROPRIETARY INFORMATION
8.1 Non-disclosure. Each Party agrees to keep confidential and to use only for
--------------
purposes of performing under this Agreement, any Proprietary Information of the
other Party disclosed pursuant to this Agreement which is appropriately marked
as proprietary or confidential or which
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<PAGE>
would reasonably be considered of a proprietary or confidential nature. Each
Party shall protect the other Party's Proprietary Information from unauthorized
dissemination and use with the same degree of care that such Party uses to
protect its own like information, but in no event less than reasonable care, for
a period of three years from receipt of the disclosing Party's Proprietary
Information. Neither Party will disclose to third parties the other Party's
Proprietary Information without the prior written consent of the other Party.
Except as expressly provided in this Agreement, no ownership or license rights
are granted in any Proprietary Information. Both parties acknowledge that the
restrictions contained in this Paragraph 8.1 are reasonable and necessary to
protect their legitimate interests and that violation of these restrictions will
cause irreparable damage to the other Party and each Party agrees that the other
Party shall be entitled to injunctive relief against each violation. Upon any
termination of this Agreement, each Party shall return to the other Party all
Proprietary information of the other Party, and all copies thereof, in the
possession, custody or control of the Party.
8.2 Development Rights. The Parties' obligations of confidentiality under this
------------------
Agreement shall not be construed to limit either Party's right to independently
develop or acquire products without the use of the other Party's Proprietary
Information.
ARTICLE 9. INDEMNIFICATION
Each Party (the "Indemnitor") shall defend, indemnify, and hold the other Party
(the "Indemnitee") harmless from and against any third party claims, losses,
actions, demands or damages, including reasonable attorney's fees, resulting
from any act, omission, negligence, or performance under this Agreement by the
Indemnitor, its customers, agents or representatives. This indemnity shall not
apply to the extent the portion of such claim, liability, loss, cost, damage or
expense is the result of the negligence or willful misconduct of the Indemnitee,
its customers, agents or representatives, or to the extent liability is
disclaimed or limited by either Party under this Agreement. The indemnity
obligations set forth in this Section are contingent upon: (a) the Indemnitee
giving prompt written notice to the Indemnitor of any such claim(s); (b) the
Indemnitor having sole control of the defense or settlement of the claim; and
(c) at the Indemnitor's request and expense, the Indemnitee cooperating in the
investigation and defense of such claim(s).
ARTICLE 10. TERM AND TERMINATION
10.1 Term. This Agreement shall commence as of the Effective Date and shall
----
continue in effect for a [**] (the "Term") or until terminated as provided in
this Article. Unless either Party gives the other Party at least 60 days written
notice prior to the end of the Term of its intent not to renew the Agreement,
the Agreement shall renew automatically thereafter for one year periods until
one Party provides the other ninety days written notice of its intent to
terminate.
10.2 Termination for Convenience. Notwithstanding the foregoing, NSI may
---------------------------
terminate this Agreement at any time, without cause, upon ninety days prior
written notice to CP.
10.3 Termination for Breach. Notwithstanding the foregoing, either Party may
----------------------
terminate this Agreement by giving to the other Party written notice of such
termination and an opportunity to cure within thirty (30) days after receipt of
such notice, upon the occurrence of any of the following events: (i) the other
Party materially breaches or defaults in any of the material terms or conditions
of this Agreement, (ii) the other Party makes any assignment for the benefit of
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[**] CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN
INFORMATION CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT CONFIDENTIAL
PORTIONS HAVE BEEN OMITTED FROM THE PUBLIC FILING AND HAVE BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
creditors, is insolvent or unable to pay its debts as they mature in the
ordinary course of business, or (iii) any proceedings are instituted by or
against the other Party in bankruptcy or under any insolvency laws or for
reorganization, receivership or dissolution.
10.4 Effect of Termination. Upon NSI's breach of this Agreement and any
---------------------
termination of this Agreement as a result of NSI's breach, CP shall immediately
cease providing all E-mail Hosting Services, and NSI and Customers shall no
longer have access to the CP System. Upon CP's breach of this Agreement and any
termination of this Agreement as a result of CP's breach or any other
termination of this Agreement except for NSI's breach, CP shall work with NSI in
the migration of the E-mail Hosting Services and e-mail messages to another
vendor of NSI's choice or to NSI's e-mail system. Thereafter, CP shall delete
all stored e-mail messages of NSI's Customers on the CP System. Except in the
event of termination for CP's breach, within fifteen (15) days of a termination
of this Agreement, NSI shall pay to CP all unpaid fees accrued prior to
termination.
10.5 Survival. Sections 5.1, 5.3,6,7, 8,9, 10.4, 10.5, 13, 14, 17 and Exhibit B
--------
(as to amounts accrued but unpaid) shall survive any expiration or termination
of this Agreement.
ARTICLE 11. ADVERTISING/PUBLICITY
11.1 Advertisements and Commercial Use. If NSI, in its sole discretion, decides
---------------------------------
to include advertisements in its web interface, either Party may solicit third
parties for advertisements to be included on the Web Mail Page of the web site
through which the E-mail Hosting Services are
provided. The Parties shall share in the Advertising Revenue resulting therefrom
as provided in Exhibit B. Each Party shall be solely responsible for all
obligations, liabilities and duties under any and all agreements with third
parties with regard to such advertisements, unless otherwise expressly agreed in
writing by the other Party. NSI agrees that it will not sell, make commercial
use of, or otherwise generate income from, the E-mail Hosting Services or the CP
System, other than making the E-mail Hosting Services and the CP System
available to NSI Customers, including any NSI distribution partners, as part of
the NSI Services or obtaining advertising to be included on its Web Mail Page as
permitted under the terms and conditions of this Agreement.
11.2 Publicity. During the term of this Agreement, either Party may use the
---------
other Party's name in news releases, articles, brochures, marketing materials,
advertisements and other publicity or promotions, subject to the other Party's
prior written approval, which approval shall not be unreasonably withheld,
conditioned or delayed.
ARTICLE 12. NOTIFICATION
All notices and requests in connection with this Agreement shall be deemed given
as of the day they are received either by messenger, delivery service, or in
mail, postage prepaid, certified or registered, return receipt requested, and
addressed as follows:
To Network Solutions: To CP:
505 Huntmar Park Drive 320 First Street
Herndon, VA 20170 San Francisco, CA 94105
Attention: James M. Ulam, Esq. Attention: Shelly Alger
Phone: (703)-742-4737 Phone: (415)543-2800
Fax: (703)-742-0065 Fax: (415)543-2830
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<PAGE>
Copy to: General Counsel Copy to: Marla Hoehn, Esq.
Fax: (703) 742-0065 Pillsbury Madison & Sutro LLP
Fax: (650)233-4545
ARTICLE 13. RELATIONSHIP OF THE PARTIES
Nothing in this Agreement shall be construed as creating an employer-employee
relationship, a partnership, or a joint venture between the parties.
ARTICLE 14. GOVERNING LAW
This Agreement shall be governed by the laws of the Commonwealth of Virginia,
excluding its conflicts of law rules. Both Parties consent to personal
jurisdiction and venue in the federal courts sitting either in the eastern
district of the Commonwealth of Virginia or the northern district of California.
ARTICLE 15. COMPLIANCE WITH LAWS
Each Party agrees to comply with all applicable laws, rules and regulations,
including any Internet regulations or policies and applicable export laws, in
its performance under this Agreement.
ARTICLE 16. ASSIGNMENT
Neither Party may assign this Agreement or any of its rights or delegate any of
its duties under this Agreement without the prior written consent of the other;
provided that either Party shall have the right to assign its rights and
obligations hereunder to its parent, successor, or to any subsidiary or
affiliate upon notice to the other Party. Any purported assignment or delegation
without such required consent shall be null and void.
ARTICLE 17. CONSTRUCTION
If for any reason a court of competent jurisdiction finds any provision of this
Agreement, or portion thereof, to be unenforceable, that provision of the
Agreement will be enforced to the maximum extent permissible so as to effect the
intent of the parties, and the remainder of this Agreement will continue in full
force and effect. Failure by either Party to enforce any provision of this
Agreement will not be deemed a waiver of future enforcement of that or any other
provision. This Agreement has been negotiated by the parties and their
respective counsel and will be interpreted fairly in accordance with its terms
and without any strict construction in favor of or against either Party.
ARTICLE 18. ENTIRETY
This Agreement shall not be effective until signed by both parties. This
Agreement constitutes the entire agreement between the parties with respect to
the services and all other subject matter hereof and supersedes all prior and
contemporaneous communications. This Agreement shall not be modified except by
written agreement dated subsequent to the date of this Agreement and signed on
behalf of NSI and CP by their respective duly authorized representatives.
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<PAGE>
IN WITNESS WHEREOF, the Parties to this Agreement have executed and delivered
this Agreement as of the date first above written.
CRITICAL PATH, INC. NETWORK SOLUTIONS, INC.
By____________________________ By__________________________________
Name___________________________ Name________________________________
Its_____________________________ Its_________________________________
Date_____________________________ Date________________________________
Page 11
<PAGE>
EXHIBIT A
---------
DESCRIPTION OF E-MAIL HOSTING SERVICES
--------------------------------------
A: Project Scope
CP shall be responsible for all aspects of delivering the E-Mail Hosting
Services to NSI and NSI's Customers at the required performance levels as set
forth in this Exhibit A.
B: CP SYSTEM REQUIREMENTS
CP shall furnish all necessary facilities, mail collection system
equipment, software and telecommunications services to provide the E-Mail
Hosting Services to NSI and the NSI Customers. CP shall provide a backup site
for its message center The backup site must provide fully redundant
capabilities. In the event of a failure within a message center the backup
center shall take over within 1 hour. Such backup facility shall be operational
by July31, 1998. In addition, within 60 days after the Effective Date, CP shall
provide NSI with a disaster recovery plan that will facilitate recovery of the
CP System within 12 hours of a disaster. All components needed to carry out the
plan must be available as scheduled in the plan. In the event of any disaster,
CP will use commercially reasonable efforts to recover the CP System and restore
provision of the E-mail Hosting Services in accordance with the disaster
recovery plan; provided, however, that any such disaster recovery plan shall not
expand CP's limitation of liability as provided under the Agreement, nor shall
any failure by CP to effect recovery within 12 hours of a disaster necessarily
be deemed a material breach of this Agreement unless otherwise provided under
the Agreement.
CP shall also provide a second data center, that is geographically
dispersed from its primary west coast data center, [**] to provide for the
continued operation of the CP System during the primary data center downtime
that is transparent to NSI Customers.
The CP System uptime measured from the CP externally connected router shall
be [**] as measured in each calendar month. CF shall perform scheduled
maintenance and upgrades on the [**]. The CP System and facility shall be year
2000 compliant.
CP's processes, which interact with NSI, shall be monitorable by NSI. In
addition, CP shall provide NSI with access to the network monitoring components
necessary for NSI to monitor key components used in the provisioning process. On
or before [**], CP shall provide NSI access to its SNMP agent process. Such SNMP
agent shall be protected from public access and will contain mutually agreed-
upon read-only variables.
The CP System capacity shall meet or exceed the quarterly projections of
required mailboxes for NSI Customers. CP shall provide NSI with projected growth
and expansion plans of the CP System in response to NSI's Customer quarterly
projections for growth. This information shall be reported in CP's monthly
status report.
The CP System shall conform to the following requirements for the display
to user:
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INFORMATION CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT CONFIDENTIAL
PORTIONS HAVE BEEN OMITTED FROM THE PUBLIC FILING AND HAVE BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
All features on web pages must display in 3.0 or above Internet Explorer or
Netscape Navigator. Until such time as browsers are able to accept Java applets,
without prior mutual agreement of the Parties, Java applets shall not be used.
All screens must be viewable with in a 640 X 480 display.
The CP System APP used for provisioning shall have the following
capabilities:
Phase I:
Add/Delete domain
Add/Update/Delete mailbox
Add/Update/Delete forward
Phase II:
Suspend mailbox
Domain status
Mailbox status
Forward status
CP shall provide NSI access to its provisioning interface. This interface
shall be available to NSI for remote provisioning of domain accounts, mailboxes,
and poplinks. NSI Customer status information shall also be available to NSI
through the APP.
C: PROJECT MANAGEMENT REQUIREMENTS - See Exhibit E, Service Level Agreement.
D: TESTING
CP shall provide and make available a test system that is a stable
replication of the live system for the testing of new features for a 30 day
period prior to the planned release of such new features to the live system. The
primary (stable) test system shall meet the same uptime requirements as the live
system and provide the same processing monitoring capability. Once new features
are released to the live system the primary test system will be updated to
reflect the new features added to the live system within 24 hours after such
release to the live system.
In addition, upon launch of the E-mail Hosting Services, CP shall makes its
provisioning protocol available for use by NSI. Upon the development of new
versions or releases of the CP provisioning protocol, and upon NSI's request, CP
may use NSI as a beta test site for such new releases or versions of its
provisioning protocol. Any such testing shall be in accordance with a separate
beta test site agreement. Upon the availability of new versions or releases of
the provisioning protocol to CP's customers generally, CP shall provide NSI with
a non-transferable, non-exclusive limited license to use such provisioning
protocol and its web interface.
E. SUPPORT REQUIREMENTS - The E-mail Hosting Services shall include support, as
set forth below to NSI. CP shall use its reasonable efforts to respond to
requests for support within twelve (12) hours of receipt of such request. In
addition, CP shall provide telephone support directly to NSI. NSI shall be
responsible for first-level telephone support to NSI Customers and for all other
support not otherwise specified herein to NSI Customers.
1. SUPPORT VIA EMAIL:
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<PAGE>
CP shall provide support via email for NSI Customer inquiries that can not
be resolved by NSI 1st or 2nd Level. E-mail inquires may be sent to CP from
either NSI 1st or 2nd Level support operations. Prior to launch of the E-Mail
Hosting Services to NSI's Customers, CP and NSI will develop criteria for
escalation of NSI Customer e-mail inquiries. The performance requirements for
e-mail inquiries are:
. E-mail inquiry will be resolved within 12 hours of receipt by CP.
. If the inquiry can not be resolved within 12 hours, an e-mail (where
appropriate) will be sent to NSI 1st or 2nd Level support informing them that
the issue is still pending.
. If the inquiry can not be resolved within 24 hours, a status e-mail will be
sent to NSI 1st or 2nd Level every 24 hours, or at an agreed upon interval
mutually agreed upon by the Parties depending upon the severity of the
problem, until resolution informing them that the issue is still pending.
2. HELP DESK SUPPORT VIA TELEPHONE:
CP will provide Help Desk Support for escalation of issues that can not be
resolved by NSI 1st or 2nd Level. NSI will not transfer NSI Customer calls,
unless directed by CP. The performance requirements for NSI Customer calls are:
Telephone escalations shall be resolved within 12 hours of receipt by CP.
. If the escalation can not be resolved within 12 hours, an e-mail (where
appropriate) will be
sent to the NSI 1st or 2nd Level support informing them that the issue is
still pending. If an email is not appropriate, a phone call shall be made to
NSI 1st or 2nd Level to inform NSI of the status.
. If the escalation can not be resolved within 24 hours, a status e-mail, when
appropriate, will be sent to the NSI 1st or 2nd Level support every 24 hours
or at an agreed upon interval depending upon the severity of the issue, until
resolution informing them that the issue is still pending.
. Escalations to CP will be via a toll free number.
. CP will provide sufficient coverage for the performance metrics to be
mutually agreed upon by the Parties. Prior to the launch of the E-Mail
Hosting Services to NSI Customers, CP and NSI will develop a Management and
Off-Hours Escalation Process for emergency situations.
. Telephone Support will be available 5 days a week, 15 hours a day (8am to
11pm EDT/EST Monday through Friday), at the launch date and effective October
1, 1998 such support will be increased to 7 x 24 x 365.
. Prior to the time when the telephone support is increased to 7 x 24 x 365,
during off hours, in emergency situations, CP shall provide pager based , on-
call support to NSI 1st and 2nd Level.
CP shall use the NSI Tracking System, when available, to track all
inquiries from NSI (1st and 2nd level) and to respond to NSI.
3. TRAINING:
CP, [**], shall assist in the development and implementation of training
programs for 1st and 2nd Level NSI support. CP, at no cost to NSI, shall provide
updates to training materials for any product modifications, improvements or
changes. CP, at no cost to NSI, shall assist in the development and
implementation of training for any product modifications, improvements or
changes.
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INFORMATION CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT CONFIDENTIAL
PORTIONS HAVE BEEN OMITTED FROM THE PUBLIC FILING AND HAVE BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
4. OTHER MATERIALS (FOR SUPPORT DOCUMENTATION AND WEB PAGE SUPPORT):
CP, at no cost to NSI, shall provide NSI original and updated as required:
. Troubleshooting guides for common problems
. Common questions and answers
. Knowledge Base with search functionality (when available)
CP, at no cost to NSI, shall assist in the development and provide NSI with
the following material and updates as required:
. Standard scripting for use on telephone support lines.
. Standard responses for use on email responses to Customer inquiries
via email.
F. MAILBOX REQUIREMENTS - The CP System shall be able to meet the requirements
of NSI's service offering. NSI's service offering to its customers will be 3
free web and Post Office Protocol ("POP") mailboxes, for the remaining months of
1998, with the purchase of a second- level domain name. To qualify for this
offer the NSI Customer must reserve its domain name with NSI. If the NSI
Customer wants to add additional mailboxes at the time of purchase they will
have the option of doing so at a price to be determined by NSI at its sole
discretion.
1. STORAGE CAPACITY - Each mailbox provided hereunder shall have a maximum
storage capacity of 10MB. NSI may purchase additional storage space from CP upon
payment of CP's then-current fees. CP shall notify NSI in the event any NSI
Customer's mailbox is approaching or exceeds the maximum limit. Thereafter, if
such Customer exceeds the maximum storage capacity, CP may delete e-mail
messages from the affected mailboxes, at CP's discretion upon prior notice to
NSI.
2. FEATURES - The Version 1 release of NSI service offering will include
the following features:
1. Web and POP mail integrated
2. Auto-forward
3. [**] uptime
4. send/receive
5. spam blocking
6. nicknames
7. LDAP (to be available August 1998)
8. Attachments to 4MB
9. Localization
10. Postmarking
11. POP retrieval
12. Header options
13. Account provisioning
14. Snarfing
15. POP links
16. Preferences/customizations - web mail only
17. Folders - web mail only
3. ADDITIONAL FEATURES - CP will provide NSI with a revised feature release
schedule on a monthly basis. In the event NSI decides to build, at its sole
cost, a "Roll-Your-Own" mail system, NSI may terminate this Agreement pursuant
to Article 10.2, and CP hereby agrees to reasonably
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INFORMATION CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT CONFIDENTIAL
PORTIONS HAVE BEEN OMITTED FROM THE PUBLIC FILING AND HAVE BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
cooperate with NSI, upon written notice from NSI, to transition NSI Customers
over to NSI's "Roll-Your-Own" system in accordance with Article 10.4 of the
Agreement.
Page 16
<PAGE>
EXHIBIT B
---------
PRICES AND PAYMENT SCHEDULE
---------------------------
This Prices and Payment Schedule is attached to and made a part of the E-
mail Services Agreement between NSI and CP and is subject to the terms and
conditions of the Agreement.
A. PRICES - NSI agrees to pay CP the following amounts for the following
Services. NSI will pay CP for mailboxes only upon activation by the NSI
Customer.
1. Basic hosting fee: NSI will pay to CP a basic monthly Post Office
-------------------
Protocol ("POP")/Web integrated or web only email hosting fee per
mailbox of [**] for POP hosting, which includes access to and use of
CP's mail administration center, and until such time as spam blocking
becomes an optional feature, no charge per mailbox for spam blocking
which is included in the basic package but no other premium features.
[**]
2. POP link forwarding feature for a "catchall account" (to span multiple
----------------------------------------------------------------------
domains per account): NSI will pay to CP a fee of [**] per mailbox per
--------------------
month for POP link forwarding. "Catchall accounts" are those default
postmaster accounts registered to each domain name that are not
utilized, but forwarded on.
3. Value added features: NSI will pay to CP [**] of NSI's retail price
--------------------
received from NSI Customer for each subscribed service.
Suggested Retail Price for Value-Added Features of the Services:
-------------------------------------------------
Virus Protection TBD
-------------------------------------------------
Certified Delivery TBD
-------------------------------------------------
Archiving (storage greater than 10Mb) TBD
-------------------------------------------------
B. BRANDING OF WEB MAIL PAGE
1. Fees - NSI will pay to CP a one-time fee of [**] for CP's branding
----
of the Web Mail Page. NSI will pay CP a one-time fee of [**] for development of
an automatic sign- up page. Once approved, CP shall only be obligated to make
one change to the look and fee] of the branded Web Mail Page at no additional
charge. Any further requested changes will be chargeable at the rate of [**]
each.
C. SUPPORT - The E-mail Hosting Services shall include web-based support
(i.e., through e-mail), including an HTML version of CP's support FAQs, to NSI
and NSI Customers at no additional charge.
D. PAYMENT BY NSI TO CP - All fees for the E-mail Hosting Services shall be
applicable for any month, or portion thereof, in which such services are
rendered. All fees are payable monthly by NSI within thirty days of the end of
each month monthly in accordance with this Exhibit B. In addition, if during the
previous month, CP performed any work on the
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INFORMATION CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT CONFIDENTIAL
PORTIONS HAVE BEEN OMITTED FROM THE PUBLIC FILING AND HAVE BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
branding of the Web Mail Page as provided herein, NSI shall include the
applicable fees for such work in the next month's payment. Payments received by
CP after the due date may be subject to a late fee of one and one-half percent
(1.5%) per month, or, if less, the maximum amount allowed by applicable law.
E. ADVERTISING REVENUES
1. Sharing of Advertising Revenues - The Parties shall share revenues
-------------------------------
as follows: [**] CP and [**] NSI for all Advertising Revenues.
2. Payment - NSI shall pay to CP its share of Advertising Revenues
-------
received by NSI during the preceding month within thirty days of the end of each
month, subject to the terms and conditions of Section D above. CP shall pay NSI
its share of Advertising Revenues received by CP during the preceding month
within thirty days after the end of each month during the term of this
Agreement. If, in prior remittances, the paying Party included revenues in the
calculation of Advertising Revenues, as to which during the preceding month the
Party granted credits or refunds, then the Party may reduce the Advertising
Revenues paid to the other Party by the amount of any such credits or refunds.
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INFORMATION CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT CONFIDENTIAL
PORTIONS HAVE BEEN OMITTED FROM THE PUBLIC FILING AND HAVE BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
EXHIBIT C
---------
RESERVED
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<PAGE>
EXHIBIT D
SERVICE AGREEMENT
A. AGREEMENT. In this Service Agreement ("Agreement") "you" and "your" refer to
each customer and "we", us" and "our" refer to Network Solutions, Inc. ("NSI").
This Agreement explains our obligations to you, and explains your obligations to
us for various Network Solutions services. By selecting our Network Solutions
service(s) you have agreed to establish an account with us for such services.
When you use your account or permit someone else to use it to purchase
additional Network Solutions service(s) or to cancel your Network Solutions
service(s) (even if we were not notified of such authorization), this Agreement
covers such service or actions. By using the service(s) provided by NSI under
this Agreement, you acknowledge that you have read and agree to be bound by all
terms and conditions of this Agreement and any pertinent rules or policies that
are or may be published by NSI. The terms and conditions marked with an (*)
apply to customers of the Network Solutions E-mail Service only.
B. FEES, PAYMENT AND TERM. As consideration for the services you have selected,
which are indicated on the cover page of this Agreement, you agree to pay for
the Network Solutions service(s), which includes any InterNIC fees to register
or reserve your domain name. The term(s) of the Network Solutions service(s) you
have selected are also set forth on the cover page of this Agreement. As further
consideration for the Network Solutions service(s), you agree to: (1) provide
certain current, complete and accurate information about you as required by the
registration process and (2) maintain and update this information as needed to
keep it current, complete and accurate. All such information shall be referred
to as account information ("Account Information"). You hereby grant NSI the
right to disclose to third parties certain Account Information about you in a
publicly accessible directory. However, such disclosures will exclude your
contact information, e-mail address and account number, unless: (1) you
expressly permit NSI to disclose such information; or (2) NSI is required to
disclose such information by any applicable law or legal process served on NSI
(e.g., discovery, service of process, collection, etc.).
*C. DESCRIPTION OF E-MAIL SERVICE. NSI is providing you with a capability to
send and receive electronic mail ("Network Solutions E-mail Service") via the
World Wide Web ("Web") and on NSI's system. You must: (1) provide all equipment,
including a computer and modem, necessary to establish a connection to the Web;
and (2) provide for your own connection to the Web and pay any telephone service
fees associated with such connection. NSI has set no fixed upper limit on the
number of messages you may send or receive through the Network Solutions E-mail
Service; however, NSI retains the right, at NSI's sole discretion, to determine
whether or not your conduct is consistent with this Agreement and NSI's
operating rules or policies and may terminate the Network Solutions E-mail
Service if your conduct is found to be inconsistent with this Agreement, such
rules or policies. Your right to use the Network Solutions E-mail Service is
personal to you. You agree not to resell the E-mail Service, without the prior
express written consent of NSI.
*D. PRIVACY POLICY. E-mail is private correspondence between the sender and the
recipient. It is NSI's policy to respect the privacy of its customers.
Therefore, NSI will not monitor, edit or disclose the contents of your private
communications unless required to do so by law or in the good faith belief that
such action is necessary to; (1) conform to the law or comply with legal process
served on NSI; (2) protect and defend the rights or property of NSI; or (3) act
under exigent circumstances to protect the personal safety of its customers or
the public.
You acknowledge and agree that NSI neither endorses the contents of any of your
communications nor assumes responsibility for any threatening, libelous,
obscene, harassing or offensive material contained therein, any infringement of
third party intellectual property rights arising therefrom or any crime
facilitated thereby. You acknowledge and agree that certain technical processing
of e-mail messages and their content may be required to: (1) send and receive
messages; (2) conform to connecting networks' technical requirements; (3)
conform to the limitations of the Network Solutions E-mail Service; or (4)
conform to other similar requirements.
*E. CUSTOMER CONDUCT. You are solely responsible for the content of your
transmissions through the Network Solutions E-mail Service. Your use of the
Network Solutions E-mail Service is subject to all applicable local, state,
national and international laws and regulations. You agree: (1) to comply with
U.S. law regarding the transmission of technical data exported from the United
States through the Network Solutions E-mail Service; (2) not to use the Network
Solutions E-mail Service for illegal purposes: (3) not to interfere with or
disrupt networks connected to the Network Solutions E-mail Service: and (4) to
comply with all regulations, policies and procedures of networks connected to
the Network Solutions E-mail Service.
The Network Solutions E-mail Service makes use of the Internet to send and
receive certain messages. Your conduct is therefore subject to applicable
Internet regulations, policies and procedures. You agree not to use the Network
Solutions E-mail Service for chain letters, junk mail, spamming or any use of
distribution lists to any person who has not given specific permission to be
included in such a process.
You agree not to transmit through the Network Solutions E-mail Service any
unlawful, harassing, libelous, abusive, threatening, harmful, vulgar, obscene or
otherwise objectionable material of any kind or nature. You further agree not to
transmit any material that encourages conduct that could constitute a criminal
offense, give rise to civil liability or otherwise violate any applicable local,
state, national or international law or regulation. Attempts to gain
unauthorized access to other computer systems are prohibited. You agree not to
interfere with another customer's use and enjoyment of the Network Solutions E-
mail Service or another entity's use and enjoyment of similar services. NSI's
contractor, Critical Path, Inc. shall be an intended third party beneficiary of
the Network Solutions E-mail Service customers' obligations under this Agreement
and thus shall be entitled to enforce those obligations against such customers
as if a party to this Agreement. NSI may, at its sole discretion, immediately
terminate Network Solutions E-mail Service if your conduct fails to conform with
these terms and conditions.
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<PAGE>
*F. PROPRIETARY RIGHTS TO CONTENT. You acknowledge that content, including but
not limited to text, software, music, sound, photographs, video, graphics or
other material contained in either advertisements or e-mail-distributed,
commercially produced information presented to you by the Network Solutions E-
mail Service ("Content') by NSI or NSI's advertisers, is protected by
copyrights, trademarks, service marks, patents or other proprietary rights and
laws. You therefore agree to use this content as expressly authorized by the
Network Solutions E-mail Service or the advertiser. You agree not to copy,
reproduce, distribute or create derivative works from this content without
express authorization to do so by NSI or the advertiser.
G. MODIFICATIONS TO AGREEMENT. You agree, during the period of this Agreement,
that we may: (1) revise the terms and conditions of this Agreement; and (2)
change the services provided under this Agreement at any time. Any such revision
or change will be binding and effective immediately on posting of the revised
Agreement or change to the service(s) on NSI's homepages, or on notification to
you by e-mail or United Sates mail. You agree to review NSI's homepages,
including the Agreement, periodically to be aware of any such revisions. If you
do not agree with any revision to the Agreement, you may terminate this
Agreement at any time by providing us with notice by e-mail or United States
mail at the addresses listed on the cover page of this Agreement. Notice of your
termination will be effective on receipt and processing by us. You agree that,
by continuing to use the Network Solutions services following notice of any
revision to this Agreement or change in service(s), you agree to abide by any
such revisions or changes.
H. MODIFICATIONS TO YOUR ACCOUNT. In order to change any of your account
information with us, you must use your Account Number and Password that you
selected when you opened your account with us. Please safeguard your Account
Number and Password from any unauthorized use. In no event will we be liable for
the unauthorized use or misuse of your Account Number or Password.
I. DOMAIN NAME DISPUTE POLICY. If you reserved or registered a domain name
through us you agree to be bound by our current Domain Name Dispute Policy
("Dispute Policy") which is incorporated herein and made a part of this
Agreement by reference. The current version of the Dispute Policy may be found
at our web site: http://www.networksolutions.com/dispute.html . Please take the
--------------------------------------------
time to familiarize yourself with such policy.
J. DOMAIN NAME DISPUTE POLICY MODIFICATIONS. YOU AGREE THAT WE, IN OUR SOLE
DISCRETION, MAY MODIFY OUR DISPUTE POLICY AT ANY TIME. YOU AGREE THAT, BY
MAINTAINING THE RESERVATION OR REGISTRATION OF YOUR DOMAIN NAME AFTER
MODIFICATIONS TO THE DISPUTE POLICY BECOME EFFECTIVE, YOU HAVE AGREED TO
THESE MODIFICATIONS. YOU ACKNOWLEDGE THAT IF YOU DO NOT AGREE TO ANY SUCH
MODIFICATIONS, YOU MAY REQUEST THAT YOUR DOMAIN NAME BE DELETED FROM THE
DOMAIN NAME DATABASE.
K. DOMAIN NAME DISPUTES. You agree that, if the registration or reservation of
your domain name is challenged by a third party, you will be subject to the
provisions specified in the Dispute Policy in effect at the time of the dispute.
You agree that in the event a domain name dispute arises with any third party,
you will indemnify and hold us harmless pursuant to the terms and conditions
contained in the Dispute Policy.
L. AGENTS. You agree that, if an agent for you (i.e. an Internet Service
Provider, employee, etc.) purchased our Network Solutions service(s) on your
behalf, you are nonetheless bound as a principal by all terms and conditions
herein, including the Dispute Policy.
M. ANNOUNCEMENTS. We reserve the right to distribute information that is
pertinent to the quality or operation of our services. These announcements will
be predominately informative in nature and may include notices describing
changes, upgrades, new products or other information to enhance your identity on
the Internet.
N. LIMITATION OF LIABILITY. You agree that our entire liability, and your
exclusive remedy, with respect to any Network Solutions services(s) provided
under this Agreement and any breach of this Agreement is solely limited to the
amount you paid for such service(s). NSI and its contractors shall not be liable
for any direct, indirect, incidental, special or consequential damages resulting
from the use or inability to use any of the Network Solutions services or for
the cost of procurement of substitute services. Because some states do not allow
the exclusion or limitation of liability for consequential or incidental
damages, in such states, our liability is limited to the extent permitted by
law. We disclaim any and all loss or liability resulting from, but not limited
to: (1) loss or liability resulting from access delays or access interruptions;
(2) loss or liability resulting from data non-delivery or data mis-delivery; (3)
loss or liability resulting from acts of God; (4) loss or liability resulting
from the unauthorized use or misuse of your Account Number or Password; (5) loss
or liability resulting from errors, omissions, or misstatements in any and all
information or services(s) provided under this Agreement; and (6) loss or
liability relating to the deletion of or failure to store e-mail messages.
O. INDEMNITY. You agree to release, indemnify, and hold NSI, its contractors,
agents, employees, officers, directors and affiliates harmless from all
liabilities, claims and expenses, including attorney's fees, of third parties
relating to or arising under this Agreement, including infringement by you, or
someone else using the Network Solutions E-mail Service with your computer, of
any intellectual property or other proprietary right of any person or entity or
from the violation of any NSI operating rule or policy relating to the
service(s) provided. You also agree to release, indemnify and hold us harmless
pursuant to the terms and conditions contained in the Dispute Policy.
P. BREACH. You agree that failure to abide by any provision of this Agreement,
any NSI operating rule or policy or the Dispute Policy, may be considered by us
to be a material breach and that we may provide a written notice, describing the
breach, to you. If within thirty (30) calendar days of the date of such notice,
you fail to provide evidence, which is reasonably satisfactory to us, that you
have not breached your obligations under the Agreement, then we may delete the
registration or reservation of your domain name
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<PAGE>
or terminate your e-mail account. Any such breach by you shall not be deemed to
be excused simply because we did not act earlier in response to that, or any
other breach by you.
Q. NO GUARANTY. You agree that, by registration or reservation of your chosen
domain name, such registration or reservation does not confer immunity from
objection to either the registration, reservation, or use of the domain name.
R. DISCLAIMER OF WARRANTIES. You agree and warrant that the information that
you provide to us to register or reserve your domain name or register for the
Network Solutions E-mail Service is, to the best of your knowledge and belief,
accurate and complete, and that any future changes to this information will be
provided to us in a timely manner according to the modification procedures in
place at that time. You agree that your use of our Network Solutions service(s)
is solely at your own risk. You agree that such service(s) is provided on an
"as is," "as available" basis. NSI EXPRESSLY DISCLAIMS ALL WARRANTIES OF ANY
KIND, WHETHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO THE IMPLIED
WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND NON-
INFRINGEMENT. NSI MAKES NO WARRANTY THAT THE NETWORK SOLUTIONS SERVICE(S) WILL
MEET YOUR REQUIREMENTS, OR THAT THE SERVICE(S) WILL BE UNINTERRUPTED, TIMELY,
SECURE, OR ERROR FREE; NOR DOES NSI MAKE ANY WARRANTY AS TO THE RESULTS THAT MAY
BE OBTAINED FROM THE USE OF THE SERVICE(S) OR AS TO THE ACCURACY OR RELIABILITY
OF ANY INFORMATION OBTAINED THROUGH THE NETWORK SOLUTIONS E-MAIL SERVICE OR THAT
DEFECTS IN THE E-MAIL SERVICE SOFTWARE WILL BE CORRECTED. YOU UNDERSTAND AND
AGREE THAT ANY MATERIAL AND/OR DATA DOWNLOADED OR OTHERWISE OBTAINED THROUGH THE
USE OF THE NETWORK SOLUTIONS E-MAIL SERVICE IS DONE AT YOUR OWN DISCRETION AND
RISK AND THAT YOU WILL BE SOLELY RESPONSIBLE FOR ANY DAMAGE TO YOUR COMPUTER
SYSTEM OR LOSS OF DATA THAT RESULTS FROM THE DOWNLOAD OF SUCH MATERIAL AND/OR
DATA. NSI MAKES NO WARRANTY REGARDING ANY GOODS OR SERVICES PURCHASED OR
OBTAINED THROUGH THE E-MAIL SERVICE OR ANY TRANSACTIONS ENTERED INTO THROUGH THE
E-MAIL SERVICE. NO ADVICE OR INFORMATION, WHETHER ORAL OR WRITTEN, OBTAINED BY
YOU FROM NSI OR THROUGH THE E-MAIL SERVICE SHALL CREATE ANY WARRANTY NOT
EXPRESSLY MADE HEREIN. SOME JURISDICTIONS DO NOT ALLOW THE EXCLUSION OF CERTAIN
WARRANTIES, SO SOME OF THE ABOVE EXCLUSIONS MAY NOT APPLY TO YOU.
S. REVOCATION. You agree that we may delete your domain name or terminate your
right to use the Network Solutions E-mail Service if the information that you
provided to register or reserve your domain name or register for the E-mail
Service, or subsequently to modify it, contains false or misleading information,
or conceals or omits any information we would likely consider material to our
decision to register or reserve your domain name.
T. RIGHT OF REFUSAL. We, in our sole discretion, reserve the right to refuse to
register or reserve your chosen domain name or e-mail account, or to delete your
domain name within thirty (30) calendar days from receipt of your payment for
such services. In the event we do not register or reserve your domain name or e-
mail account, or we delete your domain name or e-mail within such thirty (30)
calendar day period, we agree to refund your fees. You agree that we shall not
be liable to you for loss or damages that may result from our refusal to
register or reserve, or delete your domain name or e-mail account.
U. SEVERABILITY. You agree that the terms of this Agreement are severable. If
any term or provision is declared invalid or unenforceable, that term or
provision will be construed consistent with applicable law as nearly as possible
to reflect the original intentions of the parties, and the remaining terms and
provisions will remain in full force and effect.
V. ENTIRETY. You agree that this Agreement, the rules and policies published by
NSI and the Dispute Policy are the complete and exclusive agreement between you
and us regarding our Network Solutions services. This Agreement and the Dispute
Policy supersede all prior agreements and understandings, whether established by
custom, practice, policy or precedent.
W. GOVERNING LAW. You agree that this Agreement shall be governed in all
respects by and construed in accordance with the laws of the Commonwealth of
Virginia, United States of America, excluding its conflict of laws rules. You
and we each submit to exclusive subject matter jurisdiction, personal
jurisdiction and venue of the United States District Court for the Eastern
District of Virginia, Alexandria Division. If there is no jurisdiction in the
United States District Court for the Eastern District of Virginia, Alexandria
Division, then jurisdiction shall be in the Circuit Court of Fairfax County,
Fairfax, Virginia.
X. This is NSI Service Agreement Version Number 2.0. This Service Agreement is
for all Network Solutions services offered by NSI.
Page 22
<PAGE>
EXHIBIT E
SERVICE LEVEL AGREEMENT
1. PERFORMANCE
(a) Processing E-mails: Monthly average less than [**] seconds response
------------------
time for [**] of requests. Measures server response time only, not network
transmission time. This average does not include any period of unforeseen,
unsolicited bulk email messages that degrade service.
(b) Availability of E-mail Server: Monthly average [**] up time (not
-----------------------------
including scheduled downtimes for maintenance, which currently take place Monday
mornings between [**] PST.
(c) Procedures for System Outages: CP posts a message in the event of a
-----------------------------
system outage whenever possible.
(d) Definition: As used in this Exhibit, "system outage" means any
----------
unplanned interruption in the provision of CP Services during which NSI's
Customers are unable to access or use the CP Services and which is caused by a
problem in the CP System and confirmed by CP. "System outage" does not include
any interruptions in the CP Services caused by act, omission or condition beyond
CP's reasonable control, such as acts of nature or any third party.
2. MONITORING/REPORTING:
(a) CP will prepare a monthly Stewardship report that will track the
performance metrics stated in Section 1 of this Exhibit. In addition, the
parties will meet on a regular basis to discuss the Stewardship report and its
associated performance metrics.
(b) CP will provide NSI with monthly reports which document all CP System
outages or enhancements made during such month. Each report shall have capacity
planning information outlined [above] and include, at a minimum, the following
additional information:
Summary:
. CP System uptime
. Number of new NSI Customer mailboxes
. Number of deleted NSI Customer mailboxes
. Total number of NSI Customer mailboxes
. Mean storage used for mailboxes
. Number of CP System outages
. CP System total downtime and average daily and monthly downtimes
Page 23
[**] CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN
INFORMATION CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT CONFIDENTIAL
PORTIONS HAVE BEEN OMITTED FROM THE PUBLIC FILING AND HAVE BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
Specific Outage Report:
. Time of outage
. Length of outage
. Affected areas
. Reason for outage
. Long term remedy
. Person notified
Enhancement:
. Reason for change
. Areas affected
This information will be emailed to NSI by the third working day of the
month following the reported month.
3. ESCALATION PROCEDURES
(a) Notify NSI via the following email address in the event of a system
outage. CP will send an email notice whenever possible. In the event that email
is not working or CP is otherwise unable to send an email message, then CP will
notify NSI by telephone within 30 minutes of the time that CP first learns of
the outage.
. NSI: Advise email address here
(b) Status information, if known by CP, to include:
. reason for the outage; and
. estimated time for service restoration.
(c) If NSI experiences a system outage and has not been notified by CP,
NSI will contact the Technical Support staff at CP by pager at 415/764-6203 and
will be given the information listed in 3.b).
(d) CP will periodically notify NSI with updated status for the duration
of the outage.
(e) CP will provide a post-incident summary that will include:
. cause of the problem;
. method used to correct the problem; and
. measures CP will take to prevent similar occurrences in the
future.
(f) CP shall furnish necessary staff to provide the E-Mail Hosting
Services. CP shall use commercially reasonable efforts to provide NSI with
access to an engineering staff
Page 24
<PAGE>
member 24 hours a day 365 days a year. Upon notification of a problem with the
CP System or the E-mail Hosting Services, CP shall evaluate and verify the
problem and provide NSI with a mutually agreeable time estimate for resolution
of the problem. CP shall promptly commence remedial activities and use
commercially reasonable efforts to complete the system outage resolution within
the mutually agreed upon time estimate. In the event CP is unable to complete a
system outage resolution within the mutually agreed upon time estimate, NSI, in
its sole discretion, will deduct an amount of 1/30th of the basic monthly
hosting fee otherwise payable to CP under this Agreement for each day that a
problem with the CP System or the E-mail Hosting Services remains unresolved
after the mutually agreed upon time estimate. Within 30 days of the Effective
Date, CP shall provide NSI with an escalation plan for system outage
notification. CP shall notify NSI immediately of any change to such plan.
4. BUSINESS RESUMPTION
(a) In the event of a system outage, CP will switch processing from the
primary server to a hot backup server in accordance with Exhibit A, Section B.
(b) NSI agrees to notify CP no less than 40 hours in advance of any
modifications and/or network configuration changes (including system
maintenance) to, as well as upgrades and removal of devices that impact the
production and network connectivity from, NSI's system through which the CP
Services are provided if they are outside of the scheduled Monday maintenance
windows. If any such change will or could, in either party's opinion, result in
incompatibility between the parties' respective systems or interruptions in the
CP Services, then the parties shall work together to resolve any such issue
before NSI makes the change.
Page 25
<PAGE>
EXHIBIT 10.17
CRITICAL PATH INC.
------------------
E-MAIL SERVICES AGREEMENT
-------------------------
THIS E-MAIL SERVICES AGREEMENT ("Agreement") is entered into as of the 6th
day of July, 1998 ("Effective Date"), by and between CRITICAL PATH INC., a
------------------
California corporation having its principal place of business at 320 First
Street, San Francisco, CA 94105 ("CP"), and StarMedia Network, Inc., a Delaware
corporation, having a principal place of business at 29 West 36th Street, New
York, New York 10018 ("StarMedia"). CP and StarMedia are sometimes referred to
collectively herein as the "Parties" and each separately as a "Party."
1. Provision of Services.
---------------------
1.1 Services to be Provided. Under the terms and conditions of this
-----------------------
Agreement, CP shall provide, and Starmedia hereby accepts, e-mail outsourcing
services described in Exhibit A ("Services") which Starmedia may offer to users
("Users") of any Internet-based service which StarMedia may from time to time
provide either on its own or in conjunction with its partners ("Starmedia
Services"). StarMedia and CP agree to work together to ensure that Users
accessing the Services shall have entered into a User agreement which contains,
at a minimum, the terms contained in the form of User agreement attached hereto
as Exhibit D as may be modified by mutual advance consent of CP and StarMedia
("User Agreement").
1.2 Transition. StarMedia shall provide to CP information and materials
----------
regarding the Users, such as the domain name, e-mail addresses and passwords
("User Information") necessary for CP to transition the User's current e-mail
system to CP's e-mail messaging system through which CP provides the Services
("CP System"). The parties shall work together to ensure that the CP System and
StarMedia's universal user database are capable of seamlessly exchanging User
Information with each other, both for purposes of the transition and for
purposes of ongoing supplementation and modification of the User Information
after launch of the Services. Upon receipt of User Information from StarMedia
for each User, CP shall perform the set-up and other initial services before
such User will have access to the CP System. The parties agree to work together
to achieve a transition to the CP System that is transparent to the Users; in
particular, Users will retain their e-mail addresses, passwords, stored
messages, message folders and address books. The transition shall be completed,
such that all Users are able to fully access the Services, as soon as reasonably
practicable, but no later than 60 days after the date of this Agreement or such
other mutually agreed-upon date (the "Launch Date"), provided that StarMedia
provides, or provides access to, the User Information to CP in accordance with
the agreed-upon project plan ("Project Plan") attached hereto as Exhibit F.
1.3 In-Language Services. CP agrees that all text information presented
---------------------
as part of the Services to Users shall be in the native language designated by
the User (which shall include only Spanish or Portuguese) ("Native Languages").
Such text information shall include, without
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[**] CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN
INFORMATION CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT
CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THE PUBLIC FILING AND HAVE
BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
limitation, all text included in initiation screens, instructions, help screens,
graphics, input fields, error messages and server-generated messages. StarMedia
shall provide such assistance as CP may reasonably request from time to time in
translating such text information into the Native Languages. Prior to the Launch
Date, in the time frame as may be specified in the Project Plan, CP shall
provide or make available to StarMedia the Native Language text information
proposed to be used with the Services pursuant to this Section, and the parties
shall work together to make reasonable changes to such text information as
requested by StarMedia. CP shall promptly notify StarMedia of modifications or
additions to such Native Language text information, to which StarMedia may
request reasonable changes. StarMedia acknowledges and agrees that,
notwithstanding any such assistance it may provide, all Native Language text
information shall be owned exclusively by CP, and StarMedia agrees to, and
hereby does, assign to CP all of StarMedia's right, title and interest in and to
the Native Language text information and further agrees to execute any and all
documents and instruments requested by CP to establish, perfect and maintain
CP's title thereto and to transfer to CP any rights therein which StarMedia may
have or acquire by operation of law or otherwise.
1.4 Scalability and Performance. CP shall support the Services with all
----------------------------
necessary software, servers, services and network bandwidth to maintain the
level of performance and features specified in Exhibit B, and will generally at
all times provide adequate resources for performance of its obligations.
1.5 Domain Names, Addresses and User Information. StarMedia will
--------------------------------------------
provide CP with a list of all domain name addresses to be offered to Users, and
will have the option of adding additional StarMedia-owned names in the future
(collectively, the "StarMedia Domains"). Users may select the User-specific
portion of their e-mail address but will be offered only StarMedia Domain-based
addresses. All StarMedia Domains, all addresses issued to Users thereunder, any
compilations of such addresses and all other User Information will remain the
property of StarMedia, regardless of incorporation into the Services.
1.6 Privacy. CP has a corporate policy to respect the privacy of its
-------
customers and their e-mail messages that are transmitted through the CP System
or by means of the Services. CP will only access and disclose information as
necessary to comply with applicable laws and government orders or requests, to
provide the Services, to operate or maintain its systems or to protect itself or
its customers, and only to the extent permitted by the User Agreement.
1.7 Compliance with Laws. Each Party agrees to comply with all applicable
--------------------
laws, rules and regulations, including any Internet regulations or policies and
applicable export laws, in its performance under this Agreement.
1.8 Suspension or Termination. If CP becomes aware of or suspects any
-------------------------
violation of the Terms of Use by StarMedia or any User, CP first shall attempt
to notify StarMedia and provide reasonable detail of such violation. The
parties shall use best efforts to promptly resolve the matter. However, CP
reserves the right to immediately suspend or terminate the provision of
Confidential Page 2
<PAGE>
Services to any such User, as reasonably necessary to prevent a violation of
applicable laws or regulations or to protect CP's interests.
1.9 Modification of Services. CP reserves the right to modify or
------------------------
discontinue certain features or functionality of the CP System from time to
time; provided, however, that during the term of this Agreement, CP may not
unilaterally discontinue the features identified in Exhibit B as those that may
not be discontinued without StarMedia's prior consent. In the event that CP
intends to make a change or modification ("change") to the CP System in
accordance with the preceding sentence that will significantly affect Users' use
of or ability to use the Services, CP shall provide ninety (90) days prior
written notice to StarMedia of the proposed change. In the event that StarMedia
objects to such Change in writing to CP within thirty (30) days after receipt of
CP's notice, then CP shall ensure that such Change is compatible with the
previous version of the CP System for a period of three (3) months from the date
of implementation of such Change to permit StarMedia a period of time to adjust
to such Change.
1.10 User Support. Unless otherwise mutually agreed, StarMedia shall be
------------
solely responsible for support services to Users. Notwithstanding the
foregoing, during the first six (6) months after commercial launch of the
Services, as an accommodation to StarMedia during its development of User
support infrastructure, CP shall provide Native Language customer support to
Users as provided in Exhibit C. CP shall reply to Users' e-mail support
inquiries within the time frames specified in Exhibit C. After such six-month
period, the parties shall review, on a quarterly basis, the parties' respective
User support obligations. StarMedia agrees to use commercially reasonable
efforts to develop its User support infrastructure and to provide full User
support as soon as practical. Each party shall maintain for a period of no less
than six months records of all User support inquiries and responses (including
full-text records of all e-mail inquiries and responses) during the period the
party is responsible for Level 1 support and shall make such records available
for review by the other party upon reasonable request. CP shall provide support
to StarMedia as specified in Exhibit C.
1.11 Usage Reports and Projections. CP shall provide to StarMedia monthly
-----------------------------
reports on usage of the Services. Each monthly report shall contain the
statistics listed in Exhibit D hereto, subject to amendment from time to time by
mutual consent of the parties. On a quarterly basis, no later than five
business days before the beginning of each calendar quarter, StarMedia shall
provide to CP estimates of the anticipated number of mailboxes to be hosted by
CP for Users for such quarter to the extent such estimates are reasonably
available.
1.12 Advertisements and Commercial Use. Either Party may solicit third
---------------------------------
parties for advertisements to be included for display on the e-mail service
login page or within the StarMedia screen frames during use of the Services. If
CP and StarMedia mutually agree, advertising may also be placed within e-mail
messages. Such placements may be subject to applicable fees payable to CP to
the extent provided in Exhibit A, Section B. Subject to the parties' mutual
agreement with respect to usability and other issues, CP shall provide to
StarMedia or provide StarMedia with access to such tools or features that will
permit StarMedia to place banner or text advertisements within e-mail messages
without assistance from CP upon
Confidential Page 3
<PAGE>
completion of development of such tools or features. StarMedia will develop
guidelines and a mechanism for CP's sales force to efficiently interface with
StarMedia's sales force, to avoid confusion and duplicate sales of identical ad
space. Neither Party will solicit or accept advertisements for the other Party's
competitors. The Parties shall share in the net revenues resulting therefrom as
provided in Exhibit A. StarMedia shall have the right to manage all aspects of
advertising and sponsorship relating to the Services ("Advertising"), including
placement of all Advertising. Advertisers or sponsors secured by CP shall be
referred to StarMedia, and StarMedia shall be responsible for billing and
collecting revenues from all Advertising, including any Advertising sold by CP.
StarMedia reserves the right to accept or decline to accept any prospective
advertiser or sponsor and any Advertising, in its sole discretion.
2. Pricing and Payment.
-------------------
2.1 Pricing and Payment. Exhibit A specifies CP's charges for the
-------------------
Services and other payment provisions. All amounts payable hereunder are
exclusive of any sales, use, excise, property or any other taxes associated with
the provision of Services or of StarMedia's or Users' access to or use of the CP
System or arising out of or in connection with the Advertising. Except as
otherwise provided herein, CP shall be responsible for payment of any and all
such taxes, other than those based on StarMedia's income, that arise out of or
in connection with the Services Revenues, and StarMedia shall be responsible for
payment of any and all taxes, other than those based on CP's income, that arise
out of or in connection with the Advertising Revenues. Upon availability of a
billing system for such purposes, CP shall be responsible for billing Users for
all charges for Value-Added Features, including any and all taxes relating to
such Value-Added Features; provided, however, that StarMedia shall assist in
such billing as reasonably requested by CP by providing relevant information
regarding Users. CP acknowledges and agrees that such User information shall be
used or disclosed only for such billing and collection purposes or as otherwise
permitted under this Agreement. The parties shall share in the revenue received
from Value-Added Features as provided in Exhibit A. Each Party shall submit with
each of its payment to the other party a detailed report of the calculation of
each such payment. Each Party will retain records relevant to its calculations
of the payments made to the other Party during the term of this Agreement and
for a two (2) year period thereafter. Each Party shall have the right, at its
expense, acting through a certified public accountant, to examine and audit such
records at all reasonable times, on at least ten (10) days notice to the other
Party, but no more than once every six (6) months.
3. Disclaimer of Warranties.
------------------------
3.1 EXCEPT AS SPECIFICALLY PROVIDED HEREIN, THE SERVICES ARE PROVIDED,
AND THE CP SYSTEM IS MADE AVAILABLE, BY CP TO STARMEDIA AND USERS "AS IS."
EXCEPT AS SPECIFICALLY PROVIDED HEREIN, CP AND ITS SUPPLIERS MAKE NO WARRANTY OF
ANY KIND, WHETHER EXPRESS OR IMPLIED, REGARDING THE SERVICES OR THE CP SYSTEM
AND SPECIFICALLY DISCLAIM
Confidential Page 4
<PAGE>
THE WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND AGAINST
INFRINGEMENT, TO THE MAXIMUM EXTENT POSSIBLE BY LAW.
3.2 Except as specifically provided herein, CP and its suppliers make no
warranties regarding the quality, reliability, timeliness or security of the
Services or the CP System or that the Services or the CP System will be
uninterrupted or error free; provided, however that CP shall use commercially
reasonable efforts to correct any interruption or error in the Services or the
CP System within the time frames set forth in Exhibit C hereto. StarMedia and
Users assume the entire risk in downloading or otherwise accessing any data,
files or other materials obtained from third parties as part of the Services or
by means of the CP System, even if StarMedia or User has paid for virus
protection services from CP.
3.3 Neither Party shall be liable to the other Party for any claims or
losses arising from or relating to Users' use or misuse of the Services or User
access to the CP System, including without limitation any claims or losses
arising from or related to the content of messages received or sent by Users, or
any other actions or omissions by Users, or Users' accessing the third-party
content of any Advertising or of any Internet sites to which any Advertising may
be linked. StarMedia agrees to promptly notify CP of any User's misuse of the
Services or CP System or violation of the User Agreement of which StarMedia
becomes aware.
3.4 StarMedia shall be solely responsible for any warranties provided by
StarMedia to Users with respect to the Services or the CP System.
3.5 Critical Path represents and warrants that the CP Services are Year
2000 Compliant. For purposes of this Agreement, "Year 2000 Compliant" shall mean
that the CP Services will not be materially affected by any inability to (i)
completely and accurately address, present, product, store and calculate data
involving dates beginning with January 1, 2000, and will not produce abnormally
ending or incorrect results involving such dates as used in any forward or
regression date based function; or (ii) function in such a way that all "date"
related functionalities and data fields include the indication of century and
millennium, and will perform calculations which involve a four-digit year field.
4. Limitation of Liability.
-----------------------
4.1 IN NO EVENT SHALL EITHER PARTY, OR ITS SUPPLIERS, BE LIABLE TO THE
OTHER PARTY, OR TO ANY THIRD PARTY, FOR CONSEQUENTIAL, EXEMPLARY, INDIRECT,
SPECIAL OR INCIDENTAL DAMAGES, INCLUDING, WITHOUT LIMITATION, LOST PROFITS, EVEN
IF THE PARTY OTHERWISE LIABLE HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES.
4.2 Neither Party shall be responsible for any delays, errors, failures to
perform, interruptions or disruptions in the Services or the CP Systems or
StarMedia Services caused by
Confidential Page 5
<PAGE>
or resulting from any act, omission or condition beyond the Party's reasonable
control, whether or not foreseeable or identified, including without limitation
acts of God, strikes, lockouts, riots, acts of war, governmental regulations,
fire, power failure, earthquakes, severe weather, floods or other natural
disease or the other Party's, User's or any third party's hardware, software or
communications equipment or facilities.
4.3 Except as provided in Section 7, CP's and StarMedia's liability under
this Agreement for any damages from any cause whatsoever, regardless of form or
action, whether in contract, negligence or otherwise, shall in no event exceed
an amount equal to such Party's portion of the Net Advertising Revenues and
Service Revenues charges actually received or receivable pursuant to this
Agreement as provided in Exhibit A hereto.
5. Confidential Information. Each Party shall treat as confidential all
------------------------
Confidential Information (as defined below) received from the other Party
(including, except as provided in Section 9 hereof, the terms of this Agreement
and all negotiations relating thereto), shall not use such Confidential
Information except as expressly permitted under this Agreement, and shall not
disclose such Confidential Information to any third party without the other
Party's prior written consent. Without limiting the foregoing, each Party shall
use at least the same degree of care which it uses to prevent the disclosure of
its own confidential information of like importance, but in no event with less
than reasonable care, to prevent the disclosure of Confidential Information
disclosed to it by the other Party under this Agreement. The obligation of
confidentiality shall not apply to information which is publicly available
through authorized disclosure, is known by the receiving party at the time of
disclosure as evidenced in writing, is rightfully obtained from a third party
who has the right to disclose it, or which is required by law to be disclosed.
Upon any termination of this Agreement, each Party shall return to the other
Party all Confidential Information of the other Party, and all copies thereof,
in the possession, custody or control of the Party. The term "Confidential
Information" shall mean any information disclosed by one Party to the other in
connection with this Agreement which is in written, graphic, machine readable or
other tangible form and is marked "Confidential", "Proprietary" or in some other
manner to indicate its confidential nature or is provided under such conditions
that reasonably indicate its confidential nature. Confidential Information may
also include information that is disclosed orally, provided that such
information is designated as confidential at the time of disclosure and
confirmed in writing as confidential within a reasonable time after its oral
disclosure. Confidential Information shall also include the following
information, regardless of whether such information is designated as
"confidential": all User information and all information regarding site
traffic, subscriber levels, service usage, advertising rates or other
contractual arrangements with advertisers. Each Party acknowledges that any
breach of any of its obligations with respect to confidentiality or use of the
other Party's Confidential Information hereunder is likely to cause or threaten
irreparable harm to the disclosing Party, and, accordingly, the Parties agrees
that in the event of such breach the disclosing Party shall be entitled to
equitable relief to protect its interest therein, including but not limited to
preliminary and permanent injunctive relief, as well as money damages.
6. Representations and Warranties.
Confidential Page 6
<PAGE>
6.1 CP Representations and Warranties.
---------------------------------
CP represents and warrants as follows:
(a) CP is a corporation duly organized, validly existing and in good
standing under the laws of the state of California;
(b) CP has the full power and authority to enter into this Agreement,
to carry out its obligations hereunder and to grant the rights herein granted to
StarMedia.
(c) All materials and services provided by CP hereunder are owned or
licensed for use by CP or are in the public domain and are a proper subject of
the Agreement herein, and the use thereof by StarMedia and Users as contemplated
by this Agreement does not, to CP's knowledge, violate or infringe any tangible
or intangible right, copyright, moral right, trademark, trade secret right,
patent, industrial property right, or any other proprietary right of any kind of
any third party.
(d) None of the materials and services provided by CP hereunder, is
the subject of any claim of or proceeding for infringement of any proprietary
rights by a third party.
(e) CP has not previously and will not grant any rights in the
materials and services provided by it hereunder, to any third party which are
inconsistent with CP's obligations under this Agreement, and has not otherwise
made or entered into, and will not make or enter into during the term of this
Agreement, any commitment or obligation in conflict with its obligations and
rights under this Agreement.
During the term of this Agreement, CP shall promptly notify StarMedia in
writing of any material event or change in circumstance which would reasonably
make, or threaten to make the foregoing representations and warranties untrue or
inaccurate.
6.2 StarMedia Representations and Warranties.
----------------------------------------
StarMedia represents and warrants as follows:
(a) StarMedia is a corporation duly organized, validly existing and in
good standing under the laws of Delaware.
(b) StarMedia has the full power and authority to enter into this
Agreement, to carry out its obligations hereunder.
(c) All materials provided hereunder and the StarMedia Services are
owned or licensed for use by StarMedia or are in the public domain and are a
proper subject of the Agreement herein, and the use thereof by CP and Users as
contemplated by this Agreement does not, to StarMedia's knowledge, violate or
infringe any tangible or intangible right, copyright, moral right, trademark,
trade secret right, patent, industrial property right, or any other proprietary
right of any kind of any third party.
Confidential Page 7
<PAGE>
(d) None of the materials provided hereunder or the StarMedia Services
is the subject of any claim of or proceeding for infringement of any proprietary
rights by a third party.
(e) StarMedia has not previously and will not grant any rights in the
materials provided by it hereunder or the StarMedia Services to any third party
which are inconsistent with StarMedia's obligations under this Agreement, and
has not otherwise made or entered into, and will not make or enter into during
the term of this Agreement, any commitment or obligation in conflict with its
obligations and rights under this Agreement.
During the term of this Agreement, StarMedia shall promptly notify CP in
writing of any material event or change in circumstance which would reasonably
make, or threaten to make the foregoing representations and warranties untrue or
inaccurate.
7. Indemnification. Each Party (the "Indemnitor") shall defend,
---------------
indemnify, and hold the other Party (the "Indemnitee") harmless from and against
any claims, losses, actions, demands or damages, including reasonable attorney's
fees, resulting from any act, omission, negligence, or performance under this
Agreement by the Party, its agents or representatives. This indemnity shall not
apply to the extent the portion of such claim, liability, loss, cost, damage or
expense is the result of the negligence or willful misconduct of the Indemnitee,
its Users, agents or representatives, or to the extent liability is disclaimed
or limited by either Party under this Agreement. The indemnity obligations set
forth in this Section are contingent upon: (a) the Indemnitee giving prompt
written notice to the Indemnitor of any such claim(s); (b) the Indemnitor having
sole control of the defense or settlement of the claim; and (c) at the
Indemnitor's request and expense, the Indemnitee cooperating in the
investigation and defense of such claim(s).
8. Term and Termination.
--------------------
8.1 Term. This Agreement shall continue in effect from the Effective
----
Date for a [**] year period, and thereafter shall renew automatically for
successive one (1) year periods unless either Party gives the other Party at
least sixty (60) days prior written notice of its intent not to renew the
Agreement.
8.2 Termination for Convenience. Notwithstanding the foregoing, either
---------------------------
Party may terminate this Agreement at any time, without cause, upon one hundred
and twenty days (120) days prior written notice to the other Party.
8.3 Termination for Breach. Notwithstanding the foregoing, either Party
----------------------
may terminate this Agreement by giving to the other Party written notice of such
termination, upon the occurrence of any of the following events: (i) the other
Party materially breaches or defaults in any of the material terms or conditions
of this Agreement and fails to cure such breach within thirty (30) business days
of receipt of notice of such breach, (ii) the other Party makes any assignment
for the benefit of creditors, is insolvent or unable to pay its debts as they
mature in the ordinary course of business, or (iii) any proceedings are
instituted by or against the other
Confidential Page 8
[**] CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN
INFORMATION CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT
CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THE PUBLIC FILING AND HAVE
BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
Party in bankruptcy or under any insolvency laws or for reorganization,
receivership or dissolution.
8.4 Effect of Termination. In the event of termination for StarMedia's
---------------------
breach, CP shall immediately cease providing all Services and Users shall no
longer have any access to the CP System. For any other termination of this
Agreement, CP shall work with StarMedia in the migration of its e-mail system
back to its setup in existence immediately before the Effective Date of this
Agreement, or to a service similar in scale/scope to the Services. CP and
StarMedia shall work together to ensure that such migration is completed in a
reasonable timeframe. Thereafter, CP shall delete all stored e-mail messages of
StarMedia and Users on the CP System. Within fifteen (15) days of any
termination of CP's provision of Services pursuant to this Agreement, each Party
shall pay to the other all unpaid fees accrued prior to such termination.
8.5 Survival. Sections 2, 3, 4, 5, 6, 7, 8.4, 8.5, 10.1 and 11 shall
--------
survive any expiration or termination of this Agreement.
9. Publicity. During the term of this Agreement, either Party may use
---------
the other Party's name in news releases, articles, brochures, marketing
materials, advertisements and other publicity or promotions, subject to the
other Party's prior written approval, in its sole discretion.
10. Trademarks.
-----------
10.1 Ownership of Trademarks. Each Party acknowledges the ownership of the
-----------------------
other Party in the tradenames, service marks, trademarks and logos of the other
Party (collectively the "marks") and agrees that all use of the other Party's
marks (including all goodwill associated with the marks) shall inure to the
benefit, and be on behalf of the Party owning the marks. Each Party
acknowledges that its use 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 limited right to use them as provided for herein. Each Party agrees
not to do anything contesting or impairing the rights of the other Party,
including, without limitation, seeking to register the other Party's marks as
part of a composite mark or to register any confusing similar mark.
10.2 Use of Marks. During the term of this Agreement, each Party grants to
------------
the other Party a non-exclusive, limited license to use its marks for the
purpose of carrying out the terms of this Agreement; provided that any use not
specifically authorized by this Agreement shall be with the prior written
approval of the Party owning the marks. Other than as set forth in the
preceding sentence, no right, property, license or interest in any mark owned by
either Party hereto or any of their respective affiliates is intended to be
given to or acquired by the other Party by the execution of or the performance
of this Agreement.
Confidential Page 9
<PAGE>
11. Miscellaneous.
-------------
11.1 Entire Agreement. This Agreement, together with all Exhibits and any
----------------
Schedules accepted by CP, constitutes the entire agreement of the parties with
respect to the subject matter of this Agreement. This Agreement supersedes any
and all agreements, either oral or written, between the parties to this
Agreement with respect to the subject of this Agreement. Except as otherwise
expressly provided herein, this Agreement may be modified only by a writing
signed by an authorized representative of each Party.
11.2 Notices. Notices under this Agreement shall be in writing and shall
-------
be deemed given when delivered personally, or by e-mail (with confirmation of
receipt) or conventional mail (registered or certified, postage prepaid with
return receipt requested). Notices shall be addressed to the parties at the
addresses appearing in the introductory paragraph of this Agreement, but each
Party may change the address by written notice in accordance with this
paragraph.
11.3 Assignment. This Agreement shall be binding upon and inure to the
----------
benefit of the subsidiaries, affiliates, successors and permitted assigns of the
parties to this Agreement. Neither Party may transfer, sublicense or otherwise
assign this Agreement or any of its rights or obligations hereunder without the
other Party's prior written consent, which consent will not be unreasonably
withheld. Notwithstanding the foregoing, either Party may assign this Agreement
to (i) any entity in which the Party has a greater than fifty-percent (50%)
equity ownership interest or of which the Party has voting control, or (ii) to
person or entity that buys fifty percent (50%) or more of that Party's stock or
all or substantially all of that Party's assets.
11.4 General Provisions. This Agreement shall be governed by and construed
------------------
in accordance with the laws of the State of California exclusive of its conflict
of laws principles. Nothing contained in this Agreement is intended or is to be
construed to constitute CP and StarMedia as partners or joint venturers or
either Party as an agent of the other. If any provision of this Agreement shall
be declared invalid, illegal or unenforceable, such provision shall be reformed
only to the extent necessary to effect the original intention of the parties,
and all remaining provisions shall continue in full force and effect. No waiver
of any rights hereunder shall be deemed to be a waiver of the same or other
right on any other occasion.
Confidential Page 10
<PAGE>
IN WITNESS WHEREOF, the parties to this Agreement have executed and
delivered this Agreement as of the date first above written.
CRITICAL PATH INC.
By /s/ Mari G. Tangredi
-----------------------------------
Its VP Business Development
----------------------------------
STARMEDIA NETWORK, INC.
By /s/
-----------------------------------
Its VP Business Operations
----------------------------------
Confidential Page 11
<PAGE>
EXHIBIT A
---------
SERVICES, CHARGES AND PAYMENT SCHEDULE
--------------------------------------
This Services, Charges and Payment Schedule ("Schedule") is attached to and
made a part of the E-mail Services Agreement between StarMedia Network, Inc. and
Critical Path Inc. (the "Agreement") and is subject to the terms and conditions
of the Agreement.
A. Services Charges - Users will be charged the following amounts for the
following Services:
1. Free web mail: There will be [**] for Web-based e-mail service
-------------
provided to Users during the term of the Agreement, including without
limitation for maintenance of e-mail accounts, storage (other than as
provided below) and retrieval of e-mail messages and storage and
management of address books.
2. Value added features: The services listed below (the "Value-Added
--------------------
Features") shall be provided to Users. [**] Upon availability of the
billing system, the Users shall be charged for the Value-Added
Features at the prices set forth below.
Suggested Retail Price for Value-Added Features of the Services:
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
POP3 e-mail hosting [**]/Month/Mailbox
- --------------------------------------------------------------------------------
Virus Protection [**]/Month/Mailbox
- --------------------------------------------------------------------------------
Certified Delivery [**]/Month/Mailbox
- --------------------------------------------------------------------------------
Archiving (storage > 2.5 Mb) [**]/Mb/Month/Mailbox
- --------------------------------------------------------------------------------
</TABLE>
B. Branding and Customization
1. Obligations - CP will provide such engineering, design and other
-----------
services and resources as are needed to expeditiously complete the transition to
the CP System pursuant to Section 1.2 of the Agreement, and to customize the
Services and the CP System to meet and maintain the specifications set forth in
Exhibit B hereto. There will be no setup, maintenance, support cost or
contingent liability of any nature to StarMedia in connection with the
transition to or the launch and maintenance of the Services, except as provided
herein.
2. Branding of Web Mail Page - StarMedia shall provide CP with all
-------------------------
text and images ("Branding Materials") necessary for CP to brand StarMedia's Web
Mail Page. StarMedia warrants and represents to CP that StarMedia has full power
and authority to provide to CP, and to authorize CP's use of, the Branding
Materials provided by StarMedia for branding the Web Mail Page, and agrees to
defend and indemnify CP with respect to any claims arising from CP's use of such
Branding Materials. CP shall develop the branded Web Mail Page using such
Branding Materials and shall provide, or otherwise make available to StarMedia,
such
Confidential Page 12
[**] CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN
INFORMATION CONTAINED IN THIS DOCUMENT EXHIBIT. THROUGHOUT THIS EXHIBIT
CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THE PUBLIC FILING AND HAVE
BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
developed Web Mail Page for IP's review and approval, which approval shall not
be unreasonably withheld, delayed or conditioned. The parties agree that CP
shall not be liable for failure to make the Services available to Users by the
Launch Date if such failure is due to StarMedia's actions or inaction, including
without limitation, delay in approving the branded Web Mail Page. Starmedia
will pay to CP a one-time fee of [**] for CP's branding of the Web Mail Page for
each Native Language translation.
3. Modifications to Branded Web Mail Page - Once approved, CP shall
--------------------------------------
only be obligated to make one revision to the look and feel of the branded Web
Mail Page and the automatic sign-up page at no additional charge. Any further
requested changes (other than changes in the text displayed on the Web Mail
Page) will be chargeable at the rate of [**] per hour with a minimum of one hour
per request.
4. Proprietary Rights - StarMedia grants to CP a non-exclusive,
------------------
nontransferable, worldwide, royalty-free, irrevocable (during the term of the
Agreement) license to reproduce, display, perform, modify, prepare derivative
works of and otherwise use the Branding Materials for the purpose of branding
StarMedia's Web Mail Page in accordance with StarMedia's instructions and making
such Web Mail Page available through the CP Services to Users. StarMedia shall
retain all other proprietary rights it may have in and to the Branding
Materials. CP shall retain all proprietary rights in and to the CP Services
(not including the Branding Materials as incorporated into StarMedia's Web Mail
Page) and all development tools, routines, subroutines, applications, software
and other materials (not including the Branding Materials) that CP may use in
connection with branding the Web Mail Page.
5. Promotional Messages - As requested by StarMedia, CP shall, at
--------------------
no additional charge, perform the technical services necessary to place up to
two banner ads supplied by StarMedia on the Web Mail Page frame (but not within
email messages to Users of the Services), and change such banner ads up to five
times per month. Any services performed by CP's staff at StarMedia's request to
place or modify additional ads or changes will be chargeable at the rate of [**]
per hour with a minimum of one hour per request. Upon availability to StarMedia
of such tools to permit access to make such changes without assistance from CP
as provided in Section 1.12 of the Agreement, CP shall no longer be obligated to
provide free services with respect to promotional messages displayed to Users as
part of the Services, and any services requested by StarMedia and performed by
CP relating to such promotional messages shall be chargeable at the rate of [**]
per hour with a minimum of one hour per request.
C. Payment by StarMedia to CP - If during the previous quarter, CP
performed any work on the branding of the Web Mail Page which is subject to
additional fees as provided herein, CP will submit a quarterly invoice, and
StarMedia shall pay within 45 days of receipt of such invoice, the applicable
fees for such work. Payments received by CP after the due date shall be subject
to a late fee of one and one-half percent (1.5%) per month, or, if less, the
maximum amount allowed by applicable law.
D. Advertising and Service Revenues
1. Sharing of Revenues.
-------------------
Confidential Page 13
[**] CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN
INFORMATION CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT CONFIDENTIAL
PORTIONS HAVE BEEN OMITTED FROM THE PUBLIC FILING AND HAVE BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
The Parties shall share Service Revenues (as defined below) as follows:
[**] StarMedia
[**] Critical Path
The Parties shall share in the Net Advertising Revenues (as defined below) as
follows:
[**] StarMedia
[**] Critical Path
"Net Advertising Revenues" means cash receipts of revenue (as determined in
accordance with US generally accepted accounting principles) generated from the
sale of advertising on the display on the dedicated e-mail service login page or
within the StarMedia screen frames display of pages generated by the CP System
(excluding headlines or excerpts thereof) ("Gross Revenues"), less (i)
applicable international sales, value added and withholding taxes and (ii)
twenty percent (20%) of Gross Revenues. The parties understand and agree that
StarMedia may enter into additional contractual revenue-sharing arrangements
with third parties to increase site traffic and advertising revenues. To the
extent that any additional revenue sharing rights shall apply to any Net
Advertising Revenues, the Parties' respective shares of such Net Advertising
Revenues shall be proportionately reduced such that the aforementioned 60:40
share ratio is maintained.
The following hypothetical example serves to illustrate the foregoing adjustment
methodology: StarMedia enters into a contractual arrangement with an Internet
service provider ("ISP") pursuant to which ISP shall direct its Spanish and
Portuguese-speaking subscribers to a co-branded Web site which promotes use of
StarMedia Services. Pursuant to such arrangement, ISP is to receive [**] of all
net advertising revenues attributable to advertising impressions delivered to
ISP subscribers. For a given period, such revenues total [**], so that the ISP
is to receive $10. In such event, StarMedia's share of Net Advertising Revenues
attributable to advertising impressions delivered to ISP subscribers shall be
reduced by [**] to [**], and CP's share of such Net Advertising Revenues shall
be reduced by [**] to [**], thereby maintaining the [**] ratio.
"Service Revenues" means cash receipts of revenue (as determined in
accordance with US generally accepted accounting principles) generated from the
provision of Value-Added Features to Users as part of the Services under this
Agreement, less (i) applicable international sales, value added and withholding
taxes, (ii) any amounts payable by CP to any non-affiliated third party, with
respect to such revenue, pursuant to a contractual obligation of CP, including
without limitation any and all credit card processing fees, and (iii) any out-
of-pocket expenses incurred by CP with respect to the processing or
administration of the billing or collection from Users.
2. Report - Within ten (10) days after the end of each quarter,
-------
each Party shall provide to the other a report ("Report") indicating the total
amount of Net Advertising Revenues or Service Revenues received by each party
during the quarter.
Confidential Page 14
[**] CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN
INFORMATION CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT CONFIDENTIAL
PORTIONS HAVE BEEN OMITTED FROM THE PUBLIC FILING AND HAVE BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
3. Payment - StarMedia shall pay to CP its share of Net Advertising
-------
Revenues received by StarMedia during the preceding quarter within forty five
(45) days of the end of each quarter. Users and/or credit card companies of
Users shall be directed to deposit payments for Value-Added Features in a bank
account designated by CP. CP shall pay StarMedia its share of Service Revenues
received by CP during the preceding month within forty-five (45) days after the
end of each quarter during the term of this Agreement. If, in prior remittances,
the paying party included revenues in the calculation of Advertising Revenues or
Service Revenues, as to which during the preceding month the party granted
credits or refunds, then the party may reduce the Net Advertising Revenues or
Service Revenues paid to the other party by the amount of any such credits or
refunds.
Confidential Page 15
<PAGE>
EXHIBIT B
---------
PERFORMANCE REQUIREMENTS AND SPECIFICATIONS
-------------------------------------------
1. CP System Requirements
CP shall furnish all necessary software, servers, services and network
bandwidth to provide the Services to StarMedia and Users as provided under
this Agreement. CP shall provide a backup site for its message center. The
backup site will provide fully redundant capabilities and will be
geographically dispersed from CP's primary West Coast site. In the event
of a failure within the primary message center, the backup center shall
take over within 1 hour. Such backup facility is expected to be
operational by July 31, 1998.
CP shall provide StarMedia with access to the network monitoring components
necessary for StarMedia to monitor key components used in the provisioning
process. CP shall provide StarMedia with access to its SNMP agent process.
Such SNMP agent shall be protected from public access and will contain
mutually agreed-upon read-only variables.
If StarMedia provides quarterly estimates of the anticipated number of
mailboxes for StarMedia Users for the upcoming quarter, pursuant to Section
1.11 of the Agreement, the CP System capacity shall meet or exceed such
quarterly projections. Upon request, CP shall provide StarMedia with
projected growth and expansion plans of the CP System. This information
will be provided in CP's monthly status report.
The CP System shall conform to the following requirements for the display
to Users: All features on web pages must display in 3.0 or above of
Internet Explorer or Netscape Navigator. When such browsers are able to
accept Java applets, Java applets may be used. All screens must be
viewable within a 640 x 480 display.
The Web mail page shall be linkable from any page on the StarMedia server.
The parties agree to work together so that no page generated by the CP
System will violate, terminate or conflict with the StarMedia browser frame
or launch a new browser session.
The CP System APP used for provisioning shall have the following
capabilities:
Phase I:
Add/Delete domain
Add/Update/Delete mailbox
Add/Update/Delete forward
Phase II:
Suspend mailbox
Domain status
Mailbox status
Forward status
Confidential Page 16
<PAGE>
CP shall provide StarMedia with access to its provisioning interface for
remote provisioning of domain accounts, mailboxes and poplinks. StarMedia
User status information shall also be available to StarMedia through the
APP.
2. Support Requirements
a. Technical Support: CP shall provide technical support to StarMedia as
provided in Exhibit C.
b. Training: CP shall, at no cost to StarMedia, reasonably assist
StarMedia in the development and implementation of training programs for first
and second level StarMedia support, including training for any product
modifications during the term of the Agreement. CP shall provide StarMedia with
reasonable quantities of training materials and updates thereto for any product
modifications, improvements or changes.
3. Mailbox Requirements
a. Storage Capacity - Each mailbox provided hereunder shall have a maximum
storage capacity of [**]. User may purchase additional storage
space from CP upon payment of CP's then-current fees. CP shall notify any
User that User's mailbox is approaching or exceeds the maximum limit.
Thereafter, if such User exceeds the maximum storage capacity, CP may
delete email message from the affected mailboxes, at CP's discretion upon
prior notice to StarMedia.
b. Features - Upon launching, the Services will include the following
features:
1. Web and POP mail integrated (as applicable)
2. Autoforward
3. [**] uptime
4. send/receive
5. spam blocking
6. nicknames
7. LDAP (expected to be available August 1998)
8. attachments to 4 MB*
9. localization
10. postmarking
11. POP retrieval (as applicable)
12. Header options
13. Account provisioning
14. Snarfing
15. POP links (as applicable)
16. Preferences/customizations - web mail only
17. Folders - web mail only
18. Address book creation, updating and storage
Confidential Page 17
[**] CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN
INFORMATION CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT CONFIDENTIAL
PORTIONS HAVE BEEN OMITTED FROM THE PUBLIC FILING AND HAVE BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
*To the extent that attachments received exceed a User's storage capacity,
the User will be provided no less than 72 hours notice of the need to purchase
additional storage capacity before any file deletions.
4. Permanent Features. Pursuant to Section 1.9 of the Agreement, CP shall not
-------------------
unilaterally discontinue the following features without StarMedia's prior
consent during the term of the Agreement:
<TABLE>
<CAPTION>
Category Features
- ----------------------------------------------------------------------------------------------------
<S> <C>
- ----------------------------------------------------------------------------------------------------
Administration Create, Modify, Delete users
- ----------------------------------------------------------------------------------------------------
Administration Identify and send notification to inactive users automatically
- ----------------------------------------------------------------------------------------------------
Administration User lockout
- ----------------------------------------------------------------------------------------------------
Basic Traditional- compose
- ----------------------------------------------------------------------------------------------------
Basic Traditional- read
- ----------------------------------------------------------------------------------------------------
Basic Traditional- forward
- ----------------------------------------------------------------------------------------------------
Basic Traditional- reply
- ----------------------------------------------------------------------------------------------------
Basic Traditional- reply all
- ----------------------------------------------------------------------------------------------------
Basic Traditional- next
- ----------------------------------------------------------------------------------------------------
Basic Traditional- previous
- ----------------------------------------------------------------------------------------------------
Basic Traditional- delete
- ----------------------------------------------------------------------------------------------------
Basic Email forwarding - 3rd party
- ----------------------------------------------------------------------------------------------------
Basic Email forwarding- Web Mail
- ----------------------------------------------------------------------------------------------------
Basic Access mailbox through POP account or POP-compliant email software
- ----------------------------------------------------------------------------------------------------
Basic Send/Receive Attachments
- ----------------------------------------------------------------------------------------------------
Basic Cc capability
- ----------------------------------------------------------------------------------------------------
Basic Bcc Capability
- ----------------------------------------------------------------------------------------------------
Basic Address Book storage
- ----------------------------------------------------------------------------------------------------
Basic Multiple Address Books
- ----------------------------------------------------------------------------------------------------
Basic Address Book Mailing Lists
- ----------------------------------------------------------------------------------------------------
Basic Anti-Spam policies/capabilities
- ----------------------------------------------------------------------------------------------------
Basic Spammer address book blocking
- ----------------------------------------------------------------------------------------------------
Basic Signature Files
- ----------------------------------------------------------------------------------------------------
Basic Folders/Filing systems
- ----------------------------------------------------------------------------------------------------
Basic Ability to create, modify, delete folders
- ----------------------------------------------------------------------------------------------------
Basic Status indicator/ You Have Mail
- ----------------------------------------------------------------------------------------------------
Basic Status Indicator per message (read, replied, forwarded)
- ----------------------------------------------------------------------------------------------------
Basic Sort Messages, By field
- ----------------------------------------------------------------------------------------------------
Basic Integration with Search Directories
- ----------------------------------------------------------------------------------------------------
Basic Global Auto-responder
- ----------------------------------------------------------------------------------------------------
Basic Integration with SMN Directories
- ----------------------------------------------------------------------------------------------------
Basic Filtering to Folders
- ----------------------------------------------------------------------------------------------------
Basic Applet for new mail notification
- ----------------------------------------------------------------------------------------------------
Integration Ability to pass signup/sign-in and user profile data back and forth
real-time to StarMedia
</TABLE>
Confidential Page 18
<PAGE>
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------------
Integration Real-time integration of usage data for ad targeting
- ----------------------------------------------------------------------------------------------------
Interface Real-time customization of interface based on referring site
- ----------------------------------------------------------------------------------------------------
Interface Multiple domain support
- ----------------------------------------------------------------------------------------------------
Interface UI Flexibility
- ----------------------------------------------------------------------------------------------------
Interface Spanish Interface
- ----------------------------------------------------------------------------------------------------
Interface Portuguese Interface
- ----------------------------------------------------------------------------------------------------
Interface StarMedia Branding
- ----------------------------------------------------------------------------------------------------
Integration Integration with SM ad servers
- ----------------------------------------------------------------------------------------------------
Migration Full migration of existing StarMedia Mail accounts
- ----------------------------------------------------------------------------------------------------
Reporting Activity Reporting -
- ----------------------------------------------------------------------------------------------------
Reporting Activity Monitoring per user? (i.e. inactive account monitoring)
- ----------------------------------------------------------------------------------------------------
</TABLE>
EXHIBIT C
---------
RESPONSE TIME REQUIREMENTS
--------------------------
The Services shall include support, as set forth below, to StarMedia. CP
shall use commercially reasonable efforts to respond to requests for support
within the time frames provided below.
a. Temporary First Level Support by CP: Except as otherwise provided in
-----------------------------------
the Agreement, StarMedia shall be responsible for first-level support, and for
all other support not otherwise specified herein, to StarMedia Users.
Notwithstanding the foregoing, during the first [**] months after commercial
launch of the Services (subject to extension by mutual consent of the parties),
CP shall provide customer support to Users via e-mail seven (7) days per week.
Such support shall initially be provided in English and in Spanish. CP shall
use commercially reasonable efforts to provide Portuguese language support as
soon as practical, and pending commencement of such support shall provide
sufficient training and resources to enable StarMedia's Portuguese-speaking
staff to perform user support functions. CP shall use commercially reasonable
efforts to respond to e-mail inquiries from Users within 24 hours of receipt by
CP.
b. Second Level Support via Email: Beginning at such time as StarMedia
------------------------------
commences providing first and/or second level user support, CP shall provide
support via email for StarMedia User inquiries that cannot be resolved by
StarMedia first or second level. Such support shall be provided in English
only. Email inquiries may be sent to CP from either StarMedia first or second
level support operations. Prior to launch of the Services, CP and StarMedia
will develop criteria for escalation of User email inquiries. The performance
requirements for email inquiries are:
-Email inquiry will be resolved within 12 hours of receipt by CP.
-If the inquiry cannot be resolved within 12 hours, an email (where
appropriate) will be sent to StarMedia first or second level support
informing them that the issue is still pending..
-If the inquiry cannot be resolved within 24 hours, a status email
will be sent to StarMedia first or second level support every 24 hours, or
at an agreed-upon interval, depending upon the severity of the problem,
informing them that the issue is still pending until the issue is resolved.
Confidential Page 19
[**] CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN
INFORMATION CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT CONFIDENTIAL
PORTIONS HAVE BEEN OMITTED FROM THE PUBLIC FILING AND HAVE BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
c. Support via Telephone: CP will provide support for resolving systems
---------------------
performance problems reported by StarMedia's staff, and, at such time as
StarMedia commences providing first and/or second level user support, for
escalation of user support issues that cannot be resolved by StarMedia first or
second level. Such support shall be provided in English only. If StarMedia is
responsible for first level user support, StarMedia will not transfer User calls
unless directed by CP. The performance requirements for telephone support are:
-CP shall respond to and resolve systems performance problems reported
by StarMedia's staff (i) within three hours in the case of system
performance problems which impede the ability of Users to access the
Service or send or receive e-mail, (ii) within 12 hours in all other cases.
-Telephone escalations relating to User inquiries shall be resolved
within 12 hours of receipt by CP.
-If the escalation relating to User inquiries cannot be resolved
within 12 hours, an email (where appropriate) will be sent to the StarMedia
first or second level support informing them that the issue is still
pending. If an email is not appropriate, a phone call shall be made to
StarMedia first or second level to inform them of the status.
-If the escalation relating to User inquiries cannot be resolved
within 24 hours, a status email, when appropriate, will be sent to the
StarMedia first or second level support every 24 hours or at an agreed-upon
interval depending upon the severity of the issue, informing them that the
issue is still pending, until the issue is resolved.
-Escalations to CP will be via a toll free number.
-CP will provide sufficient coverage for the performance metrics to be
mutually agreed upon by the parties. Prior to the launch of the Services
to Users, CP and StarMedia will develop a Management and off-Hours
Escalation Process for emergency situations.
-Telephone Support will be available Monday through Friday, 5:00 a.m.
to 8:00 p.m. PDT/PST, and is expected to be increased to 7 x 24 x 365 by
the end of calendar year 1998.
-Prior to the time that telephone support is available 7 x 24 x 365,
during off-hours, in emergency situations, CP shall provide pager-based on-
call support to StarMedia's staff.
Confidential Page 20
<PAGE>
EXHIBIT D
---------
USAGE REPORT STATISTICS
-----------------------
1. Performance
a) Processing E-mails: The monthly average Time Delay (as hereinafter
-------------------
defined) for incoming and outgoing User messages shall be less than [**] seconds
for [**] of messages. This average does not include any period of unforeseen,
unsolicited bulk email messages that degrade service. "Time Delay" means the
time between (i) in the case of incoming messages, arrival the message at the CP
System and availability of the message to the User on the Web Mail Page or via
the POP3 server, and (ii) in the case of outbound messages, receipt of a "send"
command from a user either on the Web Mail Page or via the SMTP server and such
message leaving the CP System into the Internet or being delivered locally to
another CP System User.
b) Availability of E-mail Server: Monthly average [**] up time (not
-----------------------------
including scheduled downtimes for maintenance, which currently takes place
Monday mornings between 12am and 3 am PST).
c) Procedures for System Outages: CP posts a message in the event of a
-----------------------------
system outage, whenever possible.
d) Definition: As used in this Exhibit, "system outage" means any
----------
unplanned interruption in the provision of the Services during which StarMedia's
Users are unable to access or use the Services and which is caused by a problem
in the CP System and confirmed by CP. "System outage" does not include any
interruptions in the Services caused by act, omission or condition beyond CP's
reasonable control, such as acts of nature or any third party.
2. Monitoring/Reporting
a) CP will prepare a monthly Stewardship report that will track the performance
metrics stated in Section 1 of this Exhibit. In addition, the parties will meet
on a regular basis to discuss the Stewardship report and its associated
performance metrics
b) CP will provide StarMedia with monthly reports which document all CP
System outages or enhancements made during such month. Each report include, at a
minimum, the following additional information:
Summary:
. CP System uptime
. Number of new StarMedia User mailboxes
. Number of deleted StarMedia User mailboxes
. Total number of StarMedia User mailboxes
. Number of CP System outages
. CP System total downtime and average daily and monthly downtimes
Specific Outage Report:
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[**] CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN
INFORMATION CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT CONFIDENTIAL
PORTIONS HAVE BEEN OMITTED FROM THE PUBLIC FILING AND HAVE BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
. Time of outage
. Length of outage
. Affected areas
. Reason for outage
. Long term remedy
. Person notified
Enhancement:
. Reason for change
. Areas affected
Each report shall include the following additional information upon
implementation of a third-party solution for reporting such information (which
is anticipated by third quarter 1998):
. Mean storage used for mailboxes
. Mean POP processing time for incoming messages
. Mean SMTP processing time for outbound messages
. Mean time for availability of incoming messages on Web server
This information will be emailed to StarMedia by the third working day of
the month following the reported month.
In addition, CP will provide StarMedia with a weekly e-mail report with the
following information:
. Number of new StarMedia User mailboxes
. Number of outgoing messages from StarMedia users
. Number of incoming messages to StarMedia users
3. Escalation Procedures
a) Notify StarMedia via the following email address in the event of a system
outage. CP will send an email notice whenever possible. In the event that
email is not working, or CP is otherwise unable to send an email message, then
CP will notify StarMedia by telephone at the number designated below within 30
minutes of the time that CP first learns of the outage.
. StarMedia: Advise email address and telephone number here
b) Status information, if known by CP, to include:
reason for the outage; and
estimated time for service restoration.
c) If StarMedia experiences a system outage and has not been notified by
CP, StarMedia will contact the Technical Support staff at CP by pager at
415/764-6203 (or at such other number as CP may designated from time to time
upon notice to StarMedia) and will be given the information listed in 3.b).
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d) CP will periodically notify StarMedia with updated status for the
duration of the outage.
e) CP will provide a post-incident summary that will include:
cause of the problem;
method used to correct the problem; and
measures Critical Path will take to prevent similar occurrences in
the future.
f) Upon notification of a system outage, CP shall evaluate, and if CP
verifies that the outage is caused by a problem in the CP System, CP shall
provide StarMedia with a time estimate for resolution of the problem. CP shall
promptly commence remedial activities and use commercially reasonable efforts to
complete the system outage resolution within such time estimate.
4. Business Resumption
a) In the event of a system outage, CP will switch processing from the
primary server to a hot backup server in accordance with Exhibit B, Section B.
b) StarMedia agrees to notify CP no less than ten (10) days in advance of
any modifications and/or network configuration changes (including system
maintenance) to, as well as upgrades and removal of devices that impact the
production and network connectivity from, StarMedia's system through which the
Services are provided if they are outside of the scheduled Monday maintenance
windows. If any such change will or could, in either party's opinion, result in
incompatibility between the parties' respective systems or interruptions in the
Services, then the parties shall work together to resolve any such issue before
StarMedia makes the change.
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<PAGE>
EXHIBIT E
---------
TERMS OF USE
------------
Please read the following agreement carefully.
You must accept the agreement to be able to use the Customer Service.
1. Acceptance of Terms of Use
Customer's mail service ("Customer Service") is provided free of charge to
registered users (each, a "User") under these Terms of Use. BY COMPLETING THE
REGISTRATION PROCESS AND CLICKING THE "I ACCEPT" BUTTON, YOU ARE INDICATING YOUR
AGREEMENT TO BE BOUND BY THESE TERMS OF USE. These Terms of Use are the entire
agreement between you and Customer with respect to the services provided by
Customer.
2. Registration Information; Disclosure
User agrees that Customer may disclose to third parties certain
information, in the aggregate, contained in users' registration applications,
including User's application. Customer will not disclose User's name, address,
e-mail address or telephone number, without User's prior written consent, except
to the extent necessary or appropriate to comply with applicable laws or
regulations or in legal or administrative proceedings where such information is
relevant. Customer reserves the right to terminate any User's account if
Customer learns that such User has provided Customer false or misleading
registration information.
3. Modifications of these Terms of Use
Customer may modify these Terms of Use from time to time in its sole
discretion. Customer will provide User with reasonable notice of any such
changes, and User's continued use of the Customer Service will be deemed to
constitute User's acceptance of any such changes.
4. Customer's Rights
Customer may modify or discontinue User's account or the Customer Service
with or without notice to User, without liability to User or any third party.
Content presented to User or otherwise available through the Customer
Service provided by Customer or a supplier is protected by copyright, trademark,
service marks, patents or other proprietary rights or laws. User shall only be
permitted to use this content as expressly authorized by the provider. User may
not copy, distribute or create derivative works from such contents without
express permission.
5. Contents of Messages
It is Customer's policy to respect the privacy of its Users. Customer does
not, and cannot, monitor, censor or edit the contents of User's e-mail messages.
User alone is responsible for the contents of User's messages, and the
consequences of any such messages.
User agrees that it will not transmit or disseminate: (i) advertising,
chain letters, spam, junk mail or any other type of unsolicited e-mailing
(whether commercial or informational) to persons or entities that have not
agreed to be part of such mailings; (ii) harassing, libelous,
Confidential Page 24
<PAGE>
abusive, threatening, obscene or otherwise objectionable materials or materials
which infringe or violate any third party's copyright, trademark, trade secret,
privacy or other proprietary or property right, or that could constitute a
criminal offense, give rise to civil liability or otherwise violate any
applicable law or regulation; or (iii) viruses or other harmful, disruptive or
destructive files. User agrees that it will not use or attempt to use another
person's or entity's account, service or system without authorization from the
owner, nor will User interfere with the security of, or otherwise abuse, the
Customer Service, system resources or accounts, or any network or another user's
use or enjoyment of the mail services. User may not forge header or address
information. Customer will only access and disclose information as necessary to
comply with applicable laws and government orders or requests, to provide the
services, to operate or maintain its systems or to protect itself or its
suppliers
Customer reserves the right to terminate User's account if it becomes
aware and determines, in Customer's sole discretion, that User is violating any
of these Terms of Use.
6. Account and Password
User is responsible for maintaining the confidentiality of its account
number and password. User shall be responsible for all uses of its account,
whether or not authorized by User. User agrees to immediately notify Customer
of any unauthorized use of its account.
7. Disclaimer of Warranties
USER EXPRESSLY AGREES THAT USE OF THE CUSTOMER SERVICE IS AT USER'S SOLE
RISK. THE CUSTOMER SERVICE IS PROVIDED ON AN "AS IS" AND "AS AVAILABLE" BASIS.
CUSTOMER DISCLAIMS ALL WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED,
INCLUDING WITHOUT LIMITATION ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE OR NON-INFRINGEMENT.
CUSTOMER DOES NOT MAKE ANY WARRANTY THAT THE CUSTOMER SERVICE WILL MEET
USER'S REQUIREMENTS, OR THAT THE CUSTOMER SERVICE WILL BE UNINTERRUPTED, TIMELY,
SECURE, OR ERROR FREE; NOR DOES CUSTOMER MAKE ANY WARRANTY AS TO THE RESULTS
THAT MAY BE OBTAINED FROM THE USE OF THE CUSTOMER SERVICE OR AS TO THE ACCURACY
OR RELIABILITY OF ANY INFORMATION OBTAINED THROUGH THE CUSTOMER SERVICE.
USER UNDERSTANDS AND AGREES THAT ANY MATERIAL AND/OR DATA DOWNLOADED OR
OTHERWISE OBTAINED THROUGH THE USE OF THE CUSTOMER SERVICE IS AT USER'S OWN
DISCRETION AND RISK AND THAT USER WILL BE SOLELY RESPONSIBLE FOR ANY DAMAGE TO
USER'S COMPUTER SYSTEM OR LOSS OF DATA THAT RESULTS FROM THE DOWNLOAD OF SUCH
MATERIAL AND/OR DATA.
CUSTOMER DOES NOT MAKE ANY WARRANTY REGARDING ANY GOODS OR SERVICES
PURCHASED OR OBTAINED THROUGH THE CUSTOMER SERVICE OR
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<PAGE>
ANY TRANSACTIONS ENTERED INTO BY USE OF OR THROUGH THE CUSTOMER SERVICE.
NO ADVICE OR INFORMATION, WHETHER ORAL OR WRITTEN, OBTAINED BY USER FROM
Customer OR THROUGH THE CUSTOMER SERVICE SHALL CREATE ANY WARRANTY NOT EXPRESSLY
MADE HEREIN.
8.Limitation of Liability
CUSTOMER AND ITS SUPPLIERS SHALL NOT BE LIABLE FOR ANY DIRECT, INDIRECT,
INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES, RESULTING FROM THE USE OR THE
INABILITY TO USE THE CUSTOMER SERVICE OR FOR THE COST OF PROCUREMENT OF
SUBSTITUTE GOODS AND SERVICES OR RESULTING FROM ANY GOODS OR SERVICES PURCHASED
OR OBTAINED OR MESSAGES RECEIVED OR TRANSACTIONS ENTERED INTO BY MEANS OF OR
THROUGH THE CUSTOMER SERVICE OR RESULTING FROM UNAUTHORIZED ACCESS TO OR
ALTERATION OF USER'S TRANSMISSIONS OR DATA, INCLUDING BUT NOT LIMITED TO,
DAMAGES FOR LOSS OF PROFITS, USE, DATA OR OTHER INTANGIBLE, EVEN IF CUSTOMER OR
ITS SUPPLIER HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
9.E-mail Message Storage
Customer does not assume any responsibility for the deletion or failure to
store e-mail messages. If User exceeds the maximum permitted storage space,
Customer reserves the right to delete e-mail messages from the affected
mailboxes, at its discretion.
10.Promotional Messages
Customer and/or third parties may, from time to time, send e-mail messages
to User containing advertisements, promotions, etc. Customer does not make any
representation or warranty with respect to any such e-mail messages or any goods
or services which may be obtained from such third parties, and User agrees that
Customer shall have no liability with respect thereto.
11.Indemnification
User agrees to indemnify and hold Customer, its suppliers and their
respective affiliates, officers, directors, employees and agents, harmless from
any claim, action or demand, including reasonable attorneys' fees, made by any
third party due to, arising out of or related to User's use of the Customer
Service or the violation of these Terms of Use by User, including without
limitation the infringement by User, or any other user of User's account, of any
intellectual property or other right of any person or entity.
12.Applicable Law
These Terms of Use shall be governed by and construed in accordance with
the laws of the State of California, without giving effect to its conflict of
laws provisions.
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<PAGE>
13. Third Party Beneficiary
Critical Path, Inc., as a supplier of Customer, shall be a third party
beneficiary of User's obligations under these Terms of Use and thus shall be
entitled to enforce those obligations against User as if a party to these Terms
of Use.
I ACCEPT/I DECLINE
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<PAGE>
EXHIBIT 10.18
EXECUTION COPY
AMENDMENT
---------
TO
--
EMAIL SERVICES AGREEMENT
------------------------
THIS AMENDMENT ("Amendment") is entered into effective as of 30th day of
September, 1998 ("Amendment Effective Date"), by and between CRITICAL PATH INC.,
------------------
a California corporation having its principal place of business at 320 First
Street, San Francisco, CA 94105 ("CP"), and E*TRADE GROUP, INC., a Delaware
corporation, having a principal place of business at 4 Embarcadero Place, 2400
Geng Road, Palo Alto, CA 94303 ("E*TRADE GROUP").
R E C I T A L S:
A. CP and E*TRADE GROUP entered into that certain Email Services Agreement
dated as of April 28, 1998 (the "Agreement") for the provision by CP to E*TRADE
GROUP of the Services (as defined in the Agreement).
B. The parties desire to amend the Agreement to provide for the pre-
payment of Services by E*TRADE GROUP, to modify certain terms under which the
Services will be provided by CP to E*TRADE GROUP and to add terms for the
parties' mutual advertising and promotional efforts with respect to each other's
products and services.
C. The parties entered into a Letter of Intent dated September 8, 1998
(the "LOI") under which the parties expressed their then-current understanding
with respect to the desired changes and additions to the Agreement.
NOW, THEREFORE, in consideration of the mutual covenants contained in this
Amendment, the parties to this Amendment agree as follows:
1. Effect of Amendment; Entire Agreement.
-------------------------------------
This Amendment amends the terms and conditions of the Agreement as
specified in this Amendment. All other terms and conditions of the Agreement
shall remain in full force and effect. In the event of an inconsistency between
a provision of this Amendment and a provision of the Agreement, the provision of
this Amendment shall control. Unless defined in this Amendment, all capitalized
terms used in this Amendment shall have the same meanings as provided in the
Agreement. This Amendment supersedes the LOI in its entirety. Unless otherwise
expressly stated herein, the Agreement, as amended by this Amendment, is the
entire agreement by and between the parties with respect to the subject matter
herein and supersedes any and all agreements, either oral or written, between CP
and E*TRADE GROUP with respect to such subject matter.
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INFORMATION CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT
CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THE PUBLIC FILING AND HAVE
BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
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2. Definitions.
-----------
2.1 "CP Marks" means any and all trademarks, service marks, and logos used
by CP to market and promote the Services.
2.2 "Customers" means accountholders of the E*TRADE GROUP Service, as
defined therein.
2.3 "E*TRADE GROUP Service" means the Internet-based online brokerage
service made available by E*TRADE, which is currently located at www.etrade.com.
2.4 "E*TRADE GROUP Marks" means the trademarks, service marks, and logos
designated by E*TRADE GROUP for use by CP under this Agreement, as may be
amended from time to time upon reasonable notice to CP.
2.5 "International Offering" means any E*TRADE GROUP Service made
available to Users in any country outside of the United States.
2.6 "Intellectual Property Rights" means any and all patents and patent
applications (including any divisions, substitutions, continuations,
continuations-in-part, revisions, reissuances, reexaminations and extensions
thereof), copyrights, trademarks, service marks, trade names, trade secrets and
other intellectual property and proprietary rights in any country of the world.
2.7 "Members" means registered users of the E*TRADE GROUP Service who are
neither Customers nor Subscribers.
2.8 "Strategic Partner" means any business or entity with whom E*TRADE
GROUP has an arrangement for the joint advertising/promotion of each other's
products and services.
2.9 "Subscribers" means subscribers to the premium services of the E*TRADE
GROUP Service.
2.10 "Users" means collectively the Customers, Members and Subscribers. As
used in the Agreement (not including this Amendment), "Customers" means "Users."
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3. Exhibit A.
---------
Both Exhibits A (Exhibit A - Private Email Offering for E*TRADE Clients,
and Exhibit A - Public Email Offering) of the Agreement are deleted in their
entirety and replaced with Exhibit A attached to this Amendment.
4. Joint Advertising and Promotional Efforts
-----------------------------------------
4.1 Advertising Efforts. For the fee specified in Section 4.2 of this
-------------------
Amendment, E*TRADE agrees to include CP in appropriate E*TRADE's advertising and
promotional campaigns (collectively, "Advertising") made available or otherwise
provided to other Strategic Partners. Such Advertising will, at a minimum,
include the display of a "Powered by Critical Path" or similar logo as mutually
agreed on E*TRADE's Web Mail client during the term of this Amendment. CP will
use reasonable efforts to include E*TRADE in CP's own marketing campaign/efforts
over the term of this Amendment.
4.2 Payment by CP. On or before the Effective Date of this Amendment, CP
-------------
has paid, and E*TRADE hereby acknowledges receipt of, [**] as payment in full
for Advertising. For each calendar year after 1998 during the term of this
Amendment, if CP decides to continue receiving Advertising, CP shall pay E*TRADE
a mutually-agreeable fee for the Advertising.
4.3 International Business and Strategic Partner Offerings. During the
------------------------------------------------------
term of this Amendment, E*TRADE will use reasonable commercial efforts to
promote CP in all International Offerings and Strategic Partner relationships.
If E*TRADE resells the Services to or through such International Offerings or
Strategic Partners, then, notwithstanding any other provision of the Agreement,
as amended by this Amendment, E*TRADE and CP will share equally in the gross
revenue received for all such resold Services.
4.4 License of CP Marks.
-------------------
(a) Subject to the terms and conditions of this Agreement, CP grants
to E*TRADE GROUP a nonexclusive, royalty-free, worldwide license to use the CP
Marks in connection with E*TRADE GROUP's marketing, promotion and resell of the
Services as provided under this Amendment. E*TRADE GROUP agrees to provide or
make available to CP and obtain CP's prior approval of an example of each such
use of the CP Marks. E*TRADE GROUP agrees that it will not adopt any trademark,
trade name, or service mark that is confusingly similar to the CP Marks and that
it will use reasonable efforts to preserve CP's rights in the CP Marks. E*TRADE
GROUP acknowledges that, as between the parties, CP owns the CP Marks, and all
use of the CP Marks by E*TRADE GROUP shall inure solely to the benefit of CP.
E*TRADE GROUP agrees that it will not apply for registration of the CP Marks (or
any mark confusingly similar thereto) anywhere in the world and that it will not
engage, participate
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[**] CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN
INFORMATION CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT CONFIDENTIAL
PORTIONS HAVE BEEN OMITTED FROM THE PUBLIC FILING AND HAVE BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
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or otherwise become involved in any activity or course of action that diminishes
and/or tarnishes the image and/or reputation of any CP Mark.
(b) Use and Display of CP Marks. E*TRADE GROUP acknowledges and
---------------------------
agrees that the presentation and image of the CP Marks should be uniform and
consistent with respect to all services, activities and products associated with
the CP Marks. Accordingly, E*TRADE GROUP agrees to use the CP Marks solely in
the manner which CP shall specify from time to time in CP's sole and reasonable
discretion. All usage by E*TRADE GROUP of the CP Marks shall include the
registered trademark symbol and shall be in the following form, as designated by
CP: [CP Mark](R) or [CP Mark]/TM/. All literature and materials printed,
distributed or electronically transmitted by E*TRADE GROUP and containing the CP
Marks shall include the following or similar notice as designated by CP:
[CP Mark] is a [registered] trademark of Critical Path Inc.
4.5 License of E*TRADE GROUP Marks.
------------------------------
(a) Subject to the terms and conditions of this Agreement, E*TRADE
GROUP grants to CP a nonexclusive, royalty-free, worldwide license to use the
E*TRADE GROUP Marks in connection with CP's marketing and promotion of the
E*TRADE GROUP Service as provided under this Amendment. CP agrees to provide or
make available to E*TRADE GROUP and obtain E*TRADE GROUP's prior approval of an
example of each such use of the E*TRADE GROUP Marks. CP agrees that it will not
adopt any trademark, trade name, or service mark that is confusingly similar to
the E*TRADE GROUP Marks and that it will use reasonable efforts to preserve
E*TRADE GROUP's rights in the E*TRADE GROUP Marks. CP acknowledges that, as
between the parties, E*TRADE GROUP owns the E*TRADE GROUP Marks, and all use of
the E*TRADE GROUP Marks by CP shall inure solely to the benefit of E*TRADE
GROUP. CP agrees that it will not apply for registration of the E*TRADE GROUP
Marks (or any mark confusingly similar thereto) anywhere in the world and that
it will not engage, participate or otherwise become involved in any activity or
course of action that diminishes and/or tarnishes the image and/or reputation of
any E*TRADE GROUP Mark.
(b) Use and Display of E*TRADE GROUP Marks. CP acknowledges and
--------------------------------------
agrees that the presentation and image of the E*TRADE GROUP Marks should be
uniform and consistent with respect to all services, activities and products
associated with the E*TRADE GROUP Marks. Accordingly, CP agrees to use the
E*TRADE GROUP Marks solely in the manner which E*TRADE GROUP shall specify from
time to time in E*TRADE GROUP's sole and reasonable discretion. All usage by CP
of the E*TRADE GROUP Marks shall include the registered trademark symbol and
shall be in the following form, as appropriate: [E*TRADE GROUP Mark](R). All
literature and materials printed, distributed or electronically transmitted by
CP and containing the E*TRADE GROUP Marks shall include the following notice:
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[E*TRADE GROUP Mark] is a registered trademark of E*TRADE GROUP,
Inc.
5. JFAX Services. Exhibit B JFAX Services Order Schedule of the
-------------
Agreement is hereby deleted in its entirety and replaced with Exhibit B attached
to this Amendment.
6. Service Level Agreement. Exhibit D of the Agreement is hereby deleted
-----------------------
in its entirety and replaced with Exhibit C attached to this Amendment.
7. Use of Certain E*TRADE GROUP Products.
-------------------------------------
In the event CP decides to implement an employee stock option plan ("ESOP")
or employee stock purchase plan ("ESPP"), CP shall offer to E*TRADE GROUP's
subsidiary, E*TRADE Securities, Inc., the opportunity to provide its OptionsLink
and ShareData ESOP and ESPP administration products and services, on reasonable
terms and conditions to be negotiated between the parties.
8. Production Email.
----------------
The parties agree to negotiate in good faith to reach agreement by December
31, 1998, on the terms and conditions, including additional fees, for the
provision of services by CP relating to E*TRADE GROUP's production email (email
from E*TRADE GROUP to its Users) for the E*TRADE GROUP Service customer support
center. Upon the parties' mutual agreement, such terms and conditions shall be
included as a written addendum to this Amendment.
9. Exclusivity; Freedom of Action.
------------------------------
9.1 Exclusivity. CP agrees that it will not provide the Services to
-----------
competitors of E*TRADE GROUP for a six-month period after the Effective Date of
this Amendment. E*TRADE GROUP competitors are deemed to include any companies
mentioned in the Gomez Advisors Survey of Online Investing Services. E*TRADE
agrees not to resell any Services to competitors of CP during the term of the
Agreement, as amended by this Amendment. CP competitors are deemed to include
any companies offering email services or products for re-distribution, currently
including but not limited to, iName, USA.Net, WhoWhere, SendMail, and
Software.com.
9.2 Freedom of Action. Except as expressly provided in Section 9.1, the
-----------------
Agreement (including this Amendment) shall not be construed to restrict either
party from engaging in any activities with respect to competitive products or
services.
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10. Ownership.
---------
10.1 CP Ownership. As between the parties, CP shall be the sole owner of
------------
all rights and interests in and to the Services, the CP System and the CP Marks,
including without limitation all Intellectual Property Rights therein
(collectively, "CP Property").
10.2 E*TRADE GROUP Ownership. As between the parties, E*TRADE GROUP shall
-----------------------
be the sole owner of all rights and interests in and to the E*TRADE GROUP
Services and the E*TRADE GROUP Marks, including without limitation all
Intellectual Property Rights therein (collectively, "E*TRADE Property").
11. Indemnification. Section 6 of the Agreement is hereby deleted.
---------------
12. Term and Termination.
--------------------
12.1 Term of Agreement as Amended. Section 7.1 Term of the Agreement is
----------------------------
hereby deleted and replaced with the following:
7.1 Term. This Agreement shall continue in effect from the
----
Effective Date for a [**] year period from the Amendment Effective Date,
unless sooner terminated in accordance with this Section. This Agreement
will renew automatically for successive one (1) year periods unless either
party gives the other party at least sixty (60) days notice, prior to the
end of the then-current term, of its election not to renew this Agreement.
12.2 Effect of Termination. Section 7.4 Effect of Termination of the
---------------------
Agreement is hereby deleted and replaced with the following:
7.4 Effect of Termination.
---------------------
7.4.1 Migration of Services. Upon any termination of this Agreement,
---------------------
CP shall immediately cease providing all Services, and E*TRADE
GROUP and Users shall no longer have access to the CP System.
Except in the event of termination for E*TRADE GROUP's breach,
CP shall work with E*TRADE GROUP in the migration of its e-mail
system back to its setup in existence immediately before the
Effective Date of this Agreement or to a service that is
similar is scale and scope. The parties agree to complete the
migration process in a reasonable timeframe. Thereafter, CP
shall delete all
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SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
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stored e-mail messages of E*TRADE GROUP and Users on the CP
System.
7.4.2 Payment of Amounts Due. Within thirty (30) days of any
----------------------
termination of this Agreement, each party shall pay to the
other all unpaid fees accrued prior to termination.
7.4.3 Termination of Advertising. Upon any termination of this
--------------------------
Agreement, the parties' rights and obligations under Section 4
of the Amendment (including without limitation the license to
use each other's marks) shall immediately terminate, and
neither party will have any further right or obligation to
market and sell the other party's products or services to
prospective users or customers; provided, however, that if this
Agreement is terminated during any year in which CP has paid
E*TRADE GROUP pursuant to Section 4.1 for Advertising, CP will
be entitled to a pro rata refund of such payment for that year.
12.3 Survival. Section 7.5 Survival of the Agreement is hereby deleted and
--------
replaced with the following:
7.5 Survival. Sections 2, 3, 4, 5, 6, 7.4, 7.5 and 9 of the
---------
Agreement, and Sections 1, 2, 9 (for the six-month period after the
Effective Date of this Amendment if terminated earlier), 10, 11, 12.2,
12.3, and 13 and Exhibit A (as to amounts accrued but unpaid and
paragraphs C.4, I and J as to ownership provisions) of the Amendment
shall survive any expiration or termination.
13. Miscellaneous.
-------------
13.1 Injunctive Relief. Each party agrees that in addition to any other
-----------------
rights and remedies available to the other party for any breach of the
Agreement, as amended by this Amendment, the non-breaching party shall be
entitled to seek to enforce the breaching party's obligations by court
injunction.
13.2 Dispute Resolution. Any dispute, controversy or claim concerning or
------------------
relating to the Agreement, as amended by this Amendment, shall be resolved in
the following manner:
13.2.1 The parties agree to use all reasonable efforts to resolve the
dispute through direct discussions. To that end, either party may give the
other party written notice of any dispute not resolved in the normal course
of business. Upon such notice,
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the parties shall attempt in good faith to resolve the dispute promptly by
negotiation between executives who have authority to settle the controversy
and who are at a higher level of management than the persons with direct
responsibility for administration of the Agreement;
13.2.2 If the parties are unable to resolve the dispute by such means
within thirty (30) days of the notice date, or such other time period as
mutually agreed, then either party may commence arbitration pursuant to the
Rules of Commercial Arbitration of the American Arbitration Association
("AAA"), as modified or supplemented under this Section 13.2. The
arbitration shall be governed by the United States Arbitration Act, 9
U.S.C. Sec. 1, et. seq., and judgment upon the award rendered by the
arbitrator(s) may be entered by any court with jurisdiction or application
may be made to such a court for judicial recognition and acceptance of the
award and any appropriate order including enforcement. The arbitration
proceedings will be held in San Francisco, California.
13.2.3 The arbitration proceedings contemplated by this Section shall
be as confidential and private as permitted by law. To that end, the
parties shall not disclose the existence, content or results of any
proceedings conducted in accordance with this Section, and materials
submitted in connection with such proceedings shall not be admissible in
any other proceeding, provided, however, that this confidentiality
provision shall not prevent a petition to vacate or enforce an arbitral
award, and shall not bar disclosures required by law. The parties agree
that any decision or award resulting from proceedings in accordance with
this Section shall have no preclusive effect in any other matter involving
third parties; and
13.2.4 Judgment on an arbitral award may be entered by any court of
competent jurisdiction, or application may be made to such a court for
judicial recognition and acceptance of the award and any appropriate order
including enforcement.
13.3 Further Assurances. Each party agrees to execute and deliver all
------------------
further instruments and documents, and shall take all further action that may be
necessary or desirable as reasonably requested by the other party to effectuate
the parties' intent under the Agreement, as amended by this Amendment.
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IN WITNESS WHEREOF, the parties to this Amendment have executed and
delivered this Amendment as of the date first above written.
CRITICAL PATH INC.
By_________________________________
Its__________________________________
E*TRADE GROUP, INC.
By_________________________________
Its__________________________________
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EXHIBIT A
---------
SERVICES, CHARGES AND PAYMENT
-----------------------------
This Exhibit A is attached to and made a part of the Agreement between
E*TRADE GROUP and Critical Path, Inc, as amended by the Amendment, and is
subject to the terms and conditions of the Agreement, as amended.
A. Basic Web Mail Fees -
-------------------
1. Fee and Payment during Pre-paid Period. [**]
--------------------------------------
2. Fee and Payment after Pre-paid Period. [**] E*TRADE GROUP agrees to
-------------------------------------
pay to CP a monthly charge of [**] Mailbox.
3. [**]
B. Premium Features Fees - In addition to the fees specified in Section A
of this Exhibit, E*TRADE GROUP agrees to pay CP the fees for Premium Features
ordered by E*TRADE GROUP as specified in Addendum 1 to this Exhibit A.
C. Branding of Web Mail Page
1. Fees - E*TRADE GROUP will pay to CP a one-time fee of [**] for
----
CP's branding of the Web Mail Page, which fee CP acknowledges and
agrees has been paid in full.
2. Provision, Development and Approval - E*TRADE GROUP shall
-----------------------------------
provide CP with all text and images ("Branding Materials")
necessary for CP to brand E*TRADE GROUP's Web Mail Page. E*TRADE
GROUP warrants and represents to CP that E*TRADE GROUP has full
power and authority to provide to CP, and to authorize CP's use
of, the Branding Materials provided by E*TRADE GROUP for branding
the Web Mail Page, and agrees to defend and indemnify CP with
respect to any claims arising from CP's use of such Branding
Materials. CP shall develop the branded Web Mail Page using such
Branding Materials and shall provide, or otherwise make available
to E*TRADE GROUP, such developed Web Mail Page for E*TRADE
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INFORMATION CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT CONFIDENTIAL
PORTIONS HAVE BEEN OMITTED FROM THE PUBLIC FILING AND HAVE BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
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GROUP's review and approval, which approval shall not be
unreasonably withheld, delayed or conditioned. E*TRADE GROUP's
approval shall be deemed given if E*TRADE GROUP does not provide
to CP notice of its rejection of the branded Web Mail Page within
twenty-four (24) hours of CP's provision of it.
3. Modifications - Once approved, CP shall only be obligated to
-------------
make one change to the look and feel of the branded Web Mail Page
at no additional charge. Any further requested changes will be
chargeable at the rate of [**] each.
4. Proprietary Rights - E*TRADE GROUP grants to CP a non-exclusive,
------------------
nontransferable, worldwide, royalty-free, irrevocable (during the
term of the Agreement) license to reproduce, display, perform,
modify, prepare derivative works of and otherwise use the
Branding Materials for the purpose of branding E*TRADE GROUP's
Web Mail Page and making such Web Mail Page available through the
Services to Users. E*TRADE GROUP shall retain all other
Intellectual Property Rights it has in and to the Branding
Materials. CP shall retain all Intellectual Property Rights in
and to the Services (not including the Branding Materials as
incorporated into E*TRADE GROUP's Web Mail Page) and all
development tools, routines, subroutines, applications, software
and other materials (not including the Branding Materials) that
CP may use in connection with branding the Web Mail Page.
D. Support - CP shall provide 2nd tier telephone and web-based support
directly to E*TRADE GROUP twenty-four (24) hours a day, seven (7) days a week.
E*TRADE GROUP shall be responsible for first-level telephone support to Users
and for all other support not otherwise specified herein to Users.
E. Payment by E*TRADE GROUP to CP - All fees for Services shall be
---------------------------------
applicable for any month, or portion thereof, in which such Services are
rendered. Except as provided in Section A of this Exhibit, all fees are payable
to CP by E*TRADE GROUP within twenty (20) days of the end of each month in
accordance with this Exhibit and the Agreement as amended by the Amendment. In
addition, if during the previous month, CP performed any work on the branding of
the Web Mail Page as provided herein, E*TRADE GROUP shall include the applicable
fees for such work in the next month's payment. Payments received by CP after
the due date shall be subject to a late fee of one and one-half percent (1.5%)
per month, or, if less, the maximum amount allowed by applicable law.
F. Advertising Revenues
1. Sharing of Advertising Revenues - The parties shall share in the
-------------------------------
Advertising Revenue as follows:
a) [**] to E*TRADE GROUP and [**] to CP of Advertising Revenues for
advertising provided to Members; and
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INFORMATION CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT CONFIDENTIAL
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b) [**] to E*TRADE GROUP and [**] to CP of Advertising Revenues for
advertising provided to Customers; and
c) [**] to E*TRADE GROUP and [**] to CP of Advertising Revenues for
advertising provided to Subscribers.
2. Payment of Advertising Revenues - E*TRADE GROUP shall pay to CP
-------------------------------
its share of Advertising Revenues received by E*TRADE GROUP during the preceding
month within ninety (90) days of the end of each month, subject to the terms and
conditions of Section E above. CP shall pay E*TRADE GROUP its share of
Advertising Revenues received by CP during the preceding month within ninety
(90) days after the end of each month during the term of this Agreement. If, in
prior remittances, the paying party included revenues in the calculation of
Advertising Revenues, as to which during the preceding month the paying party
granted credits or refunds, then the paying party may reduce the Advertising
Revenues paid to the other party by the amount of any such credits or refunds.
Payments received after the due date shall be subject to a late fee of one and
one-half percent (1.5%) per month, or, if less, the maximum amount allowed by
applicable law.
3. Definitions - As used in this Exhibit A, "Advertising Revenues"
-----------
shall mean the revenue received from third party ("Advertisers") by either party
from advertisements included on the Web Mail Page, less any commissions,
credits, or refunds paid to Advertisers with respect to such revenues.
G. Storage Capacity - Each mailbox provided hereunder shall have a
maximum storage capacity of [**]. E*TRADE GROUP may purchase additional storage
space from CP upon payment of CP's then-current fees. CP shall notify any
Customer that Customer's mailbox is approaching or exceeds the maximum limit.
Thereafter, if such Customer exceeds the maximum storage capacity, CP may delete
e-mail messages from the affected mailboxes, at CP's discretion. CP will store
E*TRADE GROUP end-user messages, less those messages deleted by the end-user and
or E*TRADE GROUP.
H. Web Presence - CP will use best commercial efforts to imbed the
E*TRADE GROUP logo in CP's Web-based email interface. The imbedded logo will be
a standard and brandable (which CP customers may elect not to include) offering
by CP to its customers. For each new Customer introduced to the E*TRADE Service
through such imbedded logo, CP will receive a fee of $75 for assisting E*TRADE
in the acquisition of such Customer. Such fees shall accrue upon execution by
the Customer of E*TRADE GROUP's applicable account agreement and shall be paid
to CP by E*TRADE GROUP in accordance with Section E of this Exhibit.
I. [**]
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SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
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[**]
J. User Interface - In upgrading and modifying the CP user interface to
the Services ("Interface"), CP agrees to use reasonable commercial efforts to
consider any suggestions, ideas or recommendations provided by E*TRADE GROUP to
CP with respect to the Interface; provided, however, that CP will be under no
obligation to implement any such suggestions, ideas or recommendations. E*TRADE
GROUP acknowledges and agrees that CP shall own the entire right, title and
interest in and to the Interface (including without limitation all Intellectual
Property Rights therein) and that E*TRADE GROUP will assign, and hereby does
assign, any and all interest it may have or acquire in such Interface as a
result of CP's implementation of any of E*TRADE GROUP suggestions, ideas or
recommendations.
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INFORMATION CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT CONFIDENTIAL
PORTIONS HAVE BEEN OMITTED FROM THE PUBLIC FILING AND HAVE BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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ADDENDUM 1
TO
EXHIBIT A
PREMIUM FEATURES
From time to time during the term of this Agreement, CP will make available
to E*TRADE GROUP optional features ("Premium Features") of the Services no later
than such Premium Features are generally made available by CP to its customers.
These Premium Features currently include or are expected to include:
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------
POP3 e-mail hosting [**]/month/mailbox
- -------------------------------------------------------------------------------------
Virus Protection [**]/month/mailbox
- -------------------------------------------------------------------------------------
Certified Delivery TBD
- -------------------------------------------------------------------------------------
IMAP TBD
- -------------------------------------------------------------------------------------
Archiving (storage > 5 MB) TBD
- -------------------------------------------------------------------------------------
</TABLE>
E*TRADE GROUP will have the right to set its own prices at which it resells
such Premium Features to Users (the "Resell Prices"); provided, however, [**]
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INFORMATION CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT CONFIDENTIAL
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SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
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EXHIBIT B
JFAX SERVICES
This Exhibit B is attached to and made a part of the Agreement between
E*TRADE GROUP and Critical Path, Inc, as amended by the Amendment, and is
subject to the terms and conditions of the Agreement, as amended.
A. JFAX Services and Current Fees
------------------------------
As part of the Services, CP make available to E*TRADE GROUP and Users
the following services ("JFAX Services") provided by JFAX.COM through its voice
and fax gateway for the following fees. All of the following amounts are
charges per mailbox, unless otherwise noted.
<TABLE>
<CAPTION>
BASIC
SERVICE DESCRIPTION SIGN-UP MONTHLY USAGE FEES
FEES FEES
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
JFAX Fax and Voice to Email Service [**] [**] $.20 per message in
excess of 200
- -----------------------------------------------------------------------------------------------------------------------
Toll Free 888 service [**] [**] $.20 per message
- -----------------------------------------------------------------------------------------------------------------------
Fax and Voice to Email
- -----------------------------------------------------------------------------------------------------------------------
JFAX/Send Email to Fax Service [**] [**] Pricing based on
JFAX/Send pricing
schedule for fax
delivery to specific
cities, as posted on the
jfax.com website.
- -----------------------------------------------------------------------------------------------------------------------
JFAX/Operator Message access from Telephone [**] [**] $.10 per message
- -----------------------------------------------------------------------------------------------------------------------
Message Access From Web [**] [**] Included
Browser
- -----------------------------------------------------------------------------------------------------------------------
JFAX/Notify! Pager Notification of Message [**] [**] $.10 per message
Receipt
- -----------------------------------------------------------------------------------------------------------------------
SMS Notification [**] [**] $.25 per message
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
B. Rights of JFAX.COM
------------------
E*TRADE GROUP will provide its application to CP for forwarding to
JFAX.COM. JFAX.COM has sole discretion to accept or reject E*TRADE GROUP's
application for JFAX Services. JFAX.COM may at any time (i) impose additional
terms on use of the JFAX Services, (ii) modify, discontinue or terminate the
JFAX Services and (iii) modify the fees for JFAX Services.
C. Commissions
-----------
[**]
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INFORMATION CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT CONFIDENTIAL
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commission shall be based only on revenue actually paid by Users to JFAX.COM. To
be qualified, Users new to the JFAX Services must be in good standing with
JFAX.COM for a period of sixty (60) days.
Within forty-five (45) days of the end of each calendar quarter (i.e., each
three-month period ending March, June, September and December), CP shall remit
to E*TRADE GROUP its commission for re-selling JFAX Services to Users as
specified in this Exhibit B. Actual commission payments to E*TRADE GROUP are
conditioned upon such payment exceeding $200. Commissions due to E*TRADE GROUP
that are less than $200 will be accumulated until the total commission due
E*TRADE GROUP exceeds $200.
D. Payment to JFAX.COM
-------------------
E*TRADE GROUP and Users shall pay all fees for JFAX Services directly to
JFAX.COM at the address as directed by JFAX.COM.
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EXHIBIT C
SERVICE LEVEL AGREEMENT
This Exhibit C is attached to and made a part of the Agreement between
E*TRADE GROUP and Critical Path, Inc, as amended by the Amendment, and is
subject to the terms and conditions of the Agreement, as amended.
1. Performance
a) Definition: As used in this Exhibit, "system outage" means any
----------
unplanned interruption in the provision of the Services during which E*TRADE
GROUP's Users are unable to access or use the Services and which is caused by a
problem in the CP System and confirmed by CP. "System outage" does not include
any interruptions in the Services caused by act, omission or condition beyond
Critical Path's reasonable control, such as acts of nature or any third party.
b) Processing E-mails: Monthly average service response time of less
------------------
than [**] seconds response time for [**] of requests. Measurement does not
include any network transmission time or delays. This average does not include
any period of unforeseen, unsolicited bulk email messages that degrade service.
c) Availability of E-mail Server: CP will use commercially reasonable
-----------------------------
attempts to maintain an average of [**] up time for availability of the
Services (not including scheduled downtimes for maintenance, which currently
take place Monday mornings between 12am and 3 am Pacific time).
d) Procedures for System Outages: CP will post a message in the event of a
-----------------------------
system outage, whenever possible. In the event of a User-affecting scheduled
outage (in which Users will not be able to access and use the Services) is
required, CP will send notification to Users via e-mail no less than forty eight
(48) hours in advance of the scheduled outage unless it is an emergency
requiring immediate attention.
2. Monitoring/Reporting
a) CP will prepare a monthly stewardship report that will track the
performance metrics stated in Section 1 of this Exhibit. In addition, upon
reasonable request by either party, the parties will meet on a regular basis to
discuss the stewardship report and its associated performance metrics.
b) CP will provide E*TRADE GROUP with monthly reports which document all
CP System outages or enhancements made during such month. Each report shall
have capacity planning information outlined [above] and include, at a minimum,
the following additional information:
Summary:
. CP System uptime (average server up time and actual daily up time)
. Average response
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INFORMATION CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT CONFIDENTIAL
PORTIONS HAVE BEEN OMMITTED FROM THE PUBLIC FILING AND HAVE BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
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. Actual daily response time detail
. Number of new User mailboxes
. Number of deleted User mailboxes
. Total number of User mailboxes
. Mean storage used for mailboxes
. Number of CP System outages
. CP System total downtime and average daily and monthly downtimes
Specific System Outage Report:
. Time of outage
. Length of outage
. Affected areas
. Reason for outage
. Long term remedy
. Person notified
Enhancement:
. Reason for change
. Areas affected
This information will be emailed to E*TRADE GROUP by the third working day
of the month following the reported month.
3. Escalation Procedures
a) CP will notify E*TRADE GROUP in the event of a system outage. CP will
notify E*TRADE GROUP within [**] minutes of the time that CP first learns of the
outage. CP will send an email notice whenever possible. In the event that
email is not working, or CP is otherwise unable to send an email message, then
CP will notify E*TRADE GROUP by telephone.
. E*TRADE GROUP email addresses: [**]
[**]
E*TRADE GROUP telephone number:
-------------------
b) Status information, if known by CP, to include:
reason for the outage; and
Estimated time for service restoration.
c) If E*TRADE GROUP experiences a system outage and has not been notified
by CP, E*TRADE GROUP will contact the Technical Support staff at CP by pager at
415/764-6203 (or such other telephone number as provided by CP) for the latest
status information.
d) Critical Path will periodically notify E*TRADE GROUP with updated
status for the duration of the outage.
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INFORMATION CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT CONFIDENTIAL
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SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
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e) Critical Path will provide a post-incident summary that will include:
cause of the problem;
method used to correct the problem; and
measures Critical Path will take to prevent similar occurrences
in the future.
4. Business Resumption
a) CP must prove the ability to switch processing from the primary server
to a hot backup server within 20 minutes. Testing of this procedure will be
conducted as requested by E*TRADE GROUP on a designated weekend by both CP and
E*TRADE GROUP personnel during CP's maintenance window [**]
b) Any modifications and/or network configuration changes (including
system maintenance) as well as upgrades and removal of devices that impact the
production and network connectivity need to be advised of by E*TRADE Group to CP
before they occur by designated/qualified personnel.
c) CP will perform an analysis that documents all of the single points of
failure in the CP network and system configuration. Such analysis will include
network components such as routers, hardware and software components.
d) Upon performing such an analysis, CP agrees to eliminate all the
single points of failure within the CP domain within 3 months from the date of
such analysis.
5. Revenue Impact Recoupment
a) As stated in Section 2 of this Exhibit, CP will prepare a monthly
Stewardship report that will track the performance metrics stated in Section 1
and the parties will meet on a regular basis to discuss such report and its
performance metrics.
b) If CP fails to meet one of the performance metrics, [**]
c) These penalties will be credited to the month's billing in which the
performance failure occurred.
d) Failure by CP to meet the performance objectives specified in Section
1 of this Exhibit for 3 consecutive months or [**] out of [**] consecutive
months shall constitute a breach of this Agreement, and E*TRADE GROUP will have
the right to terminate immediately after providing written notice to CP of such
intent.
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INFORMATION CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT CONFIDENTIAL
PORTIONS HAVE BEEN OMITTED FROM THE PUBLIC FILING AND HAVE BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
EXHIBIT 10.19
- --------------------------------------------------------------------------------
Sprint and Critical Path August 21, 1998
General Business Terms for Proposed Referral Agreement for e-mail hosting.
For discussion only-This document is in draft form and does not represent a
commitment by either party to the contents or terms outlined herein. All terms
and conditions set forth in this document are subject to change and until such
time the parties have reached a final and executed agreement, neither party
shall have any obligations to the other party.
- --------------------------------------------------------------------------------
CRITICAL PATH INC.
------------------
E-MAIL SERVICES AGREEMENT
-------------------------
THIS E-MAIL SERVICES AGREEMENT ("Agreement") is entered into as of the
14th day of September, 1998 ("Effective Date"), by and between Critical Path
Inc. whose address is 320 First Street, San Francisco, CA 94105 (hereinafter
referred to as "Company"), and Sprint Communications Company L.P., a Delaware
Limited Partnership ("Sprint") whose address is 2330 Shawnee Mission Parkway,
Westwood, Kansas 66205. The term of this Agreement shall consist of a Referral
Period and a Resale Period (with each term as defined below). Section 1 of this
Agreement shall apply only to the Referral Period. Sections 2 and 3 and all of
the Exhibits shall apply only to the Resale Period. All remaining provisions of
this Agreement shall apply to both periods.
1. Provision of Services During Referral Period.
--------------------------------------------
1.1. Referral Period. Sprint may within its sole discretion, refer
---------------
authorized Sprint Customers ("Referred Customers") to Company as a
source for e-mail hosting services from the Effective Date of this
Agreement until Sprint and Company implement the transition of their
relationship to a resale arrangement ("Referral Period") set forth in
Section 2. During the Referral Period, Company will negotiate the
pricing and all other details related to e-mail hosting and related
services ("Referral Services") directly with the Referred Customers.
The Referral Services to be provided to Referred Customers shall
include e-mail hosting, server and network maintenance and second-level
(telephone and web-basedl) support to Referred Customers during
Company's then-current hours of support, set up and web-based e-mail
client. The parties agree that additional Referral Services may be
provided by Company to Referred Customers provided such services are
not in conflict with this Agreement. Company will make reasonable
efforts to refer its customers to Sprint for their data and voice
communication needs. Company will provide Referral Services directly to
Referred Customers and, during the Referral Period, Sprint will not be
liable for any charges incurred for such services. Company will provide
invoicing of Referred Customers on Sprint approved co-branded forms if
Sprint requests such an option. Sprint will incur the expense of
providing such co-branded forms to Company for use in billing Referred
Customers. Nothing in this Agreement requires Sprint to refer any
Customers to Company during the Referral Period.
1.2. Compensation: Each month during the Referral Period, Company
shall pay Sprint a one-time Referral fee of [**] Live Mailbox (as
defined below): (i) which has been Live for at least three (3) months,
and (ii) for which no Referral fee has yet been paid by Company to
Sprint. As used in this paragraph, "Live Mailbox" means each mailbox
(or group of mailboxes) made available for use by the Referred Customer
during the Referral Period. Such amounts shall be payable by Company to
Sprint within thirty (30) days of the last day of the month during the
Referral Period.
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<PAGE>
Sprint shall not pay financial compensation for Customers referred to
Sprint by Company.
1.3. Sprint Contact: During the Referral Period Company agrees to work in
good faith with those Customers who may be referred by Sprint pursuant
to this Agreement. Company agrees during the term of this Agreement
that it shall not propose Internet services (including but not limited
to web hosting, Internet access, or other IP services) available from
Sprint ("Internet Services") from companies other than Sprint when
working with Referred Customers. In the event that this Agreement is
terminated during the Referral Period, Company agrees that it shall not
solicit Referred Customers for Internet Services business for a period
of one year after termination.
1.4. Customer Ownership: Company understands that it is Sprint's
intention to transition all Referred Customers acquired during the
Referral Period as described in Section 2 of this Agreement. Therefore,
Company shall track and report monthly those Referred Customers
contacted and activating Referral Services as a result of Sprint
references. Company also agrees that any agreements that it enters into
with Referred Customers will allow assignment to Sprint at the time
that the parties transition to the Resale Period. Additionally, Company
will acquire two (2) toll free numbers from Sprint at Company's expense
for Referral Sales and Customer Service use during the Referral Period.
1.5. Company Information: Company agrees that Sprint may make public to
potential customers written information obtained from Company during
the Request For Information ("RFI") process utilized by Sprint in
setting up this program. Such information from the RFI responses may be
made available by Sprint to potential customers to inform them of the
capabilities of Company in connection with making referrals to Company
under this Section 1 ("Permitted Use"). Before Sprint makes any such
disclosure of Company information, Sprint shall submit to Company a
complete copy of the information Sprint intends to use for the
Permitted Use, and Company shall approve such information and may add
to or redact portions as Company deems necessary to protect its
confidential or proprietary information. Sprint agrees to use only the
information approved by Company for the Permitted Use. Company may
request from time to time a copy of such RFI information used by Sprint
under this Section.
1.6. Conflict of Interest: Company agrees to advise Sprint of any conflict
of interest that may arise during the course of this Agreement. Sprint
acknowledges and agrees that any e-mail hosting services agreement
which does not include referral services by Company that Company may
enter into with another telecommunications provider or other competitor
of Sprint shall not be deemed a conflict of interest under this
Section.
2. Provision of Services During Resale Period.
------------------------------------------
2.1. Services to be Provided During Resale Period. Within 30 days of
--------------------------------------------
Sprint's notice of intent to transition from referral relationship set
forth in Section 1 ("Transition Notice"), Company shall provide, and
Sprint hereby accepts, e-mail outsourcing services described in Exhibit
A ("Services") which Sprint may resell to authorized Sprint Customers
("Customer(s)"). Sprint hereby agrees that it will access, re-sell and
make the Services available to Customers only pursuant to Exhibit B-
Terms of Use attached to this Agreement, as may be modified by either
party from time to time upon notice to the
Confidential Page 2
<PAGE>
other party, or under similar terms and conditions as agreed to in
advance by both parties. Sprint agrees to notify, and to obtain binding
consent from, Customer(s) of the Terms of Use prior to such Customer(s)
initial use of the Services. Company shall make all services available
and ready for resale by Sprint within thirty (30) days of Sprint's
Transition Notice, excluding billing system integration requirements
set forth by Sprint.
2.2. Set-Up Of Services For Customers Acquired During Resale Period. Sprint
--------------------------------------------------------------
shall provide to Company Customer(s) information and materials, such as
the domain name, e-mail addresses and passwords, ("Customer
Information") necessary for Company to transition Customer(s) current
e-mail system to Company's e-mail messaging system through which
Company provides the Services ("Company System"). Upon receipt of
Customer Information, Company shall perform the set-up and other
initial services before such Customer(s) will have access to the
Company System. The parties agree to work together to achieve a
transition to the Company System, including branding the Web Mail Page
as provided in Exhibit A, so that to the Customer(s) it is not apparent
that the Services are being outsourced by Sprint to Company.
2.3. Transition of Referred Customers. Company shall also transition all
--------------------------------
Referred Customers acquired during the term of the Referral Period to
Sprint under the terms and conditions of this Agreement within thirty
(30) days of Sprint's written request for transition of Referred
Customers. Company agrees to take all reasonable steps to accomplish
said transition of Referred Customers to Sprint, including assigning to
Sprint any agreements for Services that Company has entered into with
Referred Customers.
2.4. Privacy. Company has a corporate policy to respect the privacy of
-------
Customer(s) and their e-mail messages that are transmitted through the
Company System or by means of the Services. Company will only access
and disclose information as necessary to comply with applicable laws
and government orders or requests, to provide the Services, to operate
or maintain its systems or to protect itself or its clients. Company
will maintain and adhere to industry accepted practices with respect to
processes and procedures for maintaining the privacy of all Customer
Information and e-mail provided to Company through the Services or
otherwise under this Agreement and for compliance with all applicable
privacy protection laws.
2.5. Compliance with Laws. Each party agrees to comply with all applicable
--------------------
laws, rules and regulations, including any Internet regulations or
policies, privacy laws and applicable export laws, in its performance
under this Agreement.
2.6. Suspension or Termination. If Company becomes aware of or suspects any
-------------------------
violation of Exhibit C-Terms of Use by Sprint or any Customer, Company
first shall attempt to notify Sprint and provide reasonable detail of
such violation. The parties shall use best efforts to promptly resolve
the matter. However, Company reserves the right to immediately suspend
the provision of Services to Sprint or to such Customer as reasonably
necessary to protect Company's interests.
2.7. Modification of Services. Company reserves the right to modify its
------------------------
network connectivity or peering arrangements to the Internet
("Connectivity") or modify or discontinue certain features or
functionality of the Company System from time to time. However, if
Company intends to modify the Company System in any way that, in
Company's
Confidential Page 3
<PAGE>
opinion, would significantly affect Customers' use of or ability to use
the Services, then Company shall provide reasonable prior notice to
Sprint of any such modification, no less than sixty (60) days prior to
such modifications. If Company intends to modify the Connectivity of
the Company System to the Internet for any reason, then Company shall
provide prior notice to Sprint no less than thirty (30) days prior to
such modification.
2.8. Advertisements and Commercial Use. Sprint and Company may solicit
---------------------------------
third parties for advertisements; however, Sprint shall maintain sole
discretion over third party advertisements to be included for display
on Sprint's "Web Mail Page" to Customer(s). Customer(s) shall have the
option to receive ads or not. Customer(s) shall have the option to
solicit and sell ad space for display to their user base only pursuant
to the terms and conditions of Exhibit A, Section E.1.c. All parties
shall share in the Advertising Revenue resulting therefrom as provided
in Exhibit A. Each party shall be solely responsible for all
obligations, liabilities and duties under any and all agreements with
third parties with regard to such advertisements, unless otherwise
expressly agreed in writing by the other party. Sprint agrees that it
will resell the Services only bundled with other products and services
and not as a stand-alone service or product offering. Sprint and
Customer(s) agree that they will not make commercial use of, obtain
advertising to be included on its Web Mail Page or otherwise generate
income from, the Services or the Company System, other than as provided
in Exhibit A or as permitted under the terms and conditions of this
Agreement.
2.9. Year 2000 Compliance. Company warrants that Company's provision of
---------------------
Services to Sprint, and any related deliverables provided to Sprint
under this Agreement, will not be adversely affected by the occurrence
or use of dates before, on, or after January 1, 2000 A.D., including
dates and leap years between the twentieth and twenty-first centuries
("Millennial Dates"). Any deliverables (including any software,
hardware or firmware product(s) delivered by Company to Sprint) will
without error or omission, create, receive, store, process and output
(collectively, "Compute") information related to Millennial Dates. This
warranty includes, without limitation, that the deliverables will
accurately, and without performance degradation, Compute Millennial
Dates, date-dependent data, date-related interfaces, or other date-
related functions (including, without limitation, calculating,
comparing, and sequencing such functions). At Sprint's request, Company
will provide written evidence sufficient to demonstrate adequate
testing and conversion of the deliverable to meet the foregoing
requirements.
3. Pricing and Payment During the Resale Period.
--------------------------------------------
3.1. Pricing and Payment. Exhibit A specifies Company's charges for the
-------------------
Services to Sprint and other payment provisions. Sprint and/or
Customer(s) shall be responsible for payment of any and all taxes
(excluding taxes based on Company's net income) based upon the use or
resale of the Services under this Agreement, to the appropriate taxing
authority or jurisdiction.
3.2 Current Prices. Subject to Section 3.2.1, Exhibit A sets forth
--------------
Company's current matrix of prices for the Services to be performed
hereunder for the period commencing on the Effective Date and ending on
the last day of the month containing the twelve month anniversary of
the Effective Date ("Initial Pricing Period").
3.1.1. Adjustments to Prices.
Confidential Page 4
<PAGE>
3.1.1.1. If Company and Sprint mutually agree that Company shall
provide additional Services to Sprint or perform Services not
then covered by the price matrix, Company shall revise Exhibit
A accordingly, to add the applicable prices for such Services.
3.1.1.2. In the event Sprint requests variations of any of the Services
provided by Company hereunder as set forth in Exhibit A and,
in Company's reasonable judgement such variation or variations
(either individually or in the aggregate) have a material
effect on the prices set forth in Exhibit A for the Services
to be performed, Company and Sprint shall agree to revise
Exhibit A to set forth prices for such Services which reflect
such variation(s).
3.1.1.3. Subject to the provisions of Section 3.3, Company shall amend
Exhibit A to adjust the Service prices set forth thereon for
the twelve month period following the Initial Pricing Period
and for each twelve month period thereafter during the term of
this Agreement upon written notice to Sprint in each case not
less than ninety (90) days prior to commencement of such
twelve month period.
3.2. Market Testing. Sprint shall be entitled to market test Company
--------------
prices for Services set forth in Exhibit A hereto on a quarterly basis
during the term of this Agreement and, in addition, at any time that
such prices are adjusted by Company in accordance with Section 3.2. The
determination of Company price competitiveness is to be based upon the
overall charges to Sprint by Company for Services being provided as
described in Exhibit A. Such market testing is intended to confirm
whether Company prices are competitive with the lowest end of the
market consisting of quality, full turnkey E-mail Service providers
with comparable volume, features, functionality and support. If prices
are not competitive as reasonably shown by such market test and as
agreed by Company, and Company has not remedied in thirty (30) days,
Sprint may terminate this Agreement pursuant to Section 7.
3.3. Reports and Audit. Each party shall submit with each of its payments
-----------------
to the other party a detailed report of the calculation of each such
payment. Each party will retain records relevant to its calculations of
the payments made to the other party during the term of this Agreement
and for a two (2) year period thereafter. Each party shall have the
right, at its expense, acting through a certified public accountant, to
examine and audit such records at all reasonable times, on at least ten
(10) days notice to the other party, but no more than once every six
(6) months.
4. Disclaimer of Warranties.
------------------------
4.1. THE SERVICES ARE PROVIDED, AND THE COMPANY SYSTEM IS MADE AVAILABLE, BY
COMPANY TO SPRINT AND CUSTOMERS "AS IS." COMPANY AND ITS SUPPLIERS MAKE
NO WARRANTY OF ANY KIND, WHETHER EXPRESS OR IMPLIED, REGARDING THE
SERVICES OR THE COMPANY SYSTEM AND SPECIFICALLY DISCLAIM THE WARRANTIES
OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND AGAINST
INFRINGEMENT, TO THE MAXIMUM EXTENT POSSIBLE BY LAW.
Confidential Page 5
<PAGE>
4.2. Other than the services, processes and procedures to be followed by
Company pursuant to EXHIBIT C - Service Level Agreement, Company and
its suppliers make no warranties regarding the quality, reliability,
timeliness or security of the Services or the Company System or that
the Services or the Company System will be uninterrupted or error free.
Company and its suppliers assume no responsibility or liability for the
deletion or failure to store, or to store properly, e-mail messages.
Sprint and Customers assume the entire risk in downloading or otherwise
accessing any data, files or other materials obtained from third
parties as part of the Services or by means of the Company System, even
if Sprint or Customer has paid for virus protection services from
Company.
4.3. Sprint shall be solely responsible for any warranties provided to
Customers with respect to the Services or the Company System.
5. Limitation of Liability.
-----------------------
5.1. IN NO EVENT SHALL EITHER PARTY, OR ITS SUPPLIERS, BE LIABLE TO THE
OTHER PARTY FOR CONSEQUENTIAL, EXEMPLARY, INDIRECT, SPECIAL OR
INCIDENTAL DAMAGES, INCLUDING, WITHOUT LIMITATION, LOST REVENUES OR
PROFITS, EVEN IF THE PARTY OTHERWISE LIABLE HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES.
5.2. Company shall not be responsible for any delays, errors, failures to
perform, interruptions or disruptions in the Services or the Company
Systems caused by or resulting from any act, omission or condition
beyond Company's reasonable control, whether or not foreseeable or
identified, including without limitation acts of God, strikes,
lockouts, riots, acts of war, governmental regulations, fire, power
failure, earthquakes, severe weather, floods or other natural disease
or Customer's or any Customer's third party's hardware, software or
communications equipment or facilities.
5.3. In the event of disruption of the Services or availability of the
Company System for a continuous period longer than twenty-four (24)
hours, Sprint's sole remedy shall be refund of a pro rata portion of
the price paid for the affected Services during such period of
disruption. Company's entire liability, and Sprint's and Customer's
entire and exclusive remedy, under this Agreement for any damages from
any cause whatsoever, regardless of form or action, whether in
contract, negligence or otherwise, shall in no event exceed an amount
equal to the price paid for the Services out of which the claim arose.
6. Confidential Information. Each party agrees to keep confidential and to
-------------------------
use only for purposes of performing under this Agreement, any proprietary or
confidential information of the other party disclosed pursuant to this
Agreement which is appropriately marked as confidential or which would
reasonably be considered of a confidential nature, and, except as otherwise
permitted by Section 9 of this Agreement, the terms of this Agreement and
all negotiations relating thereto. The obligation of confidentiality shall
not apply to information which is publicly available through authorized
disclosure, is known by the receiving party at the time of disclosure as
evidenced in writing, is rightfully obtained from a third party who has the
right to disclose it, or which is required by law to be disclosed. Upon any
termination of
Confidential Page 6
<PAGE>
this Agreement, each party shall return to the other party all confidential
information of the other party, and all copies thereof, in the possession,
custody or control of the party.
7. Indemnification. Each party (the "Indemnitor") shall defend, indemnify, and
---------------
hold the other party (the "Indemnitee") harmless from and against any
claims, losses, actions, demands or damages, including reasonable attorney's
fees, resulting from any act, omission, negligence, or performance under
this Agreement by the Indemnitor, its Customers, agents or representatives.
This indemnity shall not apply to the extent the portion of such claim,
liability, loss, cost, damage or expense is the result of the negligence or
willful misconduct of the Indemnitee, its clients, agents or
representatives, or to the extent liability is disclaimed or limited by
either party under this Agreement. The indemnity obligations set forth in
this Section are contingent upon: (a) the Indemnitee giving prompt written
notice to the Indemnitor of any such claim(s); (b) the Indemnitor having
sole control of the defense or settlement of the claim; and (c) at the
Indemnitor's request and expense, the Indemnitee cooperating in the
investigation and defense of such claim(s).
8. Term and Termination.
--------------------
8.1. Term. This Agreement shall continue in effect from the Effective
----
Date for [**] period, and thereafter shall renew automatically
for successive [**] year periods unless either party gives the other
party at least sixty (60) days prior written notice of its intent not
to renew the Agreement.
8.2. Termination for Convenience. Notwithstanding the foregoing, either
---------------------------
party may terminate this Agreement at any time, without cause, upon one
hundred-twenty (120) days prior written notice to the other party.
8.3. Termination for Breach. Notwithstanding the foregoing, either party may
----------------------
terminate this Agreement by giving to the other party written notice of
such termination and an opportunity to cure within thirty (30) days
after receipt of such notice, upon the occurrence of any of the
following events: (i) the other party materially breaches or defaults
in any of the material terms or conditions of this Agreement, (ii) the
other party makes any assignment for the benefit of creditors, is
insolvent or unable to pay its debts as they mature in the ordinary
course of business, or (iii) any proceedings are instituted by or
against the other party in bankruptcy or under any insolvency laws or
for reorganization, receivership or dissolution.
8.4. Effect of Termination. Upon any termination of this Agreement, Company
---------------------
shall immediately cease providing all Services, and Sprint and
Customers shall no longer have access to the Company System. Except in
the event of termination for Sprint's breach, Company shall work with
Sprint in the migration of its e-mail system back to its setup in
existence immediately before the Effective Date of this Agreement.
Thereafter, Company shall delete all stored e-mail messages of Sprint
and Customers on the Company System. Within sixty (60) days of any
termination of this Agreement, each party shall pay to the other all
unpaid fees accrued prior to termination.
Confidential Page 7
[**] CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN
INFORMATION CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT
CONFIDENTIAL PORTIONS HAVE BEEN OMMITTED FROM THE PUBLIC FILING AND HAVE
BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
8.5. Survival. Sections 3.1, 3.4, 4, 5, 6, 7, 8.4, 8.5 and 10 and Exhibit
--------
A (as to amounts accrued but unpaid and paragraph B.4) shall survive
any expiration or termination of this Agreement.
9. Publicity and Demo Accounts.
---------------------------
9.1 Publicity. During the term of this Agreement, upon prior written
---------
consent of the other party, either party may promote its relationship
in press releases, sales presentations, sales collateral, sales
training and its web site. Neither party may without the other party's
prior written consent issue any news releases, or any public
announcement, denials or confirmations with respect to this Agreement
or its subject matter.
9.2 Demo Accounts. During the term of this Agreement, Company shall
-------------
provide Sprint with access to a mutually-agreeable number of email
accounts ("Demo Accounts"), at no additional charge, for use by Sprint
in demonstrating the administrative and end user features of the
Services to Sprint's sales personnel and to Customers and potential
Customers. Such Demo Accounts shall be available at the domain
"sprint.cp.net" and shall include the features and functionality of the
Services as generally available and in beta testing (which may be
subject to a beta testing or evaluation agreement) by Company.
10. Miscellaneous.
-------------
10.1 Entire Agreement. This Agreement, together with all Exhibits and any
----------------
Schedules accepted by Company, constitutes the entire agreement of the
parties with respect to the subject matter of this Agreement. This
Agreement supersedes any and all agreements, either oral or written,
between the parties to this Agreement with respect to the subject of
this Agreement. Except as otherwise expressly provided herein, this
Agreement may be modified only by a writing signed by an authorized
representative of each party.
10.2 Notices. Notices under this Agreement shall be in writing and shall be
-------
deemed given when delivered personally, or by e-mail (with confirmation
of receipt) or conventional mail (registered or certified, postage
prepaid with return receipt requested). Notices shall be addressed to
the parties at the addresses appearing in the introductory paragraph of
this Agreement, but each party may change the address by written notice
in accordance with this paragraph.
10.3 Assignment. This Agreement shall be binding upon and inure to the
----------
benefit of the subsidiaries, affiliates, successors and permitted
assigns of the parties to this Agreement. Neither party may transfer,
sublicense or otherwise assign this Agreement or any of its rights or
obligations hereunder without the other party's prior written consent,
which consent will not be unreasonably withheld. Notwithstanding the
foregoing, either party may assign this Agreement to (i) any entity in
which the party has a greater than fifty-percent (50%) equity ownership
interest or of which the party has voting control, or (ii) to person or
entity that buys fifty percent (50%) or more of that party's stock or
all or substantially all of that party's assets.
Confidential Page 8
<PAGE>
10.4 General Provisions. Nothing contained in this Agreement is intended or
------------------
is to be construed to constitute Company and Sprint as partners or
joint ventures or either party as an agent of the other. If any
provision of this Agreement shall be declared invalid, illegal or
unenforceable, such provision shall be reformed only to the extent
necessary to effect the original intention of the parties, and all
remaining provisions shall continue in full force and effect. No waiver
of any rights hereunder shall be deemed to be a waiver of the same or
other right on any other occasion.
10.5 Dispute Resolution. Any dispute, controversy or claim concerning or
------------------
relating to this Agreement shall be resolved in the following manner:
10.5.1 The parties agree to use all reasonable efforts to resolve the
dispute through direct discussions. To that end, either party
may give the other party written notice of any dispute not
resolved in the normal course of business. Upon such notice,
the parties shall attempt in good faith to resolve the dispute
promptly by negotiation between executives who have authority
to settle the controversy and who are at a higher level of
management than the persons with direct responsibility for
administration of this Agreement.
10.5.2 If the parties are unable to resolve the dispute by such means
within thirty (30) days of the notice date, or such other time
period as mutually agreed, then either party may commence
arbitration pursuant to the Rules of Commercial Arbitration of
the American Arbitration Association ("AAA"), as modified or
supplemented under this Section 10.5. The arbitration shall be
governed by the United States Arbitration Act, 9 U.S.C. Sec. 1,
et. Seq., and judgment upon the award rendered by the
arbitrator(s) may be entered by any court with jurisdiction or
application may be made to such a court for judicial
recognition and acceptance of the award and any appropriate
order including enforcement. The arbitration proceedings will
be held in San Francisco, California, if initiated by Sprint,
or in Kansas City, Missouri, if initiated by Company, or at
such other location as the parties may agree.
10.5.3 The arbitration proceedings contemplated by this Section shall
be as confidential and private as permitted by law. To that
end, the parties shall not disclose the existence, contents or
results of any proceedings conducted in accordance with this
Section, and materials submitted in connection with such
proceedings shall not be admissible in any other proceedings,
provided, however, that this confidentiality pro vision shall
not prevent a petition to vacate or enforce an arbitral award,
and shall not bar disclosures required by law. The parties
agree that any decision or award results from proceedings in
accordance with this Section shall have no preclusive effect in
any other matter involving third parties.
10.5.4 Notwithstanding any of the foregoing, either party may request
injunctive and equitable relief either from the arbitrators or
from a court in order to protect the intellectual property
rights or trade secrets of the party, pending the resolution of
the dispute by arbitration as provided hereunder.
10.1. Relationship of the Parties. This Agreement does not constitute or
---------------------------
create a joint venture, pooling arrangement, partnership, agency or
formal business organization of any kind. The Parties shall be
independent contractors for all purposes at all times and neither Party
shall act as or hold itself out as agent for the other or create or
attempt to create liabilities for the other Party.
IN WITNESS WHEREOF, the parties to this Agreement have executed and delivered
this Agreement as of the date first above written.
CRITICAL PATH INC. SPRINT COMMUNICATIONS COMPANY L.P.
Confidential Page 9
<PAGE>
By_______________________________ By_________________________________
Its_______________________________ Its________________________________
Confidential Page 10
<PAGE>
Confidential
EXHIBIT A
---------
SERVICES, CHARGES AND PAYMENT SCHEDULE
--------------------------------------
This Services and Charges Schedule is attached to and made a part of the E-mail
Services Agreement between Sprint and Company (the "Agreement") and is subject
to the terms and conditions of the Agreement. This Exhibit A shall apply to
Services provided to Sprint during the Resale Period.
A. Services Charges - Sprint agrees to pay Company the following amounts for
the following Services during the Initial Pricing Period :
1) POP3 e-mail hosting: Sprint will pay to Company a basic monthly POP
-------------------
email hosting fee per active mailbox - in accordance with the
following tiered volume schedule:
[**] [**]/mailbox/month
1,001 - 20,000 [**]/mailbox/month
20,001 - 75,000 [**]/mailbox/month
75,001 - 150,000 [**]/mailbox/month
150,001 + [**]mailbox/month
[**]
TOTAL INVOICE = [**]
Each POP3 mailbox includes the following features:
. Automated account administration via an Account Provisioning
Protocol(APP), and a secure (SSL-based) Web interface for easy,
instant individual account provisioning
. Company's state-of-the-art, Web-based email interface, branded
to match Sprint's and/or Customer(s) look and feel
. [**] MB of disk space
. Multiple domain hosting
. Segmentable, LDAP accessible directory services (to be
available October 1, 1998)
. Domain administrator ability to send email to all users at a
domain
. Search-the-Web capability
. Live, 24 x 7 Tier 2 support, and the assignment of a Company
relationship manager to oversee Sprint's ongoing support needs
. A team of software developers dedicated to the continuing
enhancement of email performance and functionality
. Seamless and ongoing introduction of new features, with
minimal need for existing users or administrators to upgrade
software or equipment
. Additional features in advance of or simultaneous with
general availability from Company
. Send and receive attachments up to 4 MB
. Spam blocking
Company's Web-based email Interface includes all POP3 features plus the
following features:
Confidential Page 11
[**] CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN
INFORMATION CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT CONFIDENTIAL
PORTIONS HAVE BEEN OMITTED FROM THE PUBLIC FILING AND HAVE BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
. Company's customizable Web Mail interface offers Sprint and
Customer(s) the opportunity to share in advertising revenue, as
well as a chance to extend Sprint's brand.
. Send, receive, forward, and reply to email messages
. Create and manage folders and filters
. Customize preferences (signatures, return address, expandable
email window, etc.)
. Change passwords
. Set up auto-forwarding and auto-response
. Use spell-check (general availability planned for 10/15/98)
and create an address book
. Send and receive HTML formatted messages
. Additional features in advance of or simultaneous with
general availability from Company
2) Premium features: Sprint agrees to pay Company the following amounts
----------------
for the following premium features: [TO BE REVISED]
<TABLE>
<S> <C>
Virus Protection $TBD / Month / Mailbox
- -----------------------------------------------------------------------------------------------------
Certified mail TBD
- -----------------------------------------------------------------------------------------------------
Return Receipt Delivery TBD
- -----------------------------------------------------------------------------------------------------
Archiving (storage > 5 MB) [**] / 5 extra MBs / Month / Mailbox
- -----------------------------------------------------------------------------------------------------
IMAP [**]
- -----------------------------------------------------------------------------------------------------
Permanent Archiving [**]
- -----------------------------------------------------------------------------------------------------
Mailing List Management [**]
- -----------------------------------------------------------------------------------------------------
Groupware: calendaring, electronic forms [**]
- -----------------------------------------------------------------------------------------------------
Unified Messaging [**]
- -----------------------------------------------------------------------------------------------------
</TABLE>
Company will attempt to provide reasonable advance notice to Sprint of
additional premium features and their expected availability. Charges to
Sprint for listed features not yet available and any additional features
not listed that become available will be negotiated in good faith by both
parties in advance of general availability if Sprint notifies Company
that it wishes to order such features.
2) IMAP: [**]
3) Billing Cycle: The billing cycle for computing all billable items of all
--------------
Company services shall, for the purposes of this Agreement, be for the
period commencing on the first day of each month and ending on the last
day of each month. As used in this Exhibit, "Live Mailboxes" means
mailboxes (or group(s) of mailboxes) that have been tested, accepted and
signed off by the Sprint Customer and available for use by such Customer
under this Agreement. During the Resale Period, only Live Mailboxes that
have been Live for at least five (5) calendar days of the first month in
which such Mailboxes became Live shall be billable. Live Mailboxes will
not include any mailboxes of Referred Customers that are transitioned
during the Resale Period.
B. Branding of Web Mail Page
1. Fees - Sprint will pay to Company a one-time fee of [**] for
----
branding Sprint's Web Mail Page. In addition, if Company
performs branding of any Customer's Web Mail Page, Sprint will
pay to Company a one-time fee of [**] for Company's branding of
each such Web Mail Page to Customer's
Confidential Page 12
[**] CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN
INFORMATION CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT CONFIDENTIAL
PORTIONS HAVE BEEN OMITTED FROM THE PUBLIC FILING AND HAVE BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
specifications. Any additional services or any customization
above and beyond the basic branding and development of the Web
Mail Page, automatic sign-up page, and signatures will be billed
at $75 per hour, with a minimum of one hour per request.
2. Provision, Development and Approval - Sprint shall provide
-----------------------------------
Company with all text and images ("Branding Materials")
necessary for Company to brand Sprint's or Customer's Web Mail
Page. Sprint will ensure that Sprint and Customer(s) have full
power and authority to provide to Company, and to authorize
Company's use of, the Branding Materials provided by Sprint for
branding the Web Mail Page, and Sprint agrees to defend and
indemnify Company with respect to any claims arising from
Company's use of such Branding Materials. Company shall develop
the branded Web Mail Page using such Branding Materials and
shall provide, or otherwise make available to Sprint and
Customer, such developed Web Mail Page for review and approval,
which approval shall not be unreasonably withheld, delayed or
conditioned. Customer(s) approval shall be deemed given if
Sprint does not provide to Company notice of its rejection of
the branded Web Mail Page within seventy-two (72) hours of
Company's provision of it.
3. Modifications - Once approved, Company shall only be obligated
-------------
to make one change to the look and feel of the branded Web Mail
Page and the automatic sign-up page at no additional charge. Any
further requested changes will be chargeable at the rate of $50
per hour with a minimum of one hour per request.
4. Proprietary Rights - Sprint hereby grants, and Sprint will
------------------
ensure Customer(s) grants, to Company a non-exclusive,
nontransferable, worldwide, royalty-free, irrevocable (during
the term of the Agreement) license to reproduce, display,
perform, modify, prepare derivative works of and otherwise use
the Branding Materials for the purpose of branding Sprint's or
Customer's Web Mail Page and making such Web Mail Page available
through the Company Services to Customer(s) and Sprint.
Customer(s) shall retain all other proprietary right it may have
in and to the Branding Materials. Company shall retain all
proprietary rights in and to the Company Services (not including
the Branding Materials as incorporated into Customer(s) Web Mail
Page) and all development tools, routines, subroutines,
applications, software and other materials (not including the
Branding Materials) that Company may use in connection with
branding the Web Mail Page.
C. Support -Company shall provide 2nd tier telephone support to Sprint
twenty-four (24) hours a day, seven (7) days a week. Company shall use
reasonable efforts to respond to such requests for support. Sprint shall
be responsible for first-level telephone support to Customers and for all
other support not otherwise specified herein to Customers.
D. Payment by Sprint to Company - All fees for Company Services shall be
applicable for any month, or portion thereof as defined in Section A of
this Exhibit, in which such Services are rendered. All fees are payable
by Sprint within thirty (30) days of the end of each month in accordance
with this Schedule and the Agreement. In addition, if during the previous
month, Company performed any work on the branding of the Web Mail Page as
provided herein, Sprint shall include the applicable fees for such work
in the next month's payment. Payments postmarked after the due date shall
be subject to a late fee of one and one-half percent (1.5%) per month,
or, if less, the maximum amount allowed by applicable law.
Confidential Page 13
<PAGE>
1. Invoicing - Invoices shall be prepared in one (1) original and
---------
two (2) copies submitted in accordance with the following
instruction and shall reference Contract No. __________________
and Cost Center __________________.
Original Invoice: Sprint
Accounts Payable - MOKCMD0401
Post OffIce Box 5409
Kansas City, Missouri 64131-5409
One Copy: Sprint
Mark Dalton - MOKCMY0405
Partner Management
8330 Ward Parkway
Kansas City, Missouri 64105
One Copy: Sprint
Tad Jones - MOKCMY0405
Product Manager
8330 Ward Parkway
Kansas City, Missouri 64105
E. Advertising Revenues
1. Sharing of Advertising Revenues - Sprint has the option of
-------------------------------
soliciting third parties for advertising on the Web Mail Page.
If Sprint chooses this option, the parties shall share in the
Advertising Revenues as follows :
a) If Sprint obtains the advertising:
[**] Sprint
[**] Company
b) If Company obtains the advertising and its use is approved
by Sprint:
[**] Company
[**] Sprint
c) If either party obtains the advertising through a third
party, the parties will share [**] of the net advertising
revenue.
2. Payment - Sprint shall pay to Company its share of Advertising
-------
Revenues received by Sprint during the preceding month within
ninety (90) days of the end of each month. Company shall pay
Sprint its share of Advertising Revenues received by Company
during the preceding month within ninety (90) days after the end
of each month during the term of this Agreement. If, in prior
remittances, the paying party included revenues in the
calculation of Advertising Revenues, as to which during the
preceding month the party granted credits or refunds, then the
party may reduce the Advertising Revenues paid to the other
party by the amount of any such credits or refunds.
3. Definitions - As used in this Exhibits A and B, if either party
-----------
obtains Advertising Revenue through a third party, "Advertising
Revenues" shall mean the revenue received from third party
("Advertisers") by either party
Confidential Page 14
[**] CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN
INFORMATION CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT CONFIDENTIAL
PORTIONS HAVE BEEN OMITTED FROM THE PUBLIC FILING AND HAVE BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
from advertisements included on the Web Mail Page, less any
commissions, credits, or refunds paid to Advertisers with
respect to such revenues.
F. Storage Capacity - Each basic mailbox provided hereunder shall have a
maximum storage capacity of [**] MBytes. Sprint may purchase from Company
additional storage space for resale at then-current fees as defined in
this Exhibit. Company shall notify Customer(s) and Sprint that
Customer(s) mailbox is approaching or exceeds the maximum limit.
Thereafter, if such Customer exceeds the maximum storage capacity for
more than thirty (30) days beyond date of notification, Company may
delete e-mail messages from the affected mailboxes, at Company's
discretion.
Confidential Page 15
[**] CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN
INFORMATION CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT
CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THE PUBLIC FILING AND HAVE
BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
EXHIBIT B
---------
TERMS OF USE
------------
Sprint's e-mail service ("Sprint Service") is provided to registered users
(each, a "User") under these Terms of Use. BY COMPLETING THE REGISTRATION
PROCESS, YOU ARE INDICATING YOUR AGREEMENT TO BE BOUND BY THESE TERMS OF USE.
Sprint's Acceptable Conduct Policy for Sprint INTERNET Products and Services
Sprint's Acceptable Conduct Policy (the "Policy") for Sprint IP Products and
Services is designed to help protect Sprint, Sprint's customers and the Internet
community in general from irresponsible or, in some cases, illegal activities.
Sprint IP customers shall not, nor shall they permit or assist others to abuse
or fraudulently use Sprint IP Products and Services, including but not limited
to the following:
1) Sending unsolicited e-mail that causes complaints from the recipients of
such unsolicited e-mail; or,
2) Mailbombing (sending large quantities of unwanted or unsolicited e-mail to
individual e-mail accounts); or,
3) Sending advertising, chain letters, spam, junk mail or any other type of
unsolicited e-mailing (whether commercial or informational) to persons or
entities that have not agreed to be part of such mailings; or,
4) Sending harassing, libelous, abusive, threatening, obscene or otherwise
objectionable materials or materials which infringe or violate any third
party's copyright, trademark, trade secret, privacy or other proprietary or
property right, or that could constitute a criminal offense, give rise to
civil liability or otherwise violate any applicable law or regulation; or,
5) Sending viruses or other harmful, disruptive or destructive files; or,
6) Unauthorized attempts by a user to gain access to any account or computer
resource not belonging to that user (e.g., "spoofing"); or,
7) Obtaining or attempting to obtain service by any means or device with intent
to avoid payment; or,
8) Unauthorized access, alteration, destruction, or any attempt thereof, of any
information of any Sprint customers or end-users by any means or device; or,
9) Knowingly engage in any activities that will cause a denial-of-service
(e.g., synchronized number sequence attacks) to any Sprint customers or end-
users; or,
10) Using Sprint's Products and Services to interfere with the use of the Sprint
network by other customers or authorized users, or in violation of the law
or in aid of any unlawful act.
It is Sprint's policy to respect the privacy of its Users. Sprint does not, and
cannot, monitor, censor or edit the contents of User's e-mail messages. User
alone is responsible for the contents of User's messages, and the consequences
of any such messages.
User agrees that it will not use or attempt to use another person's or entity's
account, service or system without authorization from the owner, nor will User
interfere with the security of, or otherwise abuse, the Sprint Service, system
resources or accounts, or any network or another user's use or enjoyment of the
mail services. User may not forge header or address information. Sprint will
only access and disclose information as necessary to comply with applicable laws
and government orders or requests, to provide the services, to operate or
maintain its systems or to protect itself or its suppliers. Sprint reserves the
right to terminate User's account if it becomes aware and determines, in
Sprint's sole discretion, that User is violating any of these Terms of Use.
Confidential Page 16
<PAGE>
Each Sprint IP customer is responsible for the activities of its customer base
or end-users and, by accepting service from Sprint, is agreeing to ensure that
its customers abide by this Policy. Complaints about customers or end-users of a
Sprint IP customer will be forwarded to the Sprint IP customer's hostmaster for
action. If irresponsible or illegal activity continues, then the Sprint IP
customer's Products and Services may be subject to termination or other action
as Sprint deems appropriate without notice.
As stated in the terms and conditions for Sprint IP Products and Services,
Sprint has the right to terminate the account of an offending customer or take
other action as Sprint deems appropriate without notice (e.g., address
filtering).
Account and Password
User is responsible for maintaining the confidentiality of its account number
and password. User shall be responsible for all uses of its account, whether
or not authorized by User. User agrees to immediately notify Sprint of any
unauthorized use of its account.
Disclaimer of Warranties
USER EXPRESSLY AGREES THAT USE OF THE SPRINT SERVICE IS AT USER'S SOLE RISK.
THE SPRINT SERVICE IS PROVIDED ON AN "AS IS" AND "AS AVAILABLE" BASIS.
SPRINT DISCLAIMS ALL WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING
WITHOUT LIMITATION ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR
PURPOSE OR NON-INFRINGEMENT.
SPRINT DOES NOT MAKE ANY WARRANTY THAT THE SPRINT SERVICE WILL MEET USER'S
REQUIREMENTS, OR THAT THE SPRINT SERVICE WILL BE UNINTERRUPTED, TIMELY,
SECURE, OR ERROR FREE; NOR DOES SPRINT MAKE ANY WARRANTY AS TO THE RESULTS
THAT MAY BE OBTAINED FROM THE USE OF THE SPRINT SERVICE OR AS TO THE ACCURACY
OR RELIABILITY OF ANY INFORMATION OBTAINED THROUGH THE SPRINT SERVICE.
USER UNDERSTANDS AND AGREES THAT ANY MATERIAL AND/OR DATA DOWNLOADED OR
OTHERWISE OBTAINED THROUGH THE USE OF THE SPRINT SERVICE IS AT USER'S OWN
DISCRETION AND RISK AND THAT USER WILL BE SOLELY RESPONSIBLE FOR ANY DAMAGE TO
USER'S COMPUTER SYSTEM OR LOSS OF DATA THAT RESULTS FROM THE DOWNLOAD OF SUCH
MATERIAL AND/OR DATA.
SPRINT DOES NOT MAKE ANY WARRANTY REGARDING ANY GOODS OR SERVICES PURCHASED OR
OBTAINED THROUGH THE SPRINT SERVICE OR ANY TRANSACTIONS ENTERED INTO BY USE OF
OR THROUGH THE SPRINT SERVICE.
NO ADVICE OR INFORMATION, WHETHER ORAL OR WRITTEN, OBTAINED BY USER FROM
SPRINT OR THROUGH THE SPRINT SERVICE SHALL CREATE ANY WARRANTY NOT EXPRESSLY
MADE HEREIN.
Limitation of Liability
SPRINT AND ITS SUPPLIERS SHALL NOT BE LIABLE FOR ANY DIRECT, INDIRECT,
INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES, RESULTING FROM THE USE OR THE
INABILITY TO USE THE SPRINT SERVICE OR FOR THE COST OF PROCUREMENT OF
SUBSTITUTE GOODS AND SERVICES OR RESULTING FROM ANY GOODS OR SERVICES
PURCHASED OR OBTAINED OR MESSAGES RECEIVED OR TRANSACTIONS ENTERED INTO BY
MEANS OF OR THROUGH THE SPRINT SERVICE OR RESULTING FROM UNAUTHORIZED ACCESS
TO OR ALTERATION OF USER'S TRANSMISSIONS OR DATA, INCLUDING BUT NOT LIMITED
TO, DAMAGES FOR LOSS OF PROFITS, USE, DATA OR OTHER INTANGIBLE, EVEN IF SPRINT
OR ITS SUPPLIER HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
Confidential Page 17
<PAGE>
E-mail Message Storage
Sprint does not assume any responsibility for the deletion or failure to store
e-mail messages. If User exceeds the maximum permitted storage space, Sprint
reserves the right to delete e-mail messages from the affected mailboxes, at
its discretion.
Promotional Messages
Sprint and/or third parties may, from time to time, send e-mail messages to
User containing advertisements, promotions, etc. Sprint does not make any
representation or warranty with respect to any such e-mail messages or any
goods or services which may be obtained from such third parties, and User
agrees that Sprint shall have no liability with respect thereto.
Indemnification
User agrees to indemnify and hold Sprint, its suppliers and their respective
affiliates, officers, directors, employees and agents, harmless from any
claim, action or demand, including reasonable attorneys' fees, made by any
third party due to, arising out of or related to User's use of the Sprint
Service or the violation of these Terms of Use by User, including without
limitation the infringement by User, or any other user of User's account, of
any intellectual property or other right of any person or entity.
Applicable Law
These Terms of Use shall be governed by and construed in accordance with the
laws of the State of Kansas, without giving effect to its conflict of laws
provisions.
Sprint reserves the right to modify these terms of use at any time.
Confidential Page 18
<PAGE>
EXHIBIT C
---------
SERVICE LEVEL AGREEMENT
This Exhibit C Service Level Agreement is attached to and made a part of
the E-mail Services Agreement between Sprint and Company (the "Agreement") and
is subject to the terms and conditions of the Agreement. This Exhibit C shall
apply to Services provided to Sprint during the Resale Period.
1. Performance
Definition: As used in this Exhibit, "system outage" means any unplanned
----------
interruption in the provision of Company Services during which Customers are
unable to access or use the Company Services and which is caused by a
problem in the Company System and confirmed by Company. "System outage" does
not include any interruptions in the Company Services caused by act,
omission or condition beyond Company's reasonable control, such as acts of
nature or any third party.
Processing E-mails: Monthly average server response time of less than 5
------------------
seconds for 90% of requests. Measurement does not include network
transmission time or delays. This average does not include any period of
unforeseen, unsolicited bulk email messages that degrade service.
Availability: Company will make all commercially reasonable attempts to
------------
maintain 99.5% availability of all system services (not including regular
maintenance intervals) at the following performance levels:
. SMTP accepting connections within [**] seconds
. POP accepting connections within [**] seconds
. Web-based email available and online [**]
. Account Provisioning System (APS) available and online [**]
Maintenance Intervals: Current maintenance intervals are Monday mornings
----------------------
from 12:00 AM to 3:00 AM Pacific Standard Time. Company will notify Sprint a
minimum of fourteen (14) days in advance of changing this maintenance
interval.
Procedures for System Outages: In the event of a Customer-affecting
-----------------------------
scheduled outage (in which Customers will not be able to access and use the
Company Services) is required, Company will send notification to Customers
via e-mail no less than forty eight (48) hours in advance of the scheduled
outage unless it is an emergency requiring immediate attention.
2. Monitoring/Reporting
Company shall include in all Customer records a Sprint Customer
Identification code provided by Sprint.
Company shall provide on a monthly basis customer reports sorted by Sprint
Customer Identification code that includes the following information for
each account:
. Number of mailboxes
. Number and type of premium services (as premium services are
available)
. Number of messages sent/received per mailbox (Q1 '99)
. Number of Kbytes sent/received per mailbox (Q1 '99)
. Peak amount of storage used per mailbox (Q1 '99)
. Distribution of message sizes by Sprint Customer Identification (Q2
'99)
Confidential Page 19
[**] CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN
INFORMATION CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT
CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THE PUBLIC FILING AND HAVE
BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
Company shall provide a monthly Stewardship report that will track the
performance metrics stated in Section 1 of this Exhibit.
Company shall provide Sprint with monthly reports which document all Company
System outages or enhancements made during such month. Each report shall
have capacity planning information outlined [above] and include, at a
minimum, the following additional information:
Utilization and Performance:
. Company System uptime
. Number of new Sprint mailboxes
. Number of deleted Sprint mailboxes
. Total number of Sprint mailboxes
. Mean storage used for mailboxes
. Number of Company System outages
. Company System total downtime and average daily and monthly
downtimes
Specific Outage Report:
. Time of outage
. Length of outage
. Affected areas
. Reason for outage
. Long term remedy
. Person notified
Enhancement:
. Reason for change
. Areas affected
This information will be emailed to Sprint by the third working day of the
month following the reported month. Upon mutual agreement, the parties may
add to or delete from this list of reports as appropriate.
3. Escalation Procedures
Company shall notify Sprint or a Sprint designated agent in the event of a
system outage. Company will send an email notice whenever possible. In the event
that email is not working, or Company is otherwise unable to send an email
message, then Company will notify Sprint by telephone within 30 minutes of the
time that Company first learns of the outage.
. Sprint Notification: Tad Jones
PHONE: 816-854-2471
FAX: 816-854-2623
EMAIL: [email protected]
Status information, if known by Company, to include:
. reason for the outage; and
. estimated time for service restoration.
If Customer experiences a system outage and has not been notified by
Company, Sprint will contact the Technical Support staff at Company by
pager at 415/764-6203 (or such other telephone number as provided by
Company) for the latest status.
Company will periodically notify Sprint with updated status for the
duration of the outage. Company will attempt to so update Sprint every two
(2) hours.
Confidential Page 20
<PAGE>
Company will provide a post-incident summary that will include:
cause of the problem; method used to correct the problem; and measures
Company will take to prevent similar occurrences in the future.
Company shall furnish necessary staff to provide the Services. Company shall
use commercially reasonable efforts to provide Sprint with telephone access
to an engineering staff member 24 hours a day 365 days a year. Upon
notification of a problem with the Company System or the Services, Company
shall evaluate and verify the problem and provide Sprint with a mutually
agreeable time estimate for resolution of the problem. Company shall
promptly commence remedial activities and use commercially reasonable
efforts to complete the system outage resolution within the mutually agreed
upon time estimate.
4. Business Resumption
In the event of a system outage, Company System will automatically switch
processing from the primary server to a hot backup server in such a way as
to not cause Customer(s) noticeable performance degradation as specified in
Section 1 of this Exhibit.
5. Sprint System Modifications
Sprint agrees to notify Company no less than 72 hours in advance of any
modifications and/or network configuration changes (including system
maintenance) to, as well as upgrades and removal of devices that impact the
production and network connectivity from, Sprint's system through which the
Company Services are provided if they are outside of the scheduled Monday
maintenance windows. If any such change will or could, in either party's
opinion, result in incompatibility between the parties' respective systems
or interruptions in the Company Services, then the parties shall work
together to resolve any such issue before Sprint makes the change.
6. Performance Review
Company agrees to participate in periodic service performance reviews on a
mutually agreed upon period or at either party's request. Each time cycle
will be evaluated and proper personnel will be contacted if service levels
are out of bounds. Some potential "triggers" currently include:
. Service response time is longer than a threshold
. Sudden spike in in/out-bound mail volume
. Load average sustained above a threshold
. Available disk space below a threshold
. Failed or interrupted tape backup
. Delivery logs showing an unusual pattern
7. Backup Site
Company shall provide a backup site for its primary message center which
will be deployed in the event of a system outage with the primary message
center and which will operate in accordance with Section 4 of this Exhibit.
In the event of a West Coast disaster, Critical Path moves IP addresses to
its East Coast Data Center. All protocols continue to work under a failover
scenario, including but not limited to, POP, SMTP, IMAP, LDAP and webmail.
Customers will not have access to stored messages in event of failover until
primary service is restored. Such backup site is currently located in a
facility of, Colocation Inc.,
Confidential Page 21
<PAGE>
located on the east coast in Laurel, Maryland. Colocation Inc. is a carrier-
neutral co-location facility with facilities on par with our primary
interconnection point, DIGITAL's Palo Alto Internet Exchange (PAIX) located
in Palo Alto California.
- --------------------------------------------------------------------------------
This is not intended as a final binding agreement on the part of the parties.
Both Sprint and Critical Path acknowledge that all terms set forth in this
document are preliminary and subject to modification and addition. Neither
party shall have any liability to the other party in the event Sprint and
Critical Path do not reach a final definitive Agreement. Both parties shall be
responsible for any of their costs associated with development of a definitive
agreement and any work performed prior to execution of a definitive Agreement.
- --------------------------------------------------------------------------------
Confidential Page 22
<PAGE>
EXHIBIT 10.20
E-MAIL SERVICES AGREEMENT
-------------------------
THIS E-MAIL SERVICES AGREEMENT ("Agreement") is made as of the 19th day of
March, 1998, by and between CRITICAL PATH, INC., a ____________ corporation
------------------
having its principal place of business at 320 First Street, San Francisco, CA
94105 ("CP"), and NTX, INC. also doing business as "TABNet," a California
-----------------------------------------
corporation, having a principal place of business at 5 Financial Plaza, Napa, CA
94558 ("TABNet").
R E C I T A L S:
A. CP provides Internet e-mail services, such as Web-based e-mail reader,
spam blocking, virus scanning and protection, integrated fax and voice-messaging
technologies, permanent archiving and secure certified e-mail delivery to its
customers.
B. TABNet provides Internet web site hosting services including web site
design and hosting and domain name services (collectively, the "TABNet
Services") to its customers.
C. Subject to the terms and conditions of this Agreement, the parties
desire that CP host e-mail services for TABNet which TABNet may resell to its
customers as part of the TABNet Services.
NOW, THEREFORE, in consideration of the mutual covenants contained in this
Agreement, the parties to this Agreement agree as follows:
1. DEFINITIONS.
-----------
1.1 "Advertising Revenues" shall mean the revenue received by either party
from advertisements included on the Web Mail Page, less any commissions,
credits, or refunds paid with respect to such revenues.
1.2 "CP System" means CP's e-mail messaging system through which CP
provides the E-mail Hosting Services.
1.3 "E-mail Hosting Revenues" shall mean all gross revenue of TABNet from
sales of the E-mail Hosting Services to TABNet Customers.
Confidential Page 1
[**] CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN
INFORMATION CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT
CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THE PUBLIC FILING AND HAVE
BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
1.4 "E-mail Hosting Services" shall mean the e-mail hosting services
provided by CP to TABNet for resale to TABNet Customers as part of the TABNet
Services, as more fully described in Section 3 below.
1.5 "Intellectual Property Rights" shall mean any and all Patents,
copyrights, mask works, trade secrets and other intellectual property rights
(other than trademarks) in any country of the world or contract rights having
the equivalent effect.
1.6 "TABNet Customer" shall mean each of TABNet's customers who receive
the E-mail Hosting Services as part of the TABNet Services.
1.7 "Web Mail Page" means TABNet's web mail page available through the CP
System as part of the E-mail Hosting Services.
1.8 BASIS OF AGREEMENT; PARTIES' RELATIONSHIP. Under the terms and
-----------------------------------------
conditions of this Agreement, CP shall provide, and TABNet hereby accepts, the
E-mail Hosting Services which TABNet may resell to its Customers as part of the
TABNet Services. Nothing contained in this Agreement is intended or is to be
construed to constitute CP and TABNet as partners or joint venturers or either
party as an agent of the other, except as otherwise expressly provided herein.
2. PROVISION OF E-MAIL HOSTING SERVICES.
------------------------------------
2.1 Exclusivity. During the term of this agreement, TABNet agrees that CP
-----------
shall be the sole "outside vendor" of e-mail hosting services that TABNet
resells to TABNet Customers as part of the TABNet Services. TABNet shall retain
the right to sell its own e-mail services to its Customers. TABNet agrees that
the parties shall share the E-mail Hosting Services Revenues as provided in
Section 4 below.
2.2 Scope of Services.
-----------------
2.2.1 Basic Services. The E-mail Hosting Services shall include
--------------
e-mail hosting, server and network maintenance, second-level support to
TABNet during CP's thencurrent hours of support, set up and web-based e-
mail client. The CP Services and Charges Schedule, attached hereto as
Exhibit A and made a part of this Agreement by reference, specifies the
basic services to be provided by CP to TABNet under this Agreement. The
parties may agree that additional E-Mail Hosting Services shall be provided
to TABNet under this Agreement. Any such additional Services must be listed
Confidential Page 2
<PAGE>
on the applicable Order Schedule, and TABNet shall pay any additional fees
required by CP.
2.2.2 JFAX Services. The E-mail Hosting Services also currently
-------------
include the services provided by CP's supplier, JFAX.COM (the "JFAX
Services"). The CP/JFAX Services Order Schedule, attached hereto as Exhibit
B, is the agreement which TABNet must fill out in order to qualify as a
JFAX Services Distributor under this Agreement. JFAX.COM has sole
discretion to accept or reject TABNet's application for JFAX Services. If
approved by JFAX.COM, TABNet Customers shall pay directly to JFAX.COM all
applicable JFAX Services fees. Notwithstanding any other provision of this
Agreement, the JFAX Services may be modified, discontinued or terminated,
and the JFAX Services fees may be modified, under this Agreement by
JFAX.COM at any time at JFAX.COM's discretion.
2.3 Customer Information. TABNet shall provide to CP information and
--------------------
materials ("Customer Information") necessary for CP to transition the TABNet
Customer's current e-mail system to the CP System. The Customer Information
shall include at a minimum the domain name, e-mail addresses and passwords of
each of the TABNet Customers. Each party shall work with the other as reasonably
requested to assist in achieving a smooth transition that is transparent to the
TABNet Customers. Upon receipt of all Customer Information from TABNet for each
TABNet Customer, CP shall have a reasonable period of time to perform the set-up
and other initial services before such TABNet Customer will have access to the
CP System. Once transitioned, TABNet shall be responsible for, during the term
of this Agreement: (a) front-line services to and support of TABNet Customers;
(b) the addition, deletion and modification of TABNet Customers' e-mail
accounts; (c) the creation of workgroups, discussion lists, newsletters and
similar functions; (d) designating an e-mail administrator to act as the primary
contact with CP's customer support center; (e) providing and maintaining all
communications equipment and materials, including hardware, software and
telephone service, necessary for access to the World Wide Web and the E-mail
Hosting Services; and (f) notifying CP of any changes that may affect the E-mail
Hosting Services or the CP System, including any hardware or software upgrades.
Confidential Page 3
<PAGE>
2.4 E-mail Storage and CP's Rights.
------------------------------
2.4.1 Storage Capacity. Each TABNet Customer shall have the disk
----------------
storage capacity of 2.5 Mb per mailbox. TABNet may purchase from CP
additional space upon payment of additional fees. If TABNet or any TABNet
Customer exceeds the maximum permitted storage space, CP reserves the right
to delete e-mail messages from the affected mailboxes, at CP's discretion.
2.4.2 Privacy. CP has a corporate policy to respect the privacy of
-------
its customers and their e-mail messages that are transmitted through the CP
System or by means of the E-mail Hosting Services. CP will only access and
disclose information as necessary to comply with applicable laws and
government requests, to provide the E-mail Hosting Services, to operate or
maintain its systems or to protect itself or its customers.
2.4.3 Disclosure by Law. If required by law, rule, regulation or
-----------------
court order, CP may make available TABNet or any TABNet Customer's account
information to the appropriate authorities. TABNet acknowledges that CP may
be required to make registrations and provide administrative reports, which
are public in nature, relating to Internet use and related services
provided under this Agreement.
2.5 Terms of Use.
------------
2.5.1 Provision to TABNet Customers. TABNet hereby agrees that it
-----------------------------
will resell and make the E-mail Hosting Services available to TABNet
Customers only pursuant to the Terms of Use attached to this Agreement as
Exhibit C or under similar terms and conditions as agreed to in advance by
CP. CP may modify from time to time Exhibit C by providing notice to TABNet
as provided in this Agreement.
2.5.2 No Commercial Use. TABNet agrees that it will not resell, make
-----------------
commercial use of, or otherwise generate income from, the E-mail Hosting
Services or the CP System, other than making the E-mail Hosting Services
and CP System available to TABNet Customers as part of the TABNet Services
or obtaining advertising to be included on its Web Mail Page as permitted
under the terms and conditions of this Agreement.
2.5.3 TABNet's Responsibilities. TABNet agrees to use the CP Services
-------------------------
and the CP System only for lawful purposes, in compliance with all
applicable laws, rules and regulations, including any Internet regulations
or policies and applicable export laws. TABNet is responsible for all use
of its account, whether or not it specifically knows or
Confidential Page 4
<PAGE>
consents to such use. If TABNet suspects unauthorized use of its account,
TABNet shall immediately notify CP. TABNet and TABNet Customers are
responsible for maintaining the confidentiality of their passwords. Sharing
of passwords is not permitted. While the use of aliases is permitted,
TABNet may not forge header or address information.
2.5.4 Illegal Uses Prohibited. TABNet is prohibited from storing,
-----------------------
distributing or transmitting any unlawful materials through the CP System.
TABNet agrees that it will not use the CP System or otherwise use the CP
Services to transmit or disseminate: (i) advertising, chain letters, spam,
junk mail or any other type of unsolicited e-mailing (whether commercial or
informational) to persons or entities that have not agreed to be part of
such mailings; (ii) harassing, libelous, abusive, threatening, obscene or
otherwise objectionable materials or materials which infringe or violate
any third party's copyright, trademark, trade secret, privacy or other
proprietary or property right ; or (iii) viruses or other harmful,
disruptive or destructive files. TABNet may not use, or attempt to access,
E-mail Hosting Services that TABNet has not ordered or for which TABNet has
agreed to pay. TABNet agrees that it will not use or attempt to use another
person's or entity's account, service or system without authorization from
the owner, nor will TABNet interfere with the security of, or otherwise
abuse, the CP System, CP's system resources or accounts, or any network or
another user's use or enjoyment of the E-mail Hosting Services, the CP
System or similar services.
2.5.5 Modification. CP may modify this Section from time to time by
------------
providing notice to TABNet as provided below.
2.6 Suspension or Termination. In the event that CP determines that any
-------------------------
TABNet Customer has violated or is violating the Terms of Use, CP shall notify
TABNet, and the parties shall use best efforts to promptly resolve the issue.
Notwithstanding the foregoing, if CP reasonably determines that such
notification and efforts would result in a delay that may be harmful to CP or
its interests, CP reserves the right to immediately suspend or terminate the
provision of E-mail Hosting Services to such TABNet Customers. In such event, CP
shall provide notice to TABNet of such termination or suspension, as soon as
reasonably possible thereafter, and the parties shall use best efforts to
resolve the issue if necessary.
2.7 Problems, Resolutions and Suggestions. TABNet shall inform CP of
-------------------------------------
problems encountered and resolutions thereof with regard to the E-mail Hosting
Services provided under this Agreement. TABNet shall also communicate promptly
to CP in writing any and all modifications, design changes or improvements of
the Fmail Hosting Services suggested by any TABNet Customer, or by any employee
or agent of TABNet. CP shall be the sole and exclusive owner of all such
information.
Confidential Page 5
<PAGE>
2.8 Modification of Services. CP reserves the right to modify or
------------------------
discontinue certain features or functionality of its E-mail Hosting Services
from time to time. However, if CP intends to modify its E-mail Hosting Services
in a way that, in CP's opinion, would significantly affect TABNet Customers' use
of or ability to use such E-mail Hosting Services, then CP shall provide
reasonable prior notice to TABNet of any such modification, no less than sixty
(60) days.
2.9 Advertisements on Web Mail Page. Either party may solicit third
-------------------------------
parties for advertisements to be included on the Web Mail Page. The parties
shall share in the Advertising Revenue resulting therefrom as provided in
Section 4 below. Each party shall be solely responsible for all obligations,
liabilities and duties under any and all agreements with third parties with
regard to such advertisements, unless otherwise expressly agreed in writing by
the other party.
3. PRICING AND PAYMENT.
-------------------
3.1 Pricing. CP's charges for the e-mail Hosting Services and the parties'
-------
respective shares in the Advertising Revenues shall be as specified on Exhibit
A.
3.2 Payment.
-------
3.2.1 TABNet shall pay the up-front charges upon execution of this
Agreement, as provided in Exhibit A.
3.2.2 Within twenty (20) days of the end of each month, TABNet shall
remit to CP a payment for CP's monthly fees as specified in Exhibit A.
Specifically, these fees include the following: (i) fifty percent (50%) of
the E-mail Hosting Services Revenues received by TABNet for its POP
accounts for the previous month; (ii) $.50 per mailbox under TABNet's free
web mail and "catch all" accounts as part of the E-mail Hosting Services
Revenues for the previous month; (iii) thirty percent (30%) of the greater
of TABNet's revenue or the suggested list price for value-added features,
as specified in Exhibit A; and (iv) thirty percent (30%) of the Net
Advertising Revenue received by TABNet during the preceding month. If, in
prior remittances, TABNet included revenues in the calculation of the e-
mail Hosting Revenues or Advertising Revenues, as to which during the
preceding month TABNet granted credits or refunds, then TABNet may reduce
the E-mail Hosting Revenues or Advertising Revenues, as applicable, by the
amount of any such credits or refunds. In addition, if during the previous
month, CP performed any work on the branding of the Web Mail Page as
provided in Exhibit A, TABNet shall include the applicable fees for such
work in the next month's payment.
Confidential Page 6
<PAGE>
3.2.3 Within forty-five (45) days of the end of each calendar quarter
(i.e., each three-month period ending March, June, September and December),
CP shall remit to TABNet its commission for re-selling JFAX Services to
Customers as specified in Exhibit B. Actual commission payments to TABNet
are conditioned upon such payment exceeding $200. Commissions due to TABNet
that are less than $200 will be accumulated until the total commission due
TABNet exceeds $200.
3.3 Reports. Each party shall submit with each of its payment to the other
-------
party a detailed report of the calculation of each such payment. Each report
shall include, at a minimum, a list of customers to which the payment relates
and a detailed explanation of the expenses subtracted from the revenues.
3.4 Audit Rights. TABNet will retain records relevant to its calculations
------------
of the payments described in this Section above during the term of this
Agreement and for a two (2) year period thereafter. CP shall have the right, at
its expense, acting through a certified public accountant, to examine and audit
such records at all reasonable times, on at least ten (10) days notice to
TABNet, but no more than once every six (6) months. If such audit reveals an
underpayment of five percent (5%) or more, then TABNet shall pay the full costs
of the audit and shall remit immediately the full amount due.
3.5 Late Payments. Late payments under this Agreement shall be subject to
-------------
interest from the date due at a rate that is the lower of, (a) one percent (1%)
per month from the date due; or (b) the maximum rate permitted by law.
3.6 TABNet's Responsibilities. All amounts payable hereunder are exclusive
-------------------------
of any sales, use, excise, property or any other taxes associated with the
provision of E-mail Hosting Services or of TABNet's or TABNet Customers' access
to or use of the CP System. TABNet is responsible for payment of any and all
such taxes (excluding taxes based on CP's net income). TABNet shall be
responsible for payment of all amounts owed to CP under this Agreement,
regardless of TABNet's receipt of payment from TABNet Customers for the E -mail
Hosting Services.
4. PROPRIETARY RIGHTS.
------------------
4.1 CP Ownership. CP shall be the sole owner of all rights and interests
------------
in and to the E-mail Hosting Services, and all Intellectual Property Rights
therein, including without limitation the trademarks, service marks and
tradenames used by CP to market or advertise the CP Services (the "CP Marks").
Confidential Page 7
<PAGE>
4.2 License of CP Marks. Subject to the terms and conditions of this
-------------------
Agreement, CP grants to TABNet a nonexclusive, nontransferable, royalty-free,
worldwide right to use the CP Marks, as defined in Section 5.1 above, solely for
the purpose of marketing and reselling E-mail Hosting Services to TABNet
Customers. TABNet shall use the CP Marks in accordance with the trademark usage
guidelines or other policies that CP may provide to TABNet from time to time.
TABNet shall provide or make available to CP and obtain CP's prior approval of
all such uses of the CP Marks (including, without limitation, links from
TABNet's web site). TABNet shall not adopt any trademark, trade name, or service
mark that is confusingly similar to the CP Marks. TABNet acknowledges that CP
owns the CP Marks, and all use of the CP Marks by TABNet shall inure solely to
the benefit of CP.
5. DISCLAIMER OF WARRANTIES.
------------------------
5.1 THE E-MAIL HOSTING SERVICES ARE PROVIDED BY CP TO TABNET AND TABNET
CUSTOMERS "AS IS." CP AND ITS SUPPLIERS MAKE NO WARRANTY OF ANY KIND, WHETHER
EXPRESS OR IMPLIED, REGARDING THE EMAIL HOSTING SERVICES AND SPECIFICALLY
DISCLAIM THE WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND
AGAINST INFRINGEMENT, TO THE MAXIMUM EXTENT POSSIBLE BY LAW.
5.2 CP and its suppliers make no warranties regarding the quality,
reliability, timeliness or security of the E-mail Hosting Services or the CP
System or that the E-mail Hosting Services or the CP System will be
uninterrupted or error free. CP and its suppliers assume no responsibility or
liability for the deletion or failure to store, or to store properly, e-mail
messages.
5.3 TABNet and TABNet Customers assume the entire risk in downloading or
otherwise accessing any data, files or other materials obtained from third
parties as part of the E-mail Hosting Services or by means of the CP System, and
TABNet and TABNet Customers shall be solely responsible for any damage to
TABNet's or TABNet Customer's computer system, hardware, software, or loss of
data that may result from such downloading or accessing, even if TABNet or
TABNet Customer has paid for virus protection services from CP.
5.4 TABNet shall have no right or authority to, and TABNet hereby
expressly agrees that it will not, alter, enlarge or limit the representations
or warranties regarding the E-mail Hosting Services. TABNet shall be solely
responsible for any warranties provided to TABNet Customers with respect to the
E-mail Hosting Services.
6. LIMITATION OF LIABILITY.
-----------------------
Confidential Page 8
<PAGE>
6.1 IN NO EVENT SHALL EITHER PARTY, OR ITS SUPPLIERS, BE LIABLE TO THE
OTHER PARTY, OR TO ANY CUSTOMER OF THE OTHER PARTY, WITH RESPECT TO ITS
OBLIGATIONS UNDER OR ARISING OUT OF THIS AGREEMENT FOR CONSEQUENTIAL, EXEMPLARY,
INDIRECT, SPECIAL OR INCIDENTAL DAMAGES, INCLUDING, WITHOUT LIMITATION, LOST
PROFITS, EVEN IF THE PARTY OTHERWISE LIABLE HAS BEEN ADVISED OF THE POSSIBILITY
OF SUCH DAMAGES.
6.2 CP shall not be responsible for any interruptions or disruptions in
the CP Services caused by TABNet's or Customer's hardware or software.
6.3 TABNet agrees to waive and hold CP harmless from any claims relating
to any action taken by CP as part of its investigation of a suspected violation
of this Agreement or as a result of its conclusion that a violation of this
Agreement has occurred. The foregoing includes any damages as a result of
removal of materials from the CP System or for any suspension, restriction or
termination of TABNet's account.
6.4 [**] CP's entire liability, and TABNet's and TABNet Customers' entire
and exclusive remedy, under this Agreement for any damages from any cause
whatsoever, regardless of form or action, whether in contract, negligence or
otherwise, shall in no event exceed an amount equal to the price paid for the E-
mail Hosting Service out of which the claim arose.
7. CONFIDENTIAL INFORMATION.
------------------------
7.1 "Confidential Information" means any and all technical and non-
------------------------
technical information, including patent, copyright, trade secret, and
proprietary information, techniques, algorithms, and software programs, related
to the current, future and proposed products and services of each of the
parties, including without limitation, the party's respective information
concerning research, engineering, finance, purchasing, manufacturing, customer
lists, business forecasts, sales and merchandising, and marketing plans.
7.2 Obligations. Each party acknowledges that, in the course of
-----------
performance under this Agreement, it may obtain Confidential Information of the
other party. Each party agrees that it shall at all times, both during the term
of this Agreement and for a period of five (5) years thereafter, keep and hold
such Confidential Information in the strictest confidence, and shall not,
without the other party's prior written consent, use such Confidential
Information for any purpose, except in performance of its duties under this
Agreement. Neither party shall disclose,
Confidential Page 9
[**] CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN
INFORMATION CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT CONFIDENTIAL
PORTIONS HAVE BEEN OMITTED FROM THE PUBLIC FILING AND HAVE BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
any of the Confidential Information to any person or entity without the
disclosing party's prior written consent, other than to the receiving party's
employees who have agreed to receive it under terms at least as restrictive as
those specified in this Agreement. The obligations of this Section shall survive
the termination of this Agreement. Further, neither party shall disclose any of
the terms and conditions of this Agreement to any person or entity whatsoever
other than legal counsel, except as such disclosure may be required for
accounting or tax reporting purposes or as otherwise may be required by law, or
as otherwise permitted in this Agreement; provided, however, that TABNet shall
give CP prior notice of any such disclosure so that CP may seek a protective
order preventing such disclosure.
7.3 Exceptions. The obligations of confidentiality under this Section
----------
shall not apply to the extent that the receiving party can demonstrate:
7.3.1 The disclosed information at the time of disclosure is part of
the public domain;
7.3.2 The disclosed information became part of the public domain, by
publication or otherwise, except by breach of the provisions of this
Agreement;
7.3.3 The disclosed information can be established by written
evidence to have been in the possession of the disclosing party at the time
of disclosure or to have been independently developed by employees of the
receiving party who did not have access to the Confidential Information of
the disclosing party; or
7.3.4 The disclosed information is received from a third party not
under a duty of confidentiality to the non-disclosing party without similar
restrictions and without breach of this Agreement.
8. INDEMNIFICATION.
---------------
8.1 TABNet's Indemnity. TABNet agrees to defend, indemnify, and hold CP
------------------
harmless from and against any claims, losses, actions, demands or damages,
including attorney's fees, resulting from (i) TABNet's or any TABNet Customer's
violation or breach or alleged violation or breach of any of the provisions of
this Agreement, (ii) from TABNet's or any TABNet Customer's transmission of any
materials or contents through the CP System or by means of the E-mail Hosting
Services, or from any and all use of TABNet's account with or without TABNet's
knowledge or consent (iii) TABNet's agreement or relationship with any and all
third parties relating to the advertisements solicited by TABNet for the Web
Mail Page; or (iii) any act, omission, negligence, or performance under this
Agreement by TABNet, its customers, agents or representatives.
Confidential Page 10
<PAGE>
8.2 CP's Indemnity. CP shall defend and indemnify TABNet and hold it
--------------
harmless from any and all claims, losses, actions, demands or damages,
including, but not limited to, reasonable attorneys' fees, resulting from any
act, omission, negligence, or performance of this Agreement by CP or its agents
or representatives. This indemnity shall not apply to the extent the portion of
such claim, liability, loss, cost, damage or expense is the result of the
negligence or willful misconduct of TABNet, its customers, agents or
representatives.
8.3 The indemnity obligations set forth in this Section 9 are contingent
upon the party seeking indemnification: (a) giving prompt written notice to the
indemnifying party of any such claim(s); (b) having sole control of the defense
or settlement of the claim; and (c) at the indemnifying party's request and
expense, cooperating in the investigation and defense of such claim(s).
9. TERM AND TERMINATION.
--------------------
9.1 Term. This Agreement shall be effective as of the date first above
----
written and shall continue in effect for [**] year from such date, unless
sooner terminated in accordance with this Section. This Agreement will renew
automatically for successive one (1) year periods unless either party gives the
other party at least sixty (60) days notice, prior to the end of the then-
current term, of its election not to renew the Agreement.
9.2 Termination for Convenience. Notwithstanding the foregoing, either
---------------------------
party may terminate this Agreement at any time and for any reason, without
penalty of any kind, upon ninety (90) days prior written notice to the other
party.
9.3 Termination for Breach. Notwithstanding the foregoing, upon the
----------------------
occurrence of any of the following events, either party may terminate this
Agreement immediately by giving to the other party written notice of such
termination: (a) the other party materially breaches or defaults in any of the
material terms or conditions of this Agreement (the parties agree that
noncompliance by TABNet with any of the terms and conditions of Section 3.5
above shall constitute a material breach); (b) the other party ceases to exist
as a business entity, or otherwise terminates or significantly limits its
business operations; (c) the other party is liquidated, dissolved, reorganized,
merged, sells substantially all of its assets, has entered into receivership or
changes its management voting control or corporate form; (d) the other party
fails to secure or renew any license or permit necessary for the conduct of its
business, or if any such license is revoked or suspended for any reason; (e) the
other party makes any assignment for the benefit of creditors; or (f) the other
party is insolvent or unable to pay its debts as they mature in the ordinary
course of business, or if there are any proceedings instituted by or against the
other party in bankruptcy or under any insolvency laws or for reorganization,
receivership or dissolution.
Confidential Page 11
[**] CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN
INFORMATION CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT
CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THE PUBLIC FILING AND HAVE
BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
9.2 Effect of Termination. Upon any termination of this Agreement, (a) CP
---------------------
shall immediately cease providing all E-mail Hosting Services, and TABNet and
Customers shall no longer have access to the CP System or to stored e-mail
messages on the CP System; (b) CP shall delete all stored e-mail messages of
TABNet and TABNet Customers on the CP System; (c) CP shall immediately invoice
TABNet for all unpaid fees for E-mail Hosting Services provided to TABNet; and
(d) except in the event of termination for TABNet's breach, CP shall reasonably
assist TABNet in the migration of its e-mail system back to its setup in
existence before the Effective Date of this Agreement. TABNet shall return to CP
all Confidential Information and all other CP information and material
concerning CP and/or the CP Services or the CP System, and all copies thereof,
in the possession, custody or control of TABNet.
9.3 Survival. Exhibit A and Section 3 (as to amounts accrued but not yet
--------
paid), and Sections 3.4, 4, 5, 6, 7, 8, 9.2, 9.3, and 10 shall survive any
expiration or termination of this Agreement.
10. MISCELLANEOUS.
-------------
10.1 Injunctive Relief. Each party agrees that in addition to any other
-----------------
rights and remedies available to the other party for any breach of this
Agreement, the nonbreaching party shall be entitled to enforce the breaching
party's obligations by court injunction.
10.2 Severability. If any provision of this Agreement shall be declared
------------
invalid, illegal or unenforceable, such provision shall be reformed only to the
extent necessary to effect the original intention of the parties, and all
remaining provisions shall continue in fall force and effect
10.3 Binding Effect. This Agreement shall be binding upon and inure to the
--------------
benefit of the subsidiaries, affiliates, successors and permitted assigns of the
parties to this Agreement.
10.4 Assignment. TABNet may not transfer, sublicense or otherwise assign
----------
this Agreement or any of its rights or obligations hereunder without CP's prior
written consent. Any attempt assignment by TABNet without such consent shall be
void.
10.5 Entire Agreement. This Agreement, together with all Exhibits and any
----------------
Schedules accepted by CP, constitutes the entire agreement of the parties with
respect to the subject matter of this Agreement. This Agreement supersedes any
and all agreements, either oral or written, between the parties to this
Agreement with respect to the subject of this Agreement. Except as otherwise
expressly provided herein, this Agreement may be modified only by a writing
signed by an authorized representative of CP. Any contrary or additional terms
or conditions in any
Confidential Page 12
<PAGE>
forms provided by TABNet are specifically objected to by CP and shall not be
part of this Agreement.
10.6 Attorneys Fees. If any action at law or in equity, including an
--------------
action for declaratory relief or injunctive relief, is brought to enforce or
interpret the provisions of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees in addition to any other relief to which
the party may be entitled.
10.7 Notices. Any notices to be given under this Agreement by either
-------
party to the other may be effected by personal delivery in writing or by mail,
registered or certified, postage prepaid with return receipt requested. Mailed
notices shall be addressed to the parties at the addresses appearing in the
introductory paragraph of this Agreement, but each party may change the address
by written notice in accordance with this paragraph. Notices delivered
personally will be deemed communicated as of actual receipt; mailed notices will
be deemed communicated as of three (3) days after mailing.
10.8 Dispute Resolution. Any dispute, controversy or claim concerning or
------------------
relating to this Agreement, shall be resolved in the following manner:
10.8.1 The parties shall use all reasonable efforts to resolve the
dispute through direct discussions. The senior management of each party
commits itself to respond promptly to any such dispute, controversy or
claim. If the parties are unable to resolve the dispute by such means then
either party may commence an arbitration pursuant to the Rules of
Commercial Arbitration of the American Arbitration Association ("AAA");
10.8.2 If the parties cannot agree on a sole arbitrator, then there
shall be three (3) arbitrators. Each of the arbitrator(s) shall be neutral,
independent and impartial, and knowledgeable of the computer industry. If
there are three arbitrators, each side shall nominate one arbitrator, and
the two party-selected arbitrators shall attempt to select the third. If
the party-selected arbitrators are unable to select the third, then such
third arbitrator shall be appointed by the AAA. Any arbitrator may be of
any nationality. Each party shall bear its own legal costs unless the
tribunal shall provide otherwise. All proceedings and meetings referred to
in this Section shall take place at Santa Clara County, California, or at
such other location as the parties may agree.
10.8.3 The arbitration proceedings contemplated by this Section
shall be as confidential and private as permitted by law. To that end, the
parties shall not disclose the existence, content or results of any
proceedings conducted in accordance with this Section, and materials
submitted in connection with such proceedings shall not be admissible in
any other, proceeding, provided, however, that this confidentiality
provision
Confidential Page 13
<PAGE>
shall not prevent a petition to vacate or enforce an arbitral award, and
shall not bar disclosures required by law. The parties agree that any
decision or award resulting from proceedings in accordance with this
Section shall have no preclusive effect in any other matter involving third
parties; and
10.8.4 Judgment on an arbitral award may be entered by any court of
competent jurisdiction, or application may be made to such a court for
judicial recognition and acceptance of the award and any appropriate order
including enforcement.
10.9 Choice of Law, Venue and Jurisdiction. This Agreement shall be
-------------------------------------
governed by and construed in accordance with the laws of the State of
California. Other than as set forth in Section 11.8 above, the parties consent
to the exclusive jurisdiction and venue of the California state courts (or
federal courts if there is exclusive federal jurisdiction) located in or serving
Santa Clara County, California. Each party hereby waives its right to a jury
trial.
Confidential Page 14
<PAGE>
10.10 Further Assurances. Each party agrees to execute and deliver all
------------------
further instruments and documents, and shall take all further action that may be
necessary or desirable as reasonably requested by the other party to effectuate
the parties' intent under this Agreement.
IN WITNESS WHEREOF, the parties to this Agreement have executed and
delivered this Agreement as of the date first above written.
CRITICAL PATH, INC.
By____________________________________
Its___________________________________
NTX, INC.
By /s/ 3/19/98
------------------------------------
Its CEO
-----------------------------------
Confidential Page 15
<PAGE>
EXHIBIT A
---------
SERVICES AND CHARGES SCHEDULE
-----------------------------
This Services and Charges Schedule is attached to and made apart of the E-
mail Services Agreement between TABNet and Critical Path, Inc. (the "Agreement")
and is subject to the terms and conditions of the Agreement.
TABNet agrees to pay Critical Path the following amounts for the following
E-mail Hosting Services:
1. POP e-mail hosting: TABNet will pay to Critical Path a basic
monthly POP email hosting fee per mailbox - without any premium
features - [**] of TABNet's gross retail revenue [**].
2. Free web mail: TABNet may offer free ad-supported web mail
through certain other ventures with third parties. For Critical Path's
provision of E-mail Hosting Services in connection therewith, TABNet
will pay Critical Path [**] per mailbox per month for such free
mailboxes (in addition to Critical Path's share of the Advertising
Revenues associated therewith, as provided in 5 below).
3. "Catch-all" e-mail hosting: For e-mail accounts other than POP or
free e-mail, TABNet will pay to Critical Path [**] per mailbox per
month.
4. Value added features: TABNet will pay to Critical Path the
greater of [**] of the suggested retail price for each subscribed
service as listed below OR [**] of TABNet's revenue based on TABNet's
retail charge to Customer for each subscribed service.
Suggested Retail Price for Value-Added Features of the E-mail Hosting
Services:
-----------------------------------------------------------------
Spam Blocking [**]/Month/Mailbox
-----------------------------------------------------------------
Virus Protection [**]/Month/Mailbox
-----------------------------------------------------------------
Postmarking, Certified Delivery [**]/Month/Mailbox
-----------------------------------------------------------------
Extra storage (* 2.5 Mb) [**]/Mb/Month/Mailbox
-----------------------------------------------------------------
1. Advertising Revenue: TABNet will pay to Critical Path [**] of
TABNet's Advertising Revenues (including, without limitation,
Advertising Revenues obtained in connection with the free e-mail
described in paragraph 3 above).
2. Branding of Web Mail Page: TABNET will pay to Critical Path a
one-time fee of [**] for Critical Path's branding the Web Mail Page.
TABNet may
Confidential Page 16
* greater than or more than
[**] CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN
INFORMATION CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT CONFIDENTIAL
PORTIONS HAVE BEEN OMITTED FROM THE PUBLIC FILING AND HAVE BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
request one change to the look and feel of the Web Mail Page at no
additional charge. Any further requested changes will be chargeable at
the rate of [**] each.
TABNet is authorized to resell the E-mail Hosting Services and agrees to
make payments to Critical Path as provided herein.
PAYMENT OF UP-FRONT CHARGES - Upon execution of the Agreement, TABNet shall
pay the Basic Monthly Fee for the first month under the Agreement for the number
of e-mailboxes initially ordered by TABNet and the fee for branding the Web Mail
Page.
PAYMENT OF OTHER FEES - All other fees are payable monthly in accordance
with this Schedule and the Agreement.
Confidential Page 17
[**] CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN
INFORMATION CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT CONFIDENTIAL
PORTIONS HAVE BEEN OMITTED FROM THE PUBLIC FILING AND HAVE BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
EXHIBIT B
---------
JFAX SERVICES ORDER SCHEDULE
----------------------------
This Order Schedule is placed by NTX, INC., a ____________ corporation
("TABNet") under the E-mail Services Agreement dated ___________ ("Agreement")
between TABNet and Critical Path, Inc. and is subject to the terms and
conditions of the Agreement.
FEES
----
All of the following amounts are charges per mailbox, unless otherwise
noted.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
BASIC
SIGN-UP MONTHLY
SERVICE DESCRIPTION FEES FEES USAGE FEES
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
JFAX Fax and Voice to Email Service [**] [**] $.20 per message in
excess of 200
- ------------------------------------------------------------------------------------------------------------
Toll Free 888 service [**] [**] $.20 per message
- ------------------------------------------------------------------------------------------------------------
Fax and Voice to Email
- ------------------------------------------------------------------------------------------------------------
JFAX/Send Email to Fax Service [**] [**]
- ------------------------------------------------------------------------------------------------------------
JFAX/Operator Message access from Telephone [**] [**] $.10 per message
- ------------------------------------------------------------------------------------------------------------
Message Access From Web
Browser [**] [**] Included
- ------------------------------------------------------------------------------------------------------------
JFAX/Notify! Pager Notification of
Message Receipt [**] [**] $.10 per message
- ------------------------------------------------------------------------------------------------------------
SMS Notification [**] [**] $.25 per message
- ------------------------------------------------------------------------------------------------------------
</TABLE>
Critical Path offers the JFAX voice and fax gateway to email box services
available to TABNet's Customers on a subscription basis. [**] Such commission
shall be based only on revenue actually paid by TABNet Customers to JFAX.COM.
Pursuant to Section 2 of the Agreement, TABNet's customers shall pay all
fees for JFAX Services, as provided herein, to JFAX.COM directly at the
following address:
JFAX
10960 Wilshire Blvd, Suite 500
Los Angeles, CA 90024
Confidential Page 18
[**] CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN
INFORMATION CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT CONFIDENTIAL
PORTIONS HAVE BEEN OMITTED FROM THE PUBLIC FILING AND HAVE BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
RIGHTS OF JFAXCOM
JFAX.COM may modify, discontinue or terminate the JFAX Services and may
modify the fees for JFAX Services at any time.
By its signature on this JFAX Services Order Schedule, the authorized
representative of TABNet agrees that the terms and conditions of the Agreement,
including those in this Order Schedule, apply to all JFAX Services ordered by
TABNet under this Order Schedule.
NTX, INC.
By /s/
---------------------------------
Its CEO
--------------------------------
ACCEPTED BY:
CRITICAL PATH, INC.
By /s/
---------------------------------
Its Director Business Development
--------------------------------
Date 3/23/98
-------------------------------
Confidential Page 19
<PAGE>
EXHIBIT C
---------
TERMS OF USE
------------
Please read the following agreement carefully.
You must accept the agreement to be able to use TABNet's services.
1. ACCEPTANCE OF TERMS OF USE
TABNet's mail service is provided free of charge to registered users (each,
a "User") under these Terms of Use. BY COMPLETING THE REGISTRATION PROCESS AND
CLICKING THE "I ACCEPT" BUTTON, YOU ARE INDICATING YOUR AGREEMENT TO BE BOUND BY
THESE TERMS OF USE. These Terms of Use are the entire agreement between you and
TABNet with respect to the services provided by TABNet.
2. REGISTRATION INFORMATION; DISCLOSURE
User agrees that TABNet may disclose to third parties certain information,
in the aggregate, contained in users' registration applications, including
User's application. TABNet will not disclose Users name, address, e-mail address
or telephone number, without User's prior written consent, except to the extent
necessary or appropriate to comply with applicable laws or regulations or in
legal or administrative proceedings where such information is relevant. TABNet
reserves the right to terminate any User's account if TABNet learns that such
User has provided TABNet false or misleading registration information.
3. MODIFICATIONS OF THESE TERMS OF USE
TABNet may modify these Terms of Use from time to time in its sole
discretion. TABNet will provide User with reasonable notice of any such changes,
and User's continued use of TABNet's services will be deemed to constitute
User's acceptance of any such changes.
4. MODIFICATIONS OF TABNET SERVICES
TABNet may modify or discontinue User's account or the TABNet services with
or without notice to User, without liability to User or any third party.
5. CONTENTS OF MESSAGES
It is TABNet's policy to respect the privacy of its Users. TABNet does not
and cannot, monitor, censor or edit the contents of User's e-mail messages. User
alone is responsible for the contents of User's messages, and the consequences
of any such messages. User agrees that User will not use TABNet or its services
for chain letters, junk mail, "spamming", solicitations (commercial or non-
commercial) or any use of distribution lists to any person who has not given
specific permission to be included in such a process. User further agrees not to
use TABNet or its services to send any messages or material that are unlawful,
harassing, libelous, abusive, threatening, harmful, vulgar, obscene or otherwise
objectionable material of any kind or nature (including without limitation any
material that infringes or violates any third party's copyright, trademark, or
other proprietary or property right) or that encourages conduct that
Confidential Page 20
<PAGE>
could constitute a criminal offense, give rise to civil liability or otherwise
violate any applicable local, state, national or international law or
regulation. TABNet will only access and disclose information as necessary to
comply with applicable laws and government requests, to provide the services, to
operate or maintain its systems or to protect itself or its suppliers.
TABNet reserves the right to terminate User's account if it becomes aware
and determines, in TABNet's sole discretion, that User is violating any of these
Terms of Use.
6. ACCOUNT AND PASSWORD
User is responsible for maintaining the confidentiality of its account
number and password. User shall be responsible for all uses of its account,
whether or not authorized by User. User agrees to immediately notify TABNet of
any unauthorized use of its account.
7. DISCLAIMER OF WARRANTIES
USER EXPRESSLY AGREES THAT USE OF TABNet SERVICES IS AT USER'S SOLE RISK.
TABNet SERVICES ARE PROVIDED ON AN "AS IS" AND "AS AVAILABLE" BASIS.
TABNet DISCLAIMS ALL WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING
WITHOUT LIMITATION ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR
PURPOSE OR NONINFRINGEMENT.
TABNet DOES NOT MAKE ANY WARRANTY THAT TABNet SERVICES WILL MEET USER'S
REQUIREMENTS, OR THAT TABNet SERVICES WILL BE UNINTERRUPTED, TIMELY, SECURE, OR
ERROR FREE; NOR DOES TABNet MAKE ANY WARRANTY AS TO THE RESULTS THAT MAY BE
OBTAINED FROM THE USE OF TABNet SERVICES OR AS TO THE ACCURACY OR RELIABILITY OF
ANY INFORMATION OBTAINED THROUGH TABNet SERVICES.
USER UNDERSTANDS AND AGREES THAT ANY MATERIAL AND/OR DATA DOWNLOADED OR
OTHERWISE OBTAINED THROUGH THE USE OF TABNet SERVICES IS AT USER'S OWN
DISCRETION AND RISK AND THAT USER WILL BE SOLELY RESPONSIBLE FOR ANY DAMAGE TO
USER'S COMPUTER SYSTEM OR LOSS OF DATA THAT RESULTS FROM THE DOWNLOAD OF SUCH
MATERIAL AND/OR DATA.
TABNet DOES NOT MAKE ANY WARRANTY REGARDING ANY GOODS OR SERVICES PURCHASED
OR OBTAINED THROUGH TABNet SERVICES OR ANY TRANSACTIONS ENTERED INTO BY USE OF
OR THROUGH TABNet SERVICES.
Confidential Page 21
<PAGE>
NO ADVICE OR INFORMATION, WHETHER ORAL OR WRITTEN, OBTAINED BY USER FROM
TABNet OR THROUGH TABNet SERVICES SHALL CREATE ANY WARRANTY NOT EXPRESSLY MADE
HEREIN.
8. LIMITATION OF LIABILITY
TABNet AND ITS SUPPLIERS SHALL NOT BE LIABLE FOR ANY DIRECT, INDIRECT,
INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES, RESULTING FROM THE USE OR THE
INABILITY TO USE TABNet SERVICES OR FOR THE COST OF PROCUREMENT OF SUBSTITUTE
GOODS AND SERVICES OR RESULTING FROM ANY GOODS OR SERVICES PURCHASED OR OBTAINED
OR MESSAGES RECEIVED OR TRANSACTIONS ENTERED INTO BY MEANS OF OR THROUGH TABNet
SERVICES OR RESULTING FROM UNAUTHORIZED ACCESS TO OR ALTERATION OF USER'S
TRANSMISSIONS OR DATA, INCLUDING BUT NOT LIMITED TO, DAMAGES FOR LOSS OF
PROFITS, USE, DATA OR OTHER INTANGIBLE, EVEN IF TABNet OR ITS SUPPLIER HAS BEEN
ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
9. E-MAIL MESSAGE STORAGE
TABNet will not assume any responsibility for the deletion or failure to
store e-mail messages.
10. PROMOTIONAL MESSAGES
TABNet and/or third parties may, from time to time, send e-mail messages
to User containing advertisements, promotions, etc. Such e-mail messages will be
sent to mailbox(es) other than User's Inbox or mailboxes created by User. TABNet
does not make any representation or warranty with respect to any such e-mail
messages or any goods or services which may be obtained from such third parties,
and User agrees that TABNet shall have no liability with respect thereto.
11. INDEMNIFICATION
User agrees to indemnify and hold TABNet its suppliers and their
respective affiliates, officers, directors, employees and agents, harmless from
any claim, action or demand, including reasonable attorneys' fees, made by any
third party due to, arising out of or related to User's use of TABNet services
or the violation of these Terms of Use by User, including without limitation the
infringement by User, or any other user of User's account, of any intellectual
property or other right of any person or entity.
12. APPLICABLE LAW
These Terms of Use shall be governed by and construed in accordance with
the laws of the State of California, without giving effect to its conflict of
laws provisions.
13. THIRD PARTY BENEFICIARY
Confidential Page 22
<PAGE>
Critical Path, Inc., as a supplier of TABNet, shall be a third party
beneficiary of User's obligations under these Terms of Use and thus shall be
entitled to enforce those obligations against User as if a party to these Terms
of Use.
I ACCEPT/I DECLINE
Confidential Page 23
<PAGE>
EXHIBIT 10.21
[LOGO] Silicon Valley Bank
QuickStart Loan and Security Agreement
Borrower: Critical Path, Inc. Address: 320 First Street
Date: May 12, 1998 San Francisco, CA 94105
SILICON'S OFFER TO EXTEND FINANCING ON THE TERMS SET FORTH HEREIN SHALL EXPIRE
IF THIS AGREEMENT IS NOT EXECUTED BY BORROWER AND RETURNED TO SILICON WITHIN
30 DAYS OF THE ABOVE DATE.
THIS LOAN AND SECURITY AGREEMENT is entered into on the above date between
SILICON VALLEY BANK ("Silicon"), whose address is 3003 Tasman Drive, Santa
Clara, California 95054 and the borrower named above (jointly and severally, the
"Borrower"), whose chief executive office is located at the above address
("Borrower's Address").
1. Loans. Silicon will make loans to Borrower (the "Loans") in amounts
determined by Silicon in its reasonable business judgment up to the amount (the
"Credit Limit") shown on the Schedule to this Agreement (the "Schedule"),
provided no Event of Default and no event which, with notice or passage of time
or both, would constitute an Event of Default has occurred. All Loans and other
monetary Obligations will bear interest at the rate shown on the Schedule.
Interest will be payable monthly, on the date shown on the monthly billing from
Silicon. Silicon may, in its discretion, charge interest to Borrower's deposit
accounts maintained with Silicon.
2. Security Interest. As security for all present and future indebtedness,
guarantees, liabilities, and other obligations, of Borrower to Silicon
(collectively, the "Obligations"), Borrower hereby grants Silicon a continuing
security interest in all of Borrower's interest in the following types of
property, whether now owned or hereafter acquired, and wherever located
(collectively, the "Collateral"): All "accounts," "general intangibles,"
"contract rights," "chattel paper," "documents," "letters of credit,"
"instruments," "deposit accounts," "inventory," "farm products," investment
property," "fixtures" and "equipment," as such terms are defined in Division 9
of the California Uniform Commercial Code in effect on the date hereof, and all
products, proceeds and insurance proceeds of the foregoing.
3. Representations And Agreements Of Borrower. Borrower represents to Silicon
as follows, and Borrower agrees that the following representations will continue
to be true, and that Borrower will comply with all of the following agreements
throughout the term of this Agreement:
3.1 Corporate Existence and Authority. Borrower, if a corporation, is and
will continue to be, duly authorized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation. The execution,
delivery and performance by Borrower of this Agreement, and all other documents
contemplated hereby have been duly and validly authorized, and do not violate
any law or any provision of, and are not grounds for acceleration under, any
agreement or instrument which is binding upon Borrower.
3.2 Name; Places of Business. The name of Borrower set forth in this
Agreement is its correct name. Borrower shall give Silicon 15 days' prior
written notice before changing its name. The address set forth in the heading
to this Agreement is Borrower's chief executive office. In addition, Borrower
has places of business and Collateral is located only at the locations set forth
on the Schedule. Borrower will give Silicon at least 15 days prior written
notice before changing its chief executive office or locating the Collateral at
any other location.
3.3 Collateral. Silicon has and will at all times continue to have a first-
priority perfected security interest in all of the Collateral other than
specific equipment to the extent that a security interest in such type of
Collateral can be perfected by filing a financing statement. Borrower will
immediately advise Silicon in writing of any material loss or damage to the
Collateral.
3.4 Financial Condition and Statements. All financial statements now or in
the future delivered to Silicon have been, and will be, prepared in conformity
with generally accepted accounting principles. Since the last date covered by
any such statement, there has been no material adverse change in the financial
condition or business of Borrower. Borrower will provide Silicon: (i) within
30 days after the end of each month, a monthly financial statement prepared by
Borrower, and such other information as Silicon shall reasonably request; (ii)
within 120 days following the end of Borrower's fiscal year, complete annual
financial statements, certified by independent certified public accountants
acceptable to Silicon and accompanied by the unqualified report thereon by said
independent certified public accountants; and (iii) other financial information
reasonably requested by Silicon from time to time.
3.5 Taxes; Compliance with Law. Borrower has filed, and will file, when due,
all tax returns and reports required by applicable law, and Borrower has paid,
and will pay, when due, all taxes, assessments, deposits and contributions now
or in the future owed by Borrower disputed in good faith and reserved for under
GAAP and would not be expected to cause a material adverse effect. Borrower has
complied, and will comply, in all material respects, with all applicable laws,
rules and regulations.
3.6 Insurance. Borrower shall at all times insure all of the tangible
personal property Collateral and carry such other business insurance as is
customary in Borrower's industry.
3.7 Access to Collateral and Books and Records. At reasonable times, on one
business day notice, Silicon, or its agents, shall have the right to inspect the
Collateral, and the right to audit and copy Borrower's books and records.
-1-
<PAGE>
Silicon Valley Bank QuickStart Loan and Security Agreement
3.8 Operating Accounts. Borrower shall maintain its primary operating
accounts with Bank.
3.9 Additional Agreements. Borrower shall not, without Silicon's prior
written consent, do any of the following: (i) enter into any transaction
outside the ordinary course of business except for the sale of capital stock to
venture investors, provided that Borrower promptly delivers written notification
to Silicon of any such sale; (ii) sell or transfer any Collateral, except in the
ordinary course of business; (iii) pay or declare any dividends on Borrower's
stock (except for dividends payable solely in stock of Borrower); or (iv)
redeem, retire, purchase or otherwise acquire, directly or indirectly, any of
Borrower's stock other than the repurchase of up to five percent (5%) of
Borrower's then issued stock in any fiscal year from Borrower's employees or
directors pursuant to written agreement with Borrower.
4. Term. This Agreement shall continue in effect until the maturity date set
forth on the Schedule (the "Maturity Date"). This Agreement may be terminated,
without penalty, prior to the Maturity Date as follows: (i) by Borrower,
effective three business days after written notice of termination is given to
Silicon; or (ii) by Silicon at any time after the occurrence of an Event of
Default, without notice, effective immediately. On the Maturity Date or on any
earlier effective date of termination, Borrower shall pay all Obligations in
full, whether or not such Obligations are otherwise then due and payable. No
termination shall in any way affect or impair any security interest or other
right or remedy of Silicon, nor shall any such termination relieve Borrower of
any Obligation to Silicon, until all of the Obligations have been paid and
performed in full.
5. Events of Default and Remedies. The occurrence of any of the following
events shall constitute an "Event of Default" under this Agreement: (a) Any
representation, statement, report or certificate given to Silicon by Borrower or
any of its officers, employees or agents, now or in the future, is untrue or
misleading in a material respect when given or made, or (b) Borrower fails to
pay when due any Loan or any interest thereon or any other monetary Obligation;
or (c) the aggregate amount of Loans made hereunder at any time exceed the
Credit Limit; or (d) Borrower fails to perform any other non-monetary
Obligation, which failure is not cured within 15 business days after the date
due; or (e) Dissolution, termination of existence, insolvency or business
failure of Borrower; or appointment of a receiver, trustee or custodian, for all
or any part of the property of, assignment for the benefit of creditors by, or
the commencement of any proceeding by or against Borrower under any
reorganization, bankruptcy, insolvency, arrangement, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction, now or in the
future in effect; or (f) a material adverse change in the business, operations,
or financial or other condition of Borrower. If an Event of Default occurs,
Silicon, shall have the right to accelerate and declare all of the Obligations
to be immediately due and payable, increase the interest rate by an additional
four percent per annum, and exercise all rights and remedies accorded it by
applicable law.
6. General. If any provision of this Agreement is held to be unenforceable,
the remainder of this Agreement shall still continue in full force and effect.
This Agreement and any other written agreements, documents and instruments
executed in connection herewith are the complete agreement between Borrower and
Silicon and supersede all prior and contemporaneous negotiations and oral
representations and agreements, all of which are merged and integrated in this
Agreement. There are no oral understandings, representations or agreements
between the parties which are not in this Agreement or in other written
agreements signed by the parties in connection this Agreement. The failure of
Silicon at any time to require Borrower to comply strictly with any of the
provisions of this Agreement shall not waive Silicon's right later to demand and
receive strict compliance. Any waiver of a default shall not waive any other
default. None of the provisions of this Agreement may be waived except by a
specific written waiver signed by an officer of Silicon and delivered to
Borrower. The provisions of this Agreement may not be amended, except in a
writing signed by Borrower and Silicon. Borrower shall reimburse Silicon for all
reasonable attorneys' fees and all other reasonable costs incurred by Silicon,
in connection with this Agreement (whether or not a lawsuit is filed). If
Silicon or Borrower files any lawsuit against the other predicated on a breach
of this Agreement, the prevailing party shall be entitled to recover its
reasonable costs and attorneys' fees from the non-prevailing party. Borrower
may not assign any rights under this Agreement without Silicon's prior written
consent. This Agreement shall be governed by the laws of the State of
California.
7. Mutual Waiver of Jury Trial. BORROWER AND SILICON EACH HEREBY WAIVE THE
RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF,
OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY CONDUCT, ACT OR OMISSION OF
SILICON OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES, AGENTS,
ATTORNEYS OR AFFILIATES.
Borrower:
CRITICAL PATH, INC.
By /s/ David Hayden
--------------------------------------
President or Vice President
Silicon:
SILICON VALLEY BANK
By______________________________________
Title____________________________________
<PAGE>
[LOGO] Silicon Valley Bank
Schedule to
QuickStart Loan and Security Agreement (Master)
Borrower: Critical Path, Inc.
Date: May 12, 1998
This Schedule is an integral part of the Loan and Security Agreement between
Silicon Valley Bank ("Silicon") and the above-named borrower ("Borrower") of
even date.
Credit Limit (Aggregate)
(Section 1): $1,000,000 (includes, without limitation,
Equipment Advances and the Merchant Services and
Business Visa Reserve, if any)
Interest Rate (Section 1): A rate equal to the "Prime Rate" in effect from
time to time, plus 2.0% per annum. Interest
shall be calculated on the basis of a 360-day
year for the actual number of days elapsed.
"Prime Rate" means the rate announced from time
to time by Silicon as its "prime rate;" it is a
base rate upon which other rates charged by
Silicon are based, and it is not necessarily the
best rate available at Silicon. The interest
rate applicable to the Obligations shall change
on each date there is a change in the Prime
Rate.
Maturity Date (Section 4): November 12, 2001 (Revolving portion matures on
November 12, 1999)
Other Locations and Addresses
(Section 3.2): N/A
--------------------------
Other Agreements: Borrower also agrees as follows:
1. Loan Fee. Borrower shall concurrently pay
Silicon a non-refundable Loan Fee in the amount
of $10,000.
2. Banking Relationship. Borrower shall at all
times maintain its primary banking relationship
with Silicon.
Borrower: Silicon:
CRITICAL PATH, INC. SILICON VALLEY BANK
By /s/ David Hayden By_______________________________
-------------------------------
President or Vice President Title______________________________
<PAGE>
[LOGO] Silicon Valley Bank
Schedule to
QuickStart Loan and Security Agreement (Equipment Advances)
Borrower: Critical Path, Inc.
Date: May 12, 1998
This Schedule is an integral part of the Loan and Security Agreement between
Silicon Valley Bank ("Silicon") and the above-named borrower ("Borrower") of
even date.
Credit Limit (Equipment)
(Section 1): $1,000,000 (such amount to be funded under the
aggregate Credit Limit). Equipment Advances will be
made only on or prior to November 12, 1998 (the
"Last Advance Date") and only for the purpose of
purchasing equipment reasonably acceptable to
Silicon. Borrower must provide invoices for the
equipment to Silicon on or before the Last Advance
Date.
Interest Rate (Section 1): A rate equal to the "Prime Rate" in effect from
time to time, plus 2.0% per annum. Interest shall
be calculated on the basis of a 360-day year for
the actual number of days elapsed. "Prime Rate"
means the rate announced from time to time by
Silicon as its "prime rate;" it is a base rate upon
which other rates charged by Silicon are based, and
it is not necessarily the best rate available at
Silicon. The interest rate applicable to the
Obligations shall change on each date there is a
change in the Prime Rate.
Maturity Date (Section 4): After the Last Advance Date, the unpaid principal
balance of the Equipment Advances shall be repaid
in 36 equal monthly installments of principal, plus
interest, commencing on December 12, 1998 and
continuing on the same day of each month thereafter
until the entire unpaid principal balance of the
Equipment Advances and all accrued unpaid interest
have been paid (subject to Silicon's right to
accelerate the Equipment Advances on an Event of
Default).
Borrower: Silicon:
CRITICAL PATH, INC. SILICON VALLEY BANK
By /s/ David Hayden By_______________________________
-------------------------------
President or Vice President Title______________________________
<PAGE>
[LOGO] Silicon Valley Bank
Certified Resolution
Borrower: Critical Path, Inc., a corporation organized under the laws of the
State of California
Date: May 12, 1998
I, the undersigned, corporate officer of the above-named borrower, a
corporation organized under the laws of the state set forth above, do hereby
certify that the following is a full, true and correct copy of resolutions duly
and regularly adopted by the Board of Directors of said corporation as required
by law, and by the by-laws of said corporation, and that said resolutions are
still in full force and effect and have not been in any way modified, repealed,
rescinded, amended or revoked.
RESOLVED, that this corporation borrow from Silicon Valley Bank ("Silicon"),
from time to time, such sum or sums of money as, in the judgment of the officer
or officers authorized hereby, this corporation may require.
RESOLVED FURTHER, that any officer of this corporation be, and he or she is
hereby authorized, in the name of this corporation, to execute and deliver to
Silicon the loan agreements, security agreements, notes, financing statements,
and other documents and instruments providing for such loans and evidencing or
securing such loans, and said authorized officers are authorized from time to
time to execute renewals, extensions and/or amendments of said loan agreements,
security agreements, and other documents and instruments.
RESOLVED FURTHER, that said authorized officers be and they are hereby
authorized, as security for any and all indebtedness of this corporation to
Silicon, whether arising pursuant to this resolution or otherwise, to grant, to
Silicon, or deed in trust for its benefit, any property of any and every kind,
belonging to this corporation, including, but not limited to, any and all real
property, accounts, inventory, equipment, general intangibles, instruments,
documents, chattel paper, notes, money, deposit accounts, furniture, fixtures,
goods, and other property of every kind, and to execute and deliver to Silicon
any and all pledge agreements, mortgages, deeds of trust, financing statements,
security agreements and other agreements, which said instruments and the note or
notes and other instruments referred to in the preceding paragraph may contain
such provisions, covenants, recitals and agreements as Silicon may require, and
said authorized officers may approve, and the execution thereof by said
authorized officers shall be conclusive evidence of such approval.
RESOLVED FURTHER, that said authorized officers be and they are hereby
authorized to issue warrants to purchase this corporation's capital stock, for
such class, series and number, and on such terms, as said officers shall deem
appropriate
RESOLVED FURTHER, that Silicon may conclusively rely on a certified copy of
these resolutions and a certificate of the corporate officer of this corporation
as to the officers of this corporation and their offices and signatures, and
continue to conclusively rely on such certified copy of these resolutions and
said certificate for all past, present and future transactions until written
notice of any change hereto or thereto is given to Silicon by this corporation
by certified mail, return receipt requested.
The undersigned further hereby certifies that the following persons are the duly
elected and acting officers of the corporation named above as borrower and that
the following are their actual signatures:
<TABLE>
<CAPTION>
NAMES OFFICE(S) ACTUAL SIGNATURES
----- --------- -----------------
<S> <C> <C>
David Hayden CEO x /s/ David Hayden
------------------------------ ------------------------------ ---------------------------
______________________________ ______________________________ x___________________________
______________________________ ______________________________ x___________________________
</TABLE>
IN WITNESS WHEREOF, I have hereunto set my hand as such corporate officer on the
date set forth above.
By /s/ David Hayden /s/ Don Lubreski
----------------------------------
Its CEO Controller
---------------------------------
<PAGE>
EXHIBIT "A" TO UCC-1 FINANCING STATEMENT
DEBTOR: CRITICAL PATH, INC.
SECURED PARTY: SILICON VALLEY BANK
Debtor hereby grants Secured Party a security interest in all of the
following, whether now owned or hereafter acquired, and wherever located, as
collateral for the payment and performance of all present and future
indebtedness, liabilities, guarantees and obligations of Debtor to Secured
Party: All "accounts," "general intangibles," "contract rights, " "chattel
paper," "documents," "letters of credit," "instruments," "deposit accounts,"
"inventory," "farm products," "fixtures," "investment property," and
"equipment," as such terms are defined in Division 9 of the California Uniform
Commercial Code in effect on the date hereof, and all products, proceeds and
insurance proceeds of any or all of the foregoing.
Debtor Initial here:____________
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated January 28, 1999
relating to the consolidated financial statements of Critical Path, Inc., which
appears in such Prospectus. We also consent to the reference to us under the
heading "Experts" in such Prospectus.
/s/ PricewaterhouseCoopers LLP
San Jose, California
January 28, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 FEB-19-1997
<PERIOD-END> DEC-31-1998 DEC-31-1997
<CASH> 14,791 1
<SECURITIES> 0 0
<RECEIVABLES> 121 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 15,375 5
<PP&E> 4,687 501
<DEPRECIATION> 1,019 26
<TOTAL-ASSETS> 20,663 550
<CURRENT-LIABILITIES> 2,851 1,529
<BONDS> 0 0
0 0
36 0
<COMMON> 18 5
<OTHER-SE> 15,304 (1,026)
<TOTAL-LIABILITY-AND-EQUITY> 20,663 550
<SALES> 897 0
<TOTAL-REVENUES> 897 0
<CGS> 2,346 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 9,999 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 388 18
<INCOME-PRETAX> (11,461) (1,074)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (11,461) (1,074)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (11,461) (1,074)
<EPS-PRIMARY> (1.34) (0.24)
<EPS-DILUTED> (1.34) (0.24)
</TABLE>
