<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 29, 1999.
REGISTRATION NO. 333-69171
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------------
WEBTRENDS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
OREGON 7372 93-1123283
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
851 SW SIXTH AVE., SUITE 1200
PORTLAND, OREGON 97204
(503) 294-7025
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
SUSAN E. KIPPER
LAWCO OF OREGON, INC.
1211 SW FIFTH AVENUE, SUITE 1500
PORTLAND, OREGON 97204
(503) 727-2000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
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<S> <C>
ROY W. TUCKER ROBERT P. LATTA
NEIL NATHANSON ALISANDE M. ROZYNKO
J.T. YOUNG CHRISTIAN E. MONTEGUT
PERKINS COIE LLP WILSON SONSINI GOODRICH & ROSATI, P.C.
1211 SW FIFTH AVENUE, 15TH FLOOR 650 PAGE MILL ROAD
PORTLAND, OREGON 97204 PALO ALTO, CA 94304
(503) 727-2000 (650) 493-9300
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES
IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED JANUARY 29, 1999
INITIAL PUBLIC OFFERING
PROSPECTUS
3,000,000 SHARES OF COMMON STOCK
$9.00 TO $11.00 PER SHARE
LOGO
WebTrends Corporation is selling 3,000,000 shares of its common stock in
this offering. In addition, certain of WebTrends' shareholders may sell an
aggregate of up to 450,000 shares depending on whether the underwriters exercise
their over-allotment option. WebTrends will not receive any of the proceeds from
the sale of shares by the shareholders.
Proposed Trading Symbol:
Nasdaq National Market "WEBT"
INVESTING IN THIS STOCK INVOLVES CERTAIN RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 4.
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<CAPTION>
TOTAL
--------------------------------
WITHOUT WITH
PER SHARE OVER-ALLOTMENT OVER-ALLOTMENT
--------- -------------- --------------
<S> <C> <C> <C>
Price to Public.......................
Underwriting Discounts &
Commissions.........................
WebTrends' Proceeds...................
Selling Shareholders' Proceeds........
</TABLE>
-------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
DAIN RAUSCHER WESSELS SOUNDVIEW TECHNOLOGY GROUP
a division of Dain Rauscher Incorporated
<PAGE> 3
TABLE OF CONTENTS
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PAGE
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<S> <C>
Prospectus Summary........... 1
Risk Factors................. 4
Use of Proceeds.............. 15
Dividend Policy.............. 15
Capitalization............... 16
Dilution..................... 17
Selected Financial Data...... 18
Management's Discussion and
Analysis of Financial
Condition and Results of
Operations................. 19
Business..................... 30
</TABLE>
<TABLE>
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PAGE
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<S> <C>
Management................... 48
Certain Transactions......... 56
Principal and Selling
Shareholders............... 57
Description of Capital
Stock...................... 58
Shares Eligible for Future
Sale....................... 60
Underwriting................. 62
Legal Matters................ 64
Experts...................... 64
Additional Information....... 64
Index to Financial
Statements................. F-1
</TABLE>
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"AuditTrack," "AlertTrack," "ClusterTrends," "CommerceTrends," "DBTrends,"
"FastTrends," "FireTrends," "Manage Your WWWorld," "SmartPass," "WebTrends," and
WebTrends' logo are all trademarks of the company. All other trade names,
trademarks, and service marks appearing in this prospectus are the property of
their respective holders.
<PAGE> 5
PROSPECTUS SUMMARY
This summary highlights only selected information contained elsewhere in
this prospectus. Before making an investment in WebTrends' common stock, you
should read this entire prospectus and the Financial Statements and notes, all
of which should be consulted when reading this summary. Except where noted
otherwise, all information in this prospectus, including share and per share
information, assumes (1) the automatic conversion of all outstanding shares of
Class B Common Stock into shares of common stock upon completion of this
offering; (2) no exercise of the underwriters' over-allotment option; and (3)
WebTrends' 1 for 2 reverse split of its capital stock effected as of January 19,
1999. See "Description of Capital Stock" and "Underwriting."
WEBTRENDS CORPORATION
WebTrends Corporation is a leading provider of enterprise management and
reporting solutions for Internet-based systems. We offer organizations a
comprehensive set of solutions that are integrated, modular, easy-to-use, and
scale to high-volume environments. Our enterprise management products facilitate
analysis and reporting of Web site traffic, quality, content and usage, Internet
advertising campaigns, and e-commerce activities, as well as the return on
investment from Internet-based systems. Internet-based systems include Web
servers, the computer servers that connect to the Internet's Worldwide Web,
intranets, which use Internet technology for communications within an
organization, and extranets, networks that use Internet technology for
communications between related organizations. Our solutions also help
organizations manage their Internet infrastructure by providing valuable
information about systems designed to implement secure communications, such as
firewalls and virtual private networks, as well as capacity and bandwidth
requirements. Our products have been specifically designed to enable
organizations to centrally manage and administer multiple Internet-based systems
across the enterprise regardless of the quantity or geographic locations of
servers supporting those systems.
Our business has grown rapidly, with revenue increasing from $1.9 million
in 1996 to $8.0 million for the year ended December 31, 1998. We have been
profitable throughout this period. Since the introduction of our original Web
site traffic analysis product in 1996, we have introduced six new products:
WebTrends Enterprise Suite, WebTrends Professional Suite, WebTrends Suite for
Lotus Domino, WebTrends for Firewalls and VPNs, Server Cluster Add-on, and
WebTrends Security Analyzer. We plan to introduce two additional products,
WebTrends Enterprise Reporting Server for UNIX and CommerceTrends Add-on, by
June 1999.
We market and deliver our award-winning products to both IT professionals
and other business managers. Over 20,000 customers have purchased our products,
including sophisticated Internet service providers and over one-third of the
Fortune 500 companies.
WebTrends was incorporated in Delaware in 1993 and reorganized in Oregon in
1997. Our executive offices are located at 851 SW Sixth Avenue, Suite 1200,
Portland, Oregon 97204, our telephone number is 1-888-WEBTRENDS
(1-888-932-8736), and our Web site is located at http://www.webtrends.com.
1
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THE OFFERING
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Common stock Offered by WebTrends........... 3,000,000 shares
Common Stock to be Outstanding After the
Offering.................................. 11,218,964 shares
Nasdaq National Market Symbol............... WEBT
Working capital and general corporate
Use of Proceeds............................. purposes. See "Use of Proceeds."
</TABLE>
Common stock to be outstanding after the offering is based on shares
outstanding on December 31, 1998. It excludes 3,341,562 shares reserved for
issuance under our 1998 Stock Incentive Compensation Plan, 1997 Stock Incentive
Compensation Plan and 1999 Employee Stock Purchase Plan, of which 1,471,149
shares were subject to outstanding stock options at a weighted average exercise
price of $2.46 per share.
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SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1996 1997 1998
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<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue..................................... $1,865 $ 4,055 $ 8,008
Gross margin...................................... 1,660 3,763 7,375
Income from operations............................ 398 427 222
Net income........................................ 405 287 219
Basic net income per share........................ .04 .03
Diluted net income per share...................... .04 .02
Shares used in basic net income per share
calculation..................................... 8,126 8,211
Shares used in diluted net income per share
calculation..................................... 8,126 9,003
</TABLE>
Net income is not comparable for all periods shown, since, prior to 1997,
WebTrends was not taxable as an entity because the shareholders had elected to
be taxed individually based on their percentage ownership of the outstanding
common stock. Net income per share data is not presented for any period prior to
1997 as the capital structure prior to January 1, 1997 is not comparable to that
existing in 1997. See Notes 1 and 8 of the Notes to the Financial Statements.
The following table presents balance sheet data, both historically and on a
pro forma basis, giving effect to WebTrends' sale in this offering of 3,000,000
shares of common stock at the assumed initial public offering price of $10.00
per share, after deducting estimated underwriting discounts and commissions and
estimated offering expenses. See "Use of Proceeds."
<TABLE>
<CAPTION>
DECEMBER 31, 1998
----------------------
ACTUAL PRO FORMA
------ ------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................... $1,099 $27,999
Working capital......................................... 221 27,121
Total assets............................................ 3,362 30,262
Total shareholders' equity.............................. 842 27,742
</TABLE>
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<PAGE> 8
RISK FACTORS
In addition to the other information contained in this prospectus, you
should carefully read and consider the following risk factors before purchasing
our common stock. Investment in our common stock involves a high degree of risk.
WEBTRENDS HAS A LIMITED OPERATING HISTORY AND MAY NOT REMAIN PROFITABLE
WebTrends was formed in August 1993, and we introduced our first Internet
product in February 1996. Due to our limited operating history, any evaluation
of our business and our prospects must be in light of the risks and
uncertainties often encountered by companies in their early stages of
development. These risks and uncertainties are particularly significant for
companies in rapidly evolving markets, such as the market for Internet products
and services. Many of these risks are discussed under the sub-headings below.
We may not be able to successfully address any or all of these risks.
Failure to adequately do so could have a material adverse effect on our
business, results of operations, and financial condition. In addition, although
our revenue has increased in recent periods while we maintained profitability,
our revenue may not grow in future periods, may not grow at past rates, and we
may not maintain profitability on a quarterly or annual basis, or at all.
OUR OPERATING RESULTS ARE SUBJECT TO SEASONAL AND OTHER FLUCTUATION
During our short operating history, we have experienced seasonality in our
operating results. While revenue from sales has continued to grow, the second
and third quarters of the year have been typically characterized by lower levels
of revenue growth. In addition to seasonal fluctuations, we may experience
significant fluctuations in our operating results from other causes. In
particular, as we increasingly focus on sales of our product suites rather than
stand-alone products and on larger purchases by larger customers, we expect the
sales cycle associated with the purchase of our products to lengthen.
Furthermore, the amount of revenue associated with particular licenses can vary
significantly based upon the number of products that are licensed and the number
of devices involved in the installation. In connection with our expansion, we
plan to increase our operating expenses to expand our sales and marketing
operations, develop new distribution channels, fund greater levels of research
and development, broaden professional services and support, and improve
operational and financial systems. Failure of our revenue to increase along with
these expenses during any fiscal period could have a materially adverse impact
on our financial results for that period. Potential fluctuations may also result
from other factors, some of which may be specific to WebTrends or its customers
and some of which may be general to our industry.
Based on the foregoing, we believe that our quarterly revenue and results
from operations are likely to vary significantly in the future and that quarter
to quarter comparisons of our operating results may not be meaningful. You
should therefore not rely on the results of one quarter as an indication of
future performance. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Selected Quarterly Financial Results."
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OUR RAPIDLY CHANGING MARKET INCREASES NEW PRODUCT RISK
The market for our products is in the early stages of development and is
rapidly evolving. Accordingly, it is difficult to predict the future growth
rate, if any, and size of this market. As is common in such new and rapidly
evolving industries, demand and market acceptance for recently introduced
products are subject to high levels of uncertainty and risk. Furthermore, new
products can quickly render obsolete products that were only recently in high
demand. The market for our existing products may not be sustainable at its
current level. We launched several new products in calendar 1998 and January
1999. We have additional new product launches planned for 1999 as well as
upgrades to our existing products. The market for the recently introduced and
planned products may not expand or develop.
Our markets are characterized by rapidly changing customer needs, evolving
industry standards, and rapid technological developments. Significant
competitive advantages accrue to companies that respond rapidly to such changes
with innovative product introductions and enhancements. Internet technology,
however, is complex, and new products and product enhancements can require long
development and testing periods. Releasing products prematurely may result in
quality problems that could damage our reputation. Accordingly, our future
success depends upon our ability to address the rapidly changing needs of our
customers by developing and introducing high quality products, product
enhancements, and services on a timely basis and by keeping pace with
technological developments and emerging industry standards. Any failure to
develop and release enhanced or new products, or delays or quality problems in
doing so, could have a material adverse effect on our business, results of
operations, and financial condition.
WEBTRENDS' MARKET IS HIGHLY COMPETITIVE
We compete in the markets for Web site traffic analysis solutions, alerting
and monitoring solutions, firewall and proxy server traffic analysis solutions,
and security analysis solutions. These markets are intensely competitive,
increasingly subject to rapid changes, and significantly affected by new product
introductions and other activities of market participants. In addition, these
markets are highly fragmented, and our competitors vary depending upon the
market that our Internet management solutions address.
In the market for Web site traffic analysis solutions, our primary
competitors are Andromedia, Inc., Accrue Software Inc., Internet Profiles
Corporation (I/Pro), Marketwave Corporation, and net.Genesis Corp. In the Web
site link analysis and quality control market, our primary competitors are
Tetranet Software Incorporated and Coast Software Inc. In the alerting and
monitoring market, our primary competitors are IPSwitch, Inc. and Geneva
Software, Inc. In the firewall and proxy analysis market, our primary
competitors are Telemate Software, Inc. and SecureIT, Inc., a division of
VeriSign, Inc. In the security analysis market, we expect to compete primarily
with ISS Group, Inc., Axent Technologies, Inc., and Network Associates, Inc.
Although the markets in which we compete are highly fragmented, we may face
additional competition from existing competitors if any of them were to broaden
the scope of their Internet management products either by developing or
acquiring additional products or distribution channels.
We also compete with vendors of Internet servers, operating systems, and
networking hardware. In particular, Microsoft Corporation, Netscape
Communications Corp., Sun Microsystems, Inc., Oracle Corp., and others bundle
Internet management solutions with their Internet products. We expect this
bundling activity to increase in the future. The
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<PAGE> 10
bundling of competing products with standard features of operating systems,
Internet servers or networking hardware could render our products obsolete and
unmarketable. Even if the functionality, ease of use, and performance of the
products included with operating systems, Internet servers, or networking
hardware is inferior to our products, a significant number of customers may
elect to accept these products instead of purchasing additional software from
us.
We believe that additional competitors will continue to enter the market as
the size and visibility of the market opportunity increases. These new market
entrants may include traditional system and network management software
developers. For example, Computer Associates International, Inc. is currently
beta testing an extension to its Unicenter TNG product line that includes
functions for alerting and monitoring, Web site traffic analysis, and link
analysis.
We also face competition and potential competition from Web management
service providers, such as consulting firms, Web design firms, Internet audit
firms, site management vendors, Internet service providers, and independent
software vendors. These service providers may use our solutions, our
competitors' solutions, or custom-developed solutions to manage Web sites for
their customers who otherwise would have been sale opportunities for us. Certain
larger potential customers may rely on their IT departments to internally
develop Internet management solutions.
Increased competition could result in pricing pressures, reduced margins,
or the failure of our products to achieve or maintain market acceptance, any of
which could have a material adverse effect on our business, results of
operations, and financial condition. Certain of our current and potential
competitors have longer operating histories, greater name recognition, access to
larger customer bases, and substantially greater financial, technical,
marketing, distribution, service, support, and other resources than we have. As
a result, they may be able to respond more quickly than we can to new or
changing opportunities, technologies, standards, or customer requirements. For
all of the foregoing reasons, we may not be able to compete successfully against
our current and future competitors.
OUR SUCCESS DEPENDS ON INCREASING MARKET AWARENESS OF OUR BRAND
If we fail to successfully promote our brand name or if we incur
significant expenses promoting and maintaining our brand name, it could have a
material adverse effect on our business, results of operations, and financial
condition. Due in part to the emerging nature of the market for Internet
management solutions and the substantial resources available to many of our
competitors, there may be a time-limited opportunity to achieve and maintain a
significant market share. Developing and maintaining awareness of the
"WebTrends" brand name is critical to achieving widespread acceptance of our
enterprise management and reporting solutions. Furthermore, the importance of
brand recognition will increase as competition in the market for our products
increases. Successfully promoting and positioning the WebTrends brand will
depend largely on the effectiveness of our marketing efforts and our ability to
develop reliable and useful products at competitive prices. Therefore, we may
need to increase our financial commitment to creating and maintaining brand
awareness among potential customers.
OUR SALES OPERATIONS AND CHANNELS OF DISTRIBUTION REQUIRE EXPANSION
In order to maintain and increase our current and future market share and
revenue, we will need to expand our direct and indirect sales operations and
channels of
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distribution. Failure to do so could have a material adverse effect on our
business, results of operations, and financial condition. Most of our customers
license a limited number of our products. To maintain and increase our results
from operations, we must increase the number of products that each customer
licenses. This may require an increasingly sophisticated sales effort targeted
at Webmasters, other management personnel associated with a prospective
customer's Internet capabilities, and other functional managers throughout the
organization. In order to achieve increased sales, we plan to hire additional
telemarketing and direct field sales personnel. Any new hires will require
training and take time to achieve full productivity. We may not be able to hire
enough qualified individuals when needed, or at all, and we may not be able to
increase distribution through any other methods.
Our future success also depends upon our ability to expand our
relationships with domestic and international channel partners, distributors,
value-added resellers, systems integrators, on-line and other resellers,
Internet service providers, original equipment manufacturers, and other partners
to build our indirect sales channel. We must also continue to expand and
maintain strategic relationships with key hardware and software vendors,
distribution partners, and customers. We may not be successful in these efforts,
and failure to maintain our existing relationships or develop additional
relationships could result in general declines in our growth, which could have a
material adverse effect on our business, results of operations, and financial
condition.
WEBTRENDS RELIES ON INDIRECT DISTRIBUTION CHANNELS
We are making an effort to increase distribution of our products through
various indirect channels of distribution, including channel partners, value
added resellers, distributors, resellers, original equipment manufacturers,
Internet service providers, and others. We cannot predict the extent to which
any of these channel partners will be successful in marketing or distributing
our Internet management solutions. Many of these channel partners also market
and sell competitive products. We may not be able to effectively manage
potential conflicts among the various channel partners or prevent them from
devoting greater resources to supporting the products of other companies. The
loss of one or more of these channel partners, because of either their
preference for competing products or products they may develop internally, could
have a material adverse effect on our business, results of operations, and
financial condition. In addition, Network Trade Corporation, a third-party
export management company, has the primary responsibility for identifying
international distributors, resellers, and value added resellers for our
products. Accordingly, any disruption in our relationship with Network Trade,
which may be terminated by either party with 30 days' notice, could materially
slow our international sales growth, which could have a material adverse effect
on our business, results of operations, and financial condition.
Reliance on indirect channels of distribution may subject us to greater
credit risk as the revenue from sales of our products to distributors and
certain other channel partners flows first through the distributors, and then to
us. In particular, Network Trade, while not technically a distributor, collects
payments from our international resellers and then remits those payments to us,
presenting a similarly increased credit risk. Revenues received from Network
Trade accounted for 16.7% of our total revenue for the year ended December 31,
1998. Failure of our channel providers to timely remit to us the proceeds from
sales of our products, or any failure to accurately forecast the demand for our
products, could have a material adverse effect on our business, results of
operations, and financial condition.
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WEBTRENDS RELIES ON CERTAIN KEY PERSONNEL AND NEEDS ADDITIONAL PERSONNEL
Our success depends largely upon the continued services of our executive
officers and other key management and development personnel. The loss of the
services of one or more of our executive officers, engineering personnel, or
other key employees could have a material adverse effect on our business,
results of operations, and financial condition. In particular, we rely on our
co-founders, Elijahu Shapira, Chief Executive Officer and Chairman of the Board,
and W. Glen Boyd, President, Chief Technical Officer, and director. Messrs.
Shapira and Boyd do not have employment agreements and, therefore, could
terminate their employment with us at any time without penalty. We do not
maintain key person life insurance policies on any of our employees. In
addition, because of the complexity of our products and technologies, we are
substantially dependent upon the continued service of our existing engineering
personnel.
Our future success also depends on our ability to attract and retain highly
qualified personnel. We may not be successful in attracting or retaining
qualified personnel, which could have a material adverse effect on our business,
results of operations, and financial condition. We intend to hire a number of
additional sales, support, marketing, and research and development personnel.
The competition for qualified personnel in the computer software and Internet
markets is intense, and we may be unable to attract, assimilate, or retain
additional highly qualified personnel in the future. Additionally, we attempt to
hire engineers with high levels of experience in designing and developing
software and Internet-related products in time-pressured environments. There is
a limited number of qualified engineers in our geographic location, resulting in
intense competition for the services of such engineers.
OUR RATE OF GROWTH STRAINS OUR SYSTEMS AND MANAGEMENT RESOURCES
Any failure to properly manage our growth could have a material adverse
effect on our business, results of operations, and financial condition. Since
our inception, we have experienced significant expansion in our operations. We
intend to pursue further expansion throughout the foreseeable future to take
advantage of existing and potential market opportunities. This rapid growth
places significant challenges on our management, administrative, and operational
resources. To properly manage this growth, we must, among other things,
implement and improve additional and existing administrative and operational
systems, procedures, and controls on a timely basis.
Our expansion will continue to place a significant strain on our
management, operational, and financial resources. In 1998, we added a number of
key managerial, technical, and operations personnel, including a Chief Financial
Officer, a Vice President of Sales, a Vice President of Marketing, and a Vice
President of Research and Development. We expect to add other key personnel in
the future. Additionally, we are significantly increasing our employee base. To
manage the expected growth of our operations and personnel, we will be required
to significantly improve or replace existing management, operational, and
financial systems. We will also need to expand our finance, administrative, and
operations staff. We may not be able to complete the necessary improvements to
our systems, procedures, and controls necessary to support our future operations
in a timely manner. Management may not be able to hire, train, retain, motivate,
and manage required personnel and may not be able to successfully identify,
manage, and exploit existing and potential market opportunities.
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WEBTRENDS' INTERNATIONAL SALES ARE SIGNIFICANT AND POSE CERTAIN RISKS
Approximately 22.0% and 27.5% of our total revenue for the years ended
December 31, 1997 and December 31, 1998, respectively, were attributable to
sales made outside the United States. We believe that our future growth will
require continued expansion of our operations in international markets. To
expand internationally, we must continue to develop our international
distribution channels and increase our investment in marketing and product
awareness. If we are unable to do so in a timely and effective manner, our
growth, if any, in international sales will be limited, and could have a
material adverse effect on our business, results of operations, and financial
condition. To date, our revenue from international operations has primarily been
denominated in United States dollars, although some sales have been denominated
in foreign currencies. An increase in the value of the United States dollar
relative to foreign currencies would make our products more expensive and,
therefore, potentially less competitive in those markets. Moreover, even if
international operations are successfully expanded, we may not be able to
maintain or increase international market demand for our products.
Our international operations are subject to the risks inherent in
international business activities, including, in particular:
- Management of an organization spread over various countries;
- Longer accounts receivable payment cycles and other collection
difficulties, such as difficulties obtaining and enforcing judgments
against delinquent customers, in certain countries;
- Compliance with a variety of foreign laws and regulations;
- Unexpected changes in regulatory requirements;
- Overlap of different tax structures;
- Foreign currency exchange rate fluctuations;
- Import and export licensing requirements;
- Trade restrictions, changes in tariffs, and freight rates; and
- Regional economic conditions.
Such factors could have a material adverse effect on our future
international sales and, consequently, our business, results of operations, and
financial condition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business -- Sales, Marketing, and
Distribution."
WE MAY BE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY
We regard substantial elements of our Internet management solutions as
proprietary and attempt to protect them by relying on patent, trademark, service
mark, trade dress, copyright, and trade secret laws and restrictions, as well as
confidentiality procedures and contractual provisions. Any steps we take to
protect our intellectual property may be inadequate, time consuming, and
expensive. Furthermore, despite our efforts, we may be unable to prevent
third-parties from infringing upon or misappropriating our intellectual
property. Any such infringement or misappropriation could have a material
adverse effect on our business, results of operations, and financial condition.
We currently have no issued patents. We have two patent applications pending.
These or any new patent applications may not result in issued patents and may
not provide us with any competitive advantages,
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or may be challenged by third parties. Legal standards relating to the validity,
enforceability, and scope of protection of certain intellectual property rights
in Internet-related industries are uncertain and still evolving, and the future
viability or value of any of our intellectual property rights is uncertain.
Effective trademark, copyright, and trade secret protection may not be available
in every country in which our products are distributed or made available through
the Internet. Furthermore, our competitors may independently develop similar
technology that substantially limits the value of our intellectual property. See
"Business -- Proprietary Rights."
OTHERS MAY BRING INFRINGEMENT CLAIMS AGAINST US
In addition to the technology we have developed internally, we also use
code libraries developed and maintained by third parties and have acquired or
licensed certain technologies from other companies. Our internally developed
technology, the code libraries, or the technology we acquired or licensed may
infringe on a third party's intellectual property rights and such third parties
may bring claims against us alleging infringement of their intellectual property
rights. Any such infringement or claim of infringement could have a material
adverse affect on our business, result of operations, and financial condition.
In recent years, there has been significant litigation in the United States
involving patents and other intellectual property rights. We are not currently
involved in any intellectual property litigation. We may, however, be a party to
litigation in the future to protect our intellectual property or as a result of
an alleged infringement of others' intellectual property. Such claims and any
resulting litigation could subject us to significant liability for damages and
invalidation of our proprietary rights. Such litigation, regardless of its
success, would likely be time-consuming and expensive to defend and would divert
management time and attention. Any potential intellectual property litigation
could also force us to do one or more of the following:
- Cease selling, incorporating, or using products or services that
incorporate the challenged intellectual property;
- Obtain from the holder of the infringed intellectual property right a
license to sell or use the relevant technology, which license may not be
available on reasonable terms, or at all; and
- Redesign those products or services that incorporate such technology.
Any of these results could have a material adverse effect on our business,
results of operations, and financial condition.
EVOLVING REGULATION OF THE INTERNET MAY AFFECT US ADVERSELY
As Internet commerce continues to evolve, increasing regulation by federal,
state, or foreign agencies becomes more likely. Such regulation is likely in the
areas of user privacy, pricing, content, and quality of products and services.
Taxation of Internet use, or other charges imposed by government agencies or by
private organizations for accessing the Internet, may also be imposed. Laws and
regulations applying to the solicitation, collection, or processing of personal
or consumer information could affect our activities. Furthermore, any regulation
imposing fees for Internet use could result in a decline in the use of the
Internet and the viability of Internet commerce, which could have a material
adverse effect on our business, results of operations, and financial condition.
10
<PAGE> 15
WEBTRENDS IS SUBJECT TO THE RISK OF PRODUCT LIABILITY CLAIMS
Our products are used to monitor the activity levels of our customers'
Internet sites, to provide real-time monitoring of firewalls, and to provide
real-time monitoring, alerting, and recovery of Internet servers. These and
other functions that our products provide are often critical to our customers,
especially in light of the considerable resources many organizations spend on
the development and maintenance of their Web sites. Additionally, our security
products often contribute to vital protection of a company's internal systems
and information. As a result, the licensing and support of our products may
expose us to the risk of product liability and related claims. Our end-user
licenses contain provisions that limit our exposure to such claims, but these
provisions may not be enforceable in certain jurisdictions. Additionally, we
maintain limited products liability insurance. To the extent our contractual
limitations are unenforceable or such claims are not covered by insurance, a
successful products liability claim could have a material adverse effect on our
business, results of operations, and financial condition.
Our products and product enhancements are very complex and may from time to
time contain errors or result in failures that we did not detect or anticipate
when introducing such products or enhancements to the market. The computer
hardware environment is characterized by a wide variety of non-standard
configurations that make pre-release testing for programming or compatibility
errors very difficult and time consuming. Despite our testing, errors may still
be discovered in some new products or enhancements after the products or
enhancements are delivered to customers. The occurrence of these errors could
result in adverse publicity, loss of or delay in market acceptance, or claims by
customers against us, any of which could have a material adverse effect on our
business, results of operations, and financial condition. See
"Business -- Products and Services."
SOME OF OUR PRODUCTS MAY NOT BE YEAR 2000 COMPLIANT
The "Year 2000 Issue" generally refers to the problems that some date
sensitive software may have in determining the correct century beginning in the
year 2000. For example, many systems will not recognize a difference between the
years 1900 and 2000 because they use only the last two digits of the year (00)
in their programming. Failure of such software or systems to recognize the
correct century could result in system failures or miscalculations causing
disruptions of operations and an inability to engage in similar ordinary
business activities.
We have not tested our products in every possible computer environment, and
therefore such products may not be fully Year 2000 compliant. Certain older
versions of our products are not Year 2000 compliant; however, corrections for
such non-compliance are available. We have not tested for Year 2000 compliance
certain products that we no longer market that run on Novell systems, some of
which remain in use. These older products may not be Year 2000 compliant.
Failure of our products to be Year 2000 compliant could result in significant
decreases in market acceptance of our products and legal liability for defective
software, either of which would have a material adverse effect on our business,
results of operations, and financial condition.
If our suppliers, vendors, major distributors, and partners fail to correct
their Year 2000 problems, such failure could result in an interruption in, or a
failure of, certain of our normal business activities or operations. Such
failures could have a material adverse effect on our business, results of
operations, and financial condition. Due to the general uncertainty inherent in
the Year 2000 problem resulting from the uncertainty of the Year 2000 readiness
of third-party suppliers and vendors, we are unable to determine at this
11
<PAGE> 16
time whether the consequences of the Year 2000 failures will have a material
effect on our business, results of operations, and financial condition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Year 2000."
OUR SUCCESS DEPENDS ON CONTINUED USE AND EXPANSION OF THE INTERNET
Continued expansion in the sales of our Internet management solutions will
depend upon the adoption of the Internet as a widely used medium for commerce
and communication. The Internet may not prove to be a viable commercial
marketplace because of inadequate development of the necessary infrastructure,
such as a reliable network backbone, or timely development of complementary
products, such as high speed modems. The Internet infrastructure may not be able
to support the demands placed on it by continued growth. Additionally, the
Internet could lose its viability due to delays in the development or adoption
of new standards and protocols to handle increased levels of Internet activity,
security, reliability, cost, ease of use, accessibility, and quality of service.
If the Internet does not continue to become a widespread communications medium
and commercial marketplace, the demand for our Internet management solutions
could be significantly reduced, which could have a material adverse effect on
our business, results of operations, and financial condition.
WE MAY BE UNABLE TO ADOPT OUR PRODUCTS TO CHANGES IN INTERNET TECHNOLOGY
Even if the infrastructure, standards, or protocols of the Internet, or
complementary services, products, or facilities are developed, we may be
required to make significant expenditures to adapt our products to the changing
or emerging technologies. For example, if the format of Internet log files were
to change, our solutions for traffic analysis may not function as designed, and
we may incur significant expenses in developing new products that would be
compatible with the new format. We may not be successful in either developing
such software or timely introducing it to the market. Any such changes in
technology could have a material adverse effect on our business, results of
operations, and financial condition.
OUR MANAGEMENT WILL HAVE BROAD DISCRETION IN USE OF PROCEEDS
The net proceeds from the sale of the common stock we are offering for sale
will be added to our general working capital upon completion of this offering.
We have not reserved or allocated the proceeds for any specific purpose, and we
cannot specify with certainty how we will use the net proceeds. Accordingly, our
management will have considerable discretion in the application of the net
proceeds. The net proceeds may be used for corporate purposes that do not
increase WebTrends' profitability or market value. Pending application of the
proceeds, they may be placed in investments that do not produce income or that
lose value. See "Use of Proceeds."
OUR OWNERSHIP IS CONCENTRATED
Our officers and directors will beneficially own at least 67% and possibly
as much as 73% of the outstanding common stock after this offering, depending on
whether and to what extent the underwriters exercise their over-allotment
option. As a result, they will be able to exercise control over all matters
requiring shareholder approval. Our articles of incorporation and bylaws do not
provide for cumulative voting; therefore, these controlling shareholders will
have the ability to elect all of our directors. The controlling shareholders
will also have the ability to approve or disapprove significant corporate
transactions without further vote by the investors who purchase common stock
pursuant to this offering. This
12
<PAGE> 17
ability to exercise control over all matters requiring shareholder approval
could prevent or significantly delay another company or person from acquiring or
merging with us. See "Management" and "Principal and Selling Shareholders."
OUR ANTI-TAKEOVER PROVISIONS AND PREFERRED STOCK MAY REDUCE THE MARKET PRICE OF
OUR COMMON STOCK
Certain provisions of our articles of incorporation and bylaws may have the
effect of delaying, preventing, or making a merger or acquisition less desirable
to a potential acquirer, even where shareholders may consider the acquisition or
merger favorable. Such provisions include:
- The ability of the board of directors, without further shareholder
approval, to issue up to 15 million shares of preferred stock in one or
more series and to determine the rights (including voting rights) and
terms associated with such preferred stock;
- Providing for a classified board of directors with three-year terms in
certain circumstances;
- Prohibiting cumulative voting for the election of directors;
- Requiring approval by a super-majority of the shareholders to effect
certain amendments to the articles of incorporation or bylaws; and
- Requiring certain procedures to be followed before matters can be
proposed for consideration at shareholder meetings.
The issuance of preferred stock may have the effect of delaying, deferring,
or preventing a change in control without further action by the shareholders.
Any such issuance may materially adversely affect the market price of the common
stock and the voting rights of the holders of common stock. The issuance of
preferred stock may also result in the loss of the voting control of holders of
common stock to the holders of the preferred stock. See "Description of Capital
Stock -- Preferred Stock."
Provisions of the Oregon Business Corporation Act and the Control Share Act
also may delay, prevent, or discourage someone from acquiring or merging with
us. See "Description of Capital Stock -- Oregon Control Share and Business
Combination Statutes."
TRADING IN OUR COMMON STOCK MAY BE LIMITED
A public market for trading our common stock has not existed prior to this
offering. We applied to list the common stock on the Nasdaq National Market for
purposes of establishing a public market for trading. We do not know the extent
to which investor interest will lead to the development of a trading market or
how liquid that market might be. The initial public offering price for the
common stock will be determined through negotiations among the selling
shareholders, the underwriters, and us. If you purchase shares of common stock,
you may not be able to resell those shares at or above the initial public
offering price. See "Underwriting."
13
<PAGE> 18
THE MARKET PRICE FOR OUR COMMON STOCK, LIKE OTHER TECHNOLOGY STOCKS, MAY BE
VOLATILE
The market price of the common stock could be subject to significant
fluctuations in response to any of the following factors:
- Variations in actual and anticipated operating results (see
"-- Seasonality; Potential Fluctuations in Operating Results");
- Changes in earnings estimates by analysts;
- Failure to meet analysts' performance expectations; and
- Lack of liquidity.
The stock markets have, in general, and with respect to Internet companies
in particular, recently experienced stock price and volume volatility that has
affected the market prices of companies. The stock markets may continue to
experience volatility that may adversely affect the market price of the common
stock.
The stock prices for many companies in the technology and emerging growth
sector have experienced wide fluctuations that have often been unrelated to the
operating performance of such companies. Fluctuations such as these may affect
the market price of the common stock. Additionally, securities class action
claims have been brought against issuing companies in the past where such
periods of volatility in the market price of a company's securities have taken
place. Such litigation could result in substantial costs and a diversion of
management's attention and resources, and any adverse determination in such
litigation could also subject us to significant liabilities, any or all of which
could have a material adverse effect on our business, results of operations, and
financial condition.
YOU SHOULD NOT RELY ON OUR FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks and
uncertainties. Discussions containing forward-looking statements may be found in
the material set forth under "Business" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations," as well as within
this prospectus generally. In addition, when used in this prospectus, the words
"believes," "intends," "anticipates," "expects," and similar expressions are
intended to identify forward-looking statements. Forward-looking statements are
subject to a number of risks and uncertainties. Actual results could differ
materially from those described in the forward-looking statements as a result of
the risk factors set forth in this section and the information provided in this
prospectus generally. We do not intend to update any forward-looking statements.
14
<PAGE> 19
USE OF PROCEEDS
At an assumed initial public offering price of $10.00 per share, which is
the mid-point of the estimated initial public offering price range set forth on
the cover page of this prospectus, the net proceeds from the sale of shares of
common stock to be sold by WebTrends are expected to be approximately $26.9
million, after deduction of underwriting discounts and commissions and estimated
offering expenses payable by WebTrends. WebTrends will not receive any proceeds
from the sale of common stock by the selling shareholders.
Among the purposes of this offering are the following:
- To obtain additional equity capital;
- To create a public market for the common stock;
- To facilitate WebTrends' ability to access the public equity markets in
the future;
- To provide liquidity to certain of the existing shareholders; and
- To provide increased visibility and credibility to WebTrends,
facilitating expansion in a marketplace in which many of its competitors
and customers are public companies.
The board of directors and management of WebTrends have significant
flexibility in applying the net proceeds of this offering. The amounts and
timing of WebTrends' actual expenditures will depend upon numerous factors,
including the status of WebTrends' product development efforts, competition, and
marketing and sales activities. WebTrends anticipates using the net proceeds of
this offering for working capital and general corporate purposes. Although
WebTrends currently has no agreements or commitments to do so, it may also use a
portion of the net proceeds to license or acquire new products or technologies
or to acquire or invest in businesses complementary to its own. WebTrends has no
current plans or proposals pending for any such acquisitions or investments.
Pending the use of the net proceeds, WebTrends intends to invest them in
government securities and short-term, investment-grade, interest-bearing
securities. See "Risk Factors -- Our Management will have Broad Discretion in
Use of Proceeds."
DIVIDEND POLICY
WebTrends did not declare any cash dividends on its capital stock in 1997
or 1998. WebTrends intends to retain its present and future earnings, if any, to
finance the growth and development of its business. It does not intend to pay
cash dividends in the foreseeable future, and the amounts and payment of future
dividends, if any, will be determined by its board of directors.
15
<PAGE> 20
CAPITALIZATION
The following table sets forth the capitalization of WebTrends as of
December 31, 1998, (a) on a historical basis and (b) on an adjusted basis,
giving effect to the sale of 3,000,000 shares of common stock being sold by
WebTrends in this offering at an assumed initial public offering price of $10.00
per share, and after deducting estimated underwriters discounts and commissions
and estimated offering expenses payable by WebTrends.
The information shown below excludes 3,341,562 shares reserved for issuance
under WebTrends' stock option and stock purchase plans, of which 1,471,149 were
issuable upon exercise of stock options outstanding as of December 31, 1998,
with a weighted average exercise price of $2.46 per share. Upon the closing of
this offering, the Class A Common Stock will be redesignated common stock, no
par value per share, and will be the only authorized class of common stock. Each
share of Class B Common Stock will automatically be converted into one share of
such common stock, and the recorded value of the Class B Common Stock will be
transferred to common stock. The information set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and WebTrends' Financial Statements and related notes
thereto and other financial information included elsewhere in this prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------------
ACTUAL AS ADJUSTED
------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Shareholders' equity:
Preferred Stock, no par value per share; 15 million
shares authorized, no shares issued and outstanding,
actual and adjusted.................................. $ -- $ --
Class A Common Stock, no par value per share; 30 million
shares authorized, 8,210,527 shares issued and
outstanding, actual; 60 million shares authorized,
11,218,964 shares issued and outstanding, as
adjusted............................................. 260 27,480
Class B Common Stock, no par value per share; 30 million
shares authorized, 8,437 shares issued and
outstanding, actual; no shares authorized, no shares
issued and outstanding, as adjusted.................. 320 --
Deferred compensation..................................... (282) (282)
Retained earnings......................................... 544 544
----- -------
Total shareholders' equity.............................. 842 27,742
----- -------
Total capitalization............................ $ 842 $27,742
===== =======
</TABLE>
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<PAGE> 21
DILUTION
As of December 31, 1998, WebTrends' net tangible book value was
approximately $842,000 or $0.10 per share of common stock. Net tangible book
value per share represents the amount of WebTrends' tangible assets less the
amount of its liabilities, divided by the number of shares of common stock
outstanding.
Giving effect to the issuance of 3,000,000 shares of common stock offered
by WebTrends at an assumed initial public offering price of $10.00 per share,
after the deduction of estimated underwriting discounts and offering expenses
payable by WebTrends, adjusted net tangible book value as of December 31, 1998
would have been approximately $2.47 per share. This represents an immediate
increase in net tangible book value of $2.37 per share to existing shareholders
and an immediate dilution of $7.53 per share to purchasers of shares in this
offering. The following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $10.00
Net tangible book value per share before this offering.... $0.10
Increase per share attributable to new investors.......... 2.37
-----
Adjusted net tangible book value per share after this
offering.................................................. 2.47
------
Dilution per share to new investors in this offering........ $ 7.53
======
</TABLE>
The following table sets forth information as of December 31, 1998, after
giving effect to this offering at an assumed initial public offering price of
$10.00 per share, as to the number of shares of common stock purchased from
WebTrends, the total consideration paid to WebTrends, and the average price paid
per share by existing shareholders and by new investors purchasing common stock
in this offering.
<TABLE>
<CAPTION>
SHARES PURCHASED(1)(2) TOTAL CONSIDERATION
----------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- -------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing 8,218,964 73.3% $ 265,119 0.9% $0.03
shareholders.......
New investors........ 3,000,000 26.7 30,000,000 99.1 10.00
---------- ----- ----------- -----
Total...... 11,218,964 100.0% $30,265,119 100.0%
========== ===== =========== =====
</TABLE>
The information in the table above does not include the 1,471,149 shares
issuable upon exercise of stock options outstanding as of December 31, 1998,
with a weighted average exercise price of $2.46 per share. Furthermore, if the
underwriters exercise their over-allotment option in full, sales by selling
shareholders in this offering will reduce the number of shares held by existing
shareholders to 7,768,964 shares, or 69.2% of the total number of shares
outstanding, and will increase the number of shares held by new investors to
3,450,000 shares, or 30.8% of the total number of shares outstanding after this
offering. See "Management -- Employee Benefit Plans," "Description of Capital
Stock -- Stock Options;" and "Principal and Selling Shareholders."
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<PAGE> 22
SELECTED FINANCIAL DATA
The following selected financial data is qualified by reference to, and
should be read in conjunction with, the Financial Statements and notes thereto,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and other financial information appearing elsewhere in this
prospectus. The statement of operations data set forth below for each of the
years in the three-year period ended December 31, 1998, and the balance sheet
data as of December 31, 1997 and 1998, are derived from, and qualified by
reference to, the audited financial statements appearing elsewhere in this
prospectus. The statement of operations data set forth below for the year ended
December 31, 1995, and the balance sheet data as of December 31, 1995 and 1996
are derived from, and qualified by reference to, audited financial statements.
The statement of operations data set forth below, for the year ended December
31, 1994, and the balance sheet data as of December 31, 1994, are derived from,
and qualified by reference to, unaudited financial statements. The unaudited
financial statements have been prepared on the same basis as the audited
financial statements and, in the opinion of management, include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the information set forth therein. Historical results are not
necessarily indicative of the results that may be expected in the future. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1994 1995 1996 1997 1998
---- ---- ------ ------ ------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA
Revenue:
Software licenses......................................... $276 $617 $1,858 $3,837 $7,206
Support services.......................................... -- 20 7 218 802
---- ---- ------ ------ ------
Total revenue...................................... 276 637 1,865 4,055 8,008
Cost of revenue............................................. 7 39 205 292 633
---- ---- ------ ------ ------
Gross margin.............................................. 269 598 1,660 3,763 7,375
---- ---- ------ ------ ------
Operating expenses:
Research and development.................................. 34 91 403 1,059 2,211
Sales and marketing....................................... 12 152 552 1,528 3,642
General and administrative................................ 126 187 307 749 1,300
---- ---- ------ ------ ------
Total operating expenses........................... 172 430 1,262 3,336 7,153
---- ---- ------ ------ ------
Income from operations...................................... 97 168 398 427 222
Other income, net........................................... 1 1 7 10 29
---- ---- ------ ------ ------
Income before income taxes.................................. 98 169 405 437 251
Income taxes(1)............................................. 150 32
---- ---- ------ ------ ------
Net income(1)............................................... $ 98 $169 $ 405 $ 287 $ 219
==== ==== ====== ====== ======
Basic net income per share(2)............................... $ .04 $ .03
Diluted net income per share(2)............................. .04 .02
====== ======
Shares used in basic net income per share calculation(2).... 8,126 8,211
Shares used in diluted net income per share
calculation(2)............................................ 8,126 9,003
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1994 1995 1996 1997 1998
---- ---- ---- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Cash and cash equivalents................................... $108 $179 $321 $ 807 $1,099
Working capital (deficit)................................... 158 319 (103) 260 221
Total assets................................................ 198 365 910 1,886 3,362
Long-term obligations....................................... 70 72 -- 7 --
Total shareholders' equity.................................. 98 267 47 584 842
</TABLE>
- -------------------------
(1) Prior to 1997, WebTrends was an S Corporation and therefore did not pay
federal or state corporate income taxes.
(2) See Note 1 of Notes to Financial Statements for the determination of shares
used in computing basic and diluted net income per share. Net income per
share data is not presented for any period prior to 1997 as WebTrends'
capital structure prior to January 1, 1997 is not comparable to that
existing in 1997. See Note 8 of the Notes to the Financial Statements.
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<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Financial Data" and the Financial Statements and related notes thereto
included elsewhere in this prospectus. The following "Management's Discussion
and Analysis of Financial Condition and Results of Operations" contains
forward-looking statements that involve risks and uncertainties, such as
WebTrends' plans, objectives, expectations, and intentions. WebTrends' actual
results could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including, but not limited to, those
discussed below, those set forth under "Risk Factors," and elsewhere in this
Prospectus.
OVERVIEW
WebTrends Corporation provides comprehensive, integrated, scaleable,
modular, and easy-to-use solutions that enable organizations to cost-effectively
manage and report on their Internet-based systems. WebTrends was incorporated on
August 31, 1993 and reorganized effective January 1, 1997. Prior to 1997,
WebTrends was not taxable as an entity because the shareholders had elected to
be taxed individually based on their percentage ownership of the outstanding
common stock.
Since the year ended December 31, 1996, WebTrends has generated most of its
revenue from licensing its traffic analysis and management suite products and
related support services. WebTrends' initial traffic analysis product, the
WebTrends Log Analyzer, was introduced in February 1996 and is currently offered
in version 4.5. In September and November 1997, respectively, WebTrends
introduced its Enterprise and Professional Suite products. The Professional
Suite integrates Web site traffic analysis with proxy server traffic analysis,
link analysis, quality control, content management, as well as monitoring,
alerting, and recovery. The Enterprise Suite enables users to manage more
complex server configurations and to integrate Web site traffic analysis data
with existing databases, permitting advanced, custom analyses. Both products are
currently in version 3.0. In May 1998, WebTrends introduced the WebTrends Suite
for Lotus Domino, which is the first software package on the market to offer
full management, reporting, and analysis for Lotus Domino Web Servers. In June
1998, WebTrends introduced WebTrends for Firewalls and VPNs, which is a
real-time solution to manage, report, and monitor firewall activity. In January
1999, WebTrends introduced the WebTrends Security Analyzer, which helps secure
Internet servers and other Internet devices. Prior to 1996, WebTrends generated
substantially all of its revenue from the license of its AuditTrack product and
related products developed as solutions for managing Novell networks. WebTrends
continues to sell AuditTrack, and revenue from this product represented
approximately 13.2% of total revenue during 1998. It expects that revenue from
its AuditTrack product will decrease both in absolute dollars and as a
percentage of revenue as sales of its Internet products continue to increase.
Software license revenue consists of fees for licenses of WebTrends'
software products. Revenue allocated to software licenses is recognized upon
delivery of software, assuming no significant obligations or customer acceptance
rights exist. WebTrends generally provides a thirty-day right of return for each
product sold. Estimated sales returns and allowances are recorded upon shipment
of the product.
WebTrends sells a portion of its products domestically and internationally
through resellers. Revenue from sales to domestic resellers is managed directly
by WebTrends, and it recognizes revenue from sales primarily at the time of
shipment, net of estimated returns
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<PAGE> 24
and allowances. Revenue from sales to international resellers is managed by a
third party export management company and revenue is recognized upon sales from
the reseller to a third party or end user.
Support services revenue consists of annual subscriptions for upgrades,
post customer support services. and professional services. Revenue allocated to
subscriptions, which allow the subscriber to purchase the right to obtain
upgrades, when and if available, are paid in advance and revenues are recognized
ratably over the term of the subscription. Revenue allocated to professional
services is recognized as the services are performed.
WebTrends generates revenue through direct sales to end users and through
its indirect distribution channels. Direct sales are generated by its telesales
organization, direct field sales force, and through on-line sales. The indirect
distribution channel includes distributors, resellers, and value added
resellers. WebTrends also conducts joint marketing and distribution programs
with certain strategic partners. It derives its international revenue primarily
through its indirect distribution channel.
Approximately 22.0% and 27.5% of WebTrends' total revenue for the years
ended December 31, 1997 and 1998, respectively, was attributable to sales made
outside the United States. It expects that international sales will continue to
represent a significant portion of its total revenue. WebTrends' international
sales are currently denominated in U.S. dollars. As a result, increases in the
value of the U.S. dollar relative to foreign currencies could make its products
more expensive and, therefore, potentially less competitive in those markets.
WebTrends has recorded net deferred compensation of approximately $282,000
as of December 31, 1998, which represents the difference between the exercise
price and the fair value of the shares of common stock issuable upon the
exercise of stock options that were granted to employees in July and August
1998. The deferred compensation is being amortized over the vesting period of
the stock options.
Software development costs have been accounted for in accordance with
Statement of Financial Accounting Standards No. 86, Accounting for the Costs of
Computer Software to be Sold, Leased, or Otherwise Marketed. Under the standard,
capitalization of software development costs begins upon the establishment of
technological feasibility, subject to net realizable value considerations. To
date, the period between achieving technological feasibility and the general
availability of such software has been short; therefore, software development
costs qualifying for capitalization have been immaterial. Accordingly, WebTrends
has not capitalized any software development costs and charged all such costs to
research and development expense.
WebTrends has grown rapidly, with revenue increasing from $1.9 million in
1996 to $8.0 million in 1998. During this period, it has experienced continued
profitability and, as of December 31, 1998, had retained earnings of $544,000.
However, this growth rate and profitability may not be sustainable, and it
should not be relied upon as predictive of future performance. WebTrends expects
to continue to increase its expenditures in all areas in order to execute its
business plan. In particular, WebTrends currently expects to expand its sales
and marketing operations, expand its international distribution channels,
increase its investment in product development, and improve its internal
operating and financial infrastructure. As a result, it does not expect to
increase profitability in line with revenue growth.
WebTrends' prospects must be considered in light of the risks and
uncertainties frequently encountered by companies in the early stages of
development, particularly
20
<PAGE> 25
companies in new and rapidly evolving markets. WebTrends may not be successful
in addressing such risks and difficulties or sustaining or increasing
profitability in the future. See "Risk Factors -- WebTrends has a Limited
Operating History and May Not Remain Profitable," "-- Our Rapidly Changing
Market Increases Product Risk," and "-- Our Rate of Growth Strains Our System
and Management Resources."
RESULTS OF OPERATIONS
The following table sets forth certain historical operating information of
WebTrends, as a percentage of total revenue, for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
Statement of Operations Data
Revenue:
Software licenses................................. 99.6% 94.6% 90.0%
Support services.................................. 0.4 5.4 10.0
----- ----- -----
Total revenue................................ 100.0 100.0 100.0
Cost of revenue...................................... 11.0 7.2 7.9
----- ----- -----
Gross margin...................................... 89.0 92.8 92.1
----- ----- -----
Operating expenses:
Research and development.......................... 21.6 26.1 27.6
Sales and marketing............................... 29.6 37.7 45.5
General and administrative........................ 16.5 18.5 16.2
----- ----- -----
Total operating expenses..................... 67.7 82.3 89.3
----- ----- -----
Income from operations................................. 21.3 10.5 2.8
Other income, net...................................... 0.4 0.3 0.4
----- ----- -----
Income before income taxes............................. 21.7 10.8 3.2
Income taxes........................................... -- 3.7 0.4
----- ----- -----
Net income............................................. 21.7% 7.1% 2.8%
===== ===== =====
</TABLE>
REVENUE
Total revenue increased from $1.9 million in 1996 to $4.1 million in 1997,
and $8.0 million in 1998. The increases reflect year to year revenue growth of
117.4% and 97.5%, respectively.
Software Licenses. Software license revenue represented 90% or more of
total revenue for all periods reported. Software license revenue increased from
$1.9 million in 1996, to $3.8 million in 1997, and $7.2 million in 1998. The
increase in software license revenue from 1996 to 1997 is primarily attributable
to the effect of a full year of sales of the WebTrends Log Analyzer in the year
ended December 31, 1997. The increase in software license revenue from 1997 to
1998 results from the sales of additional products, including the WebTrends
Professional Suite and WebTrends Enterprise Suite, introduced during late 1997,
and WebTrends for Firewalls and VPNs, introduced in mid-1998.
Support Services. Support services revenue increased from $7,000 in 1996,
to $218,000 in 1997, and $802,000 in 1998, representing approximately 0.4%,
5.4%, and 10.0% of total revenues, respectively. The increases in support
services revenue are primarily attributable to an increase in the installed base
of customers over the comparable periods and the initiation of WebTrends
subscription program in the fourth quarter of 1996.
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<PAGE> 26
COST OF REVENUE
Cost of revenue includes product packaging, software documentation,
duplication, labor, and other costs associated with handling, packaging, and
shipping product, royalties associated with the sale of WebTrends' products, and
costs associated with providing technical support and consulting services to
customers. The cost of revenue increased from $205,000 in 1996, to $292,000 in
1997, and $633,000 in 1998. As a percentage of total revenue, the cost of
revenue increased from 7.2% for the year ended December 31, 1997 to 7.9% for the
year ended December 31, 1998. The increase in cost of revenue is primarily
attributable to the hiring of additional customer support personnel to handle
the increased demand from a larger installed base. As a percentage of total
revenue, the cost of revenue decreased from 11.0% for the year ended December
31, 1996 to 7.2% for the year ended December 31, 1997. This decrease is
primarily due to leveraging fixed costs across increased license revenue and
greater material and shipping discounts associated with higher sales volume.
OPERATING EXPENSES
Research and Development. Research and development expenses consist
primarily of salaries and related costs associated with the development of new
products, the enhancement of existing products, and the performance of quality
assurance and documentation activities. Research and development expenses
increased from $403,000 in 1996, to $1.1 million in 1997, and $2.2 million in
1998, representing 21.6%, 26.1%, and 27.6% of total revenues, respectively. The
increases in research and development expenses, both in absolute dollars and as
a percent of total revenue, are primarily attributable to the hiring of
additional research and development personnel and, secondarily, costs related to
supporting the development of new products and enhanced versions of existing
products. During the year ended December 31, 1998, WebTrends released three new
products. It continues to believe that significant investment in research and
development is required to remain competitive in its markets, and therefore
anticipates that research and development expenses will increase in absolute
dollars in future periods, but may vary as a percent of total revenue.
Sales and Marketing. Sales and marketing expenses consist primarily of
salaries, trade shows, commissions, and advertising costs. Sales and marketing
expenses increased from $553,000 in 1996, to $1.5 million in 1997, and $3.6
million in 1998, representing 29.6%, 37.7%, and 45.5% of total revenues,
respectively. The increases in sales and marketing expenses are primarily
attributable to the hiring of additional sales, marketing, and customer support
personnel during the periods presented, including additional personnel required
to support indirect distribution channels, and, to a lesser extent, increased
spending on advertising and tradeshows. WebTrends expects that sales and
marketing expenses will continue to increase in absolute dollars as it continues
to expand its marketing programs and sales force to increase brand awareness,
but they may vary as a percent of total revenue.
General and Administrative. General and administrative expenses consist
primarily of salaries and other personnel-related costs for executive,
financial, human resource, information services, and other administrative
personnel, as well as legal, accounting, and insurance costs. General and
administrative expenses increased from $307,000 in 1996, to $749,000 in 1997,
and $1.3 million in 1998, representing 16.5%, 18.5%, and 16.2% of total
revenues, respectively. The increase in absolute dollars is primarily
attributable to the hiring of additional accounting, administration, and
information services personnel and, secondarily, increased costs for rent.
WebTrends expects general and administrative
22
<PAGE> 27
expenses to increase in absolute dollars to support the anticipated sales and
operations, but they may vary as a percent of total revenue.
INCOME TAXES
Income taxes decreased from $151,000 for the year ended December 31, 1997
to $31,000 for the year ended December 31, 1998, primarily due to lower income
from operations resulting from WebTrends' increased operating expenses during
1998 and from the utilization of research and development tax credits associated
with its investment in developing new products. WebTrends was an S Corporation,
and therefore paid no corporate income taxes prior to 1997. Income taxes for the
year ended December 31, 1997 reflect an effective tax rate of approximately
34.4% of taxable income and is comprised of federal and state income taxes.
Income taxes for the year ended December 31, 1998 reflect WebTrends' estimated
consolidated tax rate for federal and state taxes of approximately 12.5% of
taxable income.
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<PAGE> 28
SELECTED QUARTERLY FINANCIAL RESULTS
The following table sets forth a summary of WebTrends' unaudited quarterly
operating results for each of the eight quarters in the period ended December
31, 1998, as well as results expressed as a percentage of its total revenue for
the periods indicated. This information has been derived from unaudited interim
financial statements that, in the opinion of management, have been prepared on a
basis consistent with the financial statements contained elsewhere in this
prospectus and include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of such information when read in
conjunction with Financial Statements and notes thereto appearing elsewhere in
this prospectus. The operating results for any quarter are not necessarily
indicative of results for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1997 1997 1997 1997 1998 1998 1998 1998
-------- -------- --------- -------- -------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenue:
Software licenses.................... $ 785 $ 877 $ 967 $1,208 $1,496 $1,661 $1,868 $2,181
Support services..................... 22 42 66 88 125 168 221 288
------ ------ ------ ------ ------ ------ ------ ------
Total revenue................. 807 919 1,033 1,296 1,621 1,829 2,089 2,469
Cost of revenue........................ 76 87 49 80 129 149 167 188
------ ------ ------ ------ ------ ------ ------ ------
Gross margin......................... 731 832 984 1,216 1,492 1,680 1,922 2,281
------ ------ ------ ------ ------ ------ ------ ------
Operating expenses:
Research and development............. 181 200 238 440 456 512 639 604
Sales and marketing.................. 259 351 449 469 720 800 877 1,245
General and administrative........... 130 176 196 247 292 329 356 323
------ ------ ------ ------ ------ ------ ------ ------
Total operating expenses...... 570 727 883 1,156 1,468 1,641 1,872 2,172
------ ------ ------ ------ ------ ------ ------ ------
Income from operations................. 161 105 101 60 24 39 50 109
Other income, net...................... 1 3 3 4 5 8 9 7
------ ------ ------ ------ ------ ------ ------ ------
Income before income taxes............. 162 108 104 64 29 47 59 116
Income taxes........................... 55 37 35 24 3 6 7 16
------ ------ ------ ------ ------ ------ ------ ------
Net income............................. $ 107 $ 71 $ 69 $ 40 $ 26 $ 41 $ 52 $ 100
====== ====== ====== ====== ====== ====== ====== ======
AS A PERCENTAGE OF TOTAL REVENUE
Revenue:
Software licenses.................... 97.3% 95.4% 93.6% 93.1% 92.3% 90.8% 89.4% 88.3%
Support services..................... 2.7 4.6 6.4 6.9 7.7 9.2 10.6 11.7
------ ------ ------ ------ ------ ------ ------ ------
Total revenue................. 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of revenue........................ 9.4 9.5 4.7 6.2 8.0 8.1 8.0 7.6
------ ------ ------ ------ ------ ------ ------ ------
Gross margin......................... 90.6 90.5 95.3 93.8 92.0 91.9 92.0 92.4
------ ------ ------ ------ ------ ------ ------ ------
Operating expenses:
Research and development............. 22.4 21.8 23.0 33.9 28.1 28.0 30.6 24.5
Sales and marketing.................. 32.1 38.2 43.5 36.1 44.4 43.7 42.0 50.4
General and administrative........... 16.1 19.1 19.0 19.1 18.0 18.0 17.0 13.1
------ ------ ------ ------ ------ ------ ------ ------
Total operating expenses...... 70.6 79.1 85.5 89.1 90.5 89.7 89.6 88.0
------ ------ ------ ------ ------ ------ ------ ------
Income from operations................. 20.0 11.4 9.8 4.7 1.5 2.2 2.4 4.4
Other income, net...................... 0.1 0.3 0.3 0.3 0.3 0.4 0.4 0.3
------ ------ ------ ------ ------ ------ ------ ------
Income before income taxes............. 20.1 11.7 10.1 5.0 1.8 2.6 2.8 4.7
Income taxes........................... 6.8 4.0 3.4 1.9 0.2 0.3 0.4 0.6
------ ------ ------ ------ ------ ------ ------ ------
Net income............................. 13.3% 7.7% 6.7% 3.1% 1.6% 2.3% 2.4% 4.1%
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
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<PAGE> 29
During WebTrends' history, its operating results have varied on a quarterly
basis and may fluctuate significantly in the future on a quarterly and annual
basis as a result of a combination of factors. The second and third quarters of
the year have been typically characterized by lower levels of revenue growth.
This seasonal reduction in the rate of growth is due primarily to a general
reduction in the amount and frequency of new sales in the European markets
during the summer months. WebTrends expects this seasonality to continue, and it
may result in lower revenue during those quarters. In addition to these seasonal
fluctuations, factors that could cause WebTrends' quarterly operating results to
fluctuate include:
- The level of demand for its products;
- The volume and timing of orders;
- The level of product and price competition;
- The ability to expand its domestic and international sales, and marketing
organizations;
- The ability to develop new and enhanced products;
- The ability to attract and retain key technical, sales and managerial
personnel;
- The mix of distribution channels through which its products are sold;
- The growth in the acceptance of, and activity on, the Internet,
particularly by users within organizations;
- The level of growth of intranets;
- Customer budgets;
- Foreign currency exchange rates; and
- General economic factors.
In addition, the amount of revenue associated with particular licenses can
vary significantly based upon the number of products licensed and the number of
devices involved in the installation. WebTrends establishes its expenditure
levels for product development, sales and marketing and other operating expenses
based, in large part, on its expected future revenue. WebTrends' expectations
regarding future revenue may not be accurate. As a result, if revenues fall
below expectations, operating results and net income are likely to be adversely
and disproportionately affected because only a small portion of WebTrends'
expenses vary with its revenue.
WebTrends is also increasing its sales and marketing efforts focused on
larger purchases by larger customers. Such transactions are generally more
complex and may increase the length of WebTrends' average sales cycle. It
anticipates that an increasing portion of its revenue could be derived from
larger orders, in which case the timing of receipt and fulfillment of any such
orders could cause fluctuations in its operating results, particularly on a
quarterly basis.
Due to the foregoing factors, WebTrends' operating results are difficult to
forecast. It believes that period-to-period comparisons of its historical
operating results are not meaningful and should not be relied upon as an
indication of future performance. Also, WebTrends' operating results may fall
below its expectations and those of securities analysts, or investors in some
future quarter. In such event, the market price of its common stock would likely
be materially adversely affected.
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<PAGE> 30
LIQUIDITY AND CAPITAL RESOURCES
WebTrends has financed its operations primarily with cash from operations
and loans and capital contributions from shareholders. As of December 31, 1998,
it had working capital of approximately $221,000, compared to working capital of
$260,000 at December 31, 1997.
Net cash provided by operating activities was approximately $441,000 for
the year ended December 31, 1996, $808,000 for the year ended December 31, 1997,
and $866,000 for the year ended December 31, 1998. Net cash provided by
operating activities resulted primarily from profitable operations, higher
credit card sales volume, and increased accrued liabilities, partially offset by
increased accounts receivable for the periods indicated.
Net cash used by investing activities was approximately $156,000 for the
year ended December 31, 1996, $270,000 for the year ended December 31, 1997, and
$479,000 for the year ended December 31, 1998. Investing activities for the
periods were primarily purchases of computer equipment and related software. At
December 31, 1998, WebTrends had no material commitments for capital
expenditures.
Net cash used by financing activities was approximately $142,000 for the
year ended December 31, 1996, $53,000 for the year ended December 31, 1997, and
$95,000 for the year ended December 31, 1998. The use of cash was primarily for
the repayment of loans made to WebTrends by its shareholders and the payment of
shareholder dividends, partially offset by the private sale of stock during
March 1997.
As of December 31, 1998, WebTrends had approximately $1.1 million in cash
and cash equivalents and a $750,000 bank line of credit with a major financial
institution. The line of credit expires on April 30, 1999. Borrowings under the
line generally are limited to 80% of WebTrends' eligible accounts receivable.
Interest on the unpaid balance accrues at a rate of prime plus 0.25%. Borrowings
under the line of credit are collateralized by WebTrends' accounts receivable,
inventory, and general intangible assets, including its intellectual property
rights. The line of credit agreement contains financial covenants, including the
ratio of current assets to liabilities, and tangible net worth. As of December
31, 1998, WebTrends had a letter of credit for $225,000 outstanding against this
line and was in compliance with all covenants. Since its inception, WebTrends
has significantly increased its operating expenses. It anticipates that it will
continue to experience significant growth in its operating expenses for the
foreseeable future and that its operating expenses and capital expenditures will
constitute a material use of its cash resources. In addition, WebTrends may
utilize cash resources to fund acquisitions or investments in businesses,
technologies, or product lines that are complementary to its business. WebTrends
believes that the net proceeds to it from this offering, together with its
current cash and cash equivalents, and funds expected to be generated from
operations, will satisfy its anticipated working capital and other cash
requirements for at least the next 12 months.
IMPACT OF THE YEAR 2000 COMPUTER PROBLEM
The Year 2000 computer problem refers to the potential for system and
processing failures of date-related data as a result of computer-controlled
systems using two digits rather than four to define the applicable year. For
example, computer programs that have time-sensitive software may recognize a
date represented as "00" as the year 1900 rather than the year 2000. This could
result in a system failure or miscalculations causing
26
<PAGE> 31
disruptions of operations, including among other things, a temporary inability
to process transactions, send invoices, or engage in similar normal business
activities.
STATE OF READINESS OF THE COMPANY'S PRODUCTS
All new products introduced by WebTrends will be Year 2000 compliant. It
has been testing its existing products for use in the year 2000 and beyond. The
results suggest that the following versions of its products, and later versions
of such products, are Year 2000 compliant:
- AuditTrack v 3.2
- SmartPass v1.09
- WebTrends Log Analyzer v 4.0a
- WebTrends Professional Suite v3.0a
- WebTrends Enterprise Suite v3.0a
- WebTrends Suite for Lotus Domino v2.0a
- WebTrends for Firewalls and VPNs v1.0
However, its testing does not cover every possible computing environment.
Accordingly, some customers may have Year 2000 problems with products that
WebTrends believes are Year 2000 compliant.
Certain of WebTrends' customers may be using older versions of the above
products. Problems encountered by such customers could be quickly remedied
because of the availability of Year 2000 upgrades and updates for such products.
In addition, WebTrends has not tested certain discontinued products that it no
longer markets for Year 2000 compliance, some of which might still be in use.
These discontinued products are not widely deployed. WebTrends expects that any
customers that materially rely on such discontinued products will test them for
Year 2000 compliance and notify WebTrends if there are problems. WebTrends'
experience in developing Year 2000 compliant versions of its existing products,
suggests that if it is required to correct Year 2000 problems in such
discontinued products, it could do so without incurring material expenses.
STATE OF READINESS OF THE COMPANY'S INTERNAL SYSTEMS
WebTrends may be affected by Year 2000 issues related to non-compliant
internal systems developed by WebTrends or by third-party vendors. It has
received assurances from its third-party vendors for all material systems in use
by WebTrends that such systems are Year 2000 compliant. WebTrends is not
currently aware of any Year 2000 problem relating to any of its internal,
material systems. WebTrends plans to test all such systems for Year 2000
compliance by June 30, 1999. It does not believe that it has any material
systems that contain embedded chips that are not Year 2000 compliant.
WebTrends' internal operations and business are also dependent upon the
computer-controlled systems of third parties such as suppliers, customers and
service providers. It believes that absent a systemic failure outside the
control of WebTrends, such as a prolonged loss of electrical or telephone
service, Year 2000 problems at such third parties will not have a material
impact on WebTrends. WebTrends has no contingency plan for systemic failures.
WebTrends' contingency plan in the event of a non-systemic failure is to
establish relationships with alternative suppliers or vendors to replace failed
suppliers or vendors. Other than the previously described testing, and remedying
problems identified by testing or from external sources, WebTrends has no other
contingency plans or intention to create other contingency plans.
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<PAGE> 32
COST
WebTrends does not separately track expenditures relating to Year 2000
compliance. Such expenditures are primarily absorbed within WebTrends'
development organization. Based on its overall development expenditures and the
amount of time people in the organization are spending on Year 2000 compliance,
WebTrends believes that its spending on compliance to date has not been
material. Furthermore, based on its experiences to date, and its assessment that
all material internal systems and all currently marketed products are Year 2000
compliant, WebTrends does not anticipate that costs associated with remediating
WebTrends' non-compliant products or internal systems will be material.
RISKS
Any failure of WebTrends to make its products Year 2000 compliant could
result in a decrease in sales of its products, an increase in allocation of
resources to address Year 2000 problems of its customers without additional
revenue commensurate with such dedication of resources, or an increase in
litigation costs relating to losses suffered by WebTrends' customers due to such
Year 2000 problems. Failures of the internal systems of WebTrends could
temporarily prevent it from processing orders, issuing invoices, and developing
products, and could require it to devote significant resources to correcting
such problems. Due to the general uncertainty inherent in the Year 2000 computer
problem, resulting from the uncertainty of the Year 2000 readiness of
third-party suppliers and vendors, WebTrends is unable to determine at this time
whether the consequences of Year 2000 failures will have a material impact on
its business, results of operations, and financial condition.
NEW ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position No. 98-1, "Software for Internal Use," which
provides guidance on accounting for the cost of computer software developed or
obtained for internal use. This statement of position is effective for financial
statements for fiscal years beginning after December 15, 1998. WebTrends does
not expect that it will have a material impact on its consolidated financial
statements.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard 133, "Accounting for Derivative Instruments and
Hedging Activities." This standard establishes accounting and reporting
standards requiring that every derivative instrument be recorded in the balance
sheet as either an asset or liability measured at its fair value. The standard
also requires that changes in the derivatives' fair value be recognized
currently in results of operations unless specific hedge accounting criteria are
met. It is effective for fiscal years beginning after June 15, 1999. WebTrends
does not expect it to have a material impact on its consolidated financial
statements.
In December 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-9, Modification of Statement of Position 97-2,
Software Revenue Recognition, With Respect to Certain Transactions. This
statement of position amends certain paragraphs of Statement of Position 97-2 to
require recognition of revenue using the "residual method" in circumstances
outlined in the statement of position. Under the residual method, revenue is
recognized as follows: (1) the total fair value of undelivered elements, as
indicated by vender specific objective evidence, is deferred and subsequently
recognized in accordance with the relevant sections of Statement of Position
97-2 and (2) the difference between the total arrangement fee and the amount
deferred for the undelivered elements is recognized as revenue related to the
delivered elements.
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<PAGE> 33
Statement of Position 98-9 is effective for fiscal years beginning after
March 15, 1999. Also, the provisions of Statement of Position 97-2 that were
deferred by Statement of Position 98-4 will continue to be deferred until the
date Statement of Position 98-9 becomes effective. WebTrends is in the process
of evaluating the impact of Statement of Position 98-9.
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<PAGE> 34
BUSINESS
The following Business Section contains forward-looking statements that
involve risks and uncertainties. WebTrends' actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including, but not limited to, those set forth under
"Risk Factors" and elsewhere in this Prospectus.
OVERVIEW
WebTrends is a leading provider of enterprise management and reporting
solutions for Internet-based systems. WebTrends offers organizations a
comprehensive set of solutions that are integrated, scaleable, modular, and
easy-to-use. Its enterprise management products facilitate analysis and
reporting of:
- Web site traffic: the number of visitors to a Web site, the timing of
visits, and other related characteristics;
- Web site quality: errors that prevent a Web site's content from being
displayed properly or efficiently;
- Internet advertising campaigns: the number of visitors drawn to your Web
site by particular Internet advertisements;
- Web site content: information specific to particular Web site pages, such
as the most popular pages on your Web site;
- usage patterns: the order in which visitors see the pages on your Web
site, and the Web sites most visited by an organization's employees;
- e-commerce activities: information relating to the volume of business
driven by your Web site, such as the number of visitors to a Web site's
order entry page; and
- return on investment: information relating to revenues and profits
generated or costs saved from specific Internet expenditures.
WebTrends' solutions also help organizations manage their Internet
infrastructure by providing valuable information about firewall activity,
virtual private networks, and security vulnerabilities, as well as capacity
requirements for the organization's computers and bandwidth requirements for the
organization's communications lines. Its products have been specifically
designed to enable organizations to centrally manage and administer multiple
Internet-based systems across the enterprise regardless of the quantity or
geographic locations of servers supporting those systems.
INDUSTRY BACKGROUND
EXPLOSIVE GROWTH OF THE INTERNET
The Internet has grown in less than a decade from a limited research tool
to a global network consisting of millions of computers and users. The Internet
is expected to continue to grow rapidly. International Data Corporation
estimates that the number of Internet users worldwide will grow from
approximately 69 million in 1997 to 320 million in 2002. The U.S. Department of
Commerce estimates that Internet traffic doubles every 100 days. The number of
Internet Web sites is also growing rapidly. The number of Web sites detected by
the Netcraft Web Server Survey increased from approximately 526,000 in November
1996 to approximately 1.6 million in November 1997, and to over 3.5 million in
November 1998, reflecting annual growth exceeding 100%. Network Solutions, Inc.,
which
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<PAGE> 35
estimates that it holds a 75% worldwide market share in domain name
registrations, registered over 1.9 million new domains in 1998, nearly double
the previous year.
The growth of the Internet is primarily attributable to its value as a
low-cost, open, and ubiquitous platform for communications and commerce. As a
result of these attributes, organizations are increasingly embracing the
Internet as a critical platform for communicating with key constituents and
conducting business. Internally, many organizations have adopted Internet-based
systems to facilitate communications among employees and to automate internal
business processes. Many organizations are adding Web-based applications to
increase sales, cut costs, and improve customer service. Customer-centric
applications range from Web sites offering electronic brochures, to electronic
acquisition of goods and services, and automated customer service and support.
Organizations are making large investments in these applications to create
meaningful and attractively presented content that informs, entertains, and
communicates. Emerging applications now enable organizations to attract
customers and build customer loyalty by offering dynamic, personalized content.
Web-based applications for suppliers and distributors have also significantly
improved business-to-business procurement, payment systems, and logistics
planning. Entirely new businesses have emerged that have been developed
specifically to exploit the unique characteristics of the Internet and
e-commerce. Accordingly, International Data Corporation estimates that the
volume of Internet commerce will increase from approximately $12 billion in 1997
to over $400 billion in 2002.
Advertising revenue has also played an important role in the growth of the
Internet. Attracted by increasing numbers of users, Internet-based businesses
have developed that are supported primarily by advertising revenue. Traditional
businesses have also realized incremental advertising spending from their Web
sites. Jupiter Communications estimates that Internet advertising spending will
grow from $1.9 billion in 1998 to $7.7 billion in 2002.
GROWTH OF INTERNET TECHNOLOGY, CONTENT, AND INFRASTRUCTURE
Organizations are supporting their Internet-based systems by investing
heavily in technology, content, and infrastructure. Forrester Research estimates
that spending on software and services for e-commerce alone will exceed $5.6
billion in 1998 and $35 billion by 2002. The creation of Internet content
continues to grow rapidly by any measure. For example, as of May 27, 1998, the
AltaVista search engine had indexed more than 140 million Web pages, an increase
of more than 40 million pages in the first five months of 1998. The Internet
uses Web and specialized servers for different tasks and forms of
communications. For example, specialized servers are used for Web browsing,
mail, chat, news groups, file transfers, and audio and video streaming. A
measure of the growth of the Internet infrastructure is the number of Web and
other Internet servers that are installed. These servers are programs that
respond to requests for information and manage data from back-end computing
resources. According to International Data Corporation, the number of Web and
other Internet servers installed will grow from approximately 6.3 million in
1998 to nearly 12 million in the year 2002.
Two other important components of the Internet infrastructure are proxy
servers and firewalls, which are network computers that are used to improve the
performance of information gathering and to prevent unauthorized access to
network resources, respectively. Firewalls are also used to implement virtual
private networks. Virtual private networks facilitate secure communications
within an organization among geographically dispersed employees by using
encryption and security to provide the attributes of a private network while
transporting information over the public Internet. International Data
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<PAGE> 36
Corporation expects the worldwide firewall market to grow from approximately
$353 million in 1997 to $1.2 billion by the year 2000.
NEED FOR ENTERPRISE MANAGEMENT AND REPORTING SOLUTIONS FOR INTERNET-BASED
SYSTEMS
As organizations have increased their reliance on the Internet, their
fundamental challenge has been to ensure that their investments in Internet
technology, content, and infrastructure are furthering their strategic goals.
These organizations are increasingly looking for management and reporting
solutions that track and control the effectiveness of their Internet-based
systems by optimizing Internet advertising, measuring return on investment,
monitoring performance, and determining usage patterns. Specifically,
organizations need to track and optimize a user's experience on the
organization's Internet sites, whether it be an employee, customer, or business
partner. Organizations also must manage their investments in Internet
advertising.
Without effective management and reporting, Internet-based systems are
unlikely to fulfill their strategic missions. A September 1998 Forrester
Research survey of 25 new media executives and Web site design experts found
that most of their Web sites did not provide enough information and suffered
from reliability problems and quality issues, such as broken links and failed
functions. Similarly, a 1997 survey from InfoWeek/Ernst & Young revealed a
significant increase in security threats and insufficient resources to monitor
network security.
In order for management to optimize the effectiveness and value of
Internet-based systems, such systems must fulfill the business needs of the
critical functional areas within the organization. Examples include:
- EXECUTIVE MANAGEMENT. How successful is the implementation of our
Internet strategy? What is the return on investment?
- MARKETING AND SALES. Which Web site visitors are purchasing our products
and services? Is our advertising effective in bringing qualified prospects
to our Web site?
- INFORMATION TECHNOLOGY. Is our existing Internet infrastructure secure
and does it have sufficient capacity? Are we providing reports to
functional managers that enable them to effectively manage our Internet
investment?
- CUSTOMER SERVICE. Has our Web site reduced the volume and duration of
telephone support calls? What are the most common support issues?
- FINANCE. Are we allocating Internet-related expenditures correctly? How
is our Internet strategy affecting employee productivity?
Despite the widespread need for comprehensive, scaleable, and easy-to-use
management and reporting solutions for Internet-based systems, there have been
no solutions offering all of these capabilities. Several companies offer
reporting and management tools designed for previous generations of computer
networks that are still widely deployed. These traditional network management
tools, however, are not designed specifically for the Internet and do not allow
business managers to analyze Internet-specific activities and content
effectively, increasing the likelihood that Internet investments will be
misallocated. Another approach is to develop a custom application to analyze
Internet data or to port Internet data to a database management system that can
generate reports from user queries. These custom applications and database query
tools, however, are not cost-effective solutions because of the volume and
complexity of the underlying data. The few
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Internet tools available are typically limited to particular needs, such as
traffic analysis, security analysis, or quality analysis. Furthermore, certain
stand-alone tools for traffic analysis are prohibitively expensive, yet do not
scale to high volume Web sites. In addition, piecing together individual tools
from different vendors for traffic analysis, security analysis, quality control,
and other management functions into a complete solution is expensive, difficult
to manage, and results in a confusing array of inconsistent user interfaces and
report formats.
THE WEBTRENDS SOLUTION
WebTrends offers a comprehensive solution of integrated, scaleable, and
modular software products that enable organizations to cost-effectively manage
and report on their Internet-based systems. Its enterprise management products
facilitate analysis and reporting of Web site traffic, quality, content, usage,
and e-commerce activities, as well as returns on investments from Internet-based
systems and Internet advertising campaigns. WebTrends' solutions also help
organizations manage their Internet infrastructure by providing valuable
information about firewall activity, virtual private networks, and security
vulnerabilities, as well as capacity and bandwidth requirements.
The WebTrends solution has the following key benefits:
Comprehensive Solution. WebTrends' products provide a comprehensive
solution to important Internet management needs. As Internet technology has
evolved and additional management requirements have become apparent, its modular
architecture has enabled WebTrends to rapidly develop additional products and
product enhancements to meet customer needs.
Centralized Management. The WebTrends solution enables organizations to
centrally manage and administer multiple Internet-based systems across the
enterprise regardless of the quantity or geographic locations of servers
supporting those systems. WebTrends' products analyze data from servers that run
in numerous operating environments, including UNIX, Windows NT, NetWare, and
others. Organizations can also use WebTrends' products to manage Web sites
hosted by third parties such as Internet service providers.
Scaleability and Performance. The WebTrends solution is capable of managing
and reporting on high-traffic and distributed Internet-based systems. The
WebTrends solution is designed to scale to the following environments:
- A single system hosting up to 500 Web sites.
- One Internet server spread across a 50-server cluster.
- One Internet server or firewall generating over 40 million hits per day.
- One Internet server or firewall generating log files exceeding 10
gigabytes per day.
- One Internet server or firewall consisting of tens of thousands of Web
pages.
WebTrends products are designed to produce results quickly. For example,
server logs can be analyzed in real time while transactions are being processed.
In addition, results of traffic analyses can be stored using WebTrends'
FastTrends caching technology, allowing customers to perform further analyses or
reorganize results quickly.
Comprehensive and Flexible Reporting. Each WebTrends product produces
dozens of reports that can be customized for format and content. Reports can be
generated in HTML for on-line browsing or in Microsoft Word or other formats for
professional looking printed output.
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Ease of Use and Installation. WebTrends' solutions have features that make
them easy to use, including fast installation, automatic detection of data
sources such as server logs, and an award-winning user-interface consistent
across all products. These features permit WebTrends' solutions to be used
throughout an organization by marketing, sales, and financial managers, as well
as Webmasters and other IT professionals.
Open and Flexible. WebTrends solutions are designed to integrate with other
systems. Data can be analyzed from numerous Internet system components developed
by dozens of vendors. Results can be exported to either the Company's FastTrends
cache or most database management systems. Internet service providers can use
the WebTrends Internet service providers application programming interface to
automate configuration for their own customers. Independent software developers
can develop their own applications as cartridges that interface with the
WebTrends framework.
STRATEGY
WebTrends' objectives are to continue to lead and expand the market for
enterprise management and reporting solutions for Internet-based systems. Key
strategies to achieving these objectives include:
Leverage Market Leadership to Build Brand Awareness. WebTrends believes it
is the leading provider of enterprise management and reporting solutions for
Internet-based systems. WebTrends has been able to accomplish this by being the
first company to market a solution combining Web site traffic analysis -- a
market in which WebTrends is the leader with almost three times the share of its
next closest competitor according to a March 1998 International Data Corporation
report -- with a variety of other products that enable organizations to manage
several critical aspects of their Internet investments, such as firewall
activity and virtual private networks. Fundamental to WebTrends' strategy has
been its belief that enterprise management and reporting solutions for
Internet-based systems require broad, integrated solutions that track not just
Internet traffic, but also quality, performance, and security. Thus, WebTrends
has, and will continue to leverage its market leadership to offer additional
traffic analysis, security, e-commerce management, and other new products that
enable organizations to manage the evolving needs of their Internet-based
systems.
Offer Comprehensive Internet Management Solutions. WebTrends intends to
reinforce and aggressively market its existing position as the only vendor
offering a comprehensive set of solutions for important Internet management
needs. WebTrends believes that individuals within an organization making
purchase decisions for Internet management and reporting solutions prefer a set
of solutions that offer consistent features for installation, reporting format,
user interface, and scaleability. It introduced its Enterprise and Professional
Suites in 1997, its Server Cluster Add-on and Lotus Domino Suite in 1998, its
Security Analyzer in January 1999, and has additional new products planned for
1999. It intends to continue to develop new features and products to meet the
additional management demands that will arise as Internet usage and technologies
evolve.
Address Needs of Both IT Professionals and Other Business Managers. In
addition to marketing its products to IT professionals on the basis of
performance and technical capabilities, WebTrends' strategy is to market
directly to the needs of business managers in such departments as sales and
marketing, customer service, finances, and human resources. WebTrends' products
enable these managers to make informed enterprise-wide management decisions. At
the same time, it markets its products as the preferred solution for the IT
professional to not only manage essential Internet issues such as network
bandwidth,
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navigation, capacity, quality assurance, system availability, and security, but
also increasingly to provide vital information to other managers across the
enterprise.
Exploit Architecture to Expand Product Line for Evolving Internet Systems.
WebTrends' extensible, modular product architecture significantly reduces the
design cycle, allowing it to bring new products and features to market on a
frequent, timely basis. This strategy is critical because WebTrends must
continue to provide management solutions for evolving Internet technologies.
Since the introduction of its original Web site traffic analysis product in
1996, WebTrends has introduced five additional product offerings, with an
additional three scheduled for introduction through June 1999.
Aggressively Expand Channels and Geographic Scope of Sales. To increase the
distribution and visibility of its products, WebTrends intends to continue to
expand its domestic and international sales capabilities. It anticipates adding
telesales and on-line sales resources and augmenting its field sales staffing
and locations. WebTrends also intends to invest significant efforts in further
developing its indirect channels with key value added resellers, distributors,
resellers, original equipment manufacturers, Internet service providers, and
other channel partners in both domestic and international markets.
Continue to Offer Scaleable Solutions that Address All Segments of
WebTrends' Market. WebTrends intends to reinforce its image as the leading
provider of enterprise management and reporting solutions of Internet systems by
continuing to offer a wide range of product choices and suite configurations at
price points appropriate to the resources and requirements of a broad spectrum
of business users. The speed, utility, and scaleability of WebTrends' products
make them appropriate for the enterprise management and reporting needs of the
largest Internet systems. Customers include large organizations managing
networks of hundreds of servers as well as Internet service providers providing
hosted Internet resource management to thousands of customers. In addition,
WebTrends has provided its solutions to organizations that require information
management for specific high-traffic Internet events such as NASA's Web site for
the John Glenn shuttle mission that received over seven million hits on its most
active day. All of these customers look to WebTrends' solutions for their
ability to scale to the demands of large volumes of Internet users. At the same
time, the price/performance attributes of WebTrends' products make them
affordable and appropriate solutions for business users with more modest system
requirements.
Invest in Technology to Maintain Leadership and Product
Performance. WebTrends believes that its customers purchase its solutions
primarily due to their superior performance characteristics. WebTrends' existing
products offer superior reliability, high speed relative to other available
solutions, a broad array of information reporting and analysis choices, and the
ability to scale up to very high traffic requirements. WebTrends believes that
the reputation of its existing products for performance will facilitate
acceptance of additional products into its market. It intends to continue to
devote substantial resources to the enhancement of its existing solutions and
the development of new products as the demands of its market evolve.
PRODUCTS AND SERVICES
WebTrends markets management suites, as well as stand-alone products for
traffic analysis, security analysis, and firewall management.
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MANAGEMENT SUITES AND TRAFFIC ANALYSIS
WebTrends Professional Suite. WebTrends Professional Suite is an integrated
enterprise solution that manages and reports on an organization's important
Internet-related functions. It consists of four functional cartridges:
1. Web Site Traffic Analysis: The Web Site Traffic Analysis Cartridge
analyzes log files created by Web servers to provide valuable information
concerning the site and the users that visit it. It is compatible with all
significant Web servers and can analyze server log files that were created by
the same computer running the WebTrends software, or that were created on
remotely located computers. The Web Site Traffic Analysis Cartridge can produce
separate analyses for each of multiple Web sites that share a single Web server.
Traffic analysis reports answer questions such as:
- How many qualified prospects are being drawn to the Web site by an
advertising campaign?
- Which search engines and portals are referring qualified prospects to the
Web site?
- Which pages are most popular? What changes can be made to the Web site to
make the most popular pages easy to find?
- How can the appearance of the Web site be improved in light of the most
frequently used browsers and access speeds of our visitors?
2. Proxy Server Traffic Analysis: The Proxy Server Traffic Analysis
Cartridge enables real-time analysis of employee Internet usage. Proxy server
traffic analysis reports answer questions such as:
- What Web sites provide useful information to employees?
- Which employees use the most resources?
- How much time do employees spend browsing Web sites that are unrelated to
their work?
3. Link Analysis and Quality Control: The Link Analysis and Quality Control
Cartridge detects broken links and other quality related problems on Web sites.
Link analysis and quality control reports answer questions such as:
- Does my Web site contain links to nonexistent Web pages?
- Which Web pages are slow to load in a browser?
- Does the Web site include duplicative images?
4. Monitoring, Alerting, and Recovery: The Monitoring, Alerting, and
Recovery Cartridge monitors devices such as servers, routers and databases, and
both issues alerts by e-mail or pager and runs automatic recovery routines when
failures are detected. Monitoring, alerting, and recovery reports answer
questions such as:
- What is the total downtime of our Internet-based system?
- Which components in our Internet-based system have experienced the
greatest number of failures?
WebTrends Enterprise Suite. The WebTrends Enterprise Suite adds advanced
capabilities to the WebTrends Professional Suite. The WebTrends Enterprise Suite
includes the Company's DBTrends technology. DBTrends allows an IT professional
to integrate Web traffic analysis results with data from the organization's
existing databases
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for custom analysis of e-commerce and other advanced applications. The WebTrends
Enterprise Suite also permits WebTrends analyses to be exported to most database
management systems for archiving and historical analyses.
WebTrends Log Analyzer. The WebTrends Log Analyzer is a stand-alone product
that provides all of the capabilities of the Web Site Traffic Analysis Cartridge
included in the WebTrends suites. The WebTrends Log Analyzer was the first
product for managing Internet-based systems and is a popular choice for
organizations that require an inexpensive, feature-rich solution for traffic
analysis.
WebTrends Enterprise Reporting Server for UNIX. The WebTrends Enterprise
Reporting Server for UNIX is a Web site traffic analysis solution that runs on
Sun's Solaris UNIX platform. It is designed to serve the needs of Internet
service providers and enterprise customers by allowing multiple users
concurrent, remote management and access to reports via Web browsers residing on
any Windows, UNIX, or Macintosh client using HTML, Java, and ActiveX
technologies. The WebTrends Enterprise Reporting Server for UNIX is currently
under development. A prototype of the product exists and has been released to
certain third-parties for testing and evaluation. The product is expected to be
publicly released in the first quarter of 1999. WebTrends does not expect the
remaining development to consume a material amount of resources. Aside from
discussions with certain third-parties that are subject to non-disclosure
agreements, this prospectus, and discussions relating to this prospectus,
WebTrends has not publicized this product.
WebTrends Server Cluster Add-on. The WebTrends Server Cluster Add-on
enables the WebTrends Enterprise Suite to analyze multiple log files created by
Web servers in a cluster -- a group of Web servers cooperating to provide high
bandwidth and reliable access to a single Web site -- automatically
reconstructing the correct time of arrival for each and every hit, to produce
accurate Web traffic analysis reports. The WebTrends Server Cluster Add-on also
reports how well the load is balanced across the servers in the cluster and how
well a redirector device is distributing requests to servers that are installed
in different geographic locations.
WebTrends Suite for Lotus Domino. The WebTrends Suite for Lotus Domino
contains the functionality of the cartridges of the WebTrends Professional
Suite, with each cartridge customized for the Lotus Domino Web server
environment.
WebTrends CommerceTrends Add-on. The WebTrends CommerceTrends Add-on helps
organizations manage their e-commerce and on-line advertising activities. The
WebTrends CommerceTrends Add-on creates a profile of an organization's
Internet-based advertising campaigns and expenditures and assigns a monetary
value for individual Web site visitors by analyzing their activity and their
interest in specific products or services. The Add-on supplements the existing
capabilities of WebTrends Enterprise Suite relating to return on investment
reporting by using the profile and traffic data to calculate the organization's
return on investment from each advertisement, allowing the organization to make
more effective advertising investments.
The WebTrends CommerceTrends Add-on is currently in development. A
prototype of the product has been developed, but has not been released to
internal testers. It is expected to be released as an add-on product to the
WebTrends Enterprise Suite during the first half of 1999. WebTrends does not
expect the remaining development to consume a material amount of resources.
Aside from this prospectus and discussions relating to this prospectus,
WebTrends has not publicized this product.
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WebTrends Streaming Media Cartridge. The WebTrends Streaming Media
Cartridge reports on traffic of audio and video servers available from
RealNetworks, Inc. and Microsoft. Reports from this cartridge will identify the
number of streams requested, the connection speeds for browsers, and the most
popular content. This cartridge is currently in development. A prototype of this
cartridge has been developed that is currently being tested internally. It is
expected to be released as part of the WebTrends Enterprise Suite during the
first quarter of 1999. WebTrends does not expect the remaining development to
consume a material amount of resources. Aside from this prospectus and
discussions relating to this prospectus, WebTrends has not publicized this
cartridge.
SECURITY AND FIREWALL MANAGEMENT
WebTrends for Firewalls and VPNs. WebTrends for Firewalls and VPNs is an
enterprise management solution that provides information that enables
organizations to manage bandwidth usage, security, employee usage of Web sites
outside of the firewall, and traffic originating from outside the firewall.
WebTrends for Firewalls and VPNs is compatible with firewall products from all
of the leading firewall vendors including Check Point Software Technologies,
Inc., Cisco Systems, Inc., Lucent Technologies Inc., and Network Associates.
Firewall and VPN reports answer questions such as:
- Have hackers tried to breach our security?
- Does my Internet-based system have sufficient memory and disk capacity
and communications bandwidth to service current traffic volume?
- What errors are occurring during user sessions?
- Which employees and departments use the most resources?
WebTrends Security Analyzer. The WebTrends Security Analyzer helps secure
Internet servers and other Internet devices by detecting security
vulnerabilities and recommending fixes that decrease the likelihood of
intrusions by hackers. An AutoSync capability updates the WebTrends Security
Analyzer as system vendors discover new vulnerabilities. WebTrends offers
Professional and Enterprise versions of this product as well as versions
tailored for security consultants.
AUDITTRACK
When WebTrends was founded in 1993, its business plan was to develop
solutions for managing Novell networks. WebTrends continues to sell, support,
and enhance AuditTrack, a solution for auditing activity on Novell network
servers.
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AWARDS
WebTrends' products have received over 25 industry awards including the
following:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AWARD PRODUCT DATE AWARDED DESCRIPTION
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Network World's Blue WebTrends December 1998 Received top score (8.45 out of 10.00
Ribbon Award Enterprise possible) of three Web management tools
Suite 3.0 tested. Score was a weighted average of
scores in the following categories:
Monitoring and alerting, Site quality
analysis; Log file analysis; User
interface; Installation; and
Documentation.
- ---------------------------------------------------------------------------------------------------
Network Computing WebTrends November 1998 Received top score (4.40 out of 5.00
Editor's Choice Award Enterprise possible) of 5 Web site management suites
Suite 2.1 tested. Score was a weighted average of
scores in the following categories:
Analysis; Reporting; Ease of use;
Performance; and Price.
- ---------------------------------------------------------------------------------------------------
Finalist, PC Computing WebTrends November 1998 One of two runners up among Internet Site
1998 MVP Award Professional Management products.
Suite 2.1
- ---------------------------------------------------------------------------------------------------
Internet Commerce Expo, WebTrends September 1998 Awarded for achievement in the product
Best of Class Professional category of Analysis/Performance,
Suite Networking and Other Services.
- ---------------------------------------------------------------------------------------------------
PC Magazine Editor's WebTrends March 1998 Received highest ranking for ease of use
Choice Log and second highest ranking for power out
Analyzer of 11 Web Site Analysis tools considered.
4.0 Evaluation was in the following
categories: Installation; Importing log
files; Generating reports; and Analysis
aids.
- ---------------------------------------------------------------------------------------------------
VAR Business Magazine, WebTrends January 1998 One of two products to receive top overall
VAR Business Professional ranking of "A" out of 7 Web site
Recommends Suite management tools considered. Evaluation
was in the following categories: Ease of
installation; Ease of use; Site
management; Site tracking; Reports; and
VAR program.
- ---------------------------------------------------------------------------------------------------
Software Publisher's WebTrends January 1998 One of five runners up in the category of
Association CODIE Professional Best Enterprise Management Tools and only
Award Finalist for Suite web site management product to be so
Best Enterprise recognized.
Management Tools
- ---------------------------------------------------------------------------------------------------
ZDNet Editor's Choice WebTrends December 1997 Both products received highest possible
(Five Star Rating) Log rating.
Analyzer
4.0 and
WebTrends
Professional
Suite 1.0
- ---------------------------------------------------------------------------------------------------
</TABLE>
LICENSING AND PRICING
All of WebTrends' products are licensed for use and are priced to be
affordable to both large and small organizations. In general, WebTrends'
products are licensed to be run on a single computer. WebTrends offers customers
who license its products the option to purchase one-year subscriptions that
permit users to download all new versions of the licensed product during the
subscription period. Subscriptions are generally priced at 20% of the license
fee. Changes to its pricing and licensing policies are periodically made as a
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result of competitive conditions and other factors. The following table lists
end-user product prices as of January 1, 1999 (upgrade pricing and shipping and
handling charges not shown). WebTrends offers reseller discounts, volume
discounts, and occasional promotional pricing.
<TABLE>
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
PRODUCTS SCOPE U.S. INTRODUCTION
LIST PRICE DATE
- -------------------------------------------------------------------------------------------------------
MANAGEMENT SUITES AND TRAFFIC ANALYSIS
- -------------------------------------------------------------------------------------------------------
WebTrends Enterprise Suite 500 virtual domains $1,499 September 1997
- -------------------------------------------------------------------------------------------------------
WebTrends Professional Suite 100 virtual domains $ 599 November 1997
- -------------------------------------------------------------------------------------------------------
WebTrends Log Analyzer 50 virtual domains $ 399 February 1996
- -------------------------------------------------------------------------------------------------------
WebTrends Enterprise Reporting Server for 1 server/5 user $2,999* 1st Qtr. 1999
Unix Additional 5 user pack $ 999*
Additional server $ 999*
- -------------------------------------------------------------------------------------------------------
Server Cluster Add-on Each additional server $ 999 August 1998
- -------------------------------------------------------------------------------------------------------
WebTrends Suite for Lotus Domino 500 virtual domains $ 999 May 1998
- -------------------------------------------------------------------------------------------------------
CommerceTrends Add-on TBD** TBD** 2nd Qtr. 1999
- -------------------------------------------------------------------------------------------------------
SECURITY AND FIREWALL MANAGEMENT
- -------------------------------------------------------------------------------------------------------
WebTrends for Firewalls and VPNs Each firewall $1,499 June 1998
- -------------------------------------------------------------------------------------------------------
WebTrends Security Analyzer 255 IP Addresses $1,499 January 1999
Unlimited IP Addresses $4,999
- -------------------------------------------------------------------------------------------------------
</TABLE>
- -------------------------
* Projected
** To Be Determined
PRODUCT ARCHITECTURE AND TECHNOLOGY
The focus of product development at WebTrends is to bring new products as
well as new versions of existing products to market quickly in order to keep
pace with the rapid evolution of Internet technologies and increasing customer
demands. WebTrends devotes a substantial portion of its resources to developing
new products. Research and development expenses were approximately $403,000 in
1996, $1.1 million in 1997, and $2.2 million in 1998. WebTrends has recruited a
product development team experienced in bringing quality products to market
on-time. As of December 31, 1998, the Company's product development team
consisted of 27 employees with responsibilities that include software
engineering, quality assurance, and technical writing. This team is currently
developing new versions of most of the existing products as well as new add-ons
for analyzing e-commerce and on-line advertising activities and a new cartridge
for managing streaming audio and video Internet servers.
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[WEBTRENDS ILLUSTRATION]
WebTrends' product architecture and technologies, as shown in the above
diagram, provide significant competitive advantages. The architecture consists
of application cartridges atop a shared foundation of base technologies. The
application cartridges request services from the foundation, where most of the
code is located, through a well-defined set of conventions called an application
programming interface. This shared foundation shortens the product development
cycle because the shared components do not have to be redeveloped for each new
application cartridge. In addition, enhancements to the foundation, such as
improving the speed of the report generator, benefit all cartridges.
Some of the important base technologies are:
Scheduler. The Scheduler automatically runs analyses and reports at
specified times and intervals, without the presence of an operator.
User-Interface Framework. WebTrends improves the usability of its products
by presenting a consistent look and feel to the end-user.
Reporting Engine. WebTrends' Reporting Engine permits customers to
customize the reports generated by the application cartridges. In addition, many
reports can be generated in HTML, Microsoft Word, Microsoft Excel, and other
standard formats.
Language Editor. A language editor is built into the products that
facilitates customizing the product for international use.
WebTrends has numerous additional technologies and product features,
including the following:
Direct Analysis of Server Logs. WebTrends' products can analyze server logs
as they are created or at scheduled times. In either case, the server logs are
read and analyzed in a single pass. WebTrends believes that the alternative
approach of first importing the log data into a database management system and
then analyzing the data is slow and costly.
FastTrends Cache. The FastTrends technology stores the results of an
analysis allowing customers to quickly perform further analysis or reorganize
the results in meaningful ways. FastTrends contributes to the scaleability of
WebTrends' products by efficiently handling large amounts of data.
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64-bit Technology. WebTrends has implemented 64-bit technology to permit
its products to analyze log files containing more than four gigabytes of data.
WebTrends' products are compiled to run on 32-bit processors.
Standard Programming Languages. WebTrends' engineers develop software using
C and C++ programming languages to produce fast, scaleable products. Standard
programming languages also ease porting the technology to new operating
environments.
Remote Analysis. WebTrends' products need not reside on the server being
analyzed. Server logs can be exported to the system where the product resides or
can be remotely accessed.
Compatibility with Database Management Systems. WebTrends' products can
obtain data from databases that are compatible with the popular Open DataBase
Connectivity standard. In addition, the results of analyses can be exported to
such databases.
Information Gathering. The registration engine built into WebTrends'
products collects detailed customer information. The products also have a
customer feedback feature that encourages customers to communicate with
WebTrends. Information from both of these sources is used for sales leads and as
input for the next round of product upgrades and improvements.
SERVICES AND SUPPORT
WebTrends provides technical support to its registered users by telephone,
e-mail, and on its Web site. Products are easy to install and use, and WebTrends
also maintains an extensive database of support information on its Web site, all
of which enables the support organization to operate efficiently and increases
customer loyalty and satisfaction.
WebTrends intends to continue to enhance its services capabilities. Its
recently-formed professional services organization will provide end-user
implementation and training, certification and training for third-party service
providers and resellers, and management and reporting for high-traffic Internet
events and seminars. WebTrends also relies on value added resellers and Internet
service providers that distribute and promote its products to provide similar
services.
CUSTOMERS
As of December 31, 1998, WebTrends had licensed over 50,000 products to
over 20,000 customers. Some of its customers are Internet-based businesses that
were specifically formed to take advantage of emerging Internet opportunities.
However, the bulk of its customers are traditional companies from all segments
of the economy that are developing new applications and porting existing
applications to the Internet. WebTrends' products are used by over one-third of
the Fortune 500, but are also affordable to small organizations.
An important customer segment is Internet service providers that sell Web
site hosting services. Several of these Internet service providers use
WebTrends' products to perform WebTrends' analyses on their customers' Web sites
as an added service. Some of the Internet service providers' own customers have
become WebTrends' customers to do more sophisticated analyses in-house or to
analyze other in-house, Internet servers.
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Representative customers include:
TECHNOLOGY
Cisco Systems
Compaq Computer
Dell Computer
EDS
Hewlett-Packard
IBM
Intel
Siemens
TELECOMMUNICATIONS
AT&T
Ameritech
Bell Atlantic
British Telecom
GTE
PUBLIC SECTOR
City of San Jose
NASA
University of Illinois
U.S. Air Force
U.S. Dept. of Labor
U.S. House of Representatives
INTERNET SERVICE PROVIDERS
@Home
Cable and Wireless
DIGEX
NETCOM
Prodigy
PSINet
Verio
MEDIA
BBC
Dow Jones & Company
NBC
Playboy Enterprises
Washington Post
MANUFACTURING
Boeing
Caterpillar
DaimlerChrysler
Eastman-Kodak
Ford Motor Co.
Pharmacia & Upjohn
INTERNET COMPANIES
InfoSeek
Netscape
Peapod
USWeb
UUNet
FINANCIAL SERVICES
American Express
BankAmerica
Chase Manhattan
Dun and Bradstreet
Union Bank
TRANSPORTATION
Air New Zealand
Alaska Airlines
American Airlines
Greyhound Lines
KLM Royal Dutch Airlines
CASE STUDIES
DIGEX Incorporated -- Internet Service Provider Managing Web Sites for its
Customers
DIGEX is a leading national Internet carrier that hosts and manages
hundreds of Web sites and firewalls for companies including America's Health
Network and Nike. DIGEX derives competitive advantage from its sophisticated Web
site management organization that includes 250 employees.
In August 1997, DIGEX initiated an engineering effort to evaluate Web site
reporting and analysis solutions to provide management reports to its customers.
After running a full battery of tests and comparing several competing traffic
analysis solutions, DIGEX decided to standardize on a single traffic analysis
software package to avoid the difficulties and expense in providing world-class
support on a variety of different applications.
DIGEX selected WebTrends' products because of their industry-leading
functionality, high quality, attractive prices, and ease of use. WebTrends'
support for server clusters and ability to perform with little to no demand on
the Web servers during peak hours were also critical. For example, the WebTrends
Log Analyzer generates reports between 1 a.m. and 2 a.m. daily for one of
DIGEX's largest customers whose site runs on a cluster of nine Web servers each
producing a 200 megabyte log file each day.
DIGEX cites three key benefits from its use of WebTrends' products:
- Increased Customer Satisfaction: DIGEX is experiencing improved customer
retention because customers are more satisfied with their overall hosting
solution.
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- Reduced Cost: DIGEX estimates that it is saving $200,000 per year,
compared to when it was supporting multiple reporting packages.
- Increased Competitiveness: DIGEX's ability to deliver industry-leading
reporting functionality provides a competitive advantage over Web-hosting
competitors.
Since standardizing on WebTrends, DIGEX has installed hundreds of copies of
WebTrends' products.
Cable & Wireless USA -- Internet Service Provider Keeping Up With Customer
Demands
Cable & Wireless owns and operates one of the world's premier Internet
networks. Its Internet Solutions Center manages mission-critical Web sites for
hundreds of global corporations. In May 1998, after extensive testing and
evaluation of off-the-shelf packages, the Internet Solutions Center decided to
replace its internally developed management applications with the WebTrends
Enterprise Suite. WebTrends Enterprise Suite met all of the Internet Solutions
Center's evaluation criteria including maintaining all of the existing
functionality of the internally developed applications and handling its largest
Web sites reliably.
The Internet Solutions Center installed WebTrends Enterprise Suite onto
numerous processing servers dedicated to running WebTrends software. Log files
from hundreds of Web Sites are moved to these processing servers each night by 2
a.m. The WebTrends Enterprise Suite automatically detects the type of each log
file, then creates up to 33 reports for each Web site, processing approximately
three gigabytes of data. By morning, daily and month-to-date reports are created
for every customer and are available on a reporting server via a Web browser.
Cable & Wireless has seen three clear benefits from the WebTrends solution:
- Increased Customer Satisfaction: Cable & Wireless customers are receiving
the reports they need, on a timely basis, to manage their businesses.
Requests to Cable & Wireless from its customers for customized reports
have significantly decreased.
- Lowered Operating Cost: Operational support effort has been reduced from
about 25 hours per week to about 10 hours per week, saving about $30,000
annually.
- Eliminated Development Costs: Two software developers who were developing
enhancements to the Internet Solutions Center's internally-developed
management software have been redeployed, saving about $200,000 annually.
Pharmacia & Upjohn -- Managing a Global Intranet
Pharmacia & Upjohn is a pharmaceutical and healthcare company with offices
in 54 countries and over 30,000 employees. Pharmacia & Upjohn used Internet
technology to develop an internal use network for communication of company
information and news that generates over 13 million hits per month to 400,000
Web pages housed on 50 geographically dispersed servers. Using WebTrends
Professional Suite, Pharmacia & Upjohn's Webmaster analyzes and monitors the
entire worldwide network from a single workstation in his office. Analyses are
scheduled for automatic execution and the reports are made available on the
network where they are regularly reviewed by 50 to 100 managers. The WebTrends
solution has benefited Pharmacia & Upjohn in the following ways:
- Improved Design: Frequently accessed information has been made easier to
find. Certain low-traffic pages have been deleted.
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- Increased Availability: E-mail messages or pager messages are
automatically sent when a server is down, reducing recovery delays.
- Facilitates Capacity Planning: Overall usage trends permit Pharmacia &
Upjohn to anticipate needs and upgrade servers and communications
facilities before network performance degrades.
- Reduced Overhead: The WebTrends' scheduler automates many of the
management activities. Furthermore, functional management is able to
review and customize their own reports reducing the stress on the IT
organization.
SALES, MARKETING, AND DISTRIBUTION
WebTrends conducts a number of marketing programs to promote its brand and
to support the sale and distribution of its products. These programs are
designed to inform existing and potential resellers and end-user customers about
the capabilities and benefits of its products. Marketing activities include:
press relations; publication of technical and educational articles in its
on-line magazine, WebTrends Corporation Alert; participation in industry trade
shows; product/technology conferences and seminars; Web-based and traditional
advertising; development and distribution of literature; and maintenance of the
WebTrends Web site. It also conducts joint marketing and distribution with
strategic partners, including:
- Oracle: Distributes trial versions of Web site management products with
Oracle's Internet Application Server.
- Netscape: Sells WebTrends' products through its Software-Depot Store
e-commerce Web site.
- Microsoft: WebTrends promotes its products at the microsoft.com Web site
and at the Microsoft Partners' Pavilion at selected trade conferences.
- Check Point Software: Distributes trial versions of WebTrends' products
from its Web site and partner for marketing, advertising, and trade show
activities.
- Hewlett-Packard: Promotes WebTrends' products on the HP Covision Web site
as a strategic part of an integrated solution for electronic business.
Many of WebTrends' sales leads are generated from its own Web site, which
is often a customer's first contact with WebTrends. The Web site contains
extensive product information and sales literature. The Web site also has an
on-line purchasing capability. Many visitors download free trial versions of
WebTrends' products from the Web site. Customers can purchase the product during
the trial period. For 1998, on-line sales accounted for approximately 18% of
WebTrends' revenue.
In addition to on-line sales, the sales force consists of a telesales
organization and a direct field sales organization. The telesales organization
responds to incoming inquiries generated by advertising and marketing
activities. Telesales representatives also initiate calls to contact customers
who download trial software from the Web site, and offer new products to
existing customers. Data from software downloads and license registrations are
used to identify volume licensing opportunities that are generally referred to a
direct field sales representative or a value added reseller. As of December 31,
1998, the telesales organization consisted of one manager and ten sales
representatives.
The direct field sales organization is focused on large enterprises and
strategic sales. Strategic sales efforts are targeted at Internet service
providers, Internet-based companies,
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and other organizations with significant on-line presences. By selling its
solutions to the perceived Internet technology leaders, WebTrends believes it
enhances its own brand image. As of December 31, 1998, the direct field sales
organization consisted of five sales representatives. WebTrends plans to grow
its direct field sales force and base more of its direct field sales
representatives in their respective geographic territories in 1999. In 1998,
direct sales, excluding on-line sales, accounted for approximately 51% of
WebTrends' revenue.
WebTrends' domestic, indirect distribution channel consists of numerous
resellers and a value added reseller program. WebTrends relies on the value
added reseller program not only to expand sales but also to meet the demand for
value-added services related to the installation and use of its products.
Recently it established national distribution relationships with Merisel and
Ingram. WebTrends expects that its resellers and value added resellers will
acquire product through Merisel, Ingram, or other distributors in the future. As
of December 31, 1998, WebTrends employed three value added reseller partner
managers to establish new value added resellers and manage relationships with
existing value added resellers and one reseller manager to manage relationships
with new and existing resellers. In 1998, indirect sales, both domestic and
international, accounted for approximately 31% of WebTrends' revenue.
WebTrends has a nonexclusive relationship with a third-party export
management company to establish indirect distribution channels outside of the
United States. The export management company is responsible for shipment of
products to the international distributor, reseller, or value added reseller and
for all documentation of such export shipments. International resellers and
value added resellers are responsible for the localization of reports, marketing
materials and packaging in the countries where they distribute WebTrends'
products. In 1998, international sales, both direct and indirect and primarily
from European markets, accounted for approximately 28% of WebTrends' revenues.
COMPETITION
See "Risk Factors -- WebTrends' Market is Highly Competitive."
PROPRIETARY RIGHTS
WebTrends relies on a combination of copyright, trade secret, patent,
trademark, confidentiality procedures, and contractual provisions to protect its
proprietary rights. WebTrends' software, documentation and other written
materials are provided limited protection by international and United States
copyright laws. WebTrends licenses its products in object code format for
limited use by customers. It treats the source code for its products as a trade
secret and requires all employees and third-parties who require access to the
source code to sign non-disclosure agreements.
WebTrends currently has two pending United States patents that seek to
protect inventions underlying the FastTrends cache and server cluster analysis
technology, respectively. WebTrends is in the process of preparing an additional
United States patent application. WebTrends does not have any issued patents.
WebTrends has developed and published a log format for firewall data that
it hopes to establish as a standard. WebTrends may develop additional formats to
facilitate the standardization process for enterprise management of Internet and
intranet servers. It permits such formats to be implemented by vendors of
servers and other Internet products, and by competing enterprise management
software companies.
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WebTrends has registered the trademark AuditTrack in the United States. It
has applied for United States trademark registrations for the following:
AlertTrack, ClusterTrends, CommerceTrends, DBTrends, FastTrends, FireTrends,
Manage Your WWWorld, SmartPass, WebTrends, and WWWorld. Certain of these marks
are also protected in other jurisdictions. See "Risk Factors -- We May be Unable
to Protect Our Intellectual Property Rights" and "-- Others May Bring
Infringement Claims Against Us."
EMPLOYEES
As of December 31, 1998, WebTrends had 78 employees, including 37 in sales,
marketing, and customer support, 27 in research and development, and 14 in
finance and administration. All of the employees were located at its
headquarters in Portland, Oregon, except for three sales representatives. None
of the employees is represented by a labor union. WebTrends has experienced no
work stoppages and believes its relationships with its employees are good.
FACILITIES
WebTrends is headquartered in Portland, Oregon, where it leases
approximately 22,000 square feet pursuant to a recently executed five-year
lease. Pursuant to the new lease, WebTrends will occupy an additional 15,000
square feet by July 1999. WebTrends has sales offices in Boston, Massachusetts
and Houston, Texas.
LEGAL PROCEEDINGS
WebTrends is not currently a party to any material legal proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS, AND KEY PERSONNEL
The executive officers, directors, and key personnel of WebTrends, and
their ages and positions, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Elijahu Shapira................. 33 Chairman of the Board and Chief
Executive Officer
W. Glen Boyd.................... 31 President, Chief Technical Officer, and
Director
James T. Richardson............. 51 Vice President, Chief Financial Officer,
and Secretary
Gregory D. Applegate............ 38 Vice President of Sales
Daniel J. Meub.................. 45 Vice President of Marketing
Michael Burmeister-Brown........ 40 Director
John W. Ryan.................... 37 Director
Srivats Sampath................. 39 Director
John D. Teddy................... 34 Vice President of Research & Development
</TABLE>
There are no family relationships among any of the directors, executive
officers, or key personnel of WebTrends.
Elijahu Shapira is a co-founder of WebTrends and has served as its Chief
Executive Officer since December 1997 and as a director since September 1993.
From September 1994 to November 1995 and from November 1996 to December 1998, he
served as its Vice President and Secretary. Mr. Shapira has 14 years of
experience in the software industry. From June 1991 to September 1994, Mr.
Shapira was the Product Development Manager for the AntiVirus product line of
Central Point Software, an anti-virus software development company that was
acquired by Symantec Corporation in 1994. From March 1987 to October 1990, Mr.
Shapira was the Vice President of International Business Development for Carmel
Software Engineering, a company specializing in network security and encryption
products.
W. Glen Boyd is a co-founder of WebTrends and has served as its President
since December 1996, as its Chief Technical Officer since December 1997, and as
a director since September 1993. Mr. Boyd served as the President of WebTrends
from September 1993 to November 1995 and as its Vice President and Secretary
from November 1995 to December 1996. Mr. Boyd has more than 12 years of
experience in the software industry. Prior to co-founding WebTrends in 1993,
from October 1990 to January 1993, Mr. Boyd was a Section Manager for the
AntiVirus, Commute, and PCTools product lines of Central Point Software.
James T. Richardson has served as WebTrends' Vice President and Chief
Financial Officer since July 1998 and as Secretary since December 1998. From
April 1994 to December 1997, Mr. Richardson served as the Senior Vice President
of Corporate Operations and Chief Financial Officer of Network General, a
producer of networking software that merged with McAfee Associates in December
1997 to form Network Associates. From July 1992 to April 1994, Mr. Richardson
served as the Vice President of Finance and Chief Financial Officer of Logic
Modeling Corporation, an electronic design automation software company that
merged with Synopsys, Inc. in February 1994. From
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November 1989 to June 1992, Mr. Richardson served as the Vice President of
Finance and Administration and as Chief Financial Officer of Advanced Logic
Research, a manufacturer of personal computers. Mr. Richardson has served in
various management positions in the high-technology industry since 1977.
Gregory D. Applegate has served as WebTrends' Vice President of Sales since
April 1998. From December 1996 to April 1998, Mr. Applegate served as the Vice
President of Sales of OrCAD Inc., an electronic design automation software
company. From October 1993 to November 1996, Mr. Applegate served in a variety
of other management roles at OrCAD. Prior to his employment with OrCad, Mr.
Applegate served in sales and management positions at INTERSOLV, Inc., an
enterprise solution and software management company.
Daniel J. Meub has served as WebTrends' Vice President of Marketing since
December 1998. From December 1996 to October 1998, Mr. Meub served as the
President and Chief Executive Officer of Adaptive Solutions Inc., a supplier of
forms processing software and imaging solutions for the health care and
governmental markets that filed a voluntary petition under Chapter 7 of the
United States Bankruptcy Code due to insolvency. From January 1995 to November
1996, Mr. Meub served as the Executive Vice President of Marketing and Product
Development of Now Software Inc., a supplier of time management and utility
software. From February 1993 to June 1994, Mr. Meub served as the Vice
President/General Manager of the Desktop Product Group of Central Point
Software. From November 1991 to February 1993, Mr. Meub served as the Vice
President of Marketing and Development of Calera Recognition Systems, a
character recognition software development company. Mr. Meub has served in a
variety of sales and marketing roles since 1976.
Srivats Sampath has served as a director of WebTrends since January 1998.
Since July 1998, Mr. Sampath has served as the Vice President of Worldwide
Marketing of Network Associates, a provider of security and management solutions
for enterprise networks. From June 1996 to December 1997, Mr. Sampath served as
the Vice President of Product Marketing for Netscape Communications, a provider
of Internet software and services. From June 1993 to June 1996, Mr. Sampath
served as the President and Chief Executive Officer of Discussions Corporation,
a company that he founded to develop e-mail based groupware solutions. From 1984
to 1991, Mr. Sampath managed the LAN Enhancement Operations and Microcomputer
Communications Division of Intel Corporation. Mr. Sampath has over 15 years of
experience serving in management and executive roles in the computer industry.
John W. Ryan has served as a director of WebTrends since January 1998.
Since January 1997, Mr. Ryan has served as the President of J Ryan & Associates,
a provider of high technology marketing and sales consulting services. From
September 1995 to January 1997, Mr. Ryan served as the Vice President of
Marketing Strategy and Programs for Tivoli Systems, a systems management
division of IBM. From April 1994 to September 1995, Mr. Ryan served as the Vice
President of Marketing for Mergent International, a producer of security
software. From December 1990 to April 1994, he served as the director of a
business unit for Central Point Software. Mr. Ryan has 15 years of experience in
executive level and senior management roles in the computer industry.
Michael Burmeister-Brown has served as a director of WebTrends since
October 1996. Since July 1997, Mr. Burmeister-Brown has served as a software
engineer at Yahoo!, Inc., a company that provides services as a Web portal.
Since May 1992, Mr. Burmeister-Brown has also served as the President of Second
Nature Software, a software development
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company. From 1981 to 1991, Mr. Burmeister-Brown served in various executive
management roles, including President, Chief Executive Officer, and Chief
Technology Officer, for Central Point Software, a company he founded in 1981.
Mr. Burmeister-Brown has 16 years of experience in senior management roles in
the computer industry.
John D. Teddy has served as WebTrends' Vice President of Research &
Development since November 1998. From April 1997 to November 1998, Mr. Teddy
served as the Vice President of Engineering and Director of Engineering for
Cybermedia, Inc., a software development company. From April 1994 to April 1997,
Mr. Teddy served as the Chief Architect and Senior Development Manager for
Symantec, where he helped create software such as PCTools, Norton Navigator, and
CrashGuard. From October 1991 to April 1994, Mr. Teddy served as a Senior
Development Manager of Central Point Software.
CLASSIFIED BOARD; REMOVAL OF DIRECTORS
WebTrends' bylaws provide that if the number of directors is increased to
six or more, the board of directors will, at the next annual meeting of
shareholders, be divided into three classes, each of which will serve for a
staggered three-year term. Currently, the board is comprised of five directors,
each serving a one-year term. The articles of incorporation provide that a
director may be removed only for cause. The bylaws provide that a director may
be removed at a special meeting of the shareholders specifically called for that
purpose, and the meeting notice must state that the purpose, or one of the
purposes, of the meeting is removal of the director by a vote of the holders of
a majority of the shares then entitled to vote on the election of directors.
BOARD COMMITTEES
WebTrends maintains two standing committees, an Audit Committee and a
Compensation Committee.
Audit Committee. In December 1998, the board of directors formed the audit
committee for the purpose of reviewing WebTrends' internal accounting procedures
and consulting with and reviewing the services provided by WebTrends'
independent public accountants. Messrs. Sampath and Burmeister-Brown constitute
the audit committee.
Compensation Committee. In December 1997, the board of directors formed the
compensation committee. The compensation committee reviews and recommends to the
board the compensation and benefits of all WebTrends' officers and reviews
general policy relating to compensation and benefits of employees. The
compensation committee also administers WebTrends' stock option plans and will
administer its stock purchase plan upon completion of this offering. Messrs.
Shapira, Burmeister-Brown, and Ryan constitute the compensation committee.
COMPENSATION OF DIRECTORS
Directors do not currently receive cash compensation for services rendered
as members of the board of directors. WebTrends does, however, reimburse the
directors for certain reasonable expenses incurred in connection with their
attendance at board and committee meetings.
In August 1998, WebTrends entered into a consulting agreement with J Ryan &
Associates, a company founded by Mr. Ryan. Consulting services pursuant to the
agreement include assistance related to WebTrends' North American distribution
channels
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and its overall market positioning and planning. WebTrends has paid Mr. Ryan
$45,000, and in August 1998, granted Mr. Ryan an option to purchase 7,500 shares
of common stock at an exercise price of $1.82 per share. The shares vest yearly
over a four-year period. See "Certain Transactions."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to December 1997, WebTrends board of directors did not maintain a
standing compensation committee, and the entire board, including Messrs. Boyd
and Shapira, participated in all decisions regarding compensation of its
executive officers. In December 1997, the board formed the compensation
committee and appointed Messrs. Burmeister-Brown, Ryan, and Shapira as committee
members. Mr. Shapira serves as the Chairman of the Board and Chief Executive
Officer of WebTrends. Messrs. Burmeister-Brown and Ryan are not employees or
officers or former employees or officers of WebTrends. No executive officer of
WebTrends serves as a member of the board of directors or compensation committee
of any entity that has one or more executive officers serving as a member of
WebTrends' board of directors or compensation committee.
In November 1996, Messrs. Boyd and Shapira each extended a $300,000 line of
credit to WebTrends to provide working capital. In March 1997, WebTrends
borrowed $125,000 from each of Messrs. Boyd and Shapira under the line of credit
and issued them promissory notes. The notes bear interest at 5% per annum and
mature in December 1997. In August 1998, the payment terms of these notes were
amended to provide that payments in amounts not less than $25,000 per quarter
would be made on each promissory note until the entire principal and accrued
interest is paid in full. WebTrends has made two quarterly payments totalling
$60,858 to each of Messrs. Boyd and Shapira as of December 31, 1998.
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid to WebTrends' Chief
Executive Officer and its other executive officers whose salary and bonus
exceeded $100,000 for services rendered to WebTrends in all capacities during
fiscal 1998 (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------
NAME AND PRINCIPAL POSITION SALARY BONUS
--------------------------- -------- -------
<S> <C> <C>
Elijahu Shapira, Chairman of the Board and
Chief Executive Officer................................. $150,000 $20,000
W. Glen Boyd, President and Chief Technical Officer....... 150,000 20,000
</TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
No stock options were granted to the Named Executive Officers during the
year ended December 31, 1998.
EMPLOYEE BENEFIT PLANS
401(K) PLAN
WebTrends maintains a 401(k) tax-qualified employee savings and retirement
plan covering all employees who satisfy certain eligibility requirements
relating to minimum age and length of service. Pursuant to the 401(k) plan,
eligible employees may elect to reduce
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their current compensation by up to the lesser of 15% of their annual
compensation or the statutorily prescribed annual limit and have the amount of
such reduction contributed to the 401(k) plan. The 401(k) Plan is intended to
qualify under applicable law, so that contributions to the 401(k) plan, and
income earned on the 401(k) plan contributions are not taxable until withdrawn.
The 401(k) plan is available to WebTrends' executive officers on terms not more
favorable than those offered to other employees.
1999 EMPLOYEE STOCK PURCHASE PLAN
WebTrends adopted the 1999 purchase plan in December 1998. The 1999
purchase plan will be implemented upon the effectiveness of this offering.
WebTrends intends for the 1999 purchase plan to qualify under Section 423 of the
Internal Revenue Code of 1986, as amended. The 1999 purchase plan permits
eligible employees of WebTrends and its subsidiaries to purchase common stock
through payroll deductions of up to 15% of their cash compensation. WebTrends
will implement the 1999 purchase plan with six-month offering periods, except
that the first offering period will begin on the effectiveness of this offering
and end on June 30, 1999. Subsequent offering periods will begin on each January
1 and July 1. Under the 1999 purchase plan, no employee may purchase common
stock worth more than $25,000 in any offering period or in any calendar year,
valued as of the first day of each offering period. In addition, owners of 5% or
more of the combined voting power or value of all classes of stock of WebTrends
or its subsidiary may not participate in the 1999 purchase plan. WebTrends
authorized the issuance of a total of 350,000 shares of common stock under the
1999 purchase plan, plus an automatic increase on January 1, 2000 and each
anniversary thereafter that will be equal to the lesser of (a) 16,250 shares;
(b) 0.125% of the average common shares outstanding as used to calculate fully
diluted earnings per share as reported in the annual report to shareholders for
the preceding year; or (c) a lesser amount determined by its board of directors.
Any unissued shares resulting from increases in previous years will be added to
the aggregate number of shares available for issuance under the 1999 purchase
plan.
The price of the common stock purchased under the 1999 purchase plan will
be the lesser of 85% of the fair market value on the first day of an offering
period and 85% of the fair market value on the last day of an offering period,
except that the purchase price for the first offering period will be equal to
the lesser of 100% of the initial public offering price for the common stock and
85% of the fair market value on June 30, 1999. The 1999 purchase plan will
terminate in December 2008, but the board of directors may terminate it at any
earlier time. WebTrends has not issued any shares of common stock under the 1999
purchase plan.
In the event of a merger or proposed sale of all or substantially all of
WebTrends' assets, the 1999 purchase plan provides that each outstanding option
to purchase shares under the 1999 purchase plan will be assumed or an equivalent
option substituted by the successor corporation. If the successor corporation
refuses to assume or provide an equivalent substitute for the option, the
offering period during which a participant may purchase stock will be shortened
to a specified date before the merger or proposed sale. In the event of a
proposed liquidation or dissolution of WebTrends, the offering period during
which a participant may purchase stock will be shortened to a specified date
before the date of the proposed liquidation or dissolution.
1998 STOCK INCENTIVE COMPENSATION PLAN
In December 1998, WebTrends adopted the 1998 option plan. The purpose of
the 1998 option plan is to enhance the long-term shareholder value of WebTrends
by offering
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opportunities to its selected employees, directors, officers, consultants,
agents, advisors, and independent contractors to participate in its growth and
success, to encourage them to remain in its service, and to own its stock. The
1998 option plan permits both option and stock grants. The board has reserved a
total of 1,465,475 shares of common stock for the 1998 option plan, plus (a) any
shares returned to the 1997 option plan upon termination of certain option and
stock grants (other than terminations due to exercise or settlement of such
awards); and (b) an automatic annual increase, to be added on the first day of
the fiscal year beginning in 2001, equal to the lesser of 500,000 shares or 5%
of the average common shares outstanding as used to calculate fully diluted
earnings per share as reported in WebTrends' annual report to shareholders for
the preceding year.
Stock Option Grants. The compensation committee will serve as the plan
administrator of the 1998 option plan. The plan administrator will have the
authority to select individuals to receive options under the 1998 option plan
and to specify the following:
- the terms and conditions of each option granted (incentive or
nonqualified);
- the exercise price;
- the vesting provisions; and
- the option term.
For incentive stock options, the exercise price must be at least equal to the
fair market value of the common stock on the date of grant and for nonqualified
options must be at least 85% of the fair market value of the common stock on the
date of grant. For purposes of the 1998 option plan, fair market value means the
average of the high and low per share sales price as reported on the Nasdaq
National Market on the date of grant. Unless otherwise provided by the plan
administrator, and to the extent required for incentive stock options by
applicable law, an option granted under the 1998 option plan generally will
expire ten years from the date of grant or, if earlier, one year after the
optionee's retirement, early retirement, death, or disability and three months
after other terminations (other than termination for cause in which case such
option shall automatically expire upon first notification to the optionee of
such termination).
Stock Awards. The plan administrator is authorized under the 1998 option
plan to issue shares of common stock to eligible participants with terms,
conditions, and restrictions established by the plan administrator in its sole
discretion. Restrictions may be based on continuous service with WebTrends or
the achievement of performance goals. Holders of restricted stock are
shareholders of WebTrends and have, subject to certain restrictions, all the
rights of shareholders with respect to such shares.
Termination of the 1998 Option Plan. Unless terminated sooner by the board
of directors, the 1998 option plan will terminate in December 2008.
Adjustments. The plan administrator will make proportional adjustments to
the aggregate number of shares issuable under the 1998 option plan and to
outstanding awards in the event of stock splits or other capital adjustments.
Corporate Transactions. In the event of certain corporate transactions,
such as a merger or sale, each outstanding option to purchase shares under the
1998 option plan will be assumed or an equivalent option substituted by the
successor corporation or a parent thereof. If the successor corporation refuses
to assume or provide an equivalent substitute for the option, unless otherwise
provided in an individual's option letter agreement, the option shall terminate,
but the holder of such option shall have the right to exercise the option
immediately before the corporation transaction. In the event of a proposed
dissolution or liquidation of WebTrends, the plan administrator, in its
discretion, may
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accelerate options and cancel any forfeiture provisions or repurchase options
applicable to stock awards.
1997 STOCK INCENTIVE COMPENSATION PLAN
WebTrends' 1997 option plan provides for the grant of incentive and
nonqualified stock options and stock awards to its employees, directors and
consultants. An aggregate of 1,534,524 shares of common stock has been
authorized for issuance under the 1997 option plan. As of December 31, 1998,
options to purchase an aggregate of 1,471,149 shares of common stock were
outstanding under the 1997 option plan, with exercise prices ranging from $0.61
to $8.00 per share. As of December 31, 1998, options to purchase 8,437 shares of
common stock had been exercised under the 1997 option plan. No additional
options will be granted under the 1997 option plan, as future option grants will
be made under the 1998 option plan. Any shares that are returned to the 1997
option plan upon termination of certain options and stock grants (other than
terminations due to exercise or settlement of such awards) will be added to the
number of shares reserved for issuance under the 1998 option plan. Options
outstanding under the 1997 option plan will continue to be governed by the terms
of the 1997 option plan. In the event of a merger of WebTrends with or into
another corporation, the options may be assumed or an equivalent option
substituted by the successor corporation or a parent or subsidiary of such
corporation. If the successor corporation refuses to assume or provide an
equivalent substitute for the option, unless otherwise provided in an
individual's option letter agreement, the option will terminate, but the holder
of the option shall have the right to exercise the vested portion of the option
immediately before the corporate transaction.
LIMITATION OF LIABILITY; INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by Oregon law, WebTrends' articles of incorporation require
indemnification against certain liabilities and expenses of a director, and the
articles and bylaws permit such indemnification of an officer, where either is
made or threatened to be made a party to a proceeding (other than a proceeding
by or in the right of WebTrends to procure a judgment in its favor) because such
person is or was its director or officer. Indemnification is provided if the
director or officer acted in good faith and in a manner he or she reasonably
believed was in or not opposed to WebTrends' best interests, and, with respect
to any criminal action or proceeding, the director or officer, in addition, had
no reasonable cause to believe his or her conduct was unlawful. In the case of
any proceeding by or in the right of WebTrends, a director or officer is
entitled to indemnification of certain expenses if he or she acted in good faith
and in a manner he or she reasonably believed was in or not opposed to
WebTrends' best interests. However, pursuant to Oregon law, no indemnification
would be made if the director's or officer's errors or omissions (or alleged
errors or omissions) were shown to have involved any:
- breach of the director's or officer's duty of loyalty to WebTrends;
- act or omission not in good faith or that involved intentional misconduct
or a knowing violation of law;
- distribution that was unlawful under Oregon law;
- transaction from which the director or officer received an improper
personal benefit; or
54
<PAGE> 59
- profits made from the purchase and sale by the director or officer of
securities of WebTrends within the meaning of Section 16(b) of the
Securities Exchange Act of 1934 or similar provision of any state
statutory law or common law.
The articles also provide that no director will be liable to WebTrends or
its shareholders for monetary damages for conduct as a director, except that a
director may be personally liable in the instances set forth in the list above.
Indemnification may also be provided to persons other than directors or officers
under certain circumstances.
WebTrends understands that the current position of the Securities and
Exchange Commission is that any indemnification of liabilities arising under the
Securities Act of 1933, is against public policy and is, therefore,
unenforceable.
55
<PAGE> 60
CERTAIN TRANSACTIONS
On August 24, 1998, WebTrends entered into a Consulting Agreement with J
Ryan & Associates, a consulting company formed by John W. Ryan, a director of
WebTrends, pursuant to which WebTrends is required to pay a fee of $45,000,
grant Mr. Ryan an option to purchase 7,500 shares of common stock and reimburse
him for reasonable out-of-pocket expenses incurred in connection with his
providing services as a consultant. The consulting services include assistance
related WebTrends' North American distribution channels and assisting with
company positioning and overall market planning. The Consulting Agreement has a
term of six months, ending on February 28, 1999. As of December 31, 1998,
WebTrends has made payments totaling $45,000 and has granted Mr. Ryan an option
to purchase 7,500 shares of Common Stock under the 1997 option plan. See
"Management -- Compensation of Directors."
In November 1996, W. Glen Boyd and Elijahu Shapira, executive officers and
directors of WebTrends, each extended a $300,000 line of credit to WebTrends to
provide working capital. In March 1997, WebTrends borrowed $125,000 from each of
Messrs. Boyd and Shapira under the line of credit, and issued them promissory
notes. The Notes bear interest at 5% per annum and mature in December 1997. In
August 1998, the payment terms of these notes were amended to provide that
payments in amounts not less than $25,000 per quarter would be made on each
promissory note until the entire principal and accrued interest is paid in full.
WebTrends has made two quarterly payments totalling $60,858 to each of Messrs.
Boyd and Shapira as of December 31, 1998.
WebTrends believes that all of the transactions set forth above were made
on terms no less favorable to it than could have been obtained from unaffiliated
third parties. Any future transactions between WebTrends and its officers,
directors, and principal shareholders and their affiliates will be approved by a
majority of the Board of Directors, including a majority of the independent and
disinterested directors, and will be on terms no less favorable to WebTrends
than could be obtained from unaffiliated third parties.
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<PAGE> 61
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of WebTrends common stock as of December 31, 1998 by the
following:
- Each person or group of affiliated persons known by WebTrends to
beneficially own more than a number of shares equal to 5% of the common
stock;
- Each director and Named Executive Officer;
- The selling shareholders;
- All of the directors and executive officers as a group.
Beneficial ownership of shares includes any shares over which a person
exercises sole or shared voting or investment power, or of which a person has
the right to acquire ownership at any time within 60 days (for example, through
the exercise of an option that has vested as to all or a portion of the
underlying shares). Shares of common stock subject to options currently
exercisable or exercisable within 60 days are deemed outstanding for purposes of
computing the percentage ownership of the person holding the options, but are
not deemed outstanding for computing the percentage ownership of any other
person. Except as otherwise indicated, WebTrends believes that the beneficial
owners of the common stock listed below, based on information furnished by such
owners, have sole voting and investment power with respect to such shares.
<TABLE>
<CAPTION>
PERCENT OWNERSHIP
-----------------------
NUMBER OF SHARES BEFORE AFTER
NAME AND ADDRESS(1) BENEFICIALLY OWNED OFFERING OFFERING(2)
------------------- ------------------ -------- -----------
<S> <C> <C> <C>
Elijahu Shapira......................... 3,900,000(3) 47.5% 34.8%
Anne Lim Shapira
as trustee of The Shapira Group Trust,
U/A/D 9/29/98......................... 500,000 6 4.5
W. Glen Boyd............................ 3,900,000(4) 47.5 34.8
Alice Ferguson Boyd
as trustee of The Boyd Group Trust,
U/A/D 9/29/98......................... 500,000 6 4.5
James T. Richardson..................... 27,366(5) * *
Gregory D. Applegate.................... -- -- --
Daniel J. Meub.......................... -- -- --
Michael Burmeister-Brown................ 410,527 5.0 3.7
John W. Ryan............................ 20,526(5) * *
Srivats Sampath......................... 20,526(5) * *
All directors and executive officers as
a group (eight persons)............... 8,278,945(5) 99.9 73.3
</TABLE>
- -------------------------
* Less than 1%.
(1) The address of Messrs. Shapira, Boyd, Richardson, Applegate, and Meub; The
Shapira Group Trust; and The Boyd Group Trust is c/o WebTrends Corporation,
851 SW Sixth Avenue, Suite 1200, Portland, Oregon 97204. The address of Mr.
Burmeister-Brown is c/o Second Nature Software, 1325 Officers' Row,
Vancouver, Washington 98661. The address of Mr. Ryan is c/o J Ryan &
Associates, 2903 Mill Reef Cove, Austin, Texas 78746. The address of Mr.
Sampath is c/o Network Associates, Inc., 3965 Freedom Circle, Santa Clara,
California 95054.
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<PAGE> 62
(2) Assumes no exercise of the underwriters' over-allotment option. If the
over-allotment option is exercised in full, the selling shareholders will
sell an aggregate of 450,000 shares of common stock. Specifically, Elijahu
Shapira and W. Glen Boyd will each sell 225,000 shares and will each
beneficially own 3,675,000 shares, or 32.8% of the outstanding common stock
after completion of this offering.
(3) Includes 500,000 shares of common stock held by Anne Lim Shapira as trustee
of The Shapira Group Trust, U/A/D 9/29/98. Mr. Shapira disclaims beneficial
ownership of such shares.
(4) Includes 500,000 shares of common stock held by Alice Ferguson Boyd as
trustee of The Boyd Group Trust, U/A/D 9/29/98. Mr. Boyd disclaims
beneficial ownership of such shares.
(5) Includes shares subject to options exercisable within 60 days after December
31, 1998, as follows: James T. Richardson, 27,366 shares; John W. Ryan,
20,526 shares; and Srivats Sampath, 20,526 shares; for all officers and
directors as a group, 68,418 shares.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of WebTrends consists of 60 million shares of
common stock, no par value per share, and 15 million shares of preferred stock,
no par value per share.
COMMON STOCK
As of December 31, 1998, there were 8,218,964 shares of common stock
outstanding, held of record by seven shareholders. Following this offering,
11,218,964 shares of common stock will be issued and outstanding (assuming no
exercise of stock options subsequent to December 31, 1998). Holders of common
stock are entitled to one vote per share on all matters to be voted upon by the
shareholders. Because holders of common stock do not have cumulative voting
rights, the holders of a majority of the shares of common stock can elect all of
the members of the board of directors standing for election. Subject to
preferences of any preferred stock that may be issued in the future, the holders
of common stock are entitled to receive such dividends as may be declared by the
board of directors. If WebTrends is liquidated, dissolved, or wound up, the
holders of common stock are entitled to receive pro rata all of its assets
available for distribution to its shareholders after payment of liquidation
preferences of any outstanding shares of preferred stock. There are no
redemption or sinking fund provisions applicable to the common stock. All
outstanding shares of common stock are fully paid and non-assessable.
PREFERRED STOCK
Subject to the provisions of the articles of incorporation and limitations
prescribed by law, the board of directors has the authority to issue, without
further vote or action by the shareholders, up to 15 million shares of preferred
stock in one or more series. The board has the power and authority to fix the
rights, preferences, privileges, and restrictions thereof, including dividend
rights, dividend rates, conversion rates, voting rights, terms of redemption,
redemption prices, liquidation preferences, and the number of shares
constituting any series or the designation of such series. Any series of
preferred stock may have rights and privileges superior to those of the common
stock. There will be no shares of preferred stock outstanding upon the
consummation of this offering, and WebTrends has no present plans to issue any
preferred stock.
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<PAGE> 63
One of the effects of undesignated preferred stock may be to enable the
board of directors to render more difficult or to discourage a third-party's
attempt to obtain control of WebTrends by means of a tender offer, proxy
contest, merger, or otherwise, which thereby protects the continuity of its
management. The issuance of shares of the preferred stock may also discourage a
party from making a bid for the common stock because such issuance may adversely
affect the rights of the holders of common stock. For example, preferred stock
may rank prior to the common stock as to dividend rights, liquidation
preference, or both, may have full or limited voting rights and may be
convertible into shares of common stock. Accordingly, the issuance of shares of
preferred stock may discourage bids for the common stock or may otherwise
adversely affect the market price of the common stock. See "Risk Factors -- Our
Anti-Takeover Provisions and Preferred Stock May Reduce the Market Price of Our
Common Stock."
ANTI-TAKEOVER MEASURES
ARTICLES AND BYLAWS
WebTrends' articles and bylaws contain certain provisions that may have the
effect of delaying, deferring or preventing a change in control. Such provisions
include:
- The ability of the board of directors, without further shareholder
approval, to issue up to 15 million shares of preferred stock;
- Requiring a classified board whenever there are six or more directors,
with each class containing as nearly as possible one-third of the total
number of directors and the members of each class serving for staggered
three-year terms;
- Prohibiting cumulative voting for the election of directors;
- Requiring supermajority approval of the directors then in office to
change the total number of directors;
- Requiring supermajority approval of the shareholders to effect certain
amendments to the articles or bylaws; and
- Requiring no less than 60 days' advance notice with respect to
nominations of directors or other matters to be voted on by shareholders
other than by or at the direction of the board of directors.
See "Risk Factors -- Our Anti-Takeover Provisions and Preferred Stock May Reduce
the Market Price of Our Common Stock," "Management -- Classified Board; Removal
of Directors."
OREGON CONTROL SHARE AND BUSINESS COMBINATION STATUTES
In certain circumstances, Oregon law may restrict the ability of
significant shareholders of WebTrends to exercise voting rights. The law
generally applies to a person who acquires voting stock of an Oregon corporation
in a transaction that results in such person holding more than 20%, 33 1/3% or
50% of the total voting power of the corporation. If such a transaction occurs,
the person cannot vote the shares unless voting rights are restored to those
shares by (1) a majority of the outstanding voting shares, including the
acquired shares, and (2) the holders of a majority of the outstanding voting
shares, excluding the acquired shares and shares held by the corporation's
officers and inside directors. This law is construed broadly and may apply to
persons acting as a group.
A person to whom the restrictions set forth above apply may, but is not
required to, submit to the corporation a statement setting forth certain
information about itself and its
59
<PAGE> 64
plans with respect to the corporation. The statement may request that the
corporation call a special meeting of shareholders to determine whether voting
rights will be granted to the shares acquired. If a special meeting of
shareholders is not requested, the issue of voting rights of the acquired shares
will be considered at the next annual or special meeting of shareholders. If the
acquired shares are granted voting rights and they represent a majority of all
voting power, shareholders who do not vote in favor of granting such voting
rights will have the right to receive the appraised fair value of their shares.
The appraised fair value will, at a minimum, be equal to the highest price paid
per share by the person for the shares acquired in a transaction subject to this
law.
WebTrends is also subject to certain provisions of Oregon law that govern
business combinations between corporations and interested shareholders. These
provisions generally prohibit a corporation from entering into a business
combination transaction with a person, or affiliate of such person, for a period
of three years from the date such person acquires 15% or more of the voting
stock of the corporation. For the purpose of this law, the prohibition generally
applies to the following:
- A merger or plan of share exchange;
- Any sale, lease, mortgage or other disposition of 10% or more of the
assets of the corporation; and
- Certain transactions that result in the issuance of capital stock of the
corporation to the 15% shareholder.
However, the general prohibition does not apply if:
- The 15% shareholder, as a result of the transaction in which such person
acquired 15% of the shares, owns at least 85% of the outstanding voting
stock of the corporation, excluding shares owned by directors who are
also officers, and certain employee benefit plans;
- The board of directors approves the share acquisition or business
combination before the shareholder acquired 15% or more of the
corporation's outstanding voting stock; or
- The board of directors and the holders of at least two-thirds of the
outstanding voting stock of the corporation, excluding shares owned by
the 15% shareholder, approve the transaction after the shareholder
acquires 15% or more of the corporation's voting stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is BankBoston, N.A.,
located in Canton, Massachusetts.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has not been a public market for WebTrends'
common stock, and a significant public market for the common stock may not be
developed or sustained after this offering. Future sales of substantial amounts
of the common stock in the public market, or even the prospect of such sales,
could adversely affect the prevailing market prices of the common stock or
WebTrends' future ability to raise capital through an offering of equity
securities.
60
<PAGE> 65
Upon the closing of this offering, and assuming no exercise of outstanding
stock options subsequent to December 31, 1998, WebTrends will have 11,218,964
shares of common stock outstanding. The 3,000,000 shares sold in this offering
will be freely tradable without restriction or limitation under the Securities
Act, except for any such shares purchased by "affiliates" of WebTrends, as such
term is defined under Rule 144 of the Securities Act, which will be subject to
the resale limitations of Rule 144. The remaining 8,218,964 shares of WebTrends
common stock issued and outstanding are "restricted securities" within the
meaning of Rule 144 and were issued and sold by WebTrends in private
transactions. Such restricted securities may be publicly sold only if registered
under the Securities Act or sold in accordance with an applicable exemption from
registration, such as Rule 144. WebTrends and the holders of all such remaining
shares will agree that, without the prior written consent of Dain Rauscher
Wessels, a division of Dain Rauscher Incorporated, they will not, directly or
indirectly, issue, sell, offer or agree to sell, grant any option for the sale
of, pledge, make any short sale, or otherwise dispose of shares of common stock
or any securities convertible or exchangeable therefor, for a period of 180 days
after the date of this prospectus. Upon expiration of the lock-up agreements,
all of these restricted securities will be eligible for immediate resale in the
public market subject to the limitations of Rule 144.
In general, under Rule 144, as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned restricted securities
for at least one year, including an affiliate of WebTrends the Company, would be
entitled to sell, within any three-month period, that number of shares that does
not exceed the greater of (a) 1% of the then-outstanding shares of common stock
(approximately 112,000 shares upon the closing of this offering), and (b) the
average weekly trading volume in the common stock during the four calendar weeks
immediately preceding the date on which a notice of sale is filed with the
Securities and Exchange Commission, provided certain manner of sale and notice
requirements and requirements as to the availability of current public
information about WebTrends are satisfied. In addition, in order to sell shares
of common stock that are not restricted securities, affiliates of WebTrends must
comply with all restrictions and requirements of Rule 144 other than the
one-year holding period requirement. As defined in Rule 144, an "affiliate" of
an issuer is a person who directly or indirectly through the use of one or more
intermediaries controls, or is controlled by, or is under common control with,
such issuer. Under Rule 144(k), a holder of "restricted securities" who is not
deemed an affiliate of the issuer and who has beneficially owned shares for at
least two years would be entitled to sell shares under Rule 144(k) without
regard to the limitations described above.
WebTrends intends to file a registration statement under the Securities Act
following the date of this prospectus to register the future issuance of up to
3,341,562 shares of common stock under the 1997 option plan, the 1998 option
plan and the 1999 purchase plan. The registration statement will become
effective immediately upon filing, whereupon, subject to the satisfaction of
applicable exercisability periods, Rule 144 volume limitations applicable to
affiliates and, in certain cases, the lock-up agreements with the underwriters
(described above), the shares of common stock to be issued pursuant to the 1999
purchase plan or upon exercise of outstanding options granted pursuant to the
1998 option plan will be available for immediate resale in the open market. As
of December 31, 1998, no options were outstanding under the 1998 option plan and
no shares had been issued under the 1999 purchase plan.
61
<PAGE> 66
UNDERWRITING
The Underwriters named below, acting through their representatives, Dain
Rauscher Wessels, a division of Dain Rauscher Incorporated, and SoundView
Technology Group, Inc., have severally agreed, subject to the terms and
conditions of the underwriting agreement, to purchase from WebTrends and the
selling shareholders the number of shares of common stock set forth opposite
their respective names below. The underwriters are committed to purchase and pay
for all such shares if any are purchased, subject to certain conditions
precedent.
<TABLE>
<CAPTION>
NUMBER OF
NAME OF UNDERWRITER SHARES
------------------- ---------
<S> <C>
Dain Rauscher Wessels.......................................
SoundView Technology Group, Inc.............................
---------
Total............................................. 3,000,000
=========
</TABLE>
The representatives have advised WebTrends and the selling shareholders
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 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 WebTrends as set forth on the cover
page of the prospectus.
The underwriting agreement contains covenants of indemnity among the
underwriters, WebTrends, and the selling shareholders against certain civil
liabilities, including liabilities under the Securities Act and liabilities
arising from breaches of representations and warranties contained in the
underwriting agreement.
The selling shareholders have granted to the underwriters an option to
purchase up to 450,000 additional shares of common stock. This option may be
exercised at any time up to 30 days after the date of this prospectus. The
option entitles the underwriters to purchase the additional shares of common
stock at the same price per share as the 3,000,000 shares being sold in this
offering. If the underwriters exercise the option, each of the underwriters
must, subject to certain conditions, purchase approximately the same percentage
of additional shares from the selling shareholders that they purchased from
WebTrends. If purchased, the additional shares will be sold by the underwriters
on the same terms as those on which the 3,000,000 shares are being sold.
The price of the shares of common stock purchased by the underwriters will
be the public offering price set forth on the cover page of the prospectus less
the following underwriting discounts and commissions, to be provided by
WebTrends and the selling shareholders:
<TABLE>
<CAPTION>
TOTAL WITHOUT TOTAL WITH
PER SHARE OVER-ALLOTMENT OVER-ALLOTMENT
--------- --------------- ---------------
<S> <C> <C> <C>
By WebTrends...............................
By selling shareholders....................
</TABLE>
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<PAGE> 67
WebTrends will also pay certain offering expenses estimated to total $1
million.
Without the prior written consent of the underwriters, WebTrends'
shareholders and option holders have agreed, for a period of 180 days after the
date of this prospectus, not to sell, transfer, grant any third party the right
to purchase, or otherwise dispose of any shares of common stock or other
securities that they own or acquire. This 180-day period is known as the lock-up
period. The representatives may, without notice and in their sole discretion,
allow any shareholder or option holder to dispose of common stock or other
securities prior to the expiration of the lock-up period. There are, however, no
agreements between the underwriters and any of WebTrends' shareholders or option
holders that would allow them to do so.
In addition, WebTrends has agreed that it will not issue, sell, offer to
sell, or otherwise dispose of any shares of its common stock or other securities
during the lock-up period without the prior consent of the underwriters. This
agreement does not include shares of common stock or other securities issued
pursuant to employee stock option plans, employee stock purchase plans, or
common stock or other securities issued pursuant to options or other securities
outstanding on the date of this prospectus. However, WebTrends has agreed that
employee stock options issued during the lock-up period may not be exercised
prior to the expiration of the lock-up period. Any shares of common stock issued
during the lock-up period pursuant to the exercise of stock options or other
securities outstanding on the date of this prospectus shall bear a restrictive
legend restricting the transfer of such shares during the lock-up period.
The underwriters have advised WebTrends that in connection with this
offering, certain persons participating in this offering may engage in
transactions 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. These transactions may include stabilizing bids, syndicate
covering transactions and the imposition of penalty bids. A "stabilizing bid" is
a bid for or the purchase of common stock on behalf of the underwriters for the
purpose of preventing or retarding a decline in the market 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 the
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 WebTrends that such transactions may be
effected on the Nasdaq National Market or otherwise and, if commence, may be
discontinued at any time.
Prior to this offering, there was no public market for the common stock. The
initial public offering price for the common stock will be determined by
negotiation between WebTrends, the selling shareholders and the underwriters.
Among other factors to be considered in determining the initial public offering
price are prevailing market and economic conditions, revenues and earnings of
WebTrends, the state of its business operation, an assessment of its management
and consideration of the above factors in relation to market valuation of
companies in related businesses and other factors deemed relevant. There can be
no assurance, however, that the prices at which the common stock will sell in
the public market after this offering will be equal to or greater than the
initial public offering price.
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<PAGE> 68
LEGAL MATTERS
The validity of the common stock offered hereby and certain other legal
matters will be passed upon for WebTrends by Perkins Coie LLP, Portland, Oregon.
Certain legal matters will be passed upon for the Underwriters by Wilson Sonsini
Goodrich & Rosati, P.C., Palo Alto, California.
EXPERTS
WebTrends' financial statements as of December 31, 1997 and 1998, and for
each of the years in the three-year period ended December 31, 1998, have been
included in this prospectus and elsewhere in the registration statement in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein and upon the authority of said firm as
experts in accounting and auditing.
ADDITIONAL INFORMATION
WebTrends has filed with the Securities and Exchange Commission a
registration statement on Form S-1 under the Securities Act with respect to the
common stock offered hereby. This prospectus, which constitutes part of the
registration statement, omits certain information contained in the registration
statement, together with exhibits and schedules, on file with the Securities and
Exchange Commission pursuant to the Securities Act and the rules and regulations
of the Securities and Exchange Commission. The registration statement, including
the exhibits and schedules, may be inspected and copied at the public reference
facilities maintained by the Securities and Exchange Commission at 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549, and at the Securities and
Exchange Commission's Regional Offices at 7 World Trade Center, Suite 1300, New
York, New York 10048, and 500 West Madison Street, Suite 1400, Chicago, Illinois
60661, and copies may be obtained at the prescribed rates from the Public
Reference Section of the Securities and Exchange Commission at its principal
office in Washington, D.C. The Securities and Exchange Commission also maintains
a Web site on the Internet that contains reports, proxy and information
statements, and other information regarding registrants, including WebTrends,
that file electronically with the Securities and Exchange Commission at
http://www.sec.gov.
Statements contained in this prospectus as to the contents of any contract,
agreement or other document referred to are not necessarily complete, and in
each instance reference is made to the copy of such contract, agreement, or
other document filed as an exhibit to the registration statement, each such
statement being qualified by such reference.
WebTrends intends to furnish its shareholders with annual reports
containing audited financial statements and an opinion thereon expressed by
independent auditors and may furnish its shareholders with quarterly reports for
the first three quarters of each fiscal year containing unaudited summary
financial information.
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<PAGE> 69
WEBTRENDS CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of KPMG Peat Marwick LLP............................. F-2
Balance Sheets.............................................. F-3
Statements of Operations.................................... F-4
Statements of Shareholders' Equity.......................... F-5
Statements of Cash Flows.................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 70
INDEPENDENT AUDITORS' REPORT
The Board of Directors
WebTrends Corporation:
We have audited the accompanying balance sheets of WebTrends Corporation as
of December 31, 1997 and 1998, and the related statements of operations,
shareholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of WebTrends Corporation as of
December 31, 1997 and 1998, and the results of its operations, and its cash
flows for each of the years in the three-year period ended December 31, 1998, in
conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Portland, Oregon
January 11, 1999, except for note 10
which is as of January 19, 1999
F-2
<PAGE> 71
WEBTRENDS CORPORATION
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1998
---------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents............................ $ 806,916 1,098,847
Accounts receivable, net............................. 526,641 977,577
Inventories.......................................... 89,135 62,115
Prepaid expenses..................................... 41,999 190,530
Deferred offering costs.............................. -- 255,394
Deferred taxes....................................... 90,500 157,500
---------- ---------
Total current assets......................... 1,555,191 2,741,963
Property and equipment, net............................ 325,966 598,407
Other assets........................................... 5,032 5,016
Deferred taxes, net.................................... -- 17,000
---------- ---------
Total assets................................. $1,886,189 3,362,386
========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................... 243,830 383,187
Accrued liabilities.................................. 59,311 385,233
Accrued compensation and employment taxes............ 165,805 508,422
Accrued sales taxes.................................. 155,137 268,533
Accrued income taxes................................. 24,548 --
Deferred revenue..................................... 387,074 824,013
Notes and interest payable to shareholders........... 259,709 151,103
---------- ---------
Total current liabilities.................... 1,295,414 2,520,491
Deferred taxes......................................... 6,500 --
---------- ---------
Total liabilities............................ 1,301,914 2,520,491
---------- ---------
Commitments and contingencies (note 9)
Shareholders' equity:
Preferred stock, no par value. Authorized 15,000,000
shares; no shares outstanding..................... -- --
Common stock, Class A voting, no par value.
Authorized 30,000,000 shares; issued and
outstanding 8,210,527 at December 31, 1997 and
1998.............................................. 260,000 260,000
Common stock, Class B non-voting, no par value.
Authorized 30,000,000 shares; none and 8,437
shares issued and outstanding at December 31, 1997
and 1998.......................................... -- 320,387
Deferred compensation, net............................. -- (282,227)
Retained earnings...................................... 324,275 543,735
---------- ---------
Total shareholders' equity................... 584,275 841,895
---------- ---------
Total liabilities and shareholders' equity... $1,886,189 3,362,386
========== =========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 72
WEBTRENDS CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1996 1997 1998
---------- ---------- ---------
<S> <C> <C> <C>
Revenue:
Software licenses....................... $1,858,014 3,836,657 7,206,461
Support services........................ 6,824 218,233 801,963
---------- ---------- ---------
Total revenue................... 1,864,838 4,054,890 8,008,424
Cost of revenue........................... 204,546 292,268 632,925
---------- ---------- ---------
Gross margin.................... 1,660,292 3,762,622 7,375,499
---------- ---------- ---------
Operating expenses:
Research and development................ 402,583 1,059,439 2,211,029
Sales and marketing..................... 552,634 1,526,889 3,641,965
General and administrative.............. 307,318 748,832 1,300,626
---------- ---------- ---------
Total operating expenses........ 1,262,535 3,335,160 7,153,620
---------- ---------- ---------
Income from operations.......... 397,757 427,462 221,879
---------- ---------- ---------
Other income (expense):
Interest income......................... 9,042 21,769 41,997
Interest expense........................ (2,097) (11,358) (13,111)
---------- ---------- ---------
Other income, net............... 6,945 10,411 28,886
---------- ---------- ---------
Income before income taxes...... 404,702 437,873 250,765
Income taxes.............................. -- 150,500 31,305
---------- ---------- ---------
Net income...................... $ 404,702 287,373 219,460
========== ========== =========
Basic net income per share................ $ .04 .03
========== =========
Diluted net income per share.............. $ .04 .02
========== =========
Shares used in basic net income per share
calculation............................. 8,126,173 8,210,651
========== =========
Shares used in diluted net income per
share calculation....................... 8,126,173 9,003,209
========== =========
Pro forma net income data:
Income before income taxes as
reported............................. 404,702
Pro forma income taxes.................. 140,027
----------
Pro forma net income.................... $ 264,675
==========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 73
WEBTRENDS CORPORATION
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
CLASS A, CLASS B,
PREFERRED STOCK COMMON STOCK COMMON STOCK
-------------------- -------------------- ----------------- DEFERRED RETAINED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT COMPENSATION EARNINGS TOTAL
--------- -------- --------- -------- ------ -------- ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1995.................... -- $ -- 6,300,300 $ 10,000 -- $ -- -- 257,150 267,150
Conversion of S
Corporation shares to C
Corporation shares...... -- -- 1,499,700 -- -- -- -- -- --
Dividend distribution..... -- -- -- -- -- -- -- (624,950) (624,950)
Net income................ -- -- -- -- -- -- -- 404,702 404,702
--------- -------- --------- -------- ----- -------- -------- -------- --------
Balance, December 31,
1996.................... -- -- 7,800,000 10,000 -- -- -- 36,902 46,902
Sale of common stock...... -- -- 410,527 250,000 -- -- -- -- 250,000
Net income................ -- -- -- -- -- -- -- 287,373 287,373
--------- -------- --------- -------- ----- -------- -------- -------- --------
Balance, December 31,
1997.................... -- -- 8,210,527 260,000 -- -- -- 324,275 584,275
Deferred compensation..... -- -- -- -- -- 315,268 (315,268) -- --
Amortization of deferred
compensation............ -- -- -- -- -- -- 33,041 -- 33,041
Exercise of stock
options................. -- -- -- -- 8,437 5,119 -- -- 5,119
Net income................ -- -- -- -- -- -- -- 219,460 219,460
--------- -------- --------- -------- ----- -------- -------- -------- --------
Balance, December 31,
1998.................... -- $ -- 8,210,527 $260,000 8,437 $320,387 (282,227) 543,735 841,895
========= ======== ========= ======== ===== ======== ======== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 74
WEBTRENDS CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1996 1997 1998
--------- -------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................ $ 404,702 287,373 219,460
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization........ 29,447 88,375 206,417
Provision for doubtful accounts...... 12,423 32,705 43,548
Loss on marketable securities........ 1,323 -- --
Loss on sale of assets............... -- -- 293
Amortization of deferred stock
compensation...................... -- -- 33,041
Changes in assets and liabilities:
Accounts receivable.................. (261,525) (149,443) (494,484)
Inventories.......................... (9,728) (76,027) 27,020
Prepaid expenses..................... (14,216) (26,209) (403,925)
Deferred taxes, net.................. -- (84,000) (90,500)
Other assets......................... (4,101) 407 16
Accounts payable..................... 78,561 165,269 139,357
Accrued liabilities.................. 12,409 31,273 325,922
Accrued compensation and employment
taxes............................. 57,809 97,719 342,617
Accrued sales taxes.................. -- 155,137 113,396
Accrued income taxes................. -- 24,548 (24,548)
Accrued interest..................... 2,097 5,503 (8,606)
Deferred revenues.................... 131,592 255,481 436,939
--------- -------- ---------
Net cash provided by operating
activities..................... 440,793 808,111 865,963
--------- -------- ---------
Cash flows from investing activities:
Acquisition of property and equipment..... (156,422) (269,533) (479,151)
--------- -------- ---------
Net cash used by investing
activities..................... (156,422) (269,533) (479,151)
--------- -------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock.... -- 250,000 5,119
Dividend payments to shareholders......... (142,068) (482,882) --
Principal payments on borrowings from
shareholders........................... -- (70,000) (100,000)
Borrowings from shareholders.............. -- 250,000 --
--------- -------- ---------
Net cash used by financing
activities..................... (142,068) (52,882) (94,881)
--------- -------- ---------
Increase in cash and cash equivalents....... 142,303 485,696 291,931
Cash and cash equivalents, beginning of
year...................................... 178,917 321,220 806,916
--------- -------- ---------
Cash and cash equivalents, end of year...... $ 321,220 806,916 1,098,847
========= ======== =========
Supplemental disclosure of cash flow
information:
Cash paid during the year for:
Interest............................... $ -- 5,855 21,717
Income taxes........................... -- 208,000 155,500
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 75
WEBTRENDS CORPORATION
NOTES TO FINANCIAL STATEMENTS
(1) NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
WebTrends Corporation (the Company) was incorporated as an S Corporation on
August 31, 1993 in Delaware and was reorganized into a C Corporation effective
January 1, 1997 in Oregon. WebTrends Corporation is a leading provider of
enterprise management solutions for Internet-based systems.
USE OF ESTIMATES
The presentation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
For the purpose of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents.
ACCOUNTS RECEIVABLE
Accounts receivable are shown net of allowance for doubtful accounts of
$20,000 and $40,000 at December 31, 1997 and 1998, respectively.
NEED FOR NEW PRODUCT DEVELOPMENT
A substantial portion of the Company's revenues each year are generated
from the development and rapid release to market of computer software products
newly introduced during the year. In the extremely competitive industry
environment in which the Company operates, such product generation, development
and marketing processes are uncertain and complex, requiring accurate prediction
of market trends and demand as well as successful management of various
development risks inherent in such products. In light of these requirements, it
is reasonably possible that failure to successfully manage a significant product
introduction could have a severe near-term impact on the Company's growth and
results of operations.
INVENTORIES
Inventory is valued at the lower of estimated cost or market determined
using the "first-in, first-out" ("FIFO") method. Inventories consist of CDs,
printing, packaging and receiving costs.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated using the
straight-line method over the estimated useful lives of individual assets of
three to five years. Expenditures for renewals and improvements that
significantly add to the useful life of an
F-7
<PAGE> 76
WEBTRENDS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
asset are capitalized. Expenditures for repairs and maintenance are charged to
income. When depreciable properties are retired or otherwise disposed of, the
cost and related accumulated depreciation are removed from the accounts and the
resulting gain or loss is reflected in operations.
REVENUE RECOGNITION
In October 1997, The American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") No. 97-2, Software Revenue
Recognition. Subsequently, in March 1998, the Financial Accounting Standards
Board ("FASB") approved SOP 98-4, Deferral of the Effective Date of a Provision
of 97-2, Software Revenue Recognition. SOP 98-4 defers for one year, the
application of several paragraphs and examples in SOP 97-2 that limit the
definition of vendor specific objective evidence ("VSOE") of the fair value of
various elements in a multiple element arrangement. The provisions of SOP's 97-2
and 98-4 have been applied to transactions entered into beginning January 1,
1998. Prior to 1997, the Company's revenue policy was in accordance with the
preceding authoritative guidance provided by SOP No. 91-1, Software Revenue
Recognition.
SOP 97-2 generally requires revenue earned on software arrangements
involving multiple elements to be allocated to each element based on VSOE of the
relative fair values of each element in the arrangement.
Software license revenue consists of fees for licenses of WebTrends'
software products. Revenue allocated to software licenses is recognized upon
delivery of software, assuming no significant obligations or customer acceptance
rights exist. WebTrends generally provides a thirty-day right of return for each
product sold. Estimated sales returns and allowances are recorded upon shipment
of the product.
WebTrends sells a portion of its products domestically and internationally
through resellers. Revenue from sales to domestic resellers is managed directly
by WebTrends, and it recognizes revenue from sales primarily at the time of
shipment, net of estimated returns and allowances. Revenue from sales to
international resellers is managed by a third party export management company
and revenue is recognized upon sales from the reseller to a third party or end
user.
Support services revenue consists of annual subscriptions for upgrades,
post customer support services. and professional services. Revenue allocated to
subscriptions, which allow the subscriber to purchase the right to obtain
upgrades, when and if available, are paid in advance and revenues are recognized
ratably over the term of the subscription. Revenue allocated to professional
services is recognized as the services are performed.
In December 1998, the AICPA issued SOP 98-9, Modification of SOP 97-2,
Software Revenue Recognition, With Respect to Certain Transactions. This SOP
amends certain paragraphs of SOP 97-2 to require recognition of revenue using
the "residual method" in circumstances outlined in the SOP. Under the residual
method, revenue is recognized as follows: (1) the total fair value of
undelivered elements, as indicated by VSOE, is deferred and subsequently
recognized in accordance with the relevant sections of SOP 97-2 and (2) the
difference between the total arrangement fee and the amount deferred for the
undelivered elements is recognized as revenue related to the delivered elements.
F-8
<PAGE> 77
WEBTRENDS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SOP 98-9 is effective for fiscal years beginning after March 15, 1999.
Also, the provisions of SOP 97-2 that were deferred by SOP 98-4 will continue to
be deferred until the date SOP 98-9 becomes effective.
CONCENTRATION OF CREDIT RISK
Sales outside of the United States were approximately $336,000, $893,000
and $2.2 million for the years ended December 31, 1996, 1997 and 1998,
respectively. During these same periods, no individual customer or reseller
accounted for 10% or more of total revenue. However, sales managed by a third
party export management company were 8.1%, 11.8%, and 16.7% for the years ended
December 31, 1998, 1997, and 1996, respectively. Accounts receivable at December
31, 1997 and 1998 includes balances due from a third-party export management
company that manages most of the Company's international sales through invoicing
and initiating collection procedures. This account comprised 21% and 28%,
respectively, of the total outstanding accounts receivable balance at those
respective dates of which 81% and 94%, respectively, was due less than thirty
days from billing. For 1997 and 1998, except for the one third-party export
management company, no customer comprised greater than 10% of the total accounts
receivable balance.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, accounts receivable,
accounts payable and notes payable to shareholders approximate fair value due to
the short-term nature of these instruments. Fair value estimates are made at a
specific point in time, based on relevant market information about the financial
instrument when available. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and, therefore, cannot be
determined with precision. Changes in assumptions could significantly affect the
estimates.
ADVERTISING COSTS
Advertising costs are generally expensed when incurred. Total advertising
costs were approximately $266,000, $553,000 and $957,000 for the years ended
December 31, 1996, 1997 and 1998, respectively.
RESEARCH AND DEVELOPMENT
Software development costs have been accounted for in accordance with
Statement of Financial Accounting Standards No. 86, Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed. Under the standard,
capitalization of software development costs begins upon the establishment of
technological feasibility, subject to net realizable value considerations. To
date, the period between achieving technological feasibility and the general
availability of such software has been short; therefore, software development
costs qualifying for capitalization have been immaterial. Accordingly, the
Company has not capitalized any software development costs and charged all such
costs to research and development expense.
F-9
<PAGE> 78
WEBTRENDS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INCOME TAXES
Prior to January 1, 1997, the Company was taxed under the S Corporation
provisions of the Internal Revenue Code. Under those provisions, the Company did
not pay federal or state corporate income taxes on its taxable income. Instead,
the shareholders were liable for federal and state income taxes on the Company's
taxable income. Supplemental pro forma net income data for the year ended
December 31, 1996, as if the Company was a C Corporation, are presented for
comparison purposes only.
Effective January 1, 1997, the S Corporation election was terminated. The
Company's income taxes since that date are accounted for under the asset and
liability method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
STOCK-BASED EMPLOYEE COMPENSATION
The Company adopted Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation, ("SFAS No. 123") which permits entities
to recognize as expense over the vesting period the fair value of all
stock-based awards on the date of grant. Alternatively, SFAS No. 123 also allows
entities to continue to apply provisions of APB Opinion No. 25 and provide pro
forma net income and pro forma earnings per share disclosures as if the
fair-value-based method defined in SFAS No. 123 had been applied. The Company
has elected to apply the provisions of APB Opinion No. 25 and provide the pro
forma disclosure provisions of SFAS No. 123.
NET INCOME PER SHARE
Basic and diluted net income per share were computed using the weighted
average number of common shares outstanding during each year, with diluted net
income per share including the effect of potentially dilutive common stock
equivalents. The weighted average number of common shares outstanding for basic
net income per share computations for the years ended December 31, 1997 and 1998
were 8,126,173 and 8,210,651, respectively. For diluted net income per share,
- -0- and 792,558 shares were added to the weighted average number of common
shares outstanding for the same periods, respectively, representing potential
dilution for stock options outstanding, calculated using the treasury stock
method. Basic and diluted net income per share have been calculated in
accordance with SEC Staff Accounting Bulletin No. 98. Net income per share data
is not presented for any period prior to 1997 as the Company was an S
Corporation and the capital structure is not comparable to that existing in
1997.
F-10
<PAGE> 79
WEBTRENDS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(2) PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1998
--------- --------
<S> <C> <C>
Computer hardware and equipment......................... $ 416,166 813,255
Furniture and fixtures.................................. 4,383 4,383
Computer software....................................... 32,061 113,830
--------- --------
Total......................................... 452,610 931,468
Less accumulated depreciation and amortization.......... (126,644) (333,061)
--------- --------
Total assets, net............................. $ 325,966 598,407
========= ========
</TABLE>
(3) INCOME TAXES
Components of the 1997 provision for income taxes include:
<TABLE>
<CAPTION>
CHANGE IN TOTAL TAX
CURRENT DEFERRED TOTAL TAX STATUS EXPENSE
-------- -------- ------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Federal.......................... $187,000 (75,000) 112,000 7,000 119,000
State and local.................. 47,500 (18,000) 29,500 2,000 31,500
-------- ------- ------- ----- -------
Total.................. $234,500 (93,000) 141,500 9,000 150,500
======== ======= ======= ===== =======
</TABLE>
Components of the 1998 provision for income taxes include:
<TABLE>
<CAPTION>
TOTAL TAX
CURRENT DEFERRED EXPENSE
-------- -------- ---------
<S> <C> <C> <C>
Federal........................................ $102,000 (75,000) 27,000
State and local................................ 19,805 (15,500) 4,305
-------- ------- ------
Total................................ $121,805 (90,500) 31,305
======== ======= ======
</TABLE>
The 1997 and 1998 provision for income taxes varies from the amounts
computed by applying the federal statutory rate to income before taxes:
<TABLE>
<CAPTION>
1997 1998
----- -----
<S> <C> <C>
Federal income tax computed at statutory rates.............. 34.0% 34.0%
State and local taxes, net of federal benefits.............. 8.5 8.0
Research and development credits............................ (14.2) (37.3)
Foreign sales corporation benefit........................... -- (1.2)
Deferred stock compensation................................. -- 4.3
Change in tax status........................................ 2.0 --
Other....................................................... 4.1 4.7
----- -----
Total............................................. 34.4% 12.5%
===== =====
</TABLE>
F-11
<PAGE> 80
WEBTRENDS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1997 and 1998 are as follows:
<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
Deferred tax assets:
Deferred incentive compensation.......................... $16,600 --
Allowance for doubtful accounts.......................... 7,800 15,700
Accrued sales tax........................................ 54,600 94,800
Research and development credits......................... -- 23,600
Accrued vacation and bonus............................... 2,600 34,000
Other.................................................... 8,900 13,000
------- -------
Deferred tax assets.............................. 90,500 181,100
Deferred tax liabilities:
Depreciation of equipment................................ (6,500) (6,600)
------- -------
Net deferred tax assets.......................... $84,000 174,500
======= =======
</TABLE>
The Company has not recorded a valuation allowance against its deferred tax
assets existing at December 31, 1997 or 1998, as it believes it is more likely
than not that the results of future operations will generate sufficient taxable
income to realize the deferred tax assets for which no valuation allowance has
been assigned.
At December 31, 1998, the Company had approximately $24,000 of federal and
state tax credit carryforwards to offset future taxable income which will expire
in the year 2013.
(4) DEFERRED REVENUE
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1998
-------- -------
<S> <C> <C>
Deferred customer support................................. $ -- 107,055
Deferred product revenues................................. 115,308 68,166
Deferred subscription revenues............................ 218,277 533,893
Other..................................................... 53,489 114,899
-------- -------
$387,074 824,013
======== =======
</TABLE>
(5) NOTES PAYABLE TO SHAREHOLDERS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1998
-------- -------
<S> <C> <C>
Notes payable to officer/shareholders, unsecured, due on
demand with interest at 5%.............................. $250,000 150,000
Accrued interest on notes................................. 9,709 1,103
-------- -------
$259,709 151,103
======== =======
</TABLE>
F-12
<PAGE> 81
WEBTRENDS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(6) LINE OF CREDIT
As of December 31, 1998, the Company had a $750,000 bank line of credit
with a major financial institution. The line of credit expires on April 30,
1999. Borrowings under the line generally are limited to 80% of the Company's
eligible accounts receivable. Interest on the unpaid balance accrues at a rate
of prime plus 0.25%. Borrowings under the line of credit are collateralized by
the Company's accounts receivable, inventory and general intangible assets,
including its intellectual property rights. The line of credit agreement
contains financial covenants, including tangible net worth and the ratio of
current assets to liabilities. As of December 31, 1998, the Company had a letter
of credit for $225,000 outstanding against its line of credit.
(7) EMPLOYEE BENEFIT PLAN
The Company established an employee benefit plan, effective January 1,
1997, that features a 401(k) salary reduction provision, covering all employees
who meet certain eligibility requirements. Eligible employees can elect to defer
up to 15% of compensation or the statutorily prescribed annual limit. The
Company, at its discretion, may make contributions to the plan. To date, the
Company has made no contributions to the plan and has incurred administrative
costs of $1,775 and $3,328 for the years ended December 31, 1997 and 1998,
respectively.
(8) SHAREHOLDERS' EQUITY
PREFERRED STOCK
The Company is authorized to issue 15,000,000 shares of preferred stock, no
par value. The Board of Directors of the Company has the authority to divide the
preferred stock into as many series as it shall from time to time determine.
Each series of preferred stock shall have the powers, preferences and rights as
determined by the Board at its discretion.
COMMON STOCK
Effective December 31, 1996, the shareholders exchanged 300 shares, no par
value, of the S Corporation for 1,500,000 shares, no par value, of the C
Corporation as part of its restructuring into a C Corporation which became
effective January 1, 1997. At the same time, the Company authorized 30,000,000
shares of Class A voting common stock, no par value, to be made available for
issuance. Effective March 17, 1997, the Company authorized a stock for stock
exchange of the then outstanding 1,500,000 shares for 7,800,000 shares. This
stock for stock exchange has been retroactively reflected for all periods
presented. Also on March 17, 1997, the Company authorized the sale of 410,527
shares to one of its Board members.
In May 1998, the Company approved a 3-for-1 stock split. Accordingly, share
and per share amounts for common stock have been retroactively restated to
reflect the stock split for all periods presented. See note 10 for additional
discussion.
In December of 1998, the Company approved a recapitalization of its common
stock to be effected upon the closing of its initial public offering. Under the
terms of the recapitalization, the Class A common stock will be redesignated
common stock, no par
F-13
<PAGE> 82
WEBTRENDS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
value per share, and will be the only authorized class of common stock. Each
share of Class B common stock will automatically be converted into one share of
such common stock, and the recorded value of the Class B common stock will be
transferred to common stock.
Deferred compensation cost recognized for 1998 totaled $315,268 for stock
option awards that were granted with exercise prices that were less than the
estimated value of the stock at the date of grant. Amortization of $33,041 of
deferred compensation was recorded for the year ended December 31, 1998.
STOCK OPTIONS
Effective March 28, 1997, the Company established the 1997 Key Employees'
Incentive Stock Option Plan and subsequently authorized 1,500,000 shares of
Class B non-voting common stock, no par value, to be reserved for grants under
the plan. Effective December 5, 1997, the Board approved the 1997 Stock
Incentive Compensation Plan (the "Plan") which replaced the Key Employee
Incentive Stock Option Plan. Options granted under the Plan may be designated as
incentive or nonqualified at the discretion of the plan administrator. On
October 30, 1998, the Company increased the number of shares authorized under
the plan to 2,000,000. In December 1998, the Company reduced the number of
shares authorized in the Plan to 1,534,524 and the Company determined that no
additional options will be granted under the Plan.
In December 1998, the Company adopted the 1998 Stock Incentive Compensation
Plan (the "1998 Plan"). The 1998 Plan permits both option and stock grants. The
Board has reserved a total of 1,465,475 shares of common stock for the 1998
Plan, plus (a) any shares returned to the 1997 Plan upon termination of certain
option and stock grants (other than terminations due to exercise or settlement
of such awards); and (b) an automatic annual increase, to be added on the first
day of the Company's fiscal year beginning in 2001, equal to the lesser of
500,000 shares or 5% of the average common shares outstanding as used to
calculate fully diluted earnings per share as reported in the Company's Annual
Report for the preceding year.
The option price for incentive stock options are set at not less than the
market value of the Company's common stock (market value plus 10% for
shareholders who possess more than 10% of the combined voting power of all
classes of shares of the Company) at the date of the grant. Employee options
generally vest 25% after the first year of employment and in equal amounts on a
monthly or annual basis thereafter over the term of the option. Options are
contingent on continued employment with the Company and expire ten years (five
years for 10% shareholders as defined above) from the date of grant. Certain
options are subject to acceleration upon a change in control of the Company as
defined in the option agreements.
The Company applies APB Opinion No. 25 in accounting for its stock options
plans. Accordingly, compensation cost is generally not recognized for stock
option grants.
F-14
<PAGE> 83
WEBTRENDS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
A summary of stock options follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER EXERCISE
OF SHARES PRICE
--------- --------
<S> <C> <C>
Options outstanding at December 31, 1996................. -- $ --
Granted.................................................. 666,708 0.6067
Canceled................................................. -- --
Forfeited................................................ (37,500) 0.6067
--------- -------
Options outstanding at December 31, 1997................. 629,208 0.6067
Granted.................................................. 1,000,567 3.3488
Canceled................................................. (35,000) 0.7800
Forfeited................................................ (115,187) 0.6566
Exercised................................................ (8,437) 0.6067
--------- -------
Options outstanding at December 31, 1998................. 1,471,149 $2.4630
========= =======
</TABLE>
At December 31, 1998, the range of exercise prices and weighted average
remaining contractual life of the outstanding options were $0.6067 to $8 and
9.22 years, respectively. At December 31, 1998, 134,802 options were exercisable
with a weighted average exercise price of $0.6067.
The Company adopted the 1999 Employee Stock Purchase Plan (the "ESPP") in
December 1998. The Company intends for the ESPP to qualify under Section 423 of
the Internal Revenue Code of 1986, as amended. The Company authorized the
issuance of a total of 350,000 shares of common stock plus an automatic annual
increase as defined in the ESPP.
SFAS NO. 123 DISCLOSURE
The Company applies APB No. 25 and related interpretations in accounting
for its plans. However, pro forma information regarding net income is required
by SFAS No. 123, which also requires that the information be determined as if
the Company had accounted for its employee stock options granted under the fair
value method prescribed by that statement. In accordance with SFAS No. 123 pro
forma disclosures as if the Company adopted the cost recognition requirements
under SFAS No. 123 in 1997 are presented below.
The per share weighted average fair value of stock options granted during
1997 and 1998 was $.44 and $3.08, respectively. For SFAS No. 123 purposes, the
fair value of each option has been estimated as of the date of grant using the
Black-Scholes option pricing model with the following assumptions for grants in
1997 and 1998:
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Average dividend yield...................................... $ --% --%
Expected life in years...................................... 4 4
Risk free interest rate..................................... 7.0% 6.0%
Expected volatility......................................... 100% 100%
</TABLE>
F-15
<PAGE> 84
WEBTRENDS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Had the Company used the fair value methodology for determining
compensation expense, the Company's net income net of related tax effects would
have approximated the pro forma amounts below:
<TABLE>
<CAPTION>
1997 1998
-------- -------
<S> <C> <C>
Net income:
As reported............................................... $287,373 219,460
Pro forma................................................. 240,947 20,033
Net income per share, basic and diluted:
As reported............................................... $ .04 .03
Pro forma................................................. .03 --
</TABLE>
The effect of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts.
(9) COMMITMENTS AND CONTINGENCIES
The Company leases its office facilities under a six-year operating lease
which commenced October 1, 1997. This lease was amended in September 1998 to
terminate on January 31, 1999. As consideration for the early termination, the
Company paid the landlord $20,548.
In November 1998, the Company negotiated a new five-year lease for office
facilities in a new premises with the option to extend for an additional five
years. The lease term begins on January 15, 1999. The new lease provides for a
base rent of $34,208 per month for the first six months. Beginning July 1999,
the Company will lease additional space in the same building. At that time, the
base rent will increase to $57,467 for all space occupied, with annual
adjustments thereafter. For the years ended December 31, 1996, 1997 and 1998,
rent expense was approximately $31,000, $84,000 and $204,000, respectively.
Future minimum lease payments under this lease are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31:
------------------------
<S> <C>
1999............................................. $ 532,946
2000............................................. 689,599
2001............................................. 712,696
2002............................................. 735,794
2003............................................. 735,794
Thereafter....................................... 61,316
----------
$3,468,145
==========
</TABLE>
(10) SUBSEQUENT EVENTS
In January 1999, the Company approved a 1-for-2 reverse stock split.
Accordingly, share and per share amounts for common stock have been
retroactively restated to reflect the reverse stock split for all periods
presented.
F-16
<PAGE> 85
DESCRIPTION OF GRAPHICS
INSIDE FRONT COVER
Top Center:
Text:
Enterprise Management Solutions for Internet Systems
Center:
Graphic:
A large WebTrends logo centered on the page with the text "Manage Your
WWWorld-TM" centered below the logo. The logo and text are in the middle of a
ring of eight circles. Each of the eight circles contains text. Starting with
the circle directly above the logo and proceeding clockwise, the texts in the
circles state: "Web Site Traffic Analysis," "Proxy Server Traffic Analysis,"
"Site Content & QA Management," "E-Commerce and ROI Reports," "Alerting,
Monitoring & Recovery," "Streaming Media Server Management," Firewall and VPNs
Management," and "Server & Network Security Analysis."
Bottom:
Text:
Awards for the WebTrends product family:
Graphic:
Nine graphics appear below the text representing awards that have been given to
WebTrends' products. The awards depicted from left to right are: (1) PC
Magazine Editors' Choice, (2) ICE Best of Class, (3) PC Computing MVP Finalist,
(4) Network Computing Editors' Choice, (5) iw Labs Best of Test, (6) The Best
of LANTIMES, (7) Network Computing Best Value, (8) CODIE Awards Finalist, and
(9) ZDNET Editors' Pick.
GATEFOLD (LEFT SIDE)
Top Right:
Graphic:
The WebTrends logo.
Top Left:
Text:
WebTrends Enterprise Suite
Graphics:
There are three graphics under the text. From left to right they are: (1)
product packaging for the WebTrends Enterprise Suite, (2) screen shot of the
site manager feature, and (3) screen shot of a traffic analysis report.
Middle:
Test:
WebTrends Professional Suite
Graphics:
There are three graphics under the text. From left to right they are: (1)
product packaging for the WebTrends Professional Suite, (2) screen shot of an
alerting, monitoring, and recovery report, and (3) screen shot of the main
console.
Bottom:
Text:
WebTrends for Firewalls and VPNs
Graphics:
There are four graphics under the text. From left to right they are (1)
product packaging for WebTrends for Firewalls and VPNs, (2) screen shot of the
general options feature, (3) screen shot of the scheduler feature, and (4)
screen shot of a firewall report.
GATEFOLD (RIGHT SIDE)
Top:
Text:
WebTrends Enterprise Reporting Server*; * Scheduled for release first quarter,
1999
Graphics:
There are four graphics under the text. From left to right they are: (1) product
packaging for the WebTrends Enterprise Reporting Server, (2) screen shot of a
user profile report, (3) screen shot of the content editor feature, and (4)
screen shot of the status feature.
Middle:
Text:
WebTrends Security Analyzer
Graphics:
There are three graphics under the text. From left to right they are: (1)
product packaging for the WebTrends Security Analyzer, (2) screen shot of the
main viewer, and (3) screen shot of a security analysis report.
Bottom:
Text:
WebTrends Log Analyzer
Graphics:
There are four graphics under the text. From left to right they are: (1) product
packaging for the WebTrends Log Analyzer, (2) screen shot of the scheduler
feature, (3) screen shot of the options feature, and (4) screen shot of a
traffic analysis report.
Bottom Right:
Text:
Manage Your WWWorld-TM
INSIDE BACK COVER
Top Left:
Text:
www.webtrends.com
Top:
Graphics:
There are two screen shots inside a box. The first screen shot is the
Professional Suite product page from the WebTrends Web site. The second screen
shot is the "contact us" page from the Web Trends Web site.
Center:
Graphics:
There are two screen shots inside a box. The first screen shot is the products
page from the WebTrends Web site. The second screen shot is the ordering page
from the WebTrends Web site.
Bottom:
Graphics:
There are two screen shots inside a box. The first screen shot is the knowledge
base page from the WebTrends Web site. The second screen shot is the technical
support page from the WebTrends Web site.
<PAGE> 86
- --------------------------------------------------------------------------------
WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE ANY
INFORMATION OR REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU MUST NOT
RELY ON ANY UNAUTHORIZED INFORMATION. THIS PROSPECTUS DOES NOT OFFER TO SELL NOR
IS IT SEEKING AN OFFER TO BUY ANY SECURITIES IN ANY JURISDICTION WHERE IT IS
UNLAWFUL TO DO SUCH. THE INFORMATION IN THIS PROSPECTUS IS CURRENT AND CORRECT
ONLY AS OF , 1999, REGARDLESS OF THE TIME OF DELIVERY OF THIS
PROSPECTUS OR ANY SALE OF SECURITIES.
UNTIL , 1999 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
3,000,000 SHARES OF COMMON STOCK
$9.00 TO $11.00 PER SHARE
LOGO
DAIN RAUSCHER WESSELS SOUNDVIEW TECHNOLOGY GROUP
a division of Dain Rauscher Incorporated
, 1999
- --------------------------------------------------------------------------------
<PAGE> 87
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than the
underwriting discounts and commissions, payable by the Registrant in connection
with the sale of Common Stock being registered hereby. All amounts are estimates
except the SEC registration fee, the NASD filing fee and the Nasdaq National
Market listing fee.
<TABLE>
<CAPTION>
AMOUNT TO
BE PAID
----------
<S> <C>
SEC registration fee........................................ $ 8,340
NASD filing fee............................................. 3,500
Nasdaq National Market listing fee.......................... 81,625
Printing and engraving expenses............................. 120,000
Legal fees and expenses..................................... 250,000
Accounting fees and expenses................................ 135,000
Directors' and Officers' Liability Insurance................ 250,000
Transfer agent and registrar fees........................... 6,500
Miscellaneous expenses...................................... 145,035
----------
Total............................................. $1,000,000
==========
</TABLE>
- -------------------------
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As an Oregon corporation, the Registrant is subject to the laws of the
State of Oregon governing private corporations and the exculpation from
liability and indemnification provisions contained therein. Pursuant to Section
60.047(2)(d) of the Oregon Revised Statutes ("ORS"), the Registrant's Second
Restated Articles of Incorporation (the "Articles") eliminates the liability of
the Registrant's directors to the Registrant or its shareholders except for any
liability related to (i) breach of the duty of loyalty; (ii) acts or omissions
not in good faith or that involve intentional misconduct or a knowing violation
of law; (iii) any unlawful distribution under ORS 60.367; or (iv) any
transaction from which the director derived an improper personal benefit.
ORS Section 60.391 allows corporations to indemnify their directors and
officers against liability where the director or officer has acted in good faith
and with a reasonable belief that actions taken were in the best interests of
the corporation or at least not opposed to the corporation's best interests and,
if in a criminal proceeding, the individual had no reasonable cause to believe
the conduct in question was unlawful. Under ORS Sections 60.387 to 60.414,
corporations may not indemnify a director or officer against liability in
connection with a claim by or in the right of the corporation or for any
improper personal benefit in which the director or officer was adjudged liable
to the corporation. ORS Section 60.394 mandates indemnification for all
reasonable expenses incurred in the successful defense of any claim made or
threatened whether or not such claim was by or in the right of the corporation.
Finally, pursuant to the ORS Section 60.401, a court may order indemnification
in view of all the relevant circumstances, whether or not the director or
officer met the good-faith and reasonable belief standards of conduct set out in
ORS Section 60.391.
II-1
<PAGE> 88
ORS Section 60.414 also provides that the statutory indemnification
provisions are not deemed exclusive of any other rights to which directors or
officers may be entitled under a corporation's articles of incorporation or
bylaws, any agreement, general or specific action of the board of directors,
vote of shareholders or otherwise.
The Articles provide that the Registrant is required to indemnify to the
fullest extent not prohibited by law any current or former director who is made,
or threatened to be made, a party to an action or proceeding by reason of the
fact that such person serves or served as a director of the Registrant. The
Articles also provide that the Registrant is permitted to indemnify to the
fullest extent not prohibited by law any current or former officer who is made,
or threatened to be made, a party to an action or proceeding by reason of the
fact that such person is or was an officer of the Registrant.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following is a summary of transactions by the Registrant since December
31, 1996 involving sales of the Registrant's securities that were not registered
under the Securities Act:
1. On March 17, 1997, the Registrant issued an aggregate of 410,527 shares
of Class A Common Stock to Michael Burmeister-Brown, a director of the
Registrant, at a price per share of $0.6067. In issuing these
securities, the Company relied on an exemption from registration under
Section 4(2) of the Securities Act.
2. Since December 1997, the Registrant has granted incentive stock options
and non-qualified stock options to purchase shares of Common Stock under
individual stock option agreements, its 1997 Stock Incentive
Compensation Plan and its 1998 Stock Incentive Compensation Plan to
eligible officers, directors, employees and consultants of the
Registrant. As of January 29, 1999, 1,441,408 shares were subject to
outstanding stock options under the 1997 Stock Incentive Compensation
Plan, 25,000 shares were subject to outstanding stock options under the
1998 Stock Incentive Compensation Plan, and options to purchase 37,678
shares of Common Stock had been exercised. The options were granted in
consideration of these individuals' services to the Registrant, and in
issuing these securities the Registrant relied on an exemption from
registration pursuant to Rule 701 under Section 3(b) or Section 4(2) of
the Securities Act.
ITEM 16. EXHIBITS
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
1.1* Form of Underwriting Agreement
3.1+ Registrant's Second Restated Articles of Incorporation
3.2+ Registrant's Second Restated Bylaws
4.1+ See Articles 4 and 9 of Exhibit 3.1 and Sections 2 and 6 of
Exhibit 3.2
4.2 Form of Common Stock Certificate
5.1* Opinion of Perkins Coie LLP as to legality of the securities
being registered, including consent
10.1 Registrant's 1998 Stock Incentive Compensation Plan
10.2 Registrant's 1999 Employee Stock Purchase Plan
10.3 Registrant's 1997 Stock Incentive Compensation Plan
</TABLE>
II-2
<PAGE> 89
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
10.4 Office Lease dated November 20, 1998, by and between the
Prudential Insurance Company of America and WebTrends
Corporation
10.5 Office Lease dated September 15, 1998, by and between City
Center Retail Trust and WebTrends Corporation
10.6 Office Lease dated May 22, 1997, by and between Pioneer
Square Associates, L.L.C. and e.g. Software, Inc., including
the amendment thereto dated September 8, 1998
10.7 Note dated December 19, 1997, by WebTrends Corporation in
favor of U.S. Bank National Association
21.1 List of subsidiaries
23.1* Consent of Perkins Coie LLP (included in Exhibit 5.1)
23.2 Consent of KPMG Peat Marwick LLP, Independent Accountants
24.1+ Power of Attorney (see page II-4)
27.1+ Financial Data Schedule
27.2+ Financial Data Schedule
</TABLE>
- -------------------------
* To be filed by amendment.
+ Previously filed.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing, as specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery of such to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the provisions described in Item 14, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer, or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to
be part of this Registration Statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
II-3
<PAGE> 90
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Portland,
State of Oregon, on January 29, 1999.
WEBTRENDS CORPORATION
By: /s/ W. GLEN BOYD
------------------------------------
W. Glen Boyd
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITIES DATE
--------- ---------- ----
<S> <C> <C>
*ELIJAHU SHAPIRA Chief Executive Officer January 29, 1999
- ----------------------------------------------------- and Director
Elijahu Shapira
*W. GLEN BOYD President, Chief Technical January 29, 1999
- ----------------------------------------------------- Officer, and Director
W. Glen Boyd
*JAMES T. RICHARDSON Vice President, Secretary, January 29, 1999
- ----------------------------------------------------- Chief Financial Officer,
James T. Richardson and
Chief Accounting Officer
*MICHAEL BURMEISTER-BROWN Director January 29, 1999
- -----------------------------------------------------
Michael Burmeister-Brown
*JOHN W. RYAN Director January 29, 1999
- -----------------------------------------------------
John W. Ryan
*SRIVATS SAMPATH Director January 29, 1999
- -----------------------------------------------------
Srivats Sampath
</TABLE>
*By: /s/ W. GLEN BOYD
-----------------------------------------------------
W. Glen Boyd
as Attorney-in-Fact
II-4
<PAGE> 91
WEBTRENDS CORPORATION
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
OF PERIOD EXPENSES DEDUCTIONS PERIOD
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Year ended December 31, 1996:
Allowance for doubtful accounts..... $ -- $12,423 $ 2,423 $10,000
Year ended December 31, 1997:
Allowance for doubtful accounts..... 10,000 32,705 22,705 20,000
Year ended December 31, 1998:
Allowance for doubtful accounts..... 20,000 43,548 23,548 40,000
</TABLE>
<PAGE> 92
EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
1.1* Form of Underwriting Agreement
3.1+ Registrant's Second Restated Articles of Incorporation
3.2+ Registrant's Second Restated Bylaws
4.1+ See Articles 4 and 9 of Exhibit 3.1 and Sections 2 and 6 of
Exhibit 3.2
4.2 Form of Common Stock Certificate
5.1* Opinion of Perkins Coie LLP as to legality of the securities
being registered, including consent
10.1 Registrant's 1998 Stock Incentive Compensation Plan
10.2 Registrant's 1999 Employee Stock Purchase Plan
10.3 Registrant's 1997 Stock Incentive Compensation Plan
10.4 Office Lease dated November 20, 1998, by and between the
Prudential Insurance Company of America and WebTrends
Corporation
10.5 Office Lease dated September 15, 1998, by and between City
Center Retail Trust and WebTrends Corporation
10.6 Office Lease dated May 22, 1997, by and between Pioneer
Square Associates, L.L.C. and e.g. Software, Inc., including
the amendment thereto dated September 8, 1998
10.7 Note dated December 19, 1997, by WebTrends Corporation in
favor of U.S. Bank National Association
21.1 List of subsidiaries
23.1* Consent of Perkins Coie LLP (included in Exhibit 5.1)
23.2 Consent of KPMG Peat Marwick LLP, Independent Accountants
24.1+ Power of Attorney (see page II-4)
27.1+ Financial Data Schedule
27.2+ Financial Data Schedule
</TABLE>
- -------------------------
* To be filed by amendment.
+ Previously filed.
<PAGE> 1
EXHIBIT 4.2
FACE
COMMON STOCK COMMON STOCK
WEB
INCORPORATED UNDER THE LAWS OF THE STATE OF OREGON
SEE REVERSE FOR CERTAIN RESTRICTIONS AND DEFINITIONS
CUSIP 94844D 10 4
THIS CERTIFICATE IS TRANSFERABLE
IN BOSTON, MA OR NEW YORK, NY
This certifies that is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, NO PAR VALUE, OF
WEBTRENDS CORPORATION
transferable on the books of the Corporation in person or by duly authorized
attorney upon surrender of this certificate properly endorsed.
This certificate is not valid until countersigned by the Transfer Agent and
registered by the Registrar. WITNESS the facsimile signatures of the duly
authorized officers of the Corporation.
Dated:
SECRETARY CHAIRMAN AND CEO PRESIDENT
COUNTERSIGNED AND REGISTERED:
BankBoston, N.A.
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
BACK
The Corporation will furnish without charge to any shareholder upon written
request a statement of the designations, relative rights, preferences, and
limitations applicable to each class of stock which the Corporation is
authorized to issue, the variations in the rights, preferences, and limitations
of the shares of each series of each such class of stock insofar as the same may
have been fixed and determined, and the authority of the Board of Directors to
determine variations for future series.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM N as tenants in common
<PAGE> 2
TEN ENT N as tenants by the entireties
JT TEN N as joint tenants with right of
survivorship and not as tenants
in common
<TABLE>
<S> <C>
(Oregon Custodians use the following)
(Name) CUST UL OREG (Name) MINN ............................. as Custodian
under
the laws of Oregon, for ..................................................
a minor
(Name) CUST (Name) (State) UNIF GIFT MIN ACT N ....................... Custodian
.................. (Cust) (Minor)
Under ...................... Uniform Gifts to Minors Act
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, hereby sell, assign and transfer
unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
Shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated
X
X
NOTICE:
Signature(s) Guaranteed
By
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN
AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE
17Ad-15.
THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
<PAGE> 1
EXHIBIT 10.1
WEBTRENDS CORPORATION
1998 STOCK INCENTIVE COMPENSATION PLAN
SECTION 1. PURPOSE
The purpose of the WebTrends Corporation 1998 Stock Incentive
Compensation Plan (the "Plan") is to enhance the long-term shareholder value of
WebTrends Corporation, an Oregon corporation (the "Company"), by offering
opportunities to selected persons to participate in the Company's growth and
success, and to encourage them to remain in the service of the Company and its
Related Corporations (as defined in Section 2) and to acquire and maintain stock
ownership in the Company.
SECTION 2. DEFINITIONS
For purposes of the Plan, the following terms shall be defined as set
forth below:
"AWARD" means an award or grant made pursuant to the Plan, including,
without limitation, awards or grants of Options and Stock Awards, or any
combination of the foregoing.
"BOARD" means the Board of Directors of the Company.
"CAUSE" means dishonesty, fraud, misconduct, unauthorized use or
disclosure of confidential information or trade secrets, or conviction or
confession of a crime punishable by law (except minor violations), in each case
as determined by the Plan Administrator, and its determination shall be
conclusive and binding.
"CODE" means the Internal Revenue Code of 1986, as amended from time to
time.
"COMMON STOCK" means the common stock, without par value, of the
Company.
"CORPORATE TRANSACTION" means any of the following events:
(a) Consummation of any merger or consolidation of the Company
with or into another corporation; or
(b) Consummation of any sale, lease, exchange or other transfer
in one transaction or a series of related transactions of all or
substantially all of the Company's assets other than a transfer of the
Company's assets to a majority-owned subsidiary corporation (as defined
in Section 8.3) of the Company.
"DISABILITY," unless otherwise defined by the Plan Administrator, means
a mental or physical impairment of the Participant that is expected to result in
death or that has lasted or is expected to last for a continuous period of 12
months or more and that causes the Participant to be unable, in the opinion of
the Company, to perform his or her duties for the Company and to be engaged in
any substantial gainful activity.
"EARLY RETIREMENT" means early retirement as that term is defined by the
Plan Administrator from time to time for purposes of the Plan.
"EFFECTIVE DATE" means the date on which the Plan is adopted by the
Board, so long as it is approved by the Company's shareholders at any time
within 12 months of such adoption.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
-1-
<PAGE> 2
"FAIR MARKET VALUE" shall be as established in good faith by the Plan
Administrator or (a) if the Common Stock is listed on the Nasdaq National
Market, the average of the high and low per share sales prices for the Common
Stock as reported by the Nasdaq National Market for a single trading day or (b)
if the Common Stock is listed on the New York Stock Exchange or the American
Stock Exchange, the average of the high and low per share sales prices for the
Common Stock as such price is officially quoted in the composite tape of
transactions on such exchange for a single trading day. If there is no such
reported price for the Common Stock for the date in question, then such price on
the last preceding date for which such price exists shall be determinative of
Fair Market Value.
"GRANT DATE" means the date on which the Plan Administrator completes
the corporate action relating to the grant of an Award and all conditions
precedent to the grant have been satisfied, provided that conditions to the
exercisability or vesting of Awards shall not defer the Grant Date.
"INCENTIVE STOCK OPTION" means an Option to purchase Common Stock
granted under Section 7 with the intention that it qualify as an "incentive
stock option" as that term is defined in Section 422 of the Code.
"NONQUALIFIED STOCK OPTION" means an Option to purchase Common Stock
granted under Section 7 other than an Incentive Stock Option.
"OPTION" means the right to purchase Common Stock granted under Section
7.
"PARENT" means, except as otherwise defined in Section 8.3 in connection
with Incentive Stock Options, any entity, whether now or hereafter existing,
that directly or indirectly controls the Company.
"PARTICIPANT" means: (a) the person to whom an Award is granted; (b) for
a Participant who has died, the personal representative of the Participant's
estate, the person(s) to whom the Participant's rights under the Award have
passed by will or by the applicable laws of descent and distribution, or the
beneficiary designated in accordance with Section 11; or (c) the person(s) to
whom an Award has been transferred in accordance with Section 11.
"PLAN ADMINISTRATOR" means the Board or any committee or committees of
the Board to administer the Plan under Section 3.1.
"RELATED CORPORATION" means any Parent or Subsidiary of the Company.
"RETIREMENT" means retirement as of the individual's normal retirement
date under the Company's 401(k) Plan or other similar successor plan applicable
to salaried employees, unless otherwise defined by the Plan Administrator from
time to time for purposes of the Plan.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"STOCK AWARD" means shares of Common Stock or units denominated in
Common Stock granted under Section 9, the rights of ownership of which may be
subject to restrictions prescribed by the Plan Administrator.
"SUBSIDIARY," except as provided in Section 8.3 in connection with
Incentive Stock Options, means any entity that is directly or indirectly
controlled by the Company.
"SUCCESSOR CORPORATION" has the meaning set forth in Section 12.3.
SECTION 3. ADMINISTRATION
3.1 PLAN ADMINISTRATOR
The Plan shall be administered by the Board and/or a committee or
committees (which term includes subcommittees) appointed by, and consisting of
two or more members of, the Board (a "Plan Administrator"). If
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and so long as the Common Stock is registered under Section 12(b) or 12(g) of
the Exchange Act, the Board shall consider in selecting the members of any
committee acting as Plan Administrator, with respect to any persons subject or
likely to become subject to Section 16 of the Exchange Act, the provisions
regarding (a) "outside directors" as contemplated by Section 162(m) of the Code
and (b) "nonemployee directors" as contemplated by Rule 16b-3 under the Exchange
Act. The Board may delegate the responsibility for administering the Plan with
respect to designated classes of eligible persons to different committees
consisting of two or more members of the Board, subject to such limitations as
the Board deems appropriate. Committee members shall serve for such term as the
Board may determine, subject to removal by the Board at any time.
3.2 ADMINISTRATION AND INTERPRETATION BY THE PLAN ADMINISTRATOR
Except for the terms and conditions explicitly set forth in the Plan,
the Plan Administrator shall have exclusive authority, in its discretion, to
determine all matters relating to Awards under the Plan, including the selection
of individuals to be granted Awards, the type of Awards, the number of shares of
Common Stock subject to an Award, all terms, conditions, restrictions and
limitations, if any, of an Award and the terms of any instrument that evidences
the Award. The Plan Administrator shall also have exclusive authority to
interpret the Plan and may from time to time adopt, and change, rules and
regulations of general application for the Plan's administration. The Plan
Administrator's interpretation of the Plan and its rules and regulations, and
all actions taken and determinations made by the Plan Administrator pursuant to
the Plan, shall be conclusive and binding on all parties involved or affected.
The Plan Administrator may delegate administrative duties to such of the
Company's officers as it so determines.
SECTION 4. STOCK SUBJECT TO THE PLAN
4.1 AUTHORIZED NUMBER OF SHARES
Subject to adjustment from time to time as provided in Section 12.1, the
number of shares of Common Stock that shall be available for issuance under the
Plan shall be:
(a) 1,465,475 shares plus;
(b) an annual increase to be added on the first day of the Company's
fiscal year beginning in 2001 equal to the lesser of (i) 500,000 shares or
(ii) 5% of the adjusted average common shares outstanding of the Company used to
calculate fully diluted earnings per shares as reported in the Annual Report to
shareholders for the preceding year; provided, that any shares from any such
increases in previous years that are not actually issued, shall be added to the
aggregate number of shares for issuance under the Plan; plus
(c) any shares subject to outstanding awards under the Company's 1997
Stock Incentive Compensation Plan (the "Prior Plan") on the Effective Date that
cease to be subject to such awards (other than by reason of exercise or payment
of the awards to the extent they are exercised for or settled in shares), which
shares shall no longer be available for grant and issuance under the Prior Plan,
but shall be available for issuance under this Plan.
Shares issued under the Plan shall be drawn from authorized and unissued
shares or shares now held or subsequently acquired by the Company.
4.2 REUSE OF SHARES
Any shares of Common Stock that have been made subject to an Award that
cease to be subject to the Award (other than by reason of exercise or payment of
the Award to the extent it is exercised for or settled in shares) shall again be
available for issuance in connection with future grants of Awards under the
Plan.
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SECTION 5. ELIGIBILITY
Awards may be granted under the Plan to those officers, directors and
employees of the Company and its Related Corporations as the Plan Administrator
from time to time selects. Awards may also be made to consultants, agents,
advisors and independent contractors who provide services to the Company and its
Related Corporations; provided such Participants render bona fide services not
in connection with the offer and sale of the Company's securities in a
capital-raising transaction.
SECTION 6. AWARDS
6.1 FORM AND GRANT OF AWARDS
The Plan Administrator shall have the authority, in its sole discretion,
to determine the type or types of Awards to be made under the Plan. Such Awards
may include, but are not limited to, Incentive Stock Options, Nonqualified Stock
Options and Stock Awards. Awards may be granted singly or in combination.
6.2 SETTLEMENT OF AWARDS
The Company may settle Awards through the delivery of shares of Common
Stock, cash payments, the granting of replacement Awards, or any combination
thereof as the Plan Administrator shall determine. Any Award settlement,
including payment deferrals, may be subject to such conditions, restrictions and
contingencies as the Plan Administrator shall determine. The Plan Administrator
may permit or require the deferral of any Award payment, subject to such rules
and procedures as it may establish, which may include provisions for the payment
or crediting of interest, or dividend equivalents, including converting such
credits into deferred stock equivalents. The Plan Administrator may at any time
offer to buy out for a payment in cash or Common Stock, an Option previously
granted based on such terms and conditions as the Plan Administrator shall
establish and communicate to the Participant at the time such offer is made.
6.3 ACQUIRED COMPANY AWARDS
Notwithstanding anything in the Plan to the contrary, the Plan
Administrator may grant Awards under the Plan in substitution for awards issued
under other plans, or assume under the Plan awards issued under other plans, if
the other plans are or were plans of other acquired entities ("Acquired
Entities") (or the parent of the Acquired Entity) and the new Award is
substituted, or the old award is assumed, by reason of a merger, consolidation,
acquisition of property or of stock, reorganization or liquidation (the
"Acquisition Transaction"). In the event that a written agreement pursuant to
which the Acquisition Transaction is completed is approved by the Board and said
agreement sets forth the terms and conditions of the substitution for or
assumption of outstanding awards of the Acquired Entity, said terms and
conditions shall be deemed to be the action of the Plan Administrator without
any further action by the Plan Administrator, except as may be required for
compliance with Rule 16b-3 under the Exchange Act, and the persons holding such
Awards shall be deemed to be Participants.
SECTION 7. AWARDS OF OPTIONS
7.1 GRANT OF OPTIONS
The Plan Administrator is authorized under the Plan, in its sole
discretion, to issue Options as Incentive Stock Options or as Nonqualified Stock
Options, which shall be appropriately designated.
7.2 OPTION EXERCISE PRICE
The exercise price for shares purchased under an Option shall be as
determined by the Plan Administrator, but shall not be less than 100% of the
Fair Market Value of the Common Stock on the Grant Date with respect to
Incentive Stock Options and not less than 85% of the Fair Market Value of the
Common Stock on the Grant Date
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with respect to Nonqualified Stock Options. For Incentive Stock Options granted
to a more than 10% shareholder, the option exercise price shall be as specified
in Section 8.2.
7.3 TERM OF OPTIONS
The term of each Option shall be as established by the Plan
Administrator or, if not so established, shall be 10 years from the Grant Date.
For Incentive Stock Options granted to a more than 10% shareholder, the maximum
Option term shall be as specified in Section 8.2.
7.4 EXERCISE OF OPTIONS
The Plan Administrator shall establish and set forth in each instrument
that evidences an Option the time at which, or the installments in which, the
Option shall vest and become exercisable, which provisions may be waived or
modified by the Plan Administrator at any time. If not so established in the
instrument evidencing the Option, the Option shall vest and become exercisable
according to the following schedule, which may be waived or modified by the Plan
Administrator at any time:
<TABLE>
<CAPTION>
PERIOD OF PARTICIPANT'S CONTINUOUS EMPLOYMENT
OR SERVICE WITH THE COMPANY OR ITS PERCENT OF TOTAL OPTION
RELATED CORPORATIONS FROM THE OPTION GRANT DATE THAT IS VESTED AND EXERCISABLE
- ----------------------------------------------- ------------------------------
<S> <C>
After 1 year 25%
Each additional one month period of continuous An additional 1/48
service completed thereafter
After 4 years 100%
</TABLE>
To the extent that the right to purchase shares has accrued thereunder,
an Option may be exercised from time to time by delivery to the Company of a
written stock option exercise agreement or notice, in a form and in accordance
with procedures established by the Plan Administrator, setting forth the number
of shares with respect to which the Option is being exercised, the restrictions
imposed on the shares purchased under such exercise agreement, if any, and such
representations and agreements as may be required by the Company, accompanied by
payment in full as described in Section 7.5. An Option may not be exercised as
to less than a reasonable number of shares at any one time, as determined by the
Plan Administrator.
7.5 PAYMENT OF EXERCISE PRICE
The exercise price for shares purchased under an Option shall be paid in
full to the Company by delivery of consideration equal to the product of the
Option exercise price and the number of shares purchased. Such consideration
must be paid in cash or by check or, unless the Plan Administrator in its sole
discretion determines otherwise, either at the time the Option is granted or at
any time before it is exercised, any combination of:
(a) cash or check; or
(b) tendering (either actually or, if and so long as the Common Stock is
registered under Section 12(b) or 12(g) of the Exchange Act, by attestation)
shares of Common Stock already owned by the Participant for at least six months
(or any shorter period necessary to avoid a charge to the Company's earnings for
financial reporting purposes) having a Fair Market Value on the day prior to the
exercise date equal to the aggregate Option exercise price;
(c) if and so long as the Common Stock is registered under Section 12(b)
or 12(g) of the Exchange Act, delivery of a properly executed exercise notice,
together with irrevocable instructions, to (i) a brokerage firm designated by
the Company to deliver promptly to the Company the aggregate amount of sale or
loan proceeds to pay the Option exercise price and any withholding tax
obligations that may arise in connection with the exercise and
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(ii) the Company to deliver the certificates for such purchased shares directly
to such brokerage firm, all in accordance with the regulations of the Federal
Reserve Board; or
(d) such other consideration as the Plan Administrator may permit.
In addition, to assist a Participant (including a Participant who is an
officer or a director of the Company) in acquiring shares of Common Stock
pursuant to an Award granted under the Plan, the Plan Administrator, in its sole
discretion, may authorize, either at the Grant Date or at any time before the
acquisition of Common Stock pursuant to the Award, (a) the payment by a
Participant of a full-recourse promissory note, (b) the payment by the
Participant of the purchase price, if any, of the Common Stock in installments,
or (c) the guarantee by the Company of a loan obtained by the Participant from a
third party. Subject to the foregoing, the Plan Administrator shall in its sole
discretion specify the terms of any loans, installment payments or loan
guarantees, including the interest rate and terms of and security for repayment.
7.6 POST-TERMINATION EXERCISES
The Plan Administrator shall establish and set forth in each instrument
that evidences an Option whether the Option will continue to be exercisable, and
the terms and conditions of such exercise, if a Participant ceases to be
employed by, or to provide services to, the Company or its Related Corporations,
which provisions may be waived or modified by the Plan Administrator at any
time. If not so established in the instrument evidencing the Option, the Option
shall be exercisable according to the following terms and conditions, which may
be waived or modified by the Plan Administrator at any time:
(a) Any portion of an Option that is not vested and exercisable on the
date of termination of the Participant's employment or service relationship (the
"Termination Date") shall expire on such date, unless the Plan Administrator
determines otherwise.
(b) Any portion of an Option that is vested and exercisable on the
Termination Date shall expire upon the earliest to occur of:
(i) the ten-year anniversary of the Grant Date;
(ii) if the Participant's Termination Date occurs for reasons other
than Cause, death, Disability, Early Retirement or Retirement, the three-month
anniversary of such Termination Date;
(iii) if the Participant's Termination Date occurs by reason of
Retirement or Early Retirement, the one-year anniversary of such Termination
Date; or
(iv) if the Participant's Termination Date occurs by reason of
Disability or death, the one-year anniversary of such Termination Date.
Notwithstanding the foregoing, if the Participant dies after the
Termination Date while the Option is otherwise exercisable, the Option shall
expire later than the dates set forth above, provided that the Option shall
expire no later than the first anniversary of the date of death.
Also notwithstanding the foregoing, in case of termination of the
Participant's employment or service relationship for Cause, the Option shall
automatically expire upon first notification to the Participant of such
termination, unless the Plan Administrator determines otherwise. If a
Participant's employment or service relationship with the Company is suspended
pending an investigation of whether the Participant shall be terminated for
Cause, all the Participant's rights under any Option likewise shall be suspended
during the period of investigation.
A Participant's transfer of employment or service relationship between
or among the Company and its Related Corporations, or a change in status from an
employee to a consultant which is evidenced by a written
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agreement between a Participant and the Company or a Related Corporation, shall
not be considered a termination of employment or service relationship for
purposes of this Section 7. Employment or service relationship shall be deemed
to continue while the Participant is on a bona fide leave of absence, if such
leave was approved by the Company or a Related Corporation in writing and if
continued crediting of service for purposes of this Section 7 is expressly
required by the terms of such leave or by applicable law (as determined by the
Company). The effect of a Company-approved leave of absence on the terms and
conditions of an Option shall be determined by the Plan Administrator, in its
sole discretion.
SECTION 8. INCENTIVE STOCK OPTION LIMITATIONS
To the extent required by Section 422 of the Code, Incentive Stock
Options shall be subject to the following additional terms and conditions:
8.1 DOLLAR LIMITATION
To the extent the aggregate Fair Market Value (determined as of the
Grant Date) of Common Stock with respect to which Incentive Stock Options are
exercisable for the first time during any calendar year (under the Plan and all
other stock option plans of the Company) exceeds $100,000, such portion in
excess of $100,000 shall be treated as a Nonqualified Stock Option. In the event
the Participant holds two or more such Options that become exercisable for the
first time in the same calendar year, such limitation shall be applied on the
basis of the order in which such Options are granted.
8.2 10% SHAREHOLDERS
If an individual owns more than 10% of the total voting power of all
classes of the Company's stock, then the exercise price per share of an
Incentive Stock Option shall not be less than 110% of the Fair Market Value of
the Common Stock on the Grant Date and the Option term shall not exceed five
years. The determination of 10% ownership shall be made in accordance with
Section 422 of the Code.
8.3 ELIGIBLE EMPLOYEES
Individuals who are not employees of the Company or one of its parent
corporations or subsidiary corporations may not be granted Incentive Stock
Options. For purposes of this Section 8.3, "parent corporation" and "subsidiary
corporation" shall have the meanings attributed to those terms for purposes of
Section 422 of the Code.
8.4 TERM
Except as provided in Section 8.2, the term of an Incentive Stock Option
shall not exceed 10 years.
8.5 EXERCISABILITY
An Option designated as an Incentive Stock Option shall cease to qualify
for favorable tax treatment as an Incentive Stock Option to the extent it is
exercised (if permitted by the terms of the Option) (a) more than three months
after the Termination Date for reasons other than death or disability, (b) more
than one year after the Termination Date by reason of Disability or (c) after
the Participant has been on leave of absence for more than 90 days, unless the
Participant's reemployment rights are guaranteed by statute or contract.
For purposes of this Section 8.5, Disability shall mean "disability" as
that term is defined for purposes of Section 422 of the Code.
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8.6 TAXATION OF INCENTIVE STOCK OPTIONS
In order to obtain certain tax benefits afforded to Incentive Stock
Options under Section 422 of the Code, the Participant must hold the shares
issued upon the exercise of an Incentive Stock Option for two years after the
Grant Date and one year from the date of exercise. A Participant may be subject
to the alternative minimum tax at the time of exercise of an Incentive Stock
Option. The Participant shall give the Company prompt notice of any disposition
of shares acquired by the exercise of an Incentive Stock Option prior to the
expiration of such holding periods.
8.7 PROMISSORY NOTES
The amount of any promissory note delivered pursuant to Section 7.5 in
connection with an Incentive Stock Option shall bear interest at a rate
specified by the Plan Administrator but in no case less than the rate required
to avoid imputation of interest (taking into account any exceptions to the
imputed interest rules) for federal income tax purposes.
SECTION 9. STOCK AWARDS
9.1 GRANT OF STOCK AWARDS
The Plan Administrator is authorized to make Awards of Common Stock or
Awards denominated in units of Common Stock on such terms and conditions and
subject to such restrictions, if any (which may be based on continuous service
with the Company or the achievement of performance goals as the Plan
Administrator shall determine, in its sole discretion, which terms, conditions
and restrictions shall be set forth in the instrument evidencing the Award. The
terms, conditions and restrictions that the Plan Administrator shall have the
power to determine shall include, without limitation, the manner in which shares
subject to Stock Awards are held during the periods they are subject to
restrictions and the circumstances under which forfeiture of the Stock Award
shall occur by reason of termination of the Participant's employment or service
relationship.
9.2 ISSUANCE OF SHARES
Upon the satisfaction of any terms, conditions and restrictions
prescribed in respect to a Stock Award, or upon the Participant's release from
any terms, conditions and restrictions of a Stock Award, as determined by the
Plan Administrator, the Company shall release, as soon as practicable, to the
Participant or, in the case of the Participant's death, to the personal
representative of the Participant's estate or as the appropriate court directs,
the appropriate number of shares of Common Stock.
9.3 WAIVER OF RESTRICTIONS
Notwithstanding any other provisions of the Plan, the Plan Administrator
may, in its sole discretion, waive the forfeiture period and any other terms,
conditions or restrictions on any Stock Award under such circumstances and
subject to such terms and conditions as the Plan Administrator shall deem
appropriate.
SECTION 10. WITHHOLDING
The Company may require the Participant to pay to the Company the amount
of any withholding taxes that the Company is required to withhold with respect
to the grant, vesting or exercise of any Award. Subject to the Plan and
applicable law, the Plan Administrator may, in its sole discretion, permit the
Participant to satisfy withholding obligations (up to the maximum rate), in
whole or in part, by electing to have the Company withhold shares of Common
Stock or by transferring shares of Common Stock to the Company, in such amounts
as are equivalent to the Fair Market Value of the withholding obligation. The
Company shall have the right to withhold from any Award or any shares of Common
Stock issuable pursuant to an Award or from any cash amounts otherwise due or
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to become due from the Company to the Participant an amount equal to such taxes.
The Company may also deduct from any Award any other amounts due from the
Participant to the Company or a Related Corporation.
SECTION 11. ASSIGNABILITY
Awards granted under this Plan and any interest therein may not be
assigned, pledged or transferred by the Participant and may not be made subject
to attachment or similar proceedings otherwise than by will or by the applicable
laws of descent and distribution, and, during the Participant's lifetime, such
Awards may be exercised only by the Participant. Notwithstanding the foregoing,
and to the extent permitted by Section 422 of the Code, the Plan Administrator,
in its sole discretion, may permit such assignment, transfer and exercisability
and may permit a Participant to designate a beneficiary who may exercise the
Award or receive compensation under the Award after the Participant's death;
provided, however, that any Award so assigned or transferred shall be subject to
all the same terms and conditions contained in the instrument evidencing the
Award.
SECTION 12. ADJUSTMENTS
12.1 ADJUSTMENT OF SHARES
In the event that, at any time or from time to time, a stock dividend,
stock split, spin-off, combination or exchange of shares, recapitalization,
merger, consolidation, distribution to shareholders other than a normal cash
dividend, or other change in the Company's corporate or capital structure
results in (a) the outstanding shares, or any securities exchanged therefor or
received in their place, being exchanged for a different number or class of
securities of the Company or of any other corporation or (b) new, different or
additional securities of the Company or of any other corporation being received
by the holders of shares of Common Stock of the Company, then the Plan
Administrator shall make proportional adjustments in (i) the maximum number and
kind of securities subject to the Plan as set forth in Section 4.1 and (ii) the
number and kind of securities that are subject to any outstanding Award and the
per share price of such securities, without any change in the aggregate price to
be paid therefor. The determination by the Plan Administrator as to the terms of
any of the foregoing adjustments shall be conclusive and binding.
Notwithstanding the foregoing, a dissolution or liquidation of the Company or a
Corporate Transaction shall not be governed by this Section 12.1 but shall be
governed by Sections 12.2 and 12.3, respectively.
12.2 DISSOLUTION OR LIQUIDATION
In the event of the proposed dissolution or liquidation of the Company,
the Plan Administrator shall notify each Holder as soon as practicable prior to
the effective date of such proposed transaction. The Plan Administrator in its
discretion may permit a Participant to exercise an Option until ten days prior
to such transaction with respect to all vested and exercisable shares of Common
Stock covered thereby and with respect to such number of unvested shares as the
Plan Administrator shall determine. In addition, the Plan Administrator may
provide that any forfeiture provision or Company repurchase option applicable to
any Award shall lapse as to such number of shares as the Plan Administrator
shall determine, contingent upon the occurrence of the proposed dissolution or
liquidation at the time and in the manner contemplated. To the extent an Option
has not been previously exercised, the Option shall terminate automatically
immediately prior to the consummation of the proposed action. To the extent a
forfeiture provision applicable to a Stock Award has not been waived by the Plan
Administrator, the Stock Award shall be forfeited automatically immediately
prior to the consummation of the proposed action.
12.3 CORPORATE TRANSACTION
In the event of a Corporate Transaction, except as otherwise provided in
the instrument evidencing the Award, each outstanding Option shall be assumed or
an equivalent option or right substituted by the successor corporation or its
parent corporation (the "Successor Corporation"). In the event that the
Successor Corporation refuses to assume or substitute for the Option, the Option
shall terminate, but the Participant shall have the right immediately prior to
the Corporate Transaction to exercise the participant's Option to the extent the
vesting requirements applicable to the Option have been satisfied.
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12.4 FURTHER ADJUSTMENT OF AWARDS
Subject to Sections 12.2 and 12.3, the Plan Administrator shall have the
discretion, exercisable at any time before a sale, merger, consolidation,
reorganization, liquidation or change in control of the Company, as defined by
the Plan Administrator, to take such further action as it determines to be
necessary or advisable, and fair and equitable to Participants, with respect to
Awards. Such authorized action may include (but shall not be limited to)
establishing, amending or waiving the type, terms, conditions or duration of, or
restrictions on, Awards so as to provide for earlier, later, extended or
additional time for exercise, lifting restrictions and other modifications, and
the Plan Administrator may take such actions with respect to all Participants,
to certain categories of Participants or only to individual Participants. The
Plan Administrator may take such action before or after granting Awards to which
the action relates and before or after any public announcement with respect to
such sale, merger, consolidation, reorganization, liquidation or change in
control that is the reason for such action.
12.5 LIMITATIONS
The grant of Awards shall in no way affect the Company's right to
adjust, reclassify, reorganize or otherwise change its capital or business
structure or to merge, consolidate, dissolve, liquidate or sell or transfer all
or any part of its business or assets.
SECTION 13. MARKET STANDOFF
In connection with any underwritten public offering by the Company of
its equity securities pursuant to an effective registration statement filed
under the Securities Act, including the Company's initial public offering, a
person shall not sell, make any short sale of, loan, hypothecate, pledge, grant
any option for the purchase of, or otherwise dispose or transfer for value or
otherwise agree to engage in any of the foregoing transactions with respect to,
any shares issued pursuant to an Award granted under the Plan without the prior
written consent of the Company or its underwriters. Such limitations shall be in
effect for such period of time as may be requested by the Company or such
underwriters and agreed to by the Company's officers and directors with respect
to their shares; provided, however, that in no event shall such period exceed
180 days. The limitations of this paragraph shall in all events terminate two
years after the effective date of the Company's initial public offering. Holders
of shares issued pursuant to an Award granted under the Plan shall be subject to
the market standoff provisions of this paragraph only if the officers and
directors of the Company are also subject to similar arrangements.
In the event of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
Company's outstanding Common Stock effected as a class without the Company's
receipt of consideration, then any new, substituted or additional securities
distributed with respect to the purchased shares shall be immediately subject to
the provisions of this Section 13, to the same extent the purchased shares are
at such time covered by such provisions.
In order to enforce the limitations of this Section 13, the Company may
impose stop-transfer instructions with respect to the purchased shares until the
end of the applicable standoff period.
SECTION 14. AMENDMENT AND TERMINATION OF PLAN
14.1 AMENDMENT OF PLAN
The Plan may be amended only by the Board in such respects as it shall
deem advisable; provided, however, to the extent required for compliance with
Section 422 of the Code or any applicable law or regulation, shareholder
approval shall be required for any amendment that would (a) increase the total
number of shares available for issuance under the Plan, (b) modify the class of
persons eligible to receive Options or (c) otherwise require shareholder
approval under any applicable law or regulation. Any amendment made to this Plan
which would constitute a "modification" to Incentive Stock Options outstanding
on the date of such amendment, shall not, without the consent of the
Participant, be applicable to such outstanding Incentive Stock Options but shall
have prospective effect only.
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14.2 TERMINATION OF PLAN
The Board may suspend or terminate the Plan at any time. Unless sooner
terminated as provided herein, the Plan shall terminate ten years after the
earlier of the Plan's adoption by the Board and approval by the shareholders.
14.3 CONSENT OF PARTICIPANT
The amendment or termination of the Plan or the amendment of an
outstanding Award shall not, without the Participant's consent, impair or
diminish any rights or obligations under any Award theretofore granted to the
Participant under the Plan; provided, however, that adjustments made pursuant to
Section 12 shall not be subject to these restrictions. Any change or adjustment
to an outstanding Incentive Stock Option shall not, without the consent of the
Participant, be made in a manner so as to constitute a "modification" that would
cause such Incentive Stock Option to fail to continue to qualify as an Incentive
Stock Option.
SECTION 15. GENERAL
15.1 EVIDENCE OF AWARDS
Awards granted under the Plan shall be evidenced by a written instrument
that shall contain such terms, conditions, limitations and restrictions as the
Plan Administrator shall deem advisable and that are not inconsistent with the
Plan.
15.2 NO INDIVIDUAL RIGHTS
Nothing in the Plan or any Award granted under the Plan shall be deemed
to constitute an employment contract or confer or be deemed to confer on any
Participant any right to continue in the employ of, or to continue any other
relationship with, the Company or any Related Corporation or limit in any way
the right of the Company or any Related Corporation of the Company to terminate
a Participant's employment or other relationship at any time, with or without
Cause.
15.3 REGISTRATION
Notwithstanding any other provision of the Plan, the Company shall have
no obligation to issue or deliver any shares of Common Stock under the Plan or
make any other distribution of benefits under the Plan unless such issuance,
delivery or distribution would comply with all applicable laws (including,
without limitation, the requirements of the Securities Act), and the applicable
requirements of any securities exchange or similar entity.
The Company shall be under no obligation to any Participant to register
for offering or resale or to qualify for exemption under the Securities Act, or
to register or qualify under state securities laws, any shares of Common Stock,
security or interest in a security paid or issued under, or created by, the
Plan, or to continue in effect any such registrations or qualifications if made.
The Company may issue certificates for shares with such legends and subject to
such restrictions on transfer and stop-transfer instructions as counsel for the
Company deems necessary or desirable for compliance by the Company with federal
and state securities laws.
To the extent that the Plan or any instrument evidencing an Award
provides for issuance of stock certificates to reflect the issuance of shares of
Common Stock, the issuance may be effected on a non-certificated basis, to the
extent not prohibited by applicable law or the applicable rules of any stock
exchange.
15.4 NO RIGHTS AS A SHAREHOLDER
No Option or Stock Award denominated in units shall entitle the
Participant to any cash dividend, voting or other right of a shareholder unless
and until the date of issuance under the Plan of the shares that are the subject
of such Award.
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15.5 COMPLIANCE WITH LAWS AND REGULATIONS
Notwithstanding anything in the Plan to the contrary, the Plan
Administrator, in its sole discretion, may bifurcate the Plan so as to restrict,
limit or condition the use of any provision of the Plan to Participants who are
officers or directors subject to Section 16 of the Exchange Act without so
restricting, limiting or conditioning the Plan with respect to other
Participants. Additionally, in interpreting and applying the provisions of the
Plan, any Option granted as an Incentive Stock Option pursuant to the Plan
shall, to the extent permitted by law, be construed as an "incentive stock
option" within the meaning of Section 422 of the Code.
15.6 PARTICIPANTS IN FOREIGN COUNTRIES
The Plan Administrator shall have the authority to adopt such
modifications, procedures, and subplans as may be necessary or desirable to
comply with provisions of the laws of foreign countries in which the Company or
its Related Corporations may operate to assure the viability of the benefits
from Awards granted to Participants employed in such countries and to meet the
objectives of the Plan.
15.7 NO TRUST OR FUND
The Plan is intended to constitute an "unfunded" plan. Nothing contained
herein shall require the Company to segregate any monies or other property, or
shares of Common Stock, or to create any trusts, or to make any special deposits
for any immediate or deferred amounts payable to any Participant, and no
Participant shall have any rights that are greater than those of a general
unsecured creditor of the Company.
15.8 SEVERABILITY
If any provision of the Plan or any Award is determined to be invalid,
illegal or unenforceable in any jurisdiction, or as to any person, or would
disqualify the Plan or any Award under any law deemed applicable by the Plan
Administrator, such provision shall be construed or deemed amended to conform to
applicable laws, or, if it cannot be so construed or deemed amended without, in
the Plan Administrator's determination, materially altering the intent of the
Plan or the Award, such provision shall be stricken as to such jurisdiction,
person or Award, and the remainder of the Plan and any such Award shall remain
in full force and effect.
15.9 CHOICE OF LAW
The Plan and all determinations made and actions taken pursuant hereto,
to the extent not otherwise governed by the laws of the United States, shall be
governed by the laws of the State of Oregon without giving effect to principles
of conflicts of laws.
15.10 APPENDIX PROVISIONS
Persons who are residents of the State of California shall be subject to
the additional terms and conditions set forth in Appendix A to the Plan.
SECTION 16. EFFECTIVE DATE
The Plan's Effective Date is the date on which it is adopted by the
Board, so long as it is approved by the Company's shareholders at any time
within 12 months of such adoption.
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WEBTRENDS CORPORATION
APPENDIX A
TO
1998 STOCK INCENTIVE COMPENSATION PLAN
FOR CALIFORNIA RESIDENTS
This Appendix to the WebTrends Corporation 1998 Stock Incentive
Compensation Plan (the "Plan") shall have application only to Participants who
are residents of the State of California. NOTWITHSTANDING ANY PROVISION
CONTAINED IN THE PLAN TO THE CONTRARY, THE FOLLOWING TERMS AND CONDITIONS SHALL
APPLY TO ANY OPTIONS GRANTED UNDER THE PLAN TO RESIDENTS OF THE STATE OF
CALIFORNIA, TO THE EXTENT STATED ABOVE AND REQUIRED BY APPLICABLE LAW:
1. Nonqualified Stock Options shall have an exercise price that is not
less than 85% of the fair value of the stock at the time the option is granted,
as determined by the Board, except that the exercise price shall be 110% of the
fair value in the case of any person who owns stock possessing more than 10% of
the total combined voting power of all classes of stock of the Company or its
parent or subsidiary corporations.
2. Options shall have a term of not more than 10 years from the date the
Option is granted.
3. Options shall be nontransferable other than by will or the laws of
descent and distribution.
4. Options shall become exercisable at the rate of at least 20% per year
over 5 years from the date the Option is granted, subject to reasonable
conditions such as continued employment. However, in the case of an Option
granted to officers, directors or consultants of the Company or any of its
affiliates, the Option may become fully exercisable, subject to reasonable
conditions such as continued employment, at any time or during any period
established by the Company or any of its affiliates.
5. Unless employment is terminated for Cause, the right to exercise an
Option in the event of termination of employment, to the extent that the
Participant is otherwise entitled to exercise an Option on the date employment
terminates, shall be:
a. at least 6 months from the date of termination of employment if
termination was caused by death or Disability; and
b. at least 30 days from the date of termination if termination of
employment was caused by other than death or Disability;
c. but in no event later than the remaining term of the Option.
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6. No Option may be granted to a resident of California more than ten
years after the earlier of the date of adoption of the Plan and the date the
Plan is approved by the shareholders.
7. Any Option exercised before shareholder approval is obtained shall be
rescinded if shareholder approval is not obtained within 12 months before or
after the Plan is adopted. Such shares shall not be counted in determining
whether such approval is obtained.
8. The Company shall provide annual financial statements of the Company
to each California resident holding an outstanding Option under the Plan. Such
financial statements need not be audited and need not be issued to key employees
whose duties at the Company assure them access to equivalent information.
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EXHIBIT 10.2
WEBTRENDS CORPORATION
1999 EMPLOYEE STOCK PURCHASE PLAN
SECTION 1. PURPOSE
The purposes of the WebTrends Corporation 1999 Employee Stock Purchase
Plan (the "Plan") are (a) to assist employees of WebTrends Corporation, an
Oregon corporation (the "Company"), and its designated subsidiaries in acquiring
a stock ownership interest in the Company pursuant to a plan that is intended to
qualify as an "employee stock purchase plan" under Section 423 of the Internal
Revenue Code of 1986, as amended and (b) to encourage employees to remain in the
employ of the Company and its subsidiaries.
SECTION 2. DEFINITIONS
For purposes of the Plan, the following terms shall be defined as set
forth below.
"BOARD" means the Board of Directors of the Company.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMITTEE" means the Company's Compensation Committee.
"COMPANY" means WebTrends Corporation, an Oregon corporation.
"DESIGNATED SUBSIDIARY" has the meaning set forth under the definition
of "Eligible Employee" in this Section 2.
"ELIGIBLE COMPENSATION" means all regular cash compensation including
overtime, cash bonuses and commissions. Regular cash compensation does not
include severance pay, hiring and relocation bonuses, pay in lieu of vacations,
sick leave or any other special payments.
"ELIGIBLE EMPLOYEE" means any employee of the Company or any domestic
Subsidiary Corporation or any other Subsidiary Corporation designated by the
Board or the Committee (each a "Designated Subsidiary"), who is in the employ of
the Company (or any Designated Subsidiary) on one or more Offering Dates and who
meets the following criteria:
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(a) the employee does not, immediately after the option is
granted, own stock (as defined by the Code) possessing 5%
or more of the total combined voting power or value of all
classes of stock of the Company or of a Parent Corporation
or Subsidiary Corporation of the Company;
(b) the employee's customary employment is for more than 20
hours per week; provided, however, that the Plan
Administrator may decrease this minimum requirement for
future Offering Periods; and
(c) the employee has been employed for at least three (3)
months as of the Offering Date.
If the Company permits any employee of a Designated Subsidiary to participate in
the Plan, then all employees of that Designated Subsidiary who meet the
requirements of this paragraph shall also be considered Eligible Employees.
"ENROLLMENT PERIOD" has the meaning set forth in Section 7.1.
"ESPP BROKER" has the meaning set forth in Section 10.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"NEW PURCHASE DATE" has the meaning set forth in Sections 10.2 and 10.3.
"OFFERING" has the meaning set forth in Section 5.1.
"OFFERING DATE" means the first day of an Offering.
"OFFERING PERIOD" has the meaning set forth in Section 5.1.
"OPTION" means an option granted under the Plan to an Eligible Employee
to purchase shares of Stock.
"PARENT CORPORATION" means any corporation, other than the Company, in
an unbroken chain of corporations ending with the Company, if, at the time of
the granting of the Option, each of the corporations, other than the Company,
owns stock possessing 50% or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain.
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"PARTICIPANT" means any Eligible Employee who has elected to participate
in an Offering in accordance with the procedures set forth in Section 7.1 and
who has not withdrawn from the Plan or whose participation in the Plan is not
terminated.
"PLAN" means the WebTrends Corporation 1999 Employee Stock Purchase
Plan.
"PURCHASE DATE" means the last day of each Purchase Period.
"PURCHASE PERIOD" has the meaning set forth in Section 5.2.
"PURCHASE PRICE" has the meaning set forth in Section 6.
"STOCK" means the common stock of the Company.
"SUBSCRIPTION" has the meaning set forth in Section 7.1.
"SUBSIDIARY CORPORATION" means any corporation, other than the Company,
in an unbroken chain of corporations beginning with the Company, if, at the time
of the granting of the Option, each of the corporations, other than the last
corporation in the unbroken chain, owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
SECTION 3. ADMINISTRATION
3.1 PLAN ADMINISTRATOR
The Plan shall be administered by the Board or the Committee or, if and
to the extent the Board or the Committee designates an executive officer of the
Company to administer the Plan, by such executive officer (each, the "Plan
Administrator"). Any decisions made by the Plan Administrator shall be
applicable equally to all Eligible Employees.
3.2 ADMINISTRATION AND INTERPRETATION BY THE PLAN ADMINISTRATOR
Subject to the provisions of the Plan, the Plan Administrator shall have
the authority, in its sole discretion, to determine all matters relating to
Options granted under the Plan, including all terms, conditions, restrictions
and limitations of Options; provided, however, that all Participants granted
Options pursuant to the Plan shall have the same rights and privileges within
the meaning of Code Section 423. The Plan Administrator shall also have
exclusive authority to interpret the Plan and may from time to time adopt, and
change, rules and regulations of general application for the Plan's
administration. The Plan Administrator's interpretation of the Plan and its
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rules and regulations, and all actions taken and determinations made by the Plan
Administrator pursuant to the Plan, unless reserved to the Board or the
Committee, shall be conclusive and binding on all parties involved or affected.
The Plan Administrator may delegate administrative duties to such of the
Company's other officers or employees as the Plan Administrator so determines.
SECTION 4. STOCK SUBJECT TO PLAN
Subject to adjustment from time to time as provided in Section 10, the
maximum number of shares of Stock which shall be available for issuance under
the Plan shall be 350,000 shares, plus an annual increase to be added on the
first day of the Company's fiscal year beginning in 2000 equal to the lesser of
(a) 16,250 shares, (b) 0.125% of the adjusted average common shares outstanding
of the Company used to calculate fully diluted earnings per share as reported in
the Annual Report to shareholders for the preceding year, or (c) a lesser amount
determined by the Board; provided, however, that any shares from any increases
in previous years that are not actually issued shall be added to the aggregate
number of shares available for issuance under the Plan. Shares issued under the
Plan shall be drawn from authorized and unissued shares or shares now held or
subsequently acquired by the Company as treasury shares.
SECTION 5. OFFERING DATES
5.1 OFFERING PERIODS
(a) Except as otherwise set forth below, the Plan shall be implemented
by a series of Offerings (each, an "Offering"). Offerings shall commence on
January 1 and July 1 of each year and end on the next June 30 and December 31,
respectively, occurring thereafter (each, an "Offering Period"); provided,
however, that the first Offering Period shall begin on the day (the "IPO Date")
on which shares of the Company's Stock are first offered to the public in an
underwritten initial public offering of such Stock pursuant to a registration
statement filed with and declared effective by the Securities and Exchange
Commission (such day being the first trading day for the Stock on the Nasdaq
National Market, the New York Stock Exchange or other applicable trading
market), and shall end on June 30, 1999.
(b) Notwithstanding the foregoing, the Plan Administrator may establish
(i) a different term for one or more Offerings and (ii) different commencing and
ending dates for such Offerings; provided, however, that an Offering Period may
not exceed five years; and provided, further, that if the Purchase Price may be
less than
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85% of the fair market value of the Stock on the Purchase Date, the Offering
Period may not exceed 27 months.
(c) In the event the first or the last day of an Offering Period is not
a regular business day, then the first day of the Offering Period shall be
deemed to be the next regular business day and the last day of the Offering
Period shall be deemed to be the last preceding regular business day. An
employee who becomes eligible to participate in the Plan after an Offering
Period has commenced shall not be eligible to participate in such Offering but
may participate in any subsequent Offering, provided that such employee is still
an Eligible Employee as of the commencement of any such subsequent Offering.
Eligible Employees may not participate in more than one Offering at a time.
5.2 PURCHASE PERIODS
Each Offering Period shall consist of one or more consecutive purchase
periods (each, a "Purchase Period"). The last day of each Purchase Period shall
be the Purchase Date for such Purchase Period. Except as otherwise set forth
below, each Purchase Period shall commence on January 1 and July 1 of each year
and end on the next June 30 and December 31, respectively, occurring thereafter;
provided, however, that the Purchase Period for the first Offering shall
commence on the IPO Date and end on June 30, 1999. Notwithstanding the
foregoing, the Board may establish (a) a different term for one or more Purchase
Periods and (b) different commencing and ending dates for any such Purchase
Period. In the event the first or last day of a Purchase Period is not a regular
business day, then the first day of the Purchase Period shall be deemed to be
the next regular business day and the last day of the Purchase Period shall be
deemed to be the last preceding regular business day.
5.3 GOVERNMENTAL APPROVAL; STOCKHOLDER APPROVAL
Notwithstanding any other provision of the Plan to the contrary, an
Option granted pursuant to the Plan shall be subject to (a) obtaining all
necessary governmental approvals and qualifications of the Plan and the issuance
of Options and sale of Stock pursuant to the Plan and (b) obtaining stockholder
approval of the Plan.
SECTION 6. PURCHASE PRICE
The purchase price (the "Purchase Price") at which Stock may be acquired
in an Offering pursuant to the exercise of all or any portion of an Option
granted under the Plan (the "Offering Exercise Price") shall be 85% of the
lesser of (a) the fair market value of the Stock on the Offering Date of such
Offering and (b) the fair
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<PAGE> 6
market value of the Stock on the Purchase Date; provided, however, that the
Purchase Price for the first Offering Period shall be the lesser of (a) 100% of
the initial public offering price per share of Stock, before underwriters'
discounts or concessions, set forth in that certain Underwriting Agreement
between the Company and the representatives of the underwriters when executed in
connection with the Company's initial public offering of the Stock and (b) 85%
of the fair market value of the Stock on the Purchase Date. The fair market
value of the Stock on the Offering Date or on the Purchase Date shall be the
closing price for the Stock as reported for such day by the Nasdaq National
Market, the New York Stock Exchange or other trading market on which the
Company's Stock may then be traded (the "Exchange"). If no sales of the Stock
were made on the Exchange on such day, fair market value shall mean the closing
price for the Stock as reported for the next preceding day on which sales of the
Stock were made on the Exchange. If the Stock is not listed on an Exchange, the
Board shall designate an alternative method of determining the fair market value
of the Stock.
SECTION 7. PARTICIPATION IN THE PLAN
7.1 INITIAL PARTICIPATION
An Eligible Employee shall become a Participant on the first Offering
Date after satisfying the eligibility requirements and delivering to the Plan
Administrator during the enrollment period established by the Plan Administrator
(the "Enrollment Period") a subscription (the "Subscription"):
(a) indicating the Eligible Employee's election to participate in the
Plan;
(b) authorizing payroll deductions and stating the amount to be deducted
regularly from the Participant's pay; and
(c) authorizing the purchase of Stock for the Participant in each
Purchase Period.
An Eligible Employee who does not deliver a Subscription as provided
above during the Enrollment Period shall not participate in the Plan for that
Offering Period or for any subsequent Offering Period unless such Eligible
Employee subsequently enrolls in the Plan by filing a Subscription with the
Company during the Enrollment Period for such subsequent Offering Period. The
Company may, from time to time, change the Enrollment Period for any future
Offering as deemed advisable by the Plan Administrator, in its sole discretion,
for the proper administration of the Plan.
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7.2 CONTINUED PARTICIPATION
A Participant shall automatically participate in the next Offering
Period until such time as such Participant withdraws from the Plan pursuant to
Section 12.1 or 12.2 or terminates employment as provided in Section 13.
SECTION 8. LIMITATIONS ON RIGHT TO PURCHASE SHARES
8.1 NUMBER OF SHARES PURCHASED
The maximum number of shares of stock that may be offered to a
Participant on any Offering Date shall be equal to $25,000 divided by the fair
market value of one share of Stock of the Company on the applicable Offering
Date. Further, no Participant shall be entitled to purchase Stock under the Plan
(or any other employee stock purchase plan that is intended to meet the
requirements of Code Section 423 sponsored by the Company, a Parent Corporation
or a Subsidiary Corporation) with a fair market value exceeding $25,000,
determined as of the Offering Date for each Offering Period (or such other limit
as may be imposed by the Code), in any calendar year in which a Participant
participates in the Plan (or other employee stock purchase plan described in
this Section 8.1).
8.2 PRO RATA ALLOCATION
In the event the number of shares of Stock that might be purchased by
all Participants in the Plan exceeds the number of shares of Stock available in
the Plan, the Plan Administrator shall make a pro rata allocation of the
remaining shares of Stock in as uniform a manner as shall be practicable and as
the Plan Administrator shall determine to be equitable. Fractional shares may
not be issued under the Plan unless the Plan Administrator determines otherwise
for future Offering Periods.
SECTION 9. PAYMENT OF PURCHASE PRICE
9.1 GENERAL RULES
Subject to Section 9.12, Stock that is acquired pursuant to the exercise
of all or any portion of an Option may be paid for only by means of payroll
deductions from the Participant's Eligible Compensation. Except as set forth in
this Section 9, the amount of compensation to be withheld from a Participant's
Eligible Compensation during each pay period shall be determined by the
Participant's Subscription.
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9.2 CHANGE NOTICES
During an Offering Period, a Participant may elect to decrease, but not
increase, the amount withheld from his or her compensation by filing an amended
Subscription with the Company on or before the change notice date. The change
notice date shall initially be the seventh day prior to the end of the first pay
period for which such election is to be effective; provided, however, that the
Plan Administrator may change such change notice date from time to time. Unless
otherwise determined by the Plan Administrator for a future Offering, a
Participant may elect to increase or decrease the amount to be withheld from his
or her compensation for future Offerings; provided, however, that notice of such
election must be delivered to the Plan Administrator in such form and in
accordance with such terms as the Plan Administrator may establish for an
Offering.
9.3 PERCENT WITHHELD
The amount of payroll withholding for each Participant for purchases
pursuant to the Plan during any pay period shall be at least 1% but shall not
exceed 15% of the Participant's Eligible Compensation for such pay period.
Amounts shall be withheld in whole percentages only.
9.4 PAYROLL DEDUCTIONS
Payroll deductions shall commence on the first payday following the
Offering Date and shall continue through the last payday of the Offering Period
unless sooner altered or terminated as provided in the Plan.
9.5 MEMORANDUM ACCOUNTS
Individual accounts shall be maintained for each Participant for
memorandum purposes only. All payroll deductions from a Participant's
compensation shall be credited to such account but shall be deposited with the
general funds of the Company. All payroll deductions received or held by the
Company may be used by the Company for any corporate purpose.
9.6 NO INTEREST
No interest shall be paid on payroll deductions received or held by the
Company.
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9.7 ACQUISITION OF STOCK
On each Purchase Date of an Offering Period, each Participant shall
automatically acquire, pursuant to the exercise of the Participant's Option, the
number of shares of Stock arrived at by dividing the total amount of the
Participant's accumulated payroll deductions for the Purchase Period by the
Purchase Price; provided, however, that the number of shares of Stock purchased
by the Participant shall not exceed the number of whole shares of Stock so
determined, unless the Plan Administrator has determined for any future Offering
that fractional shares may be issued under the Plan; and provided, further, that
the number of shares of Stock purchased by the Participant shall not exceed the
number of shares for which Options have been granted to the Participant pursuant
to Section 8.1.
9.8 REFUND OF EXCESS AMOUNTS
Any cash balance remaining in the Participant's account at the
termination of each Purchase Period shall be refunded to the Participant as soon
as practical after the Purchase Date without the payment of any interest;
provided, however, that if the Participant participates in the next Purchase
Period, any cash balance remaining in the Participant's account shall be applied
to the purchase of Stock in the new Purchase Period, provided such purchase
complies with Section 8.1.
9.9 WITHHOLDING OBLIGATIONS
At the time the Option is exercised, in whole or in part, or at the time
some or all of the Stock is disposed of, the Participant shall make adequate
provision for federal and state withholding obligations of the Company, if any,
that arise upon exercise of the Option or upon disposition of the Stock. The
Company may withhold from the Participant's compensation the amount necessary to
meet such withholding obligations.
9.10 TERMINATION OF PARTICIPATION
No Stock shall be purchased on behalf of a Participant on a Purchase
Date if his or her participation in the Offering or the Plan has terminated on
or before such Purchase Date.
9.11 PROCEDURAL MATTERS
The Company may, from time to time, establish (a) limitations on the
frequency and/or number of any permitted changes in the amount withheld during
an Offering, as set forth in Section 9.2, (b) an exchange ratio applicable to
amounts
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withheld in a currency other than U.S. dollars, (c) payroll withholding in
excess of the amount designated by a Participant in order to adjust for delays
or mistakes in the Company's processing of properly completed withholding
elections and (d) such other limitations or procedures as deemed advisable by
the Company in the Company's sole discretion that are consistent with the Plan
and in accordance with the requirements of Code Section 423.
9.12 LEAVES OF ABSENCE
During leaves of absence approved by the Company and meeting the
requirements of the applicable Treasury Regulations promulgated under the Code,
a Participant may elect to continue participation in the Plan by delivering cash
payments to the Plan Administrator on the Participant's normal paydays equal to
the amount of his or her payroll deduction under the Plan had the Participant
not taken a leave of absence. Currently, the Treasury Regulations provide that a
Participant may continue participation in the Plan only during the first 90 days
of a leave of absence unless the Participant's reemployment rights are
guaranteed by statute or contract.
SECTION 10. STOCK PURCHASED UNDER THE PLAN
10.1 ESPP BROKER
If the Plan Administrator designates or approves a stock brokerage or
other financial services firm (the "ESPP Broker") to hold shares purchased under
the Plan for the accounts of Participants, the following procedures shall apply.
Promptly following each Purchase Date, the number of shares of Stock purchased
by each Participant shall be deposited into an account established in the
Participant's name with the ESPP Broker. Each Participant will be the beneficial
owner of the Stock purchased under the Plan and will have all rights of
beneficial ownership in such Stock. A Participant shall be free to undertake a
disposition of the shares of Stock in his or her account at any time, but, in
the absence of such a disposition, the shares of Stock must remain in the
Participant's account at the ESPP Broker until the holding period set forth in
Code Section 423 has been satisfied. With respect to shares of Stock for which
the holding period set forth above has been satisfied, the Participant may move
those shares of Stock to another brokerage account of the Participant's choosing
or request that a stock certificate be issued and delivered to him or her.
Dividends paid in the form of shares of Stock with respect to Stock in a
Participant's account shall be credited to such account. A Participant who is
not subject to payment of U.S. income taxes may move his or her shares of Stock
to another brokerage account of his or her choosing or request that a stock
certificate be delivered to him or her at any time, without regard to the Code
Section 423 holding period.
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10.2 NOTICE OF DISPOSITION
By entering the Plan, each Participant agrees to promptly give the
Company notice of any Stock disposed of within the later of one year from the
Purchase Date and two years from the Offering Date for such Stock, showing the
number of such shares disposed of and the Purchase Date and Offering Date for
such Stock. This notice shall not be required if and so long as the Company has
a designated ESPP Broker.
SECTION 11. MARKET STANDOFF
In connection with the underwritten initial public offering by the
Company of its Stock, neither the Participant nor any beneficiary receiving
shares of Stock pursuant to Section 14.2 hereof shall sell, make any short sale
of, loan, hypothecate, pledge, grant any option for the purchase of, or
otherwise dispose of or transfer for value or otherwise agree to engage in any
of the foregoing transactions with respect to any Stock issued under the Plan
for a period of 180 days after the IPO Date.
In the event of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
Company's Stock effected as a class without the Company's receipt of
consideration, any new, substituted or additional securities distributed with
respect to the purchased Stock shall be immediately subject to the provisions of
this Section 11.
In order to enforce the limitations of this Section 11, the Company may
issue stop-transfer instructions to the ESPP Broker and/or the Company's
transfer agent until the end of the period ending 180 days after the IPO Date.
SECTION 12. VOLUNTARY WITHDRAWAL
12.1 WITHDRAWAL FROM AN OFFERING
A Participant may withdraw from an Offering by signing and delivering to
the Company's Plan Administrator a written notice of withdrawal on a form
provided by the Company for such purpose. Such withdrawal must be elected at
least ten days prior to the end of the Purchase Period for which such withdrawal
is to be effective or by any other date specified by the Plan Administrator for
any future Offering. If a Participant withdraws after the Purchase Date for a
Purchase Period of an Offering, the withdrawal shall not affect Stock acquired
by the Participant in any earlier Purchase Periods. Unless otherwise indicated,
withdrawal from an Offering shall not result in a withdrawal from the Plan or
any succeeding Offering therein. A Participant is prohibited from again
participating in the same Offering at any time upon
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withdrawal from such Offering. The Company may, from time to time, impose a
requirement that the notice of withdrawal be on file with the Plan Administrator
for a reasonable period prior to the effectiveness of the Participant's
withdrawal.
12.2 WITHDRAWAL FROM THE PLAN
A Participant may withdraw from the Plan by signing a written notice of
withdrawal on a form provided by the Company for such purpose and delivering
such notice to the Plan Administrator. Such notice must be delivered at least
ten days prior to the end of the Purchase Period for which such withdrawal is to
be effective or by any other date specified by the Plan Administrator for any
future Offering. In the event a Participant voluntarily elects to withdraw from
the Plan, the Participant may not resume participation in the Plan during the
same Offering Period, but may participate in any subsequent Offering under the
Plan by again satisfying the definition of Eligible Employee. The Company may
impose, from time to time, a requirement that the notice of withdrawal be on
file with the Plan Administrator for a reasonable period prior to the
effectiveness of the Participant's withdrawal.
12.3 RETURN OF PAYROLL DEDUCTIONS
Upon withdrawal from an Offering pursuant to Section 12.1 or from the
Plan pursuant to Section 12.2, the withdrawing Participant's accumulated payroll
deductions that have not been applied to the purchase of Stock shall be returned
as soon as practical after the withdrawal, without the payment of any interest,
to the Participant and the Participant's interest in the Offering shall
terminate. Such accumulated payroll deductions may not be applied to any other
Offering under the Plan.
SECTION 13. TERMINATION OF EMPLOYMENT
Termination of a Participant's employment with the Company for any
reason, including retirement, death or the failure of a Participant to remain an
Eligible Employee, shall immediately terminate the Participant's participation
in the Plan. The payroll deductions credited to the Participant's account since
the last Purchase Date shall, as soon as practical, be returned to the
Participant or, in the case of a Participant's death, to the Participant's legal
representative or designated beneficiary as provided in Section 14.2, and all of
the Participant's rights under the Plan shall terminate. Interest shall not be
paid on sums returned to a Participant pursuant to this Section 13.
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SECTION 14. RESTRICTIONS ON ASSIGNMENT
14.1 TRANSFERABILITY
An Option granted under the Plan shall not be transferable and such
Option shall be exercisable during the Participant's lifetime only by the
Participant. The Company will not recognize, and shall be under no duty to
recognize, any assignment or purported assignment by a Participant of the
Participant's interest in the Plan, of his or her Option or of any rights under
his or her Option.
14.2 BENEFICIARY DESIGNATION
The Plan Administrator may permit a Participant to designate a
beneficiary who is to receive any shares and cash, if any, from the
Participant's account under the Plan in the event the Participant dies after the
Purchase Date for an Offering but prior to delivery to such Participant of such
shares and cash. In addition, the Plan Administrator may permit a Participant to
designate a beneficiary who is to receive any cash from the Participant's
account under the Plan in the event that the Participant dies before the
Purchase Date for an Offering. Such designation may be changed by the
Participant at any time by written notice to the Plan Administrator.
SECTION 15. NO RIGHTS AS STOCKHOLDER UNTIL
SHARES ISSUED
With respect to shares of Stock subject to an Option, a Participant
shall not be deemed to be a stockholder of the Company, and he or she shall not
have any of the rights or privileges of a stockholder. Subject to the
three-month holding period requirement set forth in Section 10.1, a Participant
shall have the rights and privileges of a stockholder of the Company when, but
not until, a certificate or its equivalent has been issued to the Participant
for the shares following exercise of the Participant's Option.
SECTION 16. LIMITATIONS ON SALE OF STOCK
PURCHASED UNDER THE PLAN
The Plan is intended to provide Stock for investment and not for resale.
The Company does not, however, intend to restrict or influence any Participant
in the conduct of his or her own affairs. Subject to the three-month holding
period requirement set forth in of Section 10.1, a Participant, therefore, may
sell Stock purchased under the Plan at any time he or she chooses, subject to
compliance with
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any applicable federal and state securities laws. A Participant assumes the risk
of any market fluctuations in the price of the Stock.
SECTION 17. AMENDMENT OF THE PLAN
The Board may amend the Plan in such respects as it shall deem
advisable; provided, however, that, to the extent required for compliance with
Code Section 423 or any applicable law or regulation, stockholder approval will
be required for any amendment that will (a) increase the total number of shares
as to which Options may be granted under the Plan, (b) modify the class of
employees eligible to receive Options, or (c) otherwise require stockholder
approval under any applicable law or regulation.
SECTION 18. TERMINATION OF THE PLAN
The Plan shall continue in effect for 10 years after the date of its
adoption by the Board. Notwithstanding the foregoing, the Board may suspend or
terminate the Plan at any time. During any period of suspension or upon
termination of the Plan, no Options shall be granted; provided, however, that
suspension or termination of the Plan shall have no effect on Options granted
prior thereto.
SECTION 19. NO RIGHTS AS AN EMPLOYEE
Nothing in the Plan shall be construed to give any person (including any
Eligible Employee or Participant) the right to remain in the employ of the
Company or a Parent or Subsidiary Corporation or to affect the right of the
Company or a Parent or Subsidiary Corporation to terminate the employment of any
person (including any Eligible Employee or Participant) at any time with or
without cause.
SECTION 20. EFFECT UPON OTHER PLANS
The adoption of the Plan shall not affect any other compensation or
incentive plans in effect for the Company or any Parent or Subsidiary
Corporation. Nothing in this Plan shall be construed to limit the right of the
Company, any Parent Corporation or Subsidiary Corporation to (a) establish any
other forms of incentives or compensation for employees of the Company, a Parent
Corporation or Subsidiary Corporation or (b) grant or assume options otherwise
than under this Plan in connection with any proper corporate purpose, including,
but not by way of limitation, the grant or assumption of options in connection
with the acquisition, by purchase, lease, merger, consolidation or otherwise, of
the business, stock or assets of any corporation, firm or association.
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SECTION 21. ADJUSTMENTS
21.1 ADJUSTMENT OF SHARES
In the event that, at any time or from time to time, a stock dividend,
stock split, spin-off, combination or exchange of shares, recapitalization,
merger, consolidation, distribution to stockholders other than a normal cash
dividend, or other change in the Company's corporate or capital structure
results in (a) the outstanding shares, or any securities exchanged therefor or
received in their place, being exchanged for a different number or kind of
securities of the Company or of any other corporation or (b) new, different or
additional securities of the Company or of any other corporation being received
by the holders of shares of Stock, then (subject to any required action by the
Company's stockholders), the Board or the Committee, in its sole discretion,
shall make such equitable adjustments as it shall deem appropriate in the
circumstances in (i) the maximum number and kind of shares of Stock subject to
the Plan as set forth in Section 4 and (ii) the number and kind of securities
that are subject to any outstanding Option and the per share price of such
securities. The determination by the Board or the Committee as to the terms of
any of the foregoing adjustments shall be conclusive and binding.
Notwithstanding the foregoing, a dissolution, liquidation, merger or asset sale
of the Company shall not be governed by this Section 21.1 but shall be governed
by Sections 21.2 and 21.3, respectively.
21.2 DISSOLUTION OR LIQUIDATION OF THE COMPANY
In the event of the proposed dissolution or liquidation of the Company,
the Offering Period then in progress shall be shortened by setting a new
Purchase Date (the "New Purchase Date"), and shall terminate immediately prior
to the consummation of such proposed dissolution or liquidation, unless provided
otherwise by the Board. The New Purchase Date shall be a specified date before
the date of the Company's proposed dissolution or liquidation. The Board shall
notify each Participant in writing, at least 10 business days prior to the New
Purchase Date, that the Purchase Date for the Participant's Option has been
changed to the New Purchase Date and that the Participant's Option shall be
exercised automatically on the New Purchase Date, unless prior to such date the
Participant has withdrawn from the Offering Period or the Plan as provided in
Section 12 hereof.
21.3 MERGER OR ASSET SALE OF THE COMPANY
In the event of a proposed sale of all or substantially all of the
assets of the Company, or the merger of the Company with or into another
corporation, each outstanding Option shall be assumed or an equivalent option
substituted by the
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successor corporation or a parent or subsidiary corporation of the successor
corporation. In the event that the successor corporation refuses to assume or
substitute for the Option, the Offering Period then in progress shall be
shortened by setting a new Purchase Date (the "New Purchase Date"). The New
Purchase Date shall be a specified date before the date of the Company's
proposed sale or merger. The Board shall notify each Participant in writing, at
least 10 business days prior to the New Purchase Date, that the Purchase Date
for the Participant's Option has been changed to the New Purchase Date and that
the Participant's Option shall be exercised automatically on the New Purchase
Date, unless prior to such date the Participant has withdrawn from the Offering
Period or the Plan as provided in Section 12 hereof.
21.4 LIMITATIONS
The grant of Options will in no way affect the Company's right to
adjust, reclassify, reorganize or otherwise change its capital or business
structure or to merge, consolidate, dissolve, liquidate or sell or transfer all
or any part of its business or assets.
SECTION 22. REGISTRATION; CERTIFICATES FOR SHARES
The Company shall be under no obligation to any Participant to register
for offering or resale under the Securities Act of 1933, as amended, or register
or qualify under state securities laws, any shares of Stock. The Company may
issue certificates for shares with such legends and subject to such restrictions
on transfer and stop-transfer instructions as counsel for the Company deems
necessary or desirable for compliance by the Company with federal and state
securities laws.
SECTION 23. EFFECTIVE DATE
The Plan's effective date is the date on which it is approved by the
Company's stockholders.
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EXHIBIT 10.3
WEBTRENDS CORPORATION
1997 STOCK INCENTIVE COMPENSATION PLAN
SECTION 1. PURPOSE
The purpose of the WebTrends Corporation 1997 Stock Incentive
Compensation Plan (the "Plan") is to enhance the long-term shareholder value of
WebTrends Corporation, an Oregon corporation (the "Company"), by offering
opportunities to employees, directors, officers, consultants, agents, advisors
and independent contractors of the Company and its Subsidiaries (as defined in
Section 2) to participate in the Company's growth and success, and to encourage
them to remain in the service of the Company and its Subsidiaries and to acquire
and maintain stock ownership in the Company.
SECTION 2. DEFINITIONS
For purposes of the Plan, the following terms shall be defined as set
forth below:
2.1 AWARD
"Award" means an award or grant made to a Participant pursuant to the
Plan, including, without limitation, awards or grants of Options, Stock Awards,
or any combination of the foregoing.
2.2 BOARD
"Board" means the Board of Directors of the Company.
2.3 CODE
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
2.4 COMMON STOCK
"Common Stock" means the Common Stock of the Company as of the effective
date of the Plan, including the Class A Voting Common Stock, without par value,
and the Class B Non-voting Common Stock, without par value, of the Company.
2.5 CORPORATE TRANSACTION
"Corporate Transaction" means any of the following events:
(a) Consummation of any merger or consolidation of the Company in
which the Company is not the continuing or surviving corporation, or
pursuant to which shares
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of the Common Stock are converted into cash, securities or other
property, if following such merger or consolidation the holders of the
Company's outstanding voting securities immediately prior to such merger
or consolidation own less than 66-2/3% of the outstanding voting
securities of the surviving corporation;
(b) Consummation of any sale, lease, exchange or other transfer
in one transaction or a series of related transactions of all or
substantially all of the Company's assets other than a transfer of the
Company's assets to a majority-owned subsidiary corporation (as the term
"subsidiary corporation" is defined in Section 8.3) of the Company; or
(c) Approval by the holders of the Common Stock of any plan or
proposal for the liquidation or dissolution of the Company.
2.6 DISABILITY
"Disability" has the meaning defined in Section 22(e)(3) of the Code.
2.7 EARLY RETIREMENT
"Early Retirement" means early retirement as that term is defined by the
Plan Administrator from time to time for purposes of the Plan.
2.8 EXCHANGE ACT
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
2.9 FAIR MARKET VALUE
"Fair Market Value" shall be as established in good faith by the Plan
Administrator or (a) if the Common Stock is listed on the Nasdaq National
Market, the closing selling price for the Common Stock as reported by the Nasdaq
National Market for a single trading day or (b) if the Common Stock is listed on
the New York Stock Exchange or the American Stock Exchange, the closing selling
price for the Common Stock as such price is officially quoted in the composite
tape of transactions on such exchange for a single trading day. If there is no
such reported price for the Common Stock for the date in question, then such
price on the last preceding date for which such price exists shall be
determinative of Fair Market Value.
2.10 GRANT DATE
"Grant Date" means the date the Plan Administrator adopted the granting
resolution or a later date designated in a resolution of the Plan Administrator
as the date an Award is to be granted.
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2.11 HOLDER
"Holder" means: (i) the Participant to whom an Award is granted; (ii)
for a Holder who has died, the personal representative of the Holder's estate,
the person(s) to whom the Holder's rights under an Award have passed by will or
by the applicable laws of descent and distribution, or the beneficiary
designated in accordance with Section 10; or (iii) the person(s) to whom an
Award has been transferred in accordance with Section 10.
2.12 INCENTIVE STOCK OPTION
"Incentive Stock Option" means an Option to purchase Common Stock
granted under Section 7 with the intention that it qualify as an "incentive
stock option" as that term is defined in Section 422 of the Code.
2.13 NONQUALIFIED STOCK OPTION
"Nonqualified Stock Option" means an Option to purchase Common Stock
granted under Section 7 other than an Incentive Stock Option.
2.14 OPTION
"Option" means the right to purchase Common Stock granted under Section
7.
2.15 PARTICIPANT
"Participant" means an individual who is a Holder of an Award or, as the
context may require, any employee, director, officer, consultant, agent, advisor
or independent contractor of the Company or a Subsidiary who has been designated
by the Plan Administrator as eligible to participate in the Plan.
2.16 PLAN ADMINISTRATOR
"Plan Administrator" means the Board or any committee of the Board
designated to administer the Plan under Section 3.1.
2.17 RESTRICTED STOCK
"Restricted Stock" means shares of Common Stock granted under Section 9,
the rights of ownership of which are subject to restrictions prescribed by the
Plan Administrator.
2.18 RETIREMENT
"Retirement" means retirement as of the individual's normal retirement
date as that term is defined by the Plan Administrator from time to time for
purposes of the Plan.
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2.19 SECURITIES ACT
"Securities Act" means the Securities Act of 1933, as amended.
2.20 STOCK AWARD
"Stock Award" means an award granted under Section 9.
2.21 SUBSIDIARY
"Subsidiary," except as provided in Section 8.3 in connection with
Incentive Stock Options, means any entity that is directly or indirectly
controlled by the Company or in which the Company has a significant ownership
interest, as determined by the Plan Administrator, and any entity that may
become a direct or indirect parent of the Company.
2.22 SUCCESSOR CORPORATION
"Successor Corporation" has the meaning set forth under Section 11.2.
SECTION 3. ADMINISTRATION
3.1 PLAN ADMINISTRATOR
The Plan shall be administered by the Board or a committee or committees
(which term includes subcommittees) appointed by, and consisting of two or more
members of, the Board. If and so long as the Common Stock is registered under
Section 12(b) or 12(g) of the Exchange Act, the Board shall consider in
selecting the Plan Administrator and the membership of any committee acting as
Plan Administrator, with respect to any persons subject or likely to become
subject to Section 16 of the Exchange Act, the provisions regarding (a) "outside
directors" as contemplated by Section 162(m) of the Code and (b) "nonemployee
directors" as contemplated by Rule 16b-3 under the Exchange Act. The Board may
delegate the responsibility for administering the Plan with respect to
designated classes of eligible Participants to different committees consisting
of two or more members of the Board, subject to such limitations as the Board or
the Plan Administrator deems appropriate. Committee members shall serve for such
term as the Board may determine, subject to removal by the Board at any time.
3.2 ADMINISTRATION AND INTERPRETATION BY THE PLAN ADMINISTRATOR
Except for the terms and conditions explicitly set forth in the Plan,
the Plan Administrator shall have exclusive authority, in its discretion, to
determine all matters relating to Awards under the Plan, including the selection
of individuals to be granted Awards, the type of Awards, the number of shares of
Common Stock subject to an Award, all terms, conditions, restrictions and
limitations, if any, of an Award and the terms of any instrument that evidences
the Award. The Plan Administrator shall also have exclusive authority to
interpret the Plan and may from time to time adopt, and change, rules and
regulations of general application for the Plan's administration. The Plan
Administrator's interpretation of the Plan and its rules and regulations, and
all actions taken and determinations made by the Plan Administrator pursuant to
the Plan, shall be
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conclusive and binding on all parties involved or affected. The Plan
Administrator may delegate administrative duties to such of the Company's
officers as it so determines.
SECTION 4. STOCK SUBJECT TO THE PLAN
4.1 AUTHORIZED NUMBER OF SHARES
Subject to adjustment from time to time as provided in Section 11.1, a
maximum of 1,534,524 shares of Common Stock shall be available for issuance
under the Plan. Shares issued under the Plan shall be drawn from authorized and
unissued shares or shares now held or subsequently acquired by the Company.
4.2 REUSE OF SHARES
Any shares of Common Stock that have been made subject to an Award that
cease to be subject to the Award (other than by reason of exercise or payment of
the Award to the extent it is exercised for or settled in shares) shall again be
available for issuance in connection with future grants of Awards under the
Plan.
SECTION 5. ELIGIBILITY
Awards may be granted under the Plan to those officers, directors and
employees of the Company and its Subsidiaries as the Plan Administrator from
time to time selects. Awards may also be made to consultants, agents, advisors
and independent contractors who provide services to the Company and its
Subsidiaries.
SECTION 6. AWARDS
6.1 FORM AND GRANT OF AWARDS
The Plan Administrator shall have the authority, in its sole discretion,
to determine the type or types of Awards to be made under the Plan. Such Awards
may include, but are not limited to, Incentive Stock Options, Nonqualified Stock
Options and Stock Awards. Awards may be granted singly, in combination or in
tandem so that the settlement or payment of one automatically reduces or cancels
the other. Awards may also be made in combination or in tandem with, in
replacement of, as alternatives to, or as the payment form for, grants or rights
under any other employee or compensation plan of the Company.
6.2 ACQUIRED COMPANY AWARDS
Notwithstanding anything in the Plan to the contrary, the Plan
Administrator may grant Awards under the Plan in substitution for awards issued
under other plans, or assume under the Plan awards issued under other plans, if
the other plans are or were plans of other acquired entities ("Acquired
Entities") (or the parent of the Acquired Entity) and the new Award is
substituted, or the old award is assumed, by reason of a merger, consolidation,
acquisition of property or of stock, reorganization or liquidation (the
"Acquisition Transaction"). In the event that a written agreement pursuant to
which the Acquisition Transaction is completed is approved
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by the Board and said agreement sets forth the terms and conditions of the
substitution for or assumption of outstanding awards of the Acquired Entity,
said terms and conditions shall be deemed to be the action of the Plan
Administrator without any further action by the Plan Administrator, except as
may be required for compliance with Rule 16b-3 under the Exchange Act, and the
persons holding such Awards shall be deemed to be Participants and Holders.
SECTION 7. AWARDS OF OPTIONS
7.1 GRANT OF OPTIONS
The Plan Administrator is authorized under the Plan, in its sole
discretion, to issue Options as Incentive Stock Options or as Nonqualified Stock
Options, which shall be appropriately designated.
7.2 OPTION EXERCISE PRICE
The exercise price for shares purchased under an Option shall be as
determined by the Plan Administrator, but shall not be less than 100% of the
Fair Market Value of the Common Stock on the Grant Date with respect to
Incentive Stock Options and not less than 85% of the Fair Market Value of the
Common Stock on the Grant Date with respect to Nonqualified Stock Options.
7.3 TERM OF OPTIONS
The term of each Option shall be as established by the Plan
Administrator or, if not so established, shall be 10 years from the Grant Date.
7.4 EXERCISE OF OPTIONS
The Plan Administrator shall establish and set forth in each instrument
that evidences an Option the time at which or the installments in which the
Option shall vest and become exercisable, which provisions may be waived or
modified by the Plan Administrator at any time. If not so established in the
instrument evidencing the Option, the Option will vest and become exercisable
according to the following schedule, which may be waived or modified by the Plan
Administrator at any time:
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<TABLE>
<CAPTION>
==========================================================================================
Period of Holder's Continuous Employment with
or Service To the Company or Its Subsidiaries Percent of Total Option
From the Option Grant Date That Is Vested and Exercisable
- ------------------------------------------------------------------------------------------
<S> <C>
After 1 year 25%
- ------------------------------------------------------------------------------------------
After 2 years 50%
- ------------------------------------------------------------------------------------------
After 3 years 75%
- ------------------------------------------------------------------------------------------
After 4 years 100%
==========================================================================================
</TABLE>
To the extent that the right to purchase shares has accrued thereunder,
an Option may be exercised from time to time by written notice to the Company,
in accordance with procedures established by the Plan Administrator, setting
forth the number of shares with respect to which the Option is being exercised
and accompanied by payment in full as described in Section 7.5. The Plan
Administrator may determine at any time that an Option may not be exercised as
to less than 100 shares at any one time (or the lesser number of vested
remaining shares covered by the Option).
7.5 PAYMENT OF EXERCISE PRICE
The exercise price for shares purchased under an Option shall be paid in
full to the Company by delivery of consideration equal to the product of the
Option exercise price and the number of shares purchased. Such consideration
must be paid in cash or by check, or, unless the Plan Administrator in its sole
discretion determines otherwise, either at the time the Option is granted or at
any time before it is exercised, a combination of cash and/or check (if any) and
one or both of the following alternative forms: (a) tendering (either actually
or, if and so long as the Common Stock is registered under Section 12(b) or
12(g) of the Exchange Act, by attestation) Common Stock already owned by the
Holder for at least six months (or any shorter period necessary to avoid a
charge to the Company's earnings for financial reporting purposes) having a Fair
Market Value on the day prior to the exercise date equal to the aggregate Option
exercise price or (b) if and so long as the Common Stock is registered under
Section 12(b) or 12(g) of the Exchange Act, delivery of a properly executed
exercise notice, together with irrevocable instructions, to (i) a brokerage firm
designated by the Company to deliver promptly to the Company the aggregate
amount of sale or loan proceeds to pay the Option exercise price and any
withholding tax obligations that may arise in connection with the exercise and
(ii) the Company to deliver the certificates for such purchased shares directly
to such brokerage firm, all in accordance with the regulations of the Federal
Reserve Board. In addition, to the extent permitted by the Plan Administrator in
its sole discretion, the price for shares purchased under an Option may be paid,
either singly or in combination with one or more of the alternative forms of
payment authorized by this Section 7.5 by (y) a promissory note delivered
pursuant to Section 13 or (z) such other consideration as the Plan Administrator
may permit.
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7.6 POST-TERMINATION EXERCISES
The Plan Administrator shall establish and set forth in each instrument
that evidences an Option whether the Option will continue to be exercisable, and
the terms and conditions of such exercise, if a Holder ceases to be employed by,
or to provide services to, the Company or its Subsidiaries, which provisions may
be waived or modified by the Plan Administrator at any time. If not so
established in the instrument evidencing the Option, the Option will be
exercisable according to the following terms and conditions, which may be waived
or modified by the Plan Administrator at any time.
In case of termination of the Holder's employment or services other than
by reason of death, the Option shall be exercisable, to the extent of the number
of shares purchasable by the Holder at the date of such termination, only (a)
within one year if the termination of the Holder's employment or services is
coincident with Retirement, Early Retirement at the Company's request or
Disability or (b) within thirty days after the date the Holder ceases to be an
employee, director, officer, consultant, agent, advisor or independent
contractor of the Company or a Subsidiary if termination of the Holder's
employment or services is for any reason other than Retirement, Early Retirement
at the Company's request or Disability, but in no event later than the remaining
term of the Option. Any Option exercisable at the time of the Holder's death may
be exercised, to the extent of the number of shares purchasable by the Holder at
the date of the Holder's death, by the personal representative of the Holder's
estate, the person(s) to whom the Holder's rights under the Award have passed by
will or the applicable laws of descent and distribution or the beneficiary
designated pursuant to Section 10 at any time or from time to time within one
year after the date of death, but in no event later than the remaining term of
the Option. Any portion of an Option that is not exercisable on the date of
termination of the Holder's employment or services shall terminate on such date,
unless the Plan Administrator determines otherwise.
A transfer of employment or services between or among the Company and
its Subsidiaries shall not be considered a termination of employment or services
for purposes of this Section 7.6. The effect of a Company-approved leave of
absence on the terms and conditions of an Option shall be determined by the Plan
Administrator, in its sole discretion.
SECTION 8. INCENTIVE STOCK OPTION LIMITATIONS
To the extent required by Section 422 of the Code, Incentive Stock
Options shall be subject to the following additional terms and conditions:
8.1 DOLLAR LIMITATION
To the extent the aggregate Fair Market Value (determined as of the
Grant Date) of Common Stock with respect to which Incentive Stock Options are
exercisable for the first time during any calendar year (under the Plan and all
other stock option plans of the Company) exceeds $100,000, such portion in
excess of $100,000 shall be treated as a Nonqualified Stock Option. In the event
the Participant holds two or more such Options that become exercisable for
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the first time in the same calendar year, such limitation shall be applied on
the basis of the order in which such Options are granted.
8.2 10% SHAREHOLDERS
If a Participant owns more than 10% of the total voting power of all
classes of the Company's stock, then the exercise price per share of an
Incentive Stock Option shall not be less than 110% of the Fair Market Value of
the Common Stock on the Grant Date and the Option term shall not exceed five
years. The determination of 10% ownership shall be made in accordance with
Section 422 of the Code.
8.3 ELIGIBLE EMPLOYEES
Individuals who are not employees of the Company or one of its parent
corporations or subsidiary corporations may not be granted Incentive Stock
Options. For purposes of this Section 8.3, "parent corporation" and "subsidiary
corporation" shall have the meanings attributed to those terms for purposes of
Section 422 of the Code.
8.4 TERM
The term of an Incentive Stock Option shall not exceed 10 years.
8.5 EXERCISABILITY
To qualify for Incentive Stock Option tax treatment, an Option
designated as an Incentive Stock Option must be exercised within three months
after termination of employment for reasons other than death, except that, in
the case of termination of employment due to total disability, such Option must
be exercised within one year after such termination. Employment shall not be
deemed to continue beyond the first 90 days of a leave of absence unless the
Participant's reemployment rights are guaranteed by statute or contract. For
purposes of this Section 8.5, "total disability" shall mean a mental or physical
impairment of the Participant that is expected to result in death or that has
lasted or is expected to last for a continuous period of 12 months or more and
that causes the Participant to be unable, in the opinion of the Company and two
independent physicians, to perform his or her duties for the Company and to be
engaged in any substantial gainful activity. Total disability shall be deemed to
have occurred on the first day after the Company and the two independent
physicians have furnished their opinion of total disability to the Plan
Administrator.
8.6 TAXATION OF INCENTIVE STOCK OPTIONS
In order to obtain certain tax benefits afforded to Incentive Stock
Options under Section 422 of the Code, the Participant must hold the shares
issued upon the exercise of an Incentive Stock Option for two years after the
Grant Date of the Incentive Stock Option and one year from the date of exercise.
A Participant may be subject to the alternative minimum tax at the time of
exercise of an Incentive Stock Option. The Plan Administrator may require a
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Participant to give the Company prompt notice of any disposition of shares
acquired by the exercise of an Incentive Stock Option prior to the expiration of
such holding periods.
8.7 PROMISSORY NOTES
The amount of any promissory note delivered pursuant to Section 13 in
connection with an Incentive Stock Option shall bear interest at a rate
specified by the Plan Administrator but in no case less than the rate required
to avoid imputation of interest (taking into account any exceptions to the
imputed interest rules) for federal income tax purposes.
SECTION 9. STOCK AWARDS
9.1 GRANT OF STOCK AWARDS
The Plan Administrator is authorized to make Awards of Common Stock to
Participants on such terms and conditions and subject to such restrictions, if
any (which may be based on continuous service with the Company or the
achievement of performance goals, as the Plan Administrator shall determine, in
its sole discretion, which terms, conditions and restrictions shall be set forth
in the instrument evidencing the Award. The terms, conditions and restrictions
that the Plan Administrator shall have the power to determine shall include,
without limitation, the manner in which shares subject to Stock Awards are held
during the periods they are subject to restrictions and the circumstances under
which forfeiture of Restricted Stock shall occur by reason of termination of the
Holder's employment or services.
9.2 ISSUANCE OF SHARES
Upon the satisfaction of any terms, conditions and restrictions
prescribed in respect to a Stock Award, or upon the Holder's release from any
terms, conditions and restrictions of a Stock Award, as determined by the Plan
Administrator, the Company shall release, as soon as practicable, to the Holder
or, in the case of the Holder's death, to the personal representative of the
Holder's estate or as the appropriate court directs, the appropriate number of
shares of Common Stock.
9.3 WAIVER OF RESTRICTIONS
Notwithstanding any other provisions of the Plan, the Plan Administrator
may, in its sole discretion, waive the forfeiture period and any other terms,
conditions or restrictions on any Restricted Stock under such circumstances and
subject to such terms and conditions as the Plan Administrator shall deem
appropriate.
SECTION 10. ASSIGNABILITY
No Option, or Stock Award granted under the Plan may be assigned or
transferred by the Holder other than by will or by the applicable laws of
descent and distribution, and, during the Holder's lifetime, such Awards may be
exercised only by the Holder or a permitted assignee or transferee of the Holder
(as provided below). Notwithstanding the foregoing, and to the extent
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permitted by Section 422 of the Code, the Plan Administrator, in its sole
discretion, may permit such assignment, transfer and exercisability and may
permit a Holder of such Awards to designate a beneficiary who may exercise the
Award or receive compensation under the Award after the Holder's death.
SECTION 11. ADJUSTMENTS
11.1 ADJUSTMENT OF SHARES
In the event that, at any time or from time to time, a stock dividend,
stock split, spin-off, combination or exchange of shares, recapitalization,
merger, consolidation, distribution to shareholders other than a normal cash
dividend or other change in the Company's corporate or capital structure results
in (a) the outstanding shares, or any securities exchanged therefor or received
in their place, being exchanged for a different number or class of securities of
the Company or of any other corporation or (b) new, different or additional
securities of the Company or of any other corporation being received by the
holders of shares of Common Stock of the Company, then the Plan Administrator
shall make proportional adjustments in (i) the maximum number and kind of
securities subject to the Plan as set forth in Section 4.1 and (ii) the number
and kind of securities that are subject to any outstanding Award and the per
share price of such securities, without any change in the aggregate price to be
paid therefor. The determination by the Plan Administrator as to the terms of
any of the foregoing adjustments shall be conclusive and binding.
11.2 CORPORATE TRANSACTION
Except as otherwise provided in the instrument that evidences the Award,
in the event of any Corporate Transaction, each Award that is at the time
outstanding shall terminate, but each Participant shall have the right
immediately prior to any such Corporate Transaction to exercise such
Participant's Award to the extent the vesting requirements applicable to such
Award have been satisfied. Such Award shall not so terminate, however, if and to
the extent that such Award is, in connection with the Corporate Transaction,
assumed by the successor corporation or parent thereof (the "Successor
Corporation").
11.3 FURTHER ADJUSTMENT OF AWARDS
Subject to Section 11.2, the Plan Administrator shall have the
discretion, exercisable at any time before a sale, merger, consolidation,
reorganization, liquidation or change in control of the Company, as defined by
the Plan Administrator, to take such further action as it determines to be
necessary or advisable, and fair and equitable to Participants, with respect to
Awards. Such authorized action may include (but shall not be limited to)
establishing, amending or waiving the type, terms, conditions or duration of, or
restrictions on, Awards so as to provide for earlier, later, extended or
additional time for exercise, payment or settlement or lifting restrictions,
differing methods for calculating payments or settlements, alternate forms and
amounts of payments and settlements and other modifications, and the Plan
Administrator may take such actions with respect to all Participants, to certain
categories of Participants or only to individual Participants. The Plan
Administrator may take such action before or after granting Awards to which the
action
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<PAGE> 12
relates and before or after any public announcement with respect to such sale,
merger, consolidation, reorganization, liquidation or change in control that is
the reason for such action.
11.4 LIMITATIONS
The grant of Awards will in no way affect the Company's right to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.
SECTION 12. WITHHOLDING
The Company may require the Holder to pay to the Company the amount of
any withholding taxes that the Company is required to withhold with respect to
the grant, exercise, payment or settlement of any Award. Subject to the Plan and
applicable law and unless the Plan Administrator determines otherwise, the
Holder may satisfy withholding obligations, in whole or in part, by paying cash,
by electing to have the Company withhold shares of Common Stock or by
transferring shares of Common Stock to the Company, in such amounts as are
equivalent to the Fair Market Value of the withholding obligation. The Company
shall have the right to withhold from any Award or any shares of Common Stock
issuable pursuant to an Award or from any cash amounts otherwise due or to
become due from the Company to the Participant an amount equal to such taxes.
The Company may also deduct from any Award any other amounts due from the
Participant to the Company or a Subsidiary.
SECTION 13. LOANS, INSTALLMENT PAYMENTS AND
LOAN GUARANTEES
To assist a Holder (including a Holder who is an officer or a director
of the Company) in acquiring shares of Common Stock pursuant to an Award granted
under the Plan, the Plan Administrator, in its sole discretion, may authorize,
either at the Grant Date or at any time before the acquisition of Common Stock
pursuant to the Award, (a) the extension of a loan to the Holder by the Company,
(b) the payment by the Holder of the purchase price, if any, of the Common Stock
in installments, or (c) the guarantee by the Company of a loan obtained by the
grantee from a third party. The terms of any loans, installment payments or loan
guarantees, including the interest rate and terms of and security for repayment,
will be subject to the Plan Administrator's discretion; provided, however, that
any loan shall be with full recourse. Loans, installment payments and loan
guarantees may be granted with or without security. The maximum credit available
is the purchase price, if any, of the Common Stock acquired, plus the maximum
federal and state income and employment tax liability that may be incurred in
connection with the acquisition.
SECTION 14. AMENDMENT AND TERMINATION OF PLAN
14.1 AMENDMENT OF PLAN
The Plan may be amended only by the Board as it shall deem advisable;
however, to the extent required for compliance with Section 422 of the Code or
any applicable law or regulation,
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<PAGE> 13
approval of the shareholders will be required for any amendment that will (a)
increase the total number of shares as to which Options may be granted under the
Plan or that may be issued as Stock Awards, (b) modify the class of persons
eligible to receive Options, or (c) otherwise require shareholder approval under
any applicable law or regulation.
14.2 TERMINATION OF PLAN
The Board may suspend or terminate the Plan at any time. The Plan will
have no fixed expiration date; provided, however, that no Incentive Stock
Options may be granted more than 10 years after the earlier of the Plan's
adoption by the Board and approval by the shareholders.
14.3 CONSENT OF HOLDER
The amendment or termination of the Plan shall not, without the consent
of the Holder of any Award under the Plan, impair or diminish any rights or
obligations under any Award theretofore granted under the Plan. Any change or
adjustment to an outstanding Incentive Stock Option shall not, without the
consent of the Holder, be made in a manner so as to constitute a "modification"
that would cause such Incentive Stock Option to fail to continue to qualify as
an Incentive Stock Option.
SECTION 15. GENERAL
15.1 AWARD AGREEMENTS
Awards granted under the Plan shall be evidenced by a written agreement
that shall contain such terms, conditions, limitations and restrictions as the
Plan Administrator shall deem advisable and that are not inconsistent with the
Plan.
15.2 CONTINUED EMPLOYMENT OR SERVICES; RIGHTS IN AWARDS
None of the Plan, participation in the Plan as a Participant or any
action of the Plan Administrator taken under the Plan shall be construed as
giving any Participant or employee of the Company any right to be retained in
the employ of the Company or limit the Company's right to terminate the
employment or services of the Participant.
15.3 REGISTRATION
The Company shall be under no obligation to any Participant to register
for offering or resale or to qualify for exemption under the Securities Act, or
to register or qualify under state securities laws, any shares of Common Stock,
security or interest in a security paid or issued under, or created by, the
Plan, or to continue in effect any such registrations or qualifications if made.
The Company may issue certificates for shares with such legends and subject to
such restrictions on transfer and stop-transfer instructions as counsel for the
Company deems necessary or desirable for compliance by the Company with federal
and state securities laws.
Inability of the Company to obtain, from any regulatory body having
jurisdiction, the authority deemed by the Company's counsel to be necessary for
the lawful issuance and sale of
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<PAGE> 14
any shares hereunder or the unavailability of an exemption from registration for
the issuance and sale of any shares hereunder shall relieve the Company of any
liability in respect of the nonissuance or sale of such shares as to which such
requisite authority shall not have been obtained.
As a condition to the exercise of an Option or any other receipt of
Common Stock pursuant to an Award under the Plan, the Company may require the
Participant to represent and warrant at the time of any such exercise or receipt
that such shares are being purchased or received only for the Participant's own
account and without any present intention to sell or distribute such shares if,
in the opinion of counsel for the Company, such a representation is required by
any relevant provision of the aforementioned laws. At the option of the Company,
a stop-transfer order against any such shares may be placed on the official
stock books and records of the Company, and a legend indicating that such shares
may not be pledged, sold or otherwise transferred, unless an opinion of counsel
is provided (concurred in by counsel for the Company) stating that such transfer
is not in violation of any applicable law or regulation, may be stamped on stock
certificates in order to ensure exemption from registration. The Plan
Administrator may also require such other action or agreement by the Participant
as may from time to time be necessary to comply with the federal and state
securities laws.
15.4 NO RIGHTS AS A SHAREHOLDER
No Award shall entitle the Holder to any cash dividend, voting or other
right of a shareholder unless and until the date of issuance under the Plan of
the shares that are the subject of such Award, free of all applicable
restrictions.
15.5 COMPLIANCE WITH LAWS AND REGULATIONS
Notwithstanding anything in the Plan to the contrary, the Board, in its
sole discretion, may bifurcate the Plan so as to restrict, limit or condition
the use of any provision of the Plan to Participants who are officers or
directors subject to Section 16 of the Exchange Act without so restricting,
limiting or conditioning the Plan with respect to other Participants.
Additionally, in interpreting and applying the provisions of the Plan, any
Option granted as an Incentive Stock Option pursuant to the Plan shall, to the
extent permitted by law, be construed as an "incentive stock option" within the
meaning of Section 422 of the Code.
15.6 NO TRUST OR FUND
The Plan is intended to constitute an "unfunded" plan. Nothing contained
herein shall require the Company to segregate any monies or other property, or
shares of Common Stock, or to create any trusts, or to make any special deposits
for any immediate or deferred amounts payable to any Participant, and no
Participant shall have any rights that are greater than those of a general
unsecured creditor of the Company.
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<PAGE> 15
15.7 SEVERABILITY
If any provision of the Plan or any Award is determined to be invalid,
illegal or unenforceable in any jurisdiction, or as to any person, or would
disqualify the Plan or any Award under any law deemed applicable by the Plan
Administrator, such provision shall be construed or deemed amended to conform to
applicable laws, or, if it cannot be so construed or deemed amended without, in
the Plan Administrator's determination, materially altering the intent of the
Plan or the Award, such provision shall be stricken as to such jurisdiction,
person or Award, and the remainder of the Plan and any such Award shall remain
in full force and effect.
SECTION 16. REPURCHASE AND FIRST REFUSAL RIGHTS
16.1 REPURCHASE RIGHTS
The Plan Administrator shall have the discretion to authorize the
issuance of unvested shares of Common Stock pursuant to the exercise of an
Option. Should the Holder cease to be employed by or provide services to the
Company, then all shares of Common Stock issued upon exercise of an Option which
are unvested at the time of cessation of employment or services shall be subject
to repurchase at the exercise price paid for such shares. The terms and
conditions upon which such repurchase right shall be exercisable (including the
period and procedure for exercise) shall be established by the Plan
Administrator and set forth in the agreement evidencing such right.
All of the Company's outstanding repurchase rights under this Section
16.1 are assignable by the Company at any time. Such rights shall automatically
terminate, and all shares subject to such terminated rights shall immediately
vest in full, upon the occurrence of a Corporate Transaction, except to the
extent: (i) any such repurchase right is expressly assigned to the Successor
Corporation in connection with the Corporate Transaction or (ii) such
termination is precluded by other limitations imposed by the Plan Administrator
at the time the repurchase right is issued.
The Plan Administrator shall have the discretionary authority,
exercisable either before or after the Holder's cessation of employment or
service, to cancel the Company's outstanding repurchase rights with respect to
one or more shares purchased or purchasable by the Holder under an Option and
thereby accelerate the vesting of such shares in whole or in part at any time.
16.2 FIRST REFUSAL RIGHTS
Until the date on which the initial registration of the Common Stock
under Section 12(b) or 12(g) of the Exchange Act first becomes effective, the
Company shall have the right of first refusal with respect to any proposed sale
or other disposition by the Holder of any shares of Common Stock issued pursuant
to an Award granted under the Plan. Such right of first refusal shall be
exercisable in accordance with the terms and conditions established by the Plan
Administrator and set forth in the agreement evidencing such right.
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<PAGE> 16
SECTION 17. MARKET STANDOFF
In connection with any underwritten public offering by the Company of
its equity securities pursuant to an effective registration statement filed
under the Securities Act, including the Company's initial public offering, a
Participant shall not sell, make any short sale of, loan, hypothecate, pledge,
grant any option for the purchase of, or otherwise dispose or transfer for value
or otherwise agree to engage in any of the foregoing transactions with respect
to, any shares issued pursuant to an Award granted under the Plan without the
prior written consent of the Company or its underwriters. Such limitations shall
be in effect for such period of time as may be requested by the Company or such
underwriters and agreed to by the Company's officers and directors with respect
to their shares; provided, however, that in no event shall such period exceed
180 days. The limitations of this paragraph shall in all events terminate two
years after the effective date of the Company's initial public offering.
Participants shall be subject to the market standoff provisions of this
paragraph only if the officers and directors of the Company are also subject to
similar arrangements.
In the event of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
Company's outstanding Common Stock effected as a class without the Company's
receipt of consideration, then any new, substituted or additional securities
distributed with respect to the purchased shares shall be immediately subject to
the provisions of this Section 17, to the same extent the purchased shares are
at such time covered by such provisions.
In order to enforce the limitations of this Section 17, the Company may
impose stop-transfer instructions with respect to the purchased shares until the
end of the applicable standoff period.
SECTION 18. EFFECTIVE DATE
The Plan's effective date is the date on which it is adopted by the
Board, so long as it is approved by the Company's shareholders at any time
within 12 months of such adoption or, if earlier, and to the extent required for
compliance with Rule 16b-3 under the Exchange Act, at the next annual meeting of
the Company's shareholders after adoption of the Plan by the Board.
Adopted by the Board on December 5, 1997, and approved by the Company's
shareholders on December 5, 1997.
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<PAGE> 1
EXHIBIT 10.4
================================================================================
LEASE
THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA, A NEW JERSEY CORPORATION
AND
WEBTRENDS CORPORATION,
AN OREGON CORPORATION
DATED NOVEMBER 20, 1998
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Term..................................................................... 1
2. Letter of Credit......................................................... 3
3. Rent..................................................................... 4
4. Use...................................................................... 8
5. Assignment and Subletting................................................ 8
6. Alterations.............................................................. 10
7. Repairs, Surrender of Premises........................................... 10
8. Indemnification.......................................................... 11
9. Insurance................................................................ 11
10. Waiver of Subrogation.................................................... 12
11. Liability for Injury or Damage........................................... 12
12. Damage to Premises....................................................... 12
13. Eminent Domain........................................................... 13
14. Admittance by Pass-Key................................................... 13
15. Exhibition and Inspection of Premises.................................... 13
16. Abandonment.............................................................. 13
17. Signs.................................................................... 13
18. Electrical and Mechanical Devices and Installations...................... 14
19. Windows.................................................................. 14
20. Floor Coverings.......................................................... 14
21. Services................................................................. 14
22. Attorneys' Fees.......................................................... 16
23. Default.................................................................. 17
24. Lessor's Remedies........................................................ 17
25. Lessor's Right to Perform................................................ 19
26. Lessor's Default......................................................... 19
27. Cumulation of Remedies - No Waiver....................................... 19
28. Light and Air............................................................ 19
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
29. Repair................................................................... 19
30. Holding Over............................................................. 20
31. Liens.................................................................... 20
32. Furniture and Bulky Items................................................ 20
33. Regulations.............................................................. 21
34. Preparation for Occupancy................................................ 21
35. Acceptance of Premises................................................... 21
36. Possession............................................................... 21
37. Parking.................................................................. 21
38. Subordination and Attornment; Notice to Lenders.......................... 22
39. Estoppel Certificate..................................................... 22
40. Article Headings......................................................... 22
41. Notice................................................................... 22
42. Parties Affected......................................................... 23
43. Authority................................................................ 23
44. Building Planning........................................................ 23
45. Lessor's Exculpation..................................................... 23
46. Consents................................................................. 23
47. Brokers.................................................................. 23
48. Discontinuance of Services............................................... 23
49. No Interference.......................................................... 24
50. Building Name............................................................ 24
51. Recording................................................................ 24
52. Time..................................................................... 24
53. First Right of Opportunity............................................... 24
54. Entire Agreement......................................................... 25
</TABLE>
ii
<PAGE> 4
BASIC LEASE INFORMATION
DATE: November 20, 1998
LESSOR: THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA, a New Jersey corporation
MANAGING AGENT: VOIT MANAGEMENT COMPANY, L.P.
LESSEE: WEBTRENDS Corporation,
an Oregon corporation
BUILDING: PACIFIC FIRST CENTER
851 S.W. 6th Avenue
Portland, Oregon 97204
<TABLE>
<CAPTION>
===============================================================================================
Lease References
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
PREMISES: Suite(s) 650, 700 and 1200, on floors 6, 7 Preamble
and 12 as shown on Exhibit A hereto
Net Rentable Square Footage:
Approximately 36,956 rsf
- -----------------------------------------------------------------------------------------------
TERM: Five (5) years Paragraph 1
- -----------------------------------------------------------------------------------------------
ESTIMATED Paragraph 1
COMMENCEMENT Suites 650, 1200 - January 15, 1999
DATE: Suite 700 - July 1, 1999
- -----------------------------------------------------------------------------------------------
EXPIRATION
DATE: January 31, 2004 Paragraph 1
- -----------------------------------------------------------------------------------------------
PARTIAL
CONSIDERATION: $225,000 (Letter of Credit) Paragraph 2
- -----------------------------------------------------------------------------------------------
</TABLE>
1
<PAGE> 5
<TABLE>
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
BASE RENT: $57,466.58/mo. for months 1 through 30* Paragraph 3
$61,316.16/mo. for months 30 through
expiration
*For the period from commencement (month 1)
until Seventh Floor Commencement Date, the
Base Rent rate shall be at a rate of
$34,208.45/month.
- -----------------------------------------------------------------------------------------------
BASE YEAR: 1999 Paragraph 3
- -----------------------------------------------------------------------------------------------
LESSEE'S 9,66% until seventh floor commencement Paragraph 3
PERCENTAGE 16.22% thereafter
SHARE:
- -----------------------------------------------------------------------------------------------
PARKING One per 3,500 full rentable square feet of Paragraph 37
FACILITIES/ the Premises, calculated based on the area
NUMBER OF of the Premises for which this Lease has
AUTOMOBILES: commenced (and as otherwise provided in
Paragraph 37)
- -----------------------------------------------------------------------------------------------
BROKERS: Lessor: CB Richard Ellis
Casey Davidson and Charles Fettig
1300 SW 5th Avenue, #2600
Portland, OR 97201-5609
Lessee: Hume Myers Tenant Counsel
Gregory R. Hume
15455 Hallmark Drive
Lake Oswego, OR 97035
- -----------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE> 6
<TABLE>
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
ADDRESS FOR NOTICES: Lessor: c/o Voit Management Company, LP
851 SW 6th Avenue, Suite 450
Portland, OR 97204
Attn: Ron Brenner
Lessee: Until Commencement Date:
621 SW Morrison, Suite 1300
Portland OR 97205
Attn: James T. Richardson
Vice President & CFO
After Commencement Date:
851 SW Sixth Avenue
Portland, Oregon 97204
Attn: Chief Financial Officer
- -----------------------------------------------------------------------------------------------
INITIALS: _________________ _________________
Lessor Lessee
===============================================================================================
</TABLE>
<PAGE> 7
LEASE
THIS LEASE, made and entered into in the City of Portland, State of
Oregon, this 20th day of November, 1998, by and between THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA, a New Jersey corporation, through its managing agent, VOIT
MANAGEMENT COMPANY, L.P. (hereinafter referred to as "Lessor") and WEBTRENDS
CORPORATION, an Oregon corporation (hereinafter referred to as "Lessee"):
WITNESSETH:
In consideration of the mutual covenants herein contained, Lessor hereby
leases to Lessee and Lessee hereby leases from Lessor, for the term hereinafter
specified, that certain space described in the Basic Lease Information
hereinafter referred to as the "Demised Premises" and as attached as Exhibit "A"
hereto, located on the real property described in the legal description attached
as Exhibit "B" hereto, together with a nonexclusive right of ingress and egress
over the Common Areas of the building in which the Demised Premises is located,
the Pacific First Center ("Building"). The Common Areas shall mean the areas and
facilities within the Building designated by Lessor for the general use,
convenience or benefit of Lessee and other occupants of the Building. Lessor
reserves the right to modify the Common Areas from time to time. There are no
Common Areas on the 7th and 12th floors.
1. Term.
(A) The term of this Lease shall commence for Suites 650 and 1200 on
the Estimated Commencement Date for Suites 650 and 1200 as set forth in the
Basic Lease Information or, if earlier, the date Lessee takes occupancy of
Suites 650 and 1200 ("Commencement Date"). The term of this Lease shall commence
for Suite 700 on the Estimated Commencement Date for Suite 700 as set forth in
the Basic Lease Information or, if earlier, the date Lessee takes occupancy of
Suite 700 ("Seventh Floor Commencement Date"). If Lessor, for any reason
whatsoever, cannot deliver the applicable area of the Demised Premises to Lessee
by the applicable Estimated Commencement Date, this Lease shall not be void or
voidable, nor shall Lessor be liable to Lessee for any loss or damage resulting
therefrom, but in that event rent shall be waived for the applicable area for
the period between the applicable Estimated Commencement Date and the time
Lessor delivers the applicable area of the Demised Premises to Lessee, provided
that to the extent Lessor's delay in delivering the applicable area of the
Demised Premises results from any action described in paragraph 4 of the work
letter attached as Exhibit C hereto, the Commencement Date for that floor will
be accelerated by the number of days of such delay. At Lessee's request, Lessor
shall keep Lessee informed of the projected date of delivery of each floor as
the work progresses. If the sixth or twelfth floor work is falling behind
schedule, so that their delivery date will otherwise be after January 31, 1999,
Lessee may request that Lessor have Lessor's contractors work overtime in order
to get the work completed by January 31, 1999. In such case Lessor shall use all
reasonable efforts to have such overtime work performed.
1
<PAGE> 8
The extra cost of such overtime work shall be paid by Lessee as additional rent
upon billing by Lessor. No delay in delivery of the Demised Premises shall
operate to extend the term hereof. The term of this Lease shall end on the
Expiration Date, unless sooner terminated pursuant to any of the provisions of
this Lease.
(B) Option to Extend.
(i) Lessee shall have the option to extend the term of this Lease
for a period of five (5) years (the "Extension Term"), on the terms and
conditions contained herein, except for Base Rent, which shall be determined as
hereinafter provided. Other than as set forth herein, Lessee shall have no
further option to extend this Lease. The extension option under this Clause (B)
may be exercised only by the named Lessee or its Corporate Successor and is not
assignable to any other assignee or sublessee of the named Lessee.
(ii) Exercise of such extension option shall be by written notice
given to Lessor at least one hundred eighty (180) and not more than three
hundred sixty (360) days prior to the last day of the original Term. During the
Extension Term, Base Rent shall be adjusted to equal the prevailing fair market
rental value of the Premises (the "Fair Market Rental Value"), determined as
hereinafter provided, provided that in no event shall Base Rent for the
Extension Term be less than that in effect at the end of the initial Term. Fair
Market Rental Value may include step increases in rental.
(iii) After the exercise of the option to extend by Lessee and at
least 120 days prior to the commencement of the extension term, Lessor shall
notify Lessee of Lessor's determination of the Fair Market Rental Value. Within
fifteen (15) days after the date of such notice, Lessee shall either: (i) notify
Lessor of Lessee's acceptance of Lessor's determination of the Fair Market
Rental Value, in which event Base Rent for the extension term shall be as so
determined by Lessor; or (ii) notify Lessor of Lessee's rejection of Lessor's
determination of the Fair Market Rental Value, which notice shall include
Lessee's determination of Fair Market Rental Value. If Lessee rejects Lessor's
determination, and if the parties cannot agree upon the Fair Market Rental Value
within fifteen (15) days after Lessee's notice, the Fair Market Rental Value
shall be determined as provided below. In such event, within thirty (30) days
after Lessee's timely rejection of Lessor's determination of the Fair Market
Rental Value, each party shall designate a representative who is either a
licensed MAI appraiser skilled in determining rental rates for office space in
the Portland, Oregon metropolitan area, or a real estate broker experienced in
leasing office space in the Portland, Oregon metropolitan area. The two (2)
representatives so chosen shall select an arbitrator having the above
qualifications or, if they cannot agree, the presiding judge of the Circuit
Court of Multnomah County, Oregon shall, upon application by either party,
select an arbitrator having the above qualifications. At least thirty (30) days
prior to the commencement of the extension term, each party's representative
shall submit to the arbitrator a written report stating such representative's
opinion of the Fair Market Rental Value, based on a consideration of rental
rates then being charged (under the most recently executed leases) for
equivalent office space in the Portland, Oregon metropolitan area
2
<PAGE> 9
comparable to the Premises. Comparability shall be based on such factors as
location, parking, building quality, age, performance of mechanical systems,
maintenance, history, efficiency, prestige, provision or nonprovision of tenant
improvements, and the level of services provided to tenants. Within thirty (30)
days after receipt of such reports, the arbitrator shall accept one or the other
of the reports. The arbitrator shall have no right to propose a middle ground or
any modification of either of the two reports. The determination of the Fair
Market Rental Value in the report so accepted shall be final and binding on the
parties, provided that in no event shall Base Rent for the Extension Term be
less than that in effect at the end of the previous term. The cost of the
arbitration of the Fair Market Rental Value pursuant to this paragraph shall be
paid by the other party whose report was not accepted by the arbitrator. The
parties agree to maintain all information produced in the arbitration, and the
judgment reached in the arbitration, strictly confidential.
(iv) If the arbitrator does not decide the amount of the Fair
Market Rental Value prior to commencement of the extension term, Base Rent shall
be payable based on Lessor's determination of Fair Market Rental Value, and
retroactive adjustment shall be made when the arbitrator reaches a decision. In
the event of a final determination in Lessee's favor, Lessor shall refund
Lessee, with twelve percent (12%) interest, the amount of any such overpayment.
(v) Lessee's rights under this clause (B) shall terminate (i) if
this Lease or Lessee's right to possession of the Demised Premises is
terminated, (ii) if Lessee is in default of this Lease on the date of exercise
of the option, or (iii) if Lessee fails to timely exercise its option under this
Article, time being of the essence with respect to Lessee's exercise thereof.
2. Letter of Credit. As partial consideration for the execution of this
Lease, the Lessee shall, at the time of delivery of this Lease, deliver to
Lessor an original Irrevocable Standby Letter of Credit in the amount of
$225,000 (the "Letter of Credit"), issued by a national bank with offices in
Portland, Oregon, and in form acceptable to Lessor. The Letter of Credit shall
have a term of at least four years from January 15, 1999, or, if issued for a
shorter term, shall be renewed by Lessee continuously so that the term, with
renewals, is at least four years. If issued on a renewal basis, the Letter of
Credit and each renewal thereof shall provide for not less than 30 days advance
written notice of nonrenewal by the issuer to Lessor. The Letter of Credit shall
provide in substance that, upon presentation of a site draft signed by Lessor
stating that an Event of Default of Lessee has occurred under this Lease, the
issuer shall pay to Lessor the full amount of the Letter of Credit. If the
Letter of Credit is issued on a renewal basis, the Letter of Credit also shall
permit Lessor to draw the full amount thereof if Lessor has not received a
renewal Letter of Credit within 15 days prior to its expiry. Lessor may apply
the amount so paid toward any damages arising from Lessee's default, and may
retain any remaining payment from the issuer, which remaining payment shall be
credited toward the payment of base rent for the last month(s) of this Lease
until the credit is exhausted. In no event shall Lessor be required to keep
these sums separate from its general accounts, nor shall Lessor be required to
pay or accrue interest thereon. Lessor's
3
<PAGE> 10
drawing upon the Letter of Credit shall not act to cure any Lessee default and
shall be without prejudice to Lessor's other rights and remedies regarding such
default. So long as no Event of Default has occurred, Lessor shall return the
Letter of Credit to Lessee upon the earlier of (i) the fourth anniversary of the
Commencement Date or (ii) upon Lessee's presentation to Lessor of a certified
financial statement, prepared by a certified public accountant from one of the
five largest US accountancy firms, as being true and correct and prepared in
accordance with generally accepted accounting principals, and establishing
Lessee's net worth as at least $10,000,000.
3. Rent. Lessee covenants and agrees to pay to Lessor's Managing Agent,
at its office, or such other place or party as may be designated in writing by
Lessor, as rent for the Demised Premises, the following sums:
(A) Base Rent. Lessee shall pay the Base Rent shown in the Basic
Lease Information, in advance on the first day of each calendar month during the
term hereof. Rent for a part of the month shall be prorated in proportion to the
number of days of the month included in the term of this Lease.
(B) Additional Rent. The rental payable during each calendar year
subsequent to the Base Year shall be increased by an amount equal to Lessee's
Percentage Share of the total dollar increase, if any, of Operating Expenses
paid or incurred by Lessor in such year over the Operating Expenses paid or
incurred by Lessor in the Base Year, and also increased by an amount equal to
Lessee's Percentage Share of the total dollar increase, if any, in Property
Taxes paid by Lessor in such year over the Property Taxes paid or incurred by
Lessor in the Base Year. "Operating Expenses" shall mean those costs incurred
during any calendar year as operating costs of the Building (as located on
Exhibit B), including, but not limited to, all costs of management, operation
and maintenance and repair of the Building, insurance (including deductibles),
cost of capital improvements made to the Building after the date of the
execution hereof that reduce other Operating Expenses, improve security and life
safety systems, or that are required under any government law or regulation that
was not applicable at the time the Building was constructed or that are
reasonably required for the health and safety of tenants in the Building, such
cost to be amortized over such reasonable period as determined at Lessor's sole
discretion, together with interest on the unamortized balance at the rate of 10
percent per annum. If Lessor elects to self insure or includes the Building
under blanket insurance policies covering multiple properties, then Operating
Expenses shall include the portion of the cost of such self insurance for
blanket insurance allocated by Lessor to the Building, but not in excess of
commercially reasonable rates for such coverage. If less than 90 percent of the
rentable area of the Building is occupied, Operating Expenses shall be adjusted
to equal Lessor's reasonable estimate of Operating Expenses as if 90 percent of
the total rentable area of the Building were occupied. The term "Property Taxes"
shall mean any ordinary or extraordinary form of assessment of special
assessment, license fee, rent tax, levy, penalty (if a result of Lessee's
delinquency), or tax, other than net income, premium, estate, succession,
inheritance, transfer or franchise taxes, imposed by any authority having the
direct or indirect power to tax, or by any city, county,
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state or federal government for any maintenance or improvement or other district
or division thereof, as well as any costs incurred in obtaining a reduction of
any Property Taxes. The term shall include all transit charges, housing fund
assessments, real estate taxes and all other taxes relating to the Demised
Premises, Building (including parking areas) and underlying land, all other
taxes which may be levied in lieu of real estate taxes, all assessments,
assessment bonds, levies, fees, and other governmental charges (including, but
not limited to, charges for traffic facilities, improvements, child care, water
services studies and improvements, and fire services studies and improvements)
for amounts necessary to be expended because of governmental orders, whether
general or special, ordinary or extraordinary, unforeseen as well as foreseen,
of any kind and nature for public improvements, services, benefits or any other
purposes which are assessed, levied, confirmed, imposed or become a lien upon
the Premises, Building or land or become payable during the term of this Lease.
(C) The term "Operating Expenses", as used herein, shall not include
the following:
(i) Any ground lease rental and any costs associated with the
parking garage;
(ii) Costs of capital improvements and capital equipment except
as expressly provided in Section (B) above;
(iii) Rentals for items (except when needed in connection with
normal repairs and maintenance of permanent systems) which if purchased, rather
than rented, would constitute a capital improvement which is specifically
excluded in Subsection (ii) above (excluding, however, equipment not affixed to
the Premises which is used in providing janitorial, security, or similar
services);
(iv) Depreciation, amortization and interest payments, except as
provided herein and except on materials, tools, supplies and vendor-type
equipment purchased by Lessor to enable Lessor to supply services Lessor might
otherwise contract for with a third party where such depreciation, amortization
and interest payments would otherwise have been included in the charge for such
third party's services, all as determined in accordance with GAAP, and when
depreciation or amortization is permitted or required, the item shall be
amortized over its reasonably anticipated useful life;
(v) Marketing costs including leasing commissions, attorneys'
fees in connection with the negotiation and preparation of letters, deal memos,
letters of intent, leases, subleases and/or assignments, space planning costs,
and other costs and expenses incurred in connection with lease, sublease and/or
assignment negotiations and transactions with present or prospective tenants or
other occupants of the Premises;
(vi) Overhead and profit increment paid to Lessor or to
subsidiaries or affiliates of Lessor for goods and/or services provided to or
for the Premises to the extent
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the same exceeds the costs of such goods and/or services rendered by
unaffiliated third parties on a market basis;
(vii) Interest, principal, points and fees on debts or
amortization on any mortgage or mortgages or any other debt instrument
encumbering the Premises;
(viii) Advertising and promotional expenditures excluding
directory boards, the signage for the Premises and directional signs and
graphics which include the Premises name;
(ix) Tax penalties incurred as a result of Lessor's negligence,
inability or unwillingness to make payments and/or to file any income tax or
information returns when due;
(x) Costs arising from Lessor's charitable or political
contributions;
(xi) Costs for sculpture, paintings or other subjects of art; and
(xii) Costs (including in connection therewith all attorneys'
fees and costs of settlement, judgments and payments in lieu thereof) arising
from litigation or arbitration pertaining to the Lessor and/or the Premises,
excluding costs incurred by Lessor in any action related to (i) the use,
management, or operation of the Building or (ii) attempts to reduce or recoup
Operating Expenses or Property Taxes, or (iii) challenges to governmentally
mandated improvements to the Building.
(D) Adjustment of Rent. The adjustment of additional rent shall be
made as follows: During each December, or as soon thereafter as practicable,
Lessor shall give Lessee written notice of its estimates of amounts payable
under Paragraph (B) above for the following calendar year. On or before the
first day of each month during the ensuing calendar year, Lessee shall pay to
Lessor 1/12 of such estimated amounts, provided that if such notice is not given
in December, Lessee shall continue to pay on the basis of the prior year's
estimate, until the month after such notice is given. If at any time or times it
appears to Lessor that the amounts payable as additional rent for the current
calendar year will vary from its estimate by more than 10 percent, Lessor may,
by written notice to Lessee, revise its estimate for such year, and subsequent
payments by Lessee for such year shall be based upon such revised estimate.
Within 90 days after the close of each calendar year or as soon after such 90
day period as practicable Lessor shall deliver to Lessee a statement of amounts
payable as additional rent for such calendar year certified by accountants
designated by Lessor, and such certified statement shall be final and binding
upon Lessor and Lessee. If such statement shows an amount owing by Lessee that
is less than the estimated payments for such calendar year previously made by
Lessee, it shall be accompanied by a refund of the excess from Lessor to Lessee.
If such statement shows an amount owing by Lessee that is more than the
estimated payments for such calendar year previously made by Lessee, Lessee
shall pay the deficiency to Lessor within 30 days after delivery of the
statement. If, for any reason other than the default of Lessee, this Lease shall
terminate on a day other than the last
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day of a calendar year, the amount of increase, if any, in rental payable by
Lessee applicable to a calendar year in which such termination shall occur shall
be prorated on the basis with which the number of days from the commencement of
such calendar year to and including such termination date bears to 365.
(E) Audit and Arbitration. Lessee may, not more than once each year,
audit Lessor's annual statement with a certified public accountant who is
working on an hourly basis. Lessor shall make available to Lessee at Lessor's
place of business in the Portland Metropolitan area Lessor's books and records
applicable to the annual statement at issue. Lessor's annual statement of
additional rent shall be final and binding unless Lessee, within 90 days after
receipt of the statement, notifies Lessor of its objection to the statement,
accompanied by a detailed audit with a statement of Lessee's objection and the
amount Lessee believes to be the correct adjustment of additional rent. If the
parties do not resolve the dispute among themselves within 30 days after
Lessee's notice, either party may initiate arbitration under the rules of the
Arbitration Services of Portland, or such other procedures as shall be mutually
agreed upon between Lessor and Lessee. Such arbitration shall be the exclusive
means of resolving such disputes. The arbitration shall take place with a single
arbitrator selected through the arbitration service. The arbitrator may award
attorney's fees and arbitration costs. The parties agree to maintain all
information regarding additional rent, all information produced in the
arbitration, and the judgment reached in the arbitration, strictly confidential.
Pending the final determination of any dispute, Lessee shall pay the amount(s)
claimed by Lessor. In the event of a final determination in Lessee's favor,
Lessor shall refund Lessee, with twelve percent (12%) interest, the amount of
any such overpayment. If Lessee's audit, as upheld through arbitration if
applicable, establishes that Lessor's annual statement of additional rent
exceeded actual additional rent payable by a factor of three percent (3%) or
more, Lessor shall pay the reasonable cost of Lessee's audit.
(F) Late Charges. Rental shall be paid without deduction or offset.
In the event Lessee should fail to pay any installment of rent or any other sum
due Lessor hereunder within ten (10) days after notice that such amount is due
(if notice is required under Section 23), Lessee agrees to pay to Lessor as
additional rent a late charge equal to five percent (5%) of each such
installment, Lessee acknowledges that late payment by Lessee to Lessor of any
payments due hereunder will cause Lessor to incur costs not contemplated by this
Lease, the exact amount of which will be extremely difficult to ascertain,
including, without limitation, costs of processing and accounting charges and
other charges which may be imposed on Lessor under the terms of any mortgage.
The parties agree that the foregoing late charge represents a fair and
reasonable estimate of such costs incurred by Lessor by reason of late payment
by Lessee. Acceptance of any late charge by Lessor shall not constitute a waiver
of Lessee's default, nor prevent Lessor from exercising any of its other rights
or remedies hereunder.
(G) Interest. In addition to any late charge, in the event Lessee
should fail to pay any rent or any other sum due Lessor hereunder within 10 days
after such payment is
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due, the same shall bear interest from the date due until the date paid at a
rate equal to twelve percent (12%) per annum, or, if less, the maximum rate of
interest allowed by law.
4. Use. Lessee will use and occupy the Demised Premises for office use
and for no other purpose. Lessee will not use or permit in the Demised Premises
anything that will increase the rate of fire insurance thereon or prevent
Lessor's taking advantage of any ruling of the Oregon Insurance Examining Bureau
or its successors which would allow Lessor to obtain reduced rates for long-term
insurance policies, or maintain anything that may be dangerous to life or limb,
or in any manner deface, injure or commit waste in, on or about said building or
any portion thereof, or overload the floors, or permit any objectionable noise
or odor to escape or to be emitted from said premises, or permit anything to be
done upon the Demised Premises in any way tending to create a nuisance or to
disturb any other tenants of the Building, or to injury the reputation of the
Building or to use or permit the use of the Demised Premises for lodging or
sleeping purposes, or for any immoral or illegal purposes. Lessee will comply,
at Lessee's own cost and expense, with all orders, notices, regulations or
requirements of any municipality, state or other governmental authority
respecting the use of the Demised Premises. Lessee shall not generate, release,
store or deposit on the Demised Premises any environmentally hazardous or toxic
substances, materials, wastes, pollutants, oils or contaminants, as defined by
any federal, state or local law or regulation (collectively, "Hazardous
Substances"). The foregoing sentence shall not apply to normal office cleaning
fluids and office supplies, so long as the same are maintained in sealed
receptacles in amounts reasonably necessary for the conduct of Lessee's
business, and are used in accordance with applicable law, Lessee shall
indemnify, defend, and hold Lessor and Lessor's agents, employees and
contractors harmless from any and all claims, losses (including, but not limited
to loss of rental income and loss due to business interruption), damages,
liabilities, costs, legal fees and expenses of any nature arising out of or
relating to any generation, release, storage or deposit of Hazardous Substances
by Lessee or any of Lessee's agents, contractors or invitees. The provisions of
this paragraph shall survive any expiration or termination of this Lease.
5. Assignment and Subletting.
(A) Lessee will not, except as set forth herein, assign, transfer, or
hypothecate this Lease or any interest hereunder and will not permit any
assignment hereof by operation of law and will not subrent or sublet the Demised
Premises or any portion thereof, and will not permit the use or occupancy of the
Demised Premises by other than Lessee and agents and employees of Lessee without
the prior written consent of Lessor, which consent shall not be unreasonably
withheld or delayed. A transfer of stock control in Lessee, if Lessee is a
corporation, or the transfer of any partnership or membership interest in
Lessee, if Lessee is a partnership or limited liability company, shall be deemed
an act of assignment hereunder. Any assignment requiring Lessor's consent and
made without the consent of Lessor is void and Lessor at its option may
terminate this Lease. Any consent by Lessor to an assignment, transfer or
subletting of this Lease, or any assignment, transfer or subletting made without
such consent, shall not release Lessee from its primary liability or
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obligations hereunder, whether or not then accrued, and shall not be construed
as a consent to any future assignment, transfer or subletting.
(B) Lessee shall have the right to sublease up to 50% of the area of
the Premises without Lessor's consent for office use, so long as the subtenant's
use and image is consistent with a first class office building. In addition, no
Lessor consent shall be required for an assignment to any subsidiary, affiliate
or related company controlled by, controlling, or under common control with
Lessee (a "Corporate Successor"). "Control" means the power to appoint a
majority of the board of directors or other governing body of the entity. In the
case of assignment, Lessee shall notify Lessor of how control is shared in a
manner qualifying the assignment under this clause (B).
(C) If Lessee desires to sublet or assign all or any part of the
Demised Premises (including pursuant to Clause (B)), Lessee shall give Lessor
notice, at least 30 days prior to the proposed assignment or subletting, setting
forth the name and address of the proposed assignee or subtenant, the terms of
the proposed assignment or subletting the space proposed to be assigned or
sublet, and (for assignments or sublets requiring Lessor's consent) such
financial information, including without limitation audited financial
statements, as Lessor may request concerning the proposed assignee or subtenant.
When consent is required, Lessor may impose such conditions on its consent as
Lessor deems appropriate, including without limitation that 50% of any sums
received by Lessee which exceed the total sums which Lessee is obligated to pay
Lessor under this Lease shall be payable to Lessor as additional rental under
this Lease without affecting or reducing any other obligation of Lessee
hereunder. Whether or not Lessor's consent is required, the assignee or
sublessee shall have no right of possession until Lessor has been delivered an
executed copy of the assignment or sublease; the assignee or sublessee shall
have no further right to assign or sublet, except in accordance with this
Section 5; and Lessee shall further indemnify and hold Lessor harmless from any
costs, obligations or liabilities (including reasonable attorneys' fees) arising
from any act or negligence of such assignee or subtenant, or any employee, agent
or invitee thereof and from any claim, action or proceeding arising therefrom.
(D) For assignments, sublets, or other transfers requiring Lessor's
consent, in lieu of consenting or not consenting Lessor may, at its option,
(i) in the event of a proposed assignment or subletting of
Lessee's entire leasehold interest, terminate Lessee's lease in its entirety or
(ii) terminate Lessee's lease as to that portion of the Demised
Premises which Lessee has proposed to assign or sublet.
In the event Lessor elects to terminate this Lease pursuant to clause (2) above,
Lessee's rent shall be reduced in the same proportion that the rentable area of
the portion of the Demised Premises taken by the proposed assignee or subtenant
bears to the total rentable area of the Demised Premises.
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(E) Lessee shall pay on demand reasonable attorneys' fees incurred by
Lessor, up to $1000 in connection with Lessor's review of any request for
assignment or subletting and preparation of documents in connection with such
request for consent, whether or not consent is granted.
6. Alterations.
(A) Lessee will make no alterations improvements, or additions, nor
any installments of fixtures, in, to, or at the Demised Premises ("Alterations")
without obtaining the prior written consent of Lessor. Lessor may impose
conditions on its consent, including, without limitation, compliance with the
conditions set forth in clauses (5)(a) through (h) of the attached work letter.
Such conditions shall be reasonable, except that, to the extent the Alteration
affects the Building systems or structures or the exterior appearance of the
Building, Lessor may condition or withhold its consent in its sole and absolute
discretion. Lessor may require that Lessee use a space planner, engineer and/or
contractor selected by Lessor for any Alterations. All Alterations, including
all improvements and fixtures installed in connection therewith (except the
movable furniture and trade fixtures of Lessee) made or added either by Lessee
or Lessor shall be and remain the property of Lessor immediately upon their
installation.
(B) At the termination of this Lease, Lessee will not be required to
restore the Premises to its original condition, or to remove any building
standard improvements, except that Lessee may be required to restore damage to
the Premises caused by Lessee's use or moving in or out of the Premises or any
other wear and tear beyond normal wear and tear. If during the term of the Lease
Lessor conditions its approval of any Alterations upon a requirement that Lessee
remove the Alteration at termination of the Lease, with such condition stated in
writing at the time of approval, Lessor may require that Lessee, at Lessee's
expense, to remove such Alterations upon termination of the Lease and return
that portion of the Premises to its prior condition. Lessee shall repair any
damage caused by removal of Alterations.
7. Repairs, Surrender of Premises. Lessee shall at all times take good
care of the Demised Premises. Subject to Lessee's repair and maintenance
obligations, Lessor shall maintain the areas of the Building (other than the
Premises), its systems and all of the Common Area in good condition and working
order. Lessee agrees to promptly repair at Lessee's expense:
(A) all injury to the Demised Premises, or to the Building, caused by
moving the property of Lessee into, in, or out of the Building or the Demised
Premises; or
(B) all breakage or damage to the Demised Premises or the Building
caused by Lessee or the agent, servants or employees of Lessee.
Lessee shall return the Demised Premises to Lessor at the expiration or earlier
termination of this Lease in good condition, subject to ordinary wear and tear.
Upon expiration or any
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earlier termination of this Lease, at Lessor's request, Lessee shall remove at
Lessee's expense all telephone, data processing, audio and video, security and
electrical (other than building standard) cables, wires, lines, duct work,
sensors, switching equipment, control boxes and related improvements, to the
extent required under Section 6. If Lessee fails to remove any personal
property, trade fixtures or (to the extent required under Section 6) Alterations
by the end of the Lease Term, Lessor may remove such property and store it and
dispose it at Lessee's expense, which shall be payable on demand as additional
rent. If the Demised Premises are not so surrendered at the termination of this
Lease, Lessee shall indemnify Lessor against all loss or liability resulting
from delay by Lessee in so surrendering the Demised Premises, including, without
limitation, any claims made by any succeeding tenant, lost opportunities to
lease to succeeding tenants, and attorneys' fees and costs.
8. Indemnification. Lessee hereby agrees to indemnify, defend, protect
and hold harmless Lessor, its subsidiaries, directors, officers, agents and
employees including, without limitation, the managing agent for the Building
from and against any and all damage, loss, liability or expense including but
not limited to, attorneys' fees and legal costs suffered by same directly or by
reason of any claim, suit or judgment brought by or in favor of any person or
persons for damage, loss or expense, including, without limitation, claims for
bodily injury, including death resulting anytime therefrom, and property damage
sustained by such person or persons which arises out of, is occasioned by or is
in any way attributable to the use or occupancy of the Demised Premises and
adjacent areas by the Lessee, the acts or omissions of the Lessee, its agents,
employees or any contractors brought onto the Demised Premises by the Lessee,
except to the extent caused by the gross negligence or willful misconduct of
Lessor or its employees, agents, customers and invitees. Such loss or damage
shall include, but not be limited to, any injury or damage to Lessor's personnel
(including death resulting anytime therefrom) or premises. Lessee's obligations
to indemnify shall include, without limitation, the duty to defend with counsel
acceptable to Lessor any claims for loss, damage or injury, and to pay any
judgments, settlements, costs, fees and expenses incurred in connection
therewith. Lessee agrees that the obligations assumed herein shall survive this
Lease.
9. Insurance. Lessee hereby agrees to maintain in full force and effect
at all times during the term of this Lease, at its own expense, for the
protection of Lessee and Lessor, as their interest may appear, policies of
insurance issued by a responsible carrier or carriers acceptable to Lessor which
afford the following coverages:
(A) Comprehensive General Liability Insurance including Blanket
Contractual Liability Broad Form Property Damage, Personal Injury, Completed
Operations Products Liability and Fire Damage Legal, such insurance to afford
protection in the minimum combined limit of not less than $2,000,000. Such
insurance shall name Lessor and its managing agent as additional insureds.
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(B) Fire insurance with extended coverage endorsement upon Lessee's
equipment, furniture, fixtures, merchandise and any other personal property
located in the Demised Premises in the amount of the full insurable value
thereof.
(C) Workers' Compensation as required by statute and Employees'
liability of not less than $100,000.00.
The Lessee shall deliver to Lessor upon execution of this Lease and
thereafter at least thirty (30) days prior to expiration of such policy,
certificates of insurance evidencing the above coverage which shall expressly
provide that at least thirty (30) days prior written notice shall be given
Lessor in the event of material alteration or cancellation of the coverage.
Lessor makes no representation that the limits of liability specified
to be carried by Lessee under the terms hereof are adequate to protect Lessee;
if Lessee deems this insurance to be inadequate, Lessee shall, at its own
expense, provide such additional insurance as necessary. Lessee's obligations
under this Lease shall in no way be limited to the amount of insurance required
to be carried under this paragraph 9. Lessor agrees to maintain during the term
of this Lease such insurance on the Building as Lessor reasonably deems prudent
(or to self-insure such risks), provided that any such insurance may be provided
under blanket insurance policies covering multiple properties.
10. Waiver of Subrogation. The parties shall obtain from their
respective insurance carriers waivers of subrogation against the other party,
agents, employees and, as to Lessee, invitees. Neither party shall be liable to
the other for any loss or damage caused by fire or any of the risks enumerated
in a standard fire insurance policy with an extended coverage endorsement if
such insurance was carried or required to be carried at the time of such loss or
damage.
11. Liability for Injury or Damage. Lessor shall not be in default or
liable to Lessee for any damage resulting from (i) the carelessness, negligence
or improper conduct on the part of a co-tenant or any other third party, or (ii)
for any damage to person or property resulting from any condition of the Demised
Premises or other cause, including, but not limited to, damage by water. Lessor
shall have no liability under this Lease whatsoever for any consequential
damages of Lessee under any circumstances. Lessee shall give Lessor prompt
notice of any damage in or about the Demised Premises.
12. Damage to Premises. If the Demised Premises are destroyed or
partially damaged then Lessor may, at Lessor's option, exercised in writing
within sixty (60) days of written notice of damage from Lessee, elect to
terminate this Lease or to repair the damage. If Lessor elects to repair the
damage, Lessor shall at its own expense, without unnecessary delay, repair the
damages. If Lessor elects to repair, Lessee shall pay the cost of repairing any
tenant improvements in the Demised Premises other than the Building itself and
Building standard improvements. If Lessor elects to repair, but does not
substantially complete such repair within 120 days after the date of the
casualty, then Lessee may, at any time after such 120th day, give Lessor notice
of Lessee's conditional termination of the Lease, and upon
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delivery of such notice this Lease shall terminate sixty days after the date of
such notice unless Lessor substantially completes such repair within such 60 day
period. Lessee shall be entitled to an abatement of rent in fair proportion to
the amount and nature of the damage sustained, until the Demised Premises are
made fit for occupancy and use; provided, however, that Lessee shall not be
entitled to an abatement of rent if such damage was caused by the negligence or
willful misconduct of Lessee or Lessee's employees or invitees. Lessor shall not
be liable for loss of use of the Demised Premises or for damage to Lessee's
personal property or any inconvenience, occasioned by any damage, repair or
restoration, nor shall Lessee have any right to terminate this Lease as a result
of the same. Lessor shall be entitled to all insurance proceeds resulting from
the damage, except those proceeds which specifically insured Lessee's personal
property and trade fixtures.
13. Eminent Domain. If all or any part of the Demised Premises shall be
taken as a result of the exercise of the power of eminent domain, this Lease
shall terminate as to the part so taken as of the date of taking. In the event
of a partial taking, either Lessor or Lessee shall have the right to terminate
this Lease as to the balance of the Demised Premises by written notice to the
other within thirty (30) days after such date, provided however, that a
condition to the exercise by Lessee of such right to terminate shall be that the
portion of the Demised Premises taken shall be of such extent and nature as
substantially to impair Lessee's use of the balance of the Demised Premises. In
the event of a total taking or a partial taking, Lessor shall be entitled to any
and all compensation, damages or awards which may be paid in connection
therewith. Lessee shall be entitled to any damages attributable to moving
expenses or damages to Lessee's non-removable fixtures, provided that such award
does not diminish the award to Lessor and further provided that no portion of
the award is for any excess value or leasehold value of this Lease. In the event
of a partial taking of the Demised Premises which does not result in termination
of this Lease, the monthly rental thereafter shall be equitably reduced.
14. Admittance by Pass-Key. Lessor shall not be liable for the
consequences of admitting by pass-key or refusing to admit to the Demised
Premises Lessee or any of Lessee's agents, employees or other persons claiming
the right of admittance.
15. Exhibition and Inspection of Premises. Lessor and Lessor's agents
shall have the right at reasonable hours on 24 hours prior notice to Lessee
(except that no advance notice shall be required in the case of emergencies, or
in the cases of clauses (c), (d), or requested repairs under (e)) to (a) exhibit
the Demised Premises to prospective purchasers and during the final six months
of the term hereof to prospective lessees; (b) to examine the Demised Premises
to determine whether Lessee is complying with its obligations hereunder and in
reference to any emergency or general maintenance; (c) supply janitorial service
and any other service supplied by Lessor to Lessee hereunder; (d) to post
notices of non-responsibility in connection with any construction work; and (e)
to make repairs or alterations to any portion of the Building. Lessee hereby
waives any claim for damages for any injury or inconvenience to or interference
with Lessee's business, occupancy or quiet
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enjoyment of the Demised Premises resulting from any of the foregoing, except
for any intentional misconduct of Lessor.
16. Abandonment. Any personal property left on the Demised Premises
after termination of this Lease shall be deemed to be abandoned at the option of
Lessor and Lessee waives any claims to or arising from said property.
17. Signs. No sign, picture, advertisement or notice shall be displayed,
inscribed, painted or affixed to any of the glass or woodwork of the Demised
Premises, or on the exterior walls of the Building, except such as shall be
first approved in writing by Lessor.
18. Electrical and Mechanical Devices and Installations. Lessee shall
not without Lessor's prior written consent, operate or install any electrical
equipment or operate or install any machinery or mechanical device on said
Demised Premises other than that normal to office use. No electric wiring or
other electrical apparatus shall be installed, maintained or operated on the
Demised Premises, except with the prior written approval of and in a manner
satisfactory to Lessor, and in no event shall Lessee overload the electrical
circuits from which Lessee obtains current. Lessee shall not, without Lessor's
prior written consent, use heat generating machines or equipment or lighting
other than Lessor's designated building standard lights which affect the
temperature otherwise maintained by the air conditioning system. Lessor may
condition its consent on installation of supplemental air conditioning units in
the Demised Premises, and the costs thereof (including without limitation
operating costs) shall be paid by Lessee to Lessor upon demand.
19. Windows. Lessee shall not allow anything to be placed on the outside
window ledges of the Demised Premises. No awnings shall be attached to the
outside of any windows of the Demised Premises. Only such window draperies
furnished by Lessor, which shall be uniform to Building standards, shall be
exposed to exterior views.
20. Floor Coverings. Lessee, or any other person, shall not lay linoleum
or any other floor covering or attach or affix any covering to the walls or
ceiling of the Demised Premises or any part thereof without the prior consent of
Lessor. Any such addition shall be deemed an alteration within the meaning of
paragraph 6, and shall be subject to the conditions set forth therein.
21. Services
(A) General. So long as Lessee is not in default under any of the
terms of this Lease, and subject to the provisions of this paragraph 21, Lessor
shall:
(i) Elevator. Provide unattended automatic elevator facilities
Monday through Friday, except holidays, from 7:00 a.m. to 6:00 p.m., and have at
least one elevator available at all other times, subject to Lessor's security
procedures then in effect.
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(ii) Ventilation. Ventilate the Demised Premises and furnish air
conditioning or heating Monday through Friday, except holidays, from 7:00 a.m.
to 6:00 p.m. (and at other times for the additional charges described in
subparagraph (B)) to the extent required for the comfortable occupancy of the
Demised Premises, subject to governmental regulation. The air conditioning
system achieves maximum cooling when the window coverings and sliding glass
doors are closed. Lessee shall keep all exterior sliding glass doors and all
other exterior doors in the Demised Premises closed whenever the system is in
operation. Lessee shall cooperate to the best of its ability at all times with
Lessor and shall abide by all reasonable regulations and requirements which
Lessor may prescribe for the proper functioning and protection of the air
conditioning system. Lessee and Lessee's servants, employees, agents, visitors,
licensees or contractors shall not adjust, tamper with, touch or otherwise in
any manner affect the climate control equipment in the Demised Premises. Lessee
shall not connect any apparatus, device, conduit or pipe to the Building's
chilled and hot water air conditioning supply lines. Lessee and Lessee's
servants, employees, agents, visitors, licensees or contractors shall not enter
at any time the mechanical installations or facilities of the Building, or
adjust, tamper with, touch or otherwise in any manner affect the installations
or facilities. If any installation of partitions, equipment or fixtures, or any
Alterations, modifications or remodeling by Lessee necessitates the re-balancing
of the climate control equipment in the Demised Premises, the re-balancing shall
be performed by Lessor at Lessee's expense; provided that, so long as Lessee
indicates its equipment locations and heat load in the working drawings for the
buildout of the Premises, and Lessee's equipment installations and heat loads
are consistent with such drawings, Lessee shall not be responsible for the cost
of rebalancing the climate control equipment as a result of the initial tenant
improvements.
(iii) Electricity. Subject to the provisions of subparagraph
(B), furnish to the Demised Premises electric current as required by the
Building standard office lighting and fractional horsepower office business
machines in the amount of approximately two and one-half (2.5) watts per square
foot. If Lessee's electrical installation or electrical consumption is in excess
of the quantity described above, or extends beyond normal business hours, Lessee
shall not connect any apparatus or device with wires, conduits or pipes, or
other means by which the services are supplied, for the purpose of using
additional or unusual amounts of the services without the prior written consent
of Lessor. At all times Lessee's use of electric current shall not exceed the
capacity of the feeders to the Building or the risers or wiring installation,
except as provided in working drawings approved by Lessor.
(iv) Water. Make water available in public areas for drinking
and lavatory purposes only.
(v) Janitorial Service. Provide building standard janitorial
service to the Demised Premises, provided the Premises are used exclusively as
offices, and are kept reasonably in order by Lessee. Lessee shall pay to Lessor
any cost incurred by Lessor for janitorial services in excess of those generally
provided for other tenants in the Building. Lessee shall pay to Lessor the cost
of removal of any of Lessee's refuse and rubbish.
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(vi) Director. Lessee shall be granted standard building
directory signage.
(B) Additional Charges. Lessor may impose a reasonable charge for
any utilities and services, including heating or air conditioning, electric
current, water and janitorial service, required to be provided by Lessor by
reason of (i) any use of the Demised Premises at any time other than between the
hours of 7:00 a.m. and 6:00 p.m. Monday through Friday, except holidays; (ii)
any use beyond what Lessor agrees to furnish as described above; or (iii)
special electrical, cooling and ventilating needs created in certain areas by
hybrid telephone equipment, computers and other similar equipment or uses.
Overtime heating and air conditioning shall be provided at Lessor's hourly
overtime HVAC charge then in effect. Lessor's current charge for after-hours
HVAC is $50 per hour, which may be shared among other after-hour HVAC users. In
the event both Lessee and other tenants request concurrent use of after-hours
HVAC, Lessor shall bill each such tenant for its proportionate share of such
usage as reasonably established by Lessor.
(C) Rules and Regulations. Lessee agrees to cooperate at all times
with Lessor and to abide by all reasonable regulations and requirements which
Lessor may prescribe for the use of the utilities and services. Any failure to
pay any excess costs as described above with the next installment of rent due
after receipt of a statement for such services shall constitute a breach of the
obligation to pay rent under this Lease and shall entitle Lessor to the rights
granted in this Lease for a breach.
(D) Stopping of Service. Lessor reserves the right to stop services
of the elevator, plumbing, ventilation, air conditioning and electric systems
when necessary by reason of accident or emergency, or for repairs, alterations
or improvements, in the judgment of Lessor desirable or necessary to be made,
until the repairs, alterations or improvements have been completed; provided
that subject to causes beyond Lessor's reasonable control, Lessor shall keep at
least one elevator operating at all times as the Building remains open for
business. Lessor shall have no responsibility or liability for failure to supply
elevator facilities, plumbing, ventilating, air conditioning or electric service
when prevented by strike or accident or by any cause beyond Lessor's reasonable
control, or by laws, rules, orders, ordinances, directions, regulations or
requirements of any federal, state, county or municipal authority or failure of
gas, oil or other suitable fuel supply or inability by exercise of reasonable
diligence to obtain gas, oil or other suitable fuel. It is expressly understood
and agreed that any covenants on Lessor's part to furnish any service pursuant
to any of the terms, covenants, conditions, provisions or agreements of this
Lease, or to perform any act or thing for the benefit of Lessee, shall not be
deemed breached if Lessor is unable to furnish or perform the same by virtue of
a strike or labor trouble or any other cause whatsoever beyond Lessor's
reasonably control. To the extent practical, Lessor shall attempt to give Lessee
notice of proposed shutdowns of services.
(E) Changes. The standards set forth above for utilities and
services are those currently in effect. Lessor reserves the right to adopt
nondiscriminatory modifications
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and additions hereto, which do not materially affect Lessee's rights. Lessor
shall give notice to Lessee, in accordance with provisions of this Lease, of
material modification and additions.
22. Attorneys' Fees. In the event a suit, action, arbitration, or other
proceeding of any nature whatsoever, including without limitation any proceeding
under the U.S. Bankruptcy Code, is instituted, or the services of an attorney
are retained, to interpret or enforce any provision of this Lease or with
respect to any dispute relating to this Lease, the non-defaulting party shall be
entitled to recover from the party its attorneys', paralegals', accountants',
and other experts' fees and all other fees, costs, and expenses actually
incurred and reasonably necessary in connection therewith. In the event of suit,
action, arbitration, or other proceeding, the amount thereof shall be determined
by the judge or arbitrator, shall include fees and expenses incurred on any
appeal or review, and shall be in addition to all other amounts provided by law.
23. Default. The occurrence of any one or more of the following events
shall constitute a breach of the Lease and an Event of Default by Lessee:
(A) if Lessee fails to make payment of any rent or other amounts due
Lessor within ten days after notice from Lessor that such amount is due;
provided that, after any two such delinquencies in any twelve-month period, any
third or subsequent nonpayment within such twelve-month period shall be an Event
of Default if not paid within ten days of the date due, without notice; or
(B) if Lessee shall be in violation of any law, rule, order or
ordinance applicable to Lessee's use of the Demised Premises if Lessee does not
cure the same promptly after notice, and in any event within the time required
under the applicable law, rule, order or ordinance; or
(C) if Lessee fails to provide an estoppel certificate required
under paragraph 37 when due; or
(D) if Lessee fails to keep or perform any of the other covenants or
conditions of this Lease or rules or regulations in connection therewith, within
ten (10) days after written notice of default; provided, however, that if Lessor
has given two such notices of default regarding any failure of performance by
Lessee, then any third failure of performance by Lessee of the same or similar
nature shall constitute an Event of Default without notice from Lessor (except
if Lessee is in good faith and reasonably attempting to fix a recurring
problem); or
(E) if a receiver shall be appointed for Lessee's property or any
part thereof, or if a petition is filed by Lessee for an arrangement with his
creditors under Chapter Eleven of The Bankruptcy Act, or if Lessee shall be
declared bankrupt or insolvent according to law, or if any assignment of
Lessee's property shall be made for the benefit of creditors.
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24. Lessor's Remedies. Upon the occurrence of any Event of Default,
Lessor may exercise any one or more of the following remedies or any other
remedy available under applicable law:
(A) Lessor or Lessor's agents and employees may immediately or at
any time thereafter re-enter the Demised Premises or any part thereof, by any
suitable action or proceeding at law, or by force or otherwise, without being
liable for indictment, prosecution, trespass, or damages, and may repossess the
Demised Premises, and may remove any person or property therefrom and may lock
Demised Premises, to the end that Lessor may have, hold, and enjoy the Demised
Premises. Lessee hereby waives service of any notice of intention to terminate
this Lease or to retake the Demised Premises and waives any requirement of
service of demand for payment of rent or for possession and of any and every
other notice or demand prescribed by law and hereby waives any claim for damages
by reason of any repossession by Lessor.
(B) Lessor, at his sole option, may relet the whole or any part of
the Demised Premises from time to time, either in the name of the Lessor or
otherwise, to such tenants, for such terms ending before, on, or after the
expiration of the Term, at such rentals, and upon such conditions (including
concessions and free rent periods) as Lessor, in its sole discretion, may
determine to be appropriate. Lessor shall have no obligation to relet the
Premises or any part thereof, and shall not be liable for refusal to relet the
Demised Premises, or, in the event of any such reletting, for refusal or failure
to collect any rent due upon such reletting; and no such refusal or failure
shall operate to relieve Lessee of any liability under this Lease or otherwise
affect any such liability. Lessor at its option may make such physical changes
to the Demised Premises as Lessor, in its sole discretion, considers advisable
or necessary in connection with any such reletting or proposed reletting,
without relieving Lessee of any liability under this Lease or otherwise
affecting Lessee's liability.
(C) Whether or not Lessor retakes possession of or relets the
Demised Premises, Lessor shall have the right to recover unpaid rent and all
damages caused by the default, including attorneys' fees. Damages shall include,
without limitation, all rent lost; all legal expenses and other related costs
incurred by Lessor following Lessee's default; that portion of any leasing
commission and improvement costs paid by Lessor as a result of this Lease which
is attributable to the unexpired portion of this Lease; storage costs; all costs
incurred by Lessor in restoring the Demised Premises to good order and condition
or in remodeling, renovating, or otherwise preparing the Demised Premises for
reletting; and all costs incurred by Lessor in reletting the Demised Premises,
including, without limitation, any advertising costs, brokerage commissions and
the value of Lessor's time.
(D) To the extent permitted under Oregon law, Lessor may sue
periodically for damages as they accrue without barring a later action for
further damages. Lessor may in one action recover accrued damages plus damages
attributable to the remaining term equal to the difference between the rent
reserved in this Lease for the balance of the term after the time of award, and
the fair rental value of the Demised Premises for the
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same period, discounted to the time of award at the rate of seven percent per
annum. If Lessor has relet the Demised Premises for the period which otherwise
would have constituted all or any part of the unexpired portion of the term, the
amount of rent reserved upon such reletting shall be deemed, prima facie, to be
the fair rental value for the Demised Premises.
(E) Lessor may terminate this Lease. Even though an Event of Default
has occurred, this Lease shall continue in effect for so long as Lessor does not
terminate Lessee's right to possession, and Lessor may enforce all its rights
and remedies under this Lease, including the right to recover the rent as it
becomes due under this Lease. Acts of maintenance or preservation or efforts to
relet the Demised Premises or the appointment of a receiver upon initiative of
Lessor to protect Lessor's interest under this Lease shall not constitute a
termination of Lessee's right to possession unless written notice of termination
is given by Lessor to Lessee. Lessor's termination of this Lease shall not
prejudice or affect Lessor's rights, including without limitation, its right to
damages for breach of this Lease.
25. Lessor's Right to Perform. If Lessee shall fail to make any payment
or perform any act required to be made or performed under this Lease, Lessor
may, but shall not be obligated to, make such payment or perform such act to the
extent Lessor may deem desirable, and, in connection therewith, pay expenses and
employ counsel. Any such payment or performance by Lessor shall not waive or
release Lessee from any obligations of Lessee under this Lease. All sums so paid
by Lessor, and all penalties, interests and costs in connection therewith, shall
be due and payable by Lessee on the next day after any payment by Lessor,
together with interest thereon as set forth in paragraph 3(E) from that date to
the date of payment by Lessee, plus collection costs and attorneys' fees.
26. Lessor's Default. Lessor shall not be deemed in default of
performance of any obligation under this Lease unless Lessor has failed to
perform such obligation within thirty days after receipt of written notice by
Lessee to Lessor specifying the nature of Lessor's failure of performance;
provided, (i) in the event of emergency Lessor nonetheless shall respond as soon
as reasonably possible after notice thereof, and (ii) if the nature of Lessor's
obligation is such that more than thirty days are required for its performance,
Lessor shall not be deemed in default if Lessor shall commence such performance
within thirty days after receipt of Lessee's notice and thereafter promptly and
diligently prosecute the same to completion.
27. Cumulation of Remedies - No Waiver. Except as otherwise provided in
this Lease, No right to remedy herein expressly conferred upon or reserved to a
party is intended to be exclusive of any other right or remedy, and each and
every right and remedy shall be cumulative and in addition to any other right or
remedy given hereunder or now or hereafter existing at law or in equity or by
statute. The failure of a party to insist in any one or more instances upon the
strict performance by the other party of any of the covenants of this Lease or
to exercise any option herein contained shall not be construed as a waiver or a
relinquishment for the future of any such covenant or option. The receipt by
Lessor of rent with the knowledge of a breach of any covenant or agreement
hereof shall not be deemed a
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waiver of such breach. No waiver by a party of any provision of this Lease shall
be deemed to have been made unless expressed in writing and signed by the party
or its duly authorized agent.
28. Light and Air. This Lease does not grant any right of access to
light, air, or view, over the property, and Lessor shall not be liable for any
diminution of such light, air, or view by any adjacent structure.
29. Repair. In the event Lessor, during the term of this Lease, deems it
necessary to repair, alter, remove, reconstruct or improve any part of the
Demised Premises or the Building of which the Demised Premises are a part, then
such repairing, alteration, or removal, reconstruction or improvement may be
made by and at the expense of Lessor without any interference or claim for
damages by Lessee, but there shall be such an abatement or adjustment of rent as
shall be just and in proportion to the interference with Lessee's occupation of
the Demised Premises, unless such repairs or alterations are necessitated by
reason of Lessee's act or negligence or the act or negligence of Lessee's
employees, agents or invitees.
30. Holding Over.
(A) If Lessee shall hold over after the expiration term of this
Lease and shall not have agreed in writing with Lessor upon the terms and
provisions of a new lease prior to such expiration, Lessee shall remain bound by
all terms, covenants and agreements hereof, except that the tenancy shall be one
from month to month at one and one-half (1 1/2) times the then scheduled rent
for comparable space within the building, as solely determined by Lessor.
(B) Lessee shall have the unilateral right to hold over for a period
of up to six (6) months following the expiration of the Lease term, at the
rental rate then being quoted by Lessor for comparable space within the
Building, but in no event less than 100% of, and not more than 150% of, the rate
of rent in effect at the end of the Lease term. Lessee's right to holdover is
conditioned upon Lessee's delivery of written notice of exercise of such
holdover right to Lessor not less than one hundred eighty (180) days prior to
Lease expiration, which notice shall identify Lessee's holdover period. Lessee's
rights under this clause (B) shall terminate (i) if this Lease or Lessee's right
to possession of the Demised Premises is terminated, (ii) upon the occurrence of
an Event of Default under this Lease beyond any applicable cure period, or (iii)
if Lessee fails to timely exercise its option under this clause (B), time being
of the essence with respect to Lessee's exercise thereof.
31. Liens. Lessee shall keep the Demised Premises and the Building free
from any liens arising out of any work performed, materials furnished or
obligations incurred by Lessee. Lessor shall have the right to post or keep
posted on the Demised Premises any notices that may be provided by law or which
Lessor may deem to be proper for the protection of the Lessor, the Demised
Premises any notices that may be provided by law or which Lessor may deem to be
proper for the protection of the Lessor, the Demised Premises
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and the buildings from such liens. Nothing in this Lease contained shall be
deemed or construed in any way as constituting the consent or request of Lessor,
expressed or implied, by inference or otherwise, to any contractor, or
subcontractor, laborer or materialman for the performance of any labor or the
furnishing of any materials for any specific improvement, alteration or repair
to the Demised Premises or any part thereof, nor as giving Lessee any right,
power or authority to contact for or permit the rendering of any services or the
furnishing of any materials that would give rise to the filing of any lien
against the fee of the Demised Premises. If any such lien shall at any time to
be filed against the Demised Premises, Lessee shall cause the same to be
discharged of record within twenty days after the date of filing the same. Any
amount paid by Lessor for any of the expenses or fees incurred or arising from
such lien, including all reasonable legal or other expenses of Lessor, shall be
repaid by Lessee to Lessor on demand with interest at 12% per annum, and if
unpaid may be treated as additional rent.
32. Furniture and Bulky Items. Safes, furniture or bulky items shall be
moved in or out of the Demised Premises only at such hours and in such manner as
shall least inconvenience other tenants, as Lessor shall reasonably decide. No
safe or other articles of over 1000 pounds shall be moved into the Demised
Premises without the reasonable consent of the Lessor. Lessor shall have the
right to fix the position of any article of such weight in the Demised Premises.
33. Regulations. Lessor may make and enforce against Lessee regulations
appropriate in Lessor's reasonable determination for maintenance and management
of the Building including but not limited to regulations for order, cleanliness
and security. Lessor shall not be responsible to Lessee for the nonperformance
by any other tenant or occupant of any said rules or regulations. Lessor shall
not unreasonably discriminate among tenants in the enactment and enforcement of
such rules and regulations.
34. Preparation for Occupancy. Lessor shall prepare the Demised Premises
for occupancy in accordance with the work letter attached hereto as Exhibit C.
All improvements made in connection with the preparation of the Demised Premises
for occupancy shall be and remain the property of Lessor. Lessee shall pay all
cost of furnishing, installing or connecting fixtures and any equipment required
by Lessee.
35. Acceptance of Premises. Lessee agrees to accept delivery of the
Demised Premises upon such notice of the availability of the Demised Premises
given to Lessee by Lessor. By occupying such Demised Premises Lessee formally
accepts the same in the "AS IS" condition and acknowledges that the Demised
Premises are in the condition called for hereunder, except as otherwise set
forth and agreed to in writing at the time of taking possession. To the extent
of any inconsistency between the language of this Section 35 and Exhibit C, the
language of Exhibit C shall control.
36. Possession. In the event of the inability of Lessor to deliver
possession of the Demised Premises, or any portion thereof, at the time of the
commencement of the term of this Lease, neither Lessor nor Lessor's agent shall
be liable for any damage caused thereby,
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nor shall this Lease thereby become void or voidable nor shall the term herein
specified be extended in any way, but in such event, Lessee shall not be liable
for any rent until such time as Lessor can deliver possession. If the Lessee
shall take possession of the Demised Premises prior to the commencement date of
this Lease, Lessor and Lessee agree to be bound by all of the provisions and
obligations hereunder during such prior period, including payment of rent as set
forth herein.
37. Parking. Lessor shall provide Lessee with unreserved parking
facilities in the Building for the number of automobiles shown in the Basic
Lease Information during the term of this Lease. The parking allotment
applicable to the seventh floor space will be provided by the Seventh Floor
Commencement Date, or earlier to the extent Lessor determines such additional
allotment is available, using Lessor's parking availability standards
consistently applied. Lessee shall pay for such parking facilities at the
prevailing rate for parking in the Building, which may vary from time to time.
Parking of vehicles by Lessee or Lessee's agents or employees in violation of
garage regulations, or failure to pay the parking fees within ten (10) days
after payment is due shall, at Lessor's discretion, result in Lessee or Lessee's
agents or employees parking privilege being revoked. Upon request of Lessee,
Lessor shall use reasonable efforts to assist Lessee in locating additional
parking spots within a three-block radius of the Building, to accommodate an
overall parking ratio of one spot per 1200 square feet of the Premises. Lessor
makes no representation regarding the availability of such space, and Lessee
shall be responsible for making its own direct arrangements with the owner or
operator of such parking facilities.
38. Subordination and Attornment; Notice to Lenders.
(A) Lessee agrees that, subject to the provisions of Section (B)
below, upon request of Lessor it will subordinate its rights hereunder to the
lien of any mortgage, ground lease or deed of trust (collectively, "Mortgages")
now or hereafter enforced against the land or Building and to all events made or
hereafter to be made upon the security thereof. At the request of any party
which may succeed to Lessor's rights hereunder, Lessee shall attorn to and
recognize such successor as Lessor under this Lease.
(B) Lessor represents that, as of the date of this Lease, there are
no Mortgages encumbering the Building. Lessee's duty to subordinate its rights
under this Lease and attorn to a future Mortgage holder or its successor shall
be expressly conditioned upon Lessee's receipt of a subordination,
non-disturbance and attornment agreement from the holder of such Mortgage, which
Lessee agrees it shall execute and deliver to such holder.
(C) Lessee agrees to execute such documents as Lessor or Lessor's
successors may request to effectuate the provisions of this article.
39. Estoppel Certificate. At any time upon ten days prior written
request by Lessor, Lessee shall promptly execute acknowledge and deliver to
Lessor, a certificate certifying (a) that this Lease is unmodified and in full
force and effect, or if there has been modifications, that this Lease is in full
force and effect as modified, and state the date and
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nature of each modification; (b) the date, if any, to which rental and other
sums payable hereunder have been paid; (c) that no notice has been received by
Lessee of any default which has not been cured, except as to default specified
in said certificate; and (d) such other factual matters as may be reasonably
requested by Lessor. If Lessee fails to provide such certificate within such
10-day period, Lessee shall conclusively be deemed to have certified the matters
set forth in the certificate.
40. Article Headings. The article headings throughout this instrument
are for convenience in reference only, and the words contained therein shall in
no way be held to explain, modify, amplify or aid in the interpretation,
construction or meaning of the provisions of this Lease.
41. Notice. Any notice or demand under this Lease shall be in writing
and shall be given by hand-delivery, telecopy, or United States Mail, postage
prepaid, registered or certified with return receipt requested. Notices given by
telecopy or hand-delivery shall be deemed given upon receipt. Notices which are
mailed shall be deemed given on the date shown on the receipt as having been
tendered or delivered. The addresses of Lessor and Lessee for notices are as
specified in the Basic Lease Information. Either party may change its address by
giving notice of the change in accordance with this paragraph.
42. Parties Affected. The rights, liabilities and remedies provided for
herein shall extend to the heirs, legal representatives, successors and as far
as the terms of this Lease permit, assigns of the parties hereto. The words
"Lessor" and "Lessee" and their accompanying verbs or pronouns, whenever used in
this Lease shall apply equally to all persons, firms or corporations which may
be or become parties hereto.
43. Authority. If Lessee is a corporation, each person executing this
Lease on behalf of Lessee covenants and warrants that (i) Lessee is duly
incorporated and validly existing under the laws of its state of incorporation;
(ii) Lessee is qualified to do business in Oregon; (iii) Lessee has full
corporate right and authority to enter into this Lease and perform its
obligations hereunder; and (iv) Each person signing this Lease on behalf of
Lessee is duly and validly authorized to do so.
44. Building Planning. INTENTIONALLY OMITTED.
45. Lessor's Exculpation. In the event of default, breach or violation
hereof by Lessor which, for the purpose of this paragraph, includes Lessor's
partners, officers, directors, employees, agents and representatives, of any
obligation under this Lease, Lessor's liability to Lessee shall be limited to
Lessor's ownership interest in the Building, and Lessor shall not be liable for
any deficiency beyond its ownership interest in the Building. Upon any transfer
of the Building and assignment of this Lease, Lessor shall have no further
liability under any and all covenants and obligations under this Lease accruing
after such transfer and assignment, including any liability respecting partial
consideration described in paragraph 2 above.
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46. Consents. INTENTIONALLY OMITTED.
47. Brokers. Lessee represents and warrants that it has had no dealing
with any real estate broker or agent in connection with the negotiation of this
Lease, except for any brokers as specified in the Basic Lease Information, and
that Lessee knows of no other real estate broker or agent who is or might be
entitled to a commission in connection with this Lease. Lessee shall indemnify
and hold harmless Lessor from and against any liabilities or expenses arising
out of claims made by any other broker or individual for commissions or fees
resulting from this Lease, except claims by Lessor's Broker, if any, shown in
the Basic Lease Information.
48. Discontinuance of Services. In addition to any other rights and
remedies which Lessor may have under this Lease, following occurrence of Event
of Default and continuing until the event giving rise to such Event of Default
has been remedied, Lessor shall not be obligated to continue furnishing Lessee
any heat, ventilation or air conditioning services or any cleaning services, and
the discontinuance of any such services shall be without liability by Lessor to
Lessee and shall not effect any of Lessee's covenants or obligations under this
Lease.
49. No Interference. Lessee agrees that it shall not exercise any of its
rights under this Lease in a manner which would violate Lessor's union contracts
effecting the building, nor create any work stoppage, picketing, labor
disruption or dispute or any interference with the business of Lessor or any
other tenant or occupant of the Building.
50. Building Name. Lessee shall not employ the name of the Building in
the name or title of its business or occupation without Lessor's prior written
consent, which Lessor may withhold in its sole discretion. Lessor reserves the
right to change the name of the Building without Lessee's consent and without
any liability to Lessee.
51. Recording. Lessee shall not record this Lease without the prior
written consent of Lessor. At the request of Lessor, Lessee shall execute for
recording such instruments evidencing this Lease as Lessor may request, provided
that the cost of recording shall be at Lessor's expense. Upon termination of
this Lease, Lessee, at Lessor's request, shall execute and deliver to Lessor in
recordable form a quit claim deed of any interest of Lessee in the Demised
Premises or Building, in form requested by Lessor, provided that the cost of
recording shall be at Lessor's expense.
52. Time. TIME IS OF THE ESSENCE OF THIS AGREEMENT.
53. First Right of Opportunity.
(A) Available Space. As used in this Section 53, "Available Space"
shall mean any office space in the Building which becomes vacant after the
Commencement Date and during the Term, other than space on the ground floor. If
any such vacant space is subject to an existing expansion right or first refusal
right of an existing tenant, or if Lessor
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determines that Lessor must extend such an existing right of an existing tenant
in order to induce such tenant to renew its Lease, such vacant space shall
become "Available Space" only if and when such rights are waived by that tenant
or expire. In addition, space which is vacant on the Commencement Date but is
then under Lease prior to occupancy shall not be Available Space until such
leasehold terminates and the space is again vacant.
(B) Notice of Availability. Before Lessor commences negotiations
with a third party regarding leasing of Available Space, Lessor shall notify
Lessee of the availability of such Available Space ("Lessor's Notice"), which
notice shall include a statement of the rent and other material terms upon which
such Available Space could be leased ("Lessor's Terms").
(C) Lessee's Response. Within three (3) business days after receipt
of Lessor's Notice, Lessee shall notify Lessor either (i) that Lessee does not
desire to lease the Available Space, or (ii) that Lessee does desire to Lease
the Available Space, which notice must either accept Lessor's Terms, or state
the rent and terms upon which Lessee would lease the Available Space ("Lessee's
Terms"). If Lessee does not timely give either of such notices, Lessee shall be
deemed to have elected option (i).
(D) Discussion Period. If Lessee timely notifies Lessor of its
interest in leasing the Available Space pursuant to Section (C), but does not
accept Lessor's Terms, Lessor will consult with Lessee regarding the terms
Lessor would consider for the leasing the Available Space, and Lessor shall
continue to engage in such discussions with Lessee for a period of at least
thirty (30) days, unless Lessee within such period notifies Lessor that it is no
longer interested in the Available Space. Lessor will be under no obligation to
continue such discussions beyond such period, or to lease the Available Space to
Lessee, except on terms acceptable to Lessor in its absolute discretion.
(E) Prohibition on Releasing. If Lessee timely notified Lessor of
its interest in leasing the Available Space pursuant to Section (C) (but stated
Lessee's Terms), did not notify Lessor that Lessee was no longer interested in
the Available Space, and did not reach agreement with Lessor on the rent and
terms for leasing the Available Space under Section (D), then Lessor shall not
lease the Available Space to a third party on terms less favorable to Lessor
than Lessor's Terms or Lessee's Terms (whichever were less favorable to Lessor),
without first giving another Lessor's Notice to Lessee and again proceeding
through the steps stated in Sections (C) and (D).
(F) Appraisal of Lessee's Needs. Upon request of Lessor, Lessee
shall inform Lessor from time to time of its projected needs for expansion space
in the Building, and the provisions of this Section 53 shall not apply to the
extent Lessee does not project a need for the Available Space at issue.
54. Entire Agreement. This Lease and the Exhibits hereto constitute the
entire agreement between the parties hereto and no modification of this Lease
shall be binding unless evidenced by an agreement in writing signed by the
Lessor and Lessee. This Lease
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<PAGE> 32
shall become effective and binding only upon execution hereof by Lessor and
delivery of a signed copy to Lessee.
26
<PAGE> 33
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of
the date first herein written.
LESSEE: LESSOR: THE PRUDENTIAL
INSURANCE COMPANY OF AMERICA
WEBTRENDS CORPORATION By: VOIT MANAGEMENT COMPANY, L.P.
By: /s/ Its: Managing Agent
-------------------------------
Its: CFO
------------------------------
By: /s/ By:
------------------------------- -------------------------------
Its: CEO Its:
------------------------------ ------------------------------
27
<PAGE> 34
EXHIBIT A-1
[FLOOR PLAN DIAGRAM]
<PAGE> 35
EXHIBIT A-2
[FLOOR PLAN DIAGRAM]
<PAGE> 36
EXHIBIT A-3
[FLOOR PLAN DIAGRAM]
<PAGE> 37
EXHIBIT B
Lots 3, 4, 5, and 6, Block 180, CITY OF PORTLAND, in the City of Portland,
County of Multnomah and State of Oregon
<PAGE> 38
EXHIBIT C
WORK LETTER
RE: PACIFIC FIRST CENTER / SUITES 650, 700, and 1200
Lessor and Lessee do mutually agree as follows:
1. Lessor agrees to provide, by Lessor's designated Space Planner and
Engineer, the following Building Standard construction and mechanical
drawings and specifications drawn for the premises on Lessee's behalf,
and on the following terms and conditions:
(a) Complete, finished and detailed construction drawings and
specifications for Lessee's partition layout, reflected ceiling,
telephone and electrical outlets, finish schedule, and for the
work to be done by Lessor under Paragraph 2 hereof.
(b) Complete Building Standard mechanical plans and specifications
where necessary for installation of air conditioning systems, and
ductwork, heating and electrical facilities for the work to be
done by Lessor under Paragraph 2 hereof.
(c) Any redrawing occasioned by Lessee after Lessee's prior approval
and any changes requested thereafter in plans and specifications
shall be at Lessee's sole cost and expense.
(d) All such plans are expressly subject to Lessor's prior written
approval.
(e) Lessee has approved the above plans and specifications for Suites
650 and 1200. Lessee covenants and agrees to furnish to Lessor
all information necessary for the preparation of said plans and
specifications described in Paragraph 1 (a) above for Suite 700,
and otherwise approve same on or before March 15, 1999, or if
later, within three business days after completion by space
planner. Plans, working drawings and specifications shall be
deemed approved if Lessee fails to disapprove them within the
foregoing period. Lessor will cause said plans to be filed with
the appropriate governmental agencies in such form (building
notice, alteration or other form) as may be required.
(f) If Lessee shall desire any additional or nonstandard work, over
and above that specified below in Paragraph 2, to be performed in
the Premises by Lessor, Lessee shall cause similar plans and
specifications for such work to be drawn at Lessee's sole cost
and expense (either by arranging therefor with Lessor's Space
Planner and/or Engineer, or by consultants of Lessor's own
selection). All such plans and specifications for additional or
non-standard work shall be
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<PAGE> 39
expressly subject to review by Lessor, which reserves the right
to employ the services of Lessor's Space Planner or Engineer for
such purpose, at Lessor's expense to insure that such additional
or non-standard work conforms to the standards of the building.
2. Lessor agrees to supply, install and otherwise undertake to do the
following Building Standard work in the Premises on behalf of Lessee.
(a) DEMOLITION: Demolition and removal of and/or to storage, of all
existing improvements not required as part of this agreement.
(b) PARTITIONS: Building Standard gypsum wallboard with smooth veneer
plaster finish, located as shown on plans described in Paragraph
1 above. All corridor walls, demising walls and conference room
walls to be provided with sound attenuation to Building Standard.
(c) DOOR FRAMES AND HARDWARE: Building Standard, full height, solid
core wood doors with building standard finish, painted metal
frames and hardware located as shown on said plans described in
Paragraph 1 above. Hardware shall include door stops, latchsets
and hinges for openings in all interior doors and locksets (keyed
to building master), hinges for openings, door stops and closets
for openings on all public corridor and entry doors, as required
by Building Code. All such hardware to be Building Standard.
(d) PAINTING: All wall surfaces, except as otherwise specified in
said plans described in Paragraph 1, above, shall be covered with
one (1) primer coat and one (1) latex enamel finish coat, in
colors as selected by Lessee from Building Standard Paint
selection.
(e) CEILING: Building Standard 24" x 48" acoustical lay-in ceiling.
(f) LIGHTING: Building Standard 24" x 48" or 24" x 24" fluorescent
lighting fixtures with deep cell parabolic lens, located in an
established grid pattern, at a ratio of one (1) fixture per 80
square feet of tenant improvement area.
(g) ELECTRICAL SERVICE: Building Standard electrical facilities
sufficient for an overall connected load of no more than 2.5
watts per square foot.
(h) ELECTRICAL OUTLETS: Building Standard (base mounted) duplex
electrical outlets located as shown on said plans described in
Paragraph 1 above, at a ratio of one (1) outlet per 200 square
feet of tenant improvement area.
2
<PAGE> 40
(i) TELEPHONE OUTLETS: Building Standard unwired telephone outlets
located as shown on said plans described in Paragraph 1 above, at
a ratio of one (1) outlet per 200 square feet of tenant
improvement area.
(j) CARPET AND BASE: Building Standard carpet in the color as
selected by Lessee from Lessor's selection, limited to one (1)
color in each contiguous area, Building Standard toeless base in
the color selected by Lessee from Lessor's building standard
selection (but which shall be limited to one (1) color in each
contiguous area), 4" at perimeter of all areas.
(k) WINDOW COVERING: Building Standard levelors provided by Lessor on
all exterior windows.
(l) HEATING, VENTILATING AND AIR CONDITIONING: Building Standard
overhead suspended air system, as determined by mechanical design
for typical air system, as determined by mechanical design for
typical office use, designed for an overall load not to exceed
2.5 watts per square foot.
(m) LIFE SAFETY SYSTEM: Modifications to Building Standard fire
sprinkler and life safety systems, to meet requirement of office
configuration.
(n) SIGNAGE: Building Standard - Lessee signage to include door sign,
elevator lobby directory and main building directories.
(o) ADDITIONAL IMPROVEMENTS: Lessor agrees to provide additional
improvements as specified in the final plans and specifications,
provided that in no event shall Lessor's total costs exceed the
TI Allowance, inclusive of all items identified in the above
Paragraph 1 (a) through 2 (p).
Lessor further agrees to notify Lessee prior to the commencement
of said work should Lessor anticipate costs exceeding the total
allowance as set forth in Paragraph 2 (p) above, based on plans
and specifications submitted. Lessee shall then have the option
to modify said plans and specifications to conform to the
allowance as set forth above, or authorizing Lessor to undertake
completion of the work as set forth on Lessee's behalf and
account, within one week from the date of submission by Lessor.
Lessor need not commence or continue any work on Suite 700 during
any period that Lessee is in default of the Lease.
3. Lessor will provide a tenant improvement allowance of $461,979 for
Suites 650 and 1200 and $285,379 for Suite 700 (the "TI Allowance"). The
TI Allowance shall be applied first to the hard and soft costs incurred
by Lessor under Sections 1 and 2, including space planning, construction
drawings, permitting, and construction costs, then to Lessee's moving
costs, and the balance may be applied towards wiring, a
3
<PAGE> 41
communication consultant and the expense of partitions within the
Premises. Any unused portion of the TI Allowance for Suites 650 and 1200
will be utilized towards such costs incurred in connection with Suite
700. Lessee shall have no claim to any unused portion of the TI
Allowance after application toward Suite 700 costs.
4. If Lessor further agrees to perform, at Lessee's request, and upon
submission by Lessee of necessary plans and specifications, any
additional or non-standard work over and above that specified in
Paragraph 2 hereof, such work shall be performed by Lessor at Lessee's
sole expense, after application of the TI Allowance. Prior to commencing
any such work requested by Lessee, Lessor will submit to Lessee, written
estimates of the cost of any such work. If Lessee shall fail to approve
any such estimates of the cost of any such work within one week from the
date of submission thereof by Lessor, then same shall be deemed
disapproved in all respects by Lessee and Lessor need not proceed
thereon. Lessee agrees to pay Lessor the cost of all such work plus an
administrative fee of 3% of hard and soft costs in excess of the TI
Allowance for Lessor's overhead and supervision, within thirty (30) days
after the date of billing. If Lessee does not approve the cost estimate
but fails to approve modifications which will reduce the cost estimate
within one week after submission to Lessee of such suggested
modifications, Lessor may either terminate this Agreement and the Lease
or proceed with construction on the basis of the last cost estimate
(with modifications) submitted to Lessee. All past due monies shall bear
interest at the rate of twelve percent (12%) per annum from the date due
until paid. Lessee agrees that same shall be collectable on demand, as
additional rent pursuant to the Lease, and, in the event of default of
payment thereof, that Lessor shall, in addition to all other remedies,
have the same rights as in the event if default of payment of rent under
said Lease.
5. It is agreed, notwithstanding the date provided in the Lease for
commencement thereof, that Lessee's obligations for the payment of
rental thereunder shall not commence until Lessor has substantially
completed all work to be performed by Lessor as herein above set forth
in Paragraph 2, provided however, that if Lessor shall be delayed in
substantially completing said work as a result of:
(a) Lessee's failure to furnish plans and specifications in
accordance with Paragraph 1 (a) above, or;
(b) Lessee's request for materials, finishes or installations other
than Lessor's Building Standard, or;
(c) Lessee's changes in said plans, or
(d) Lessee's failure to approve cost estimates pursuant to Section 3;
or
(e) The performance by a person, firm or corporation employed by
Lessee and the completion of said work by said person, firm or
corporation;
4
<PAGE> 42
Then commencement of the term of said Lease and the payment of
rent thereunder shall be accelerated by the number of days of
resulting delay.
6. Lessor will permit Lessee and its agents to enter the Premises, at least
30 days prior to the applicable dates for the commencement of Lessee's
occupancy under the Lease, in order that Lessee may perform, through its
own contractors, such other work and decorations in the Premises prior
to the commencement of the Lease term, however, this is conditioned upon
Lessee's workmen and mechanics working in harmony and not interfering
with the labor employed by Lessor, Lessor's mechanics or contractors.
Such license is further conditioned upon:
(a) approval by Lessor of Lessee's contractors and subcontractors;
(b) posting of a performance and payment bond in the amount equal to
Lessee's contractor's contract sum, if requested by Lessor;
(c) such work being done in conformity with a valid building permit
when required, a copy of which shall be furnished to Lessor
before such work is commenced;
(d) all work by Lessee or Lessee's contractor being done with union
labor in accordance with union labor agreements applicable to the
trades being employed;
(e) all work by Lessee or Lessee's contractor being scheduled through
Lessor;
(f) scheduling of necessary utility, hoisting and elevator service
with Lessor or Lessor's contractor, and Lessee's payment of such
reasonable charges for such services as may be charged by Lessor
or Lessor's contractor;
(g) Lessee's reimbursement to Lessor upon demand for any extra
expense incurred by Lessor by reason of faulty work, inadequate
cleanup, or delays caused by Lessee's work; and
(h) Workmen's Compensation and Public Liability insurance and
Property Damage insurance, all in amounts and with companies and
on forms satisfactory to Lessor, being provided and at all times
maintained by Lessee's contractors engaged in the performance of
the work, and certificate of such insurance being furnished to
Lessor prior to proceeding with the work.
If at any time such entry shall cause disharmony or interference
therewith, this license may be withdrawn by Lessor upon
forty-eight (48) hours written notice to Lessee. Such entry will
be deemed to be under all of the terms, covenants, provisions and
conditions of said Lease, except as to the covenant to pay rent.
Lessor shall not be liable in any way for any injury, loss or
5
<PAGE> 43
damage which may occur to any of Lessee's decorations or
installations so made prior to commencement of the term of the
Lease, the same being solely at Lessee's risk.
7. Within seven days after Commencement Date, Lessee shall walk through the
Demised Premises with Lessor and during such walk through shall complete
a punch list of items requiring additional work by Lessor. Other than
the items specified in the punch list, by taking possession of Demised
Premises, Lessee shall be deemed to have accepted the Demised Premises
in completed condition and repair, as required under this Lease. The
punch list shall not include any damage to the Demised Premises or the
Building caused by Lessee's construction work or move in, which damage
Lessee properly shall repair at its sole expense. If Lessee fails to
complete such walk through and punch list within the seven-day period
specified above, all of Lessor's work shall be deemed completed in all
respects with no items requiring additional work or repair. Lessor shall
complete all reasonable punch list items within thirty days after the
walk-through inspection, or as soon as practicable thereafter. Upon
notification of completion of the punch list items,
6
<PAGE> 1
EXHIBIT 10.5
Standard Form of OFFICE BUILDING LEASE Developed by PORTLAND METROPOLITAN
ASSOCIATION OF BUILDING OWNERS AND MANAGERS
OFFICE LEASE
<TABLE>
[LOGO] This lease, made and entered into at PORTLAND, Oregon, this 15TH
day of SEPTEMBER,
1998 by and between
LANDLORD: CITY CENTER RETAIL TRUST
and
TENANT:WEBTRENDS CORPORATION
<S> <C> <C>
Landlord hereby leases to Tenant the following: SUITE 525
(the Premises)
in AMERICAN BANK BUILDING (the Building)
at 621 S.W. MORRISON PORTLAND, Oregon, containing approximately 4816 rentable
square feet as shown on the attached floor plan, calculated using
a load factor of 10 percent.
Tenant's Proportion Share for purposes of Section 19 shall be 3.04%.
This lease is for a term commencing OCTOBER 1, 1998 at a
MONTH-TO-MONTH
Monthly Base Rental as follows: $7,950.37
Rent is payable in advance on the FIRST day of each month
commencing OCTOBER, 1998.
Landlord and Tenant covenant and agree as follows:
</TABLE>
1.1 DELIVERY OF POSSESSION.
Should Landlord be unable to deliver possession of the Premises on
the date fixed for the commencement of the term, commencement will
be deferred and Tenant shall owe no rent until notice from Landlord
tendering possession to Tenant. If possession is not so tendered
within 90 days following commencement of the term, then Tenant may
elect to cancel this lease by notice to Landlord within 10 days
following expiration of the 90-day period. Landlord shall have no
liability to Tenant for delay in delivering possession, nor shall
such delay extend the term of this lease in any manner unless the
parties execute a written extension agreement.
2.1 RENT PAYMENT.
Tenant shall pay the Base Rent for the Premises and any additional
rent provided herein without deduction or offset. Rent for any
partial month during the lease term shall be prorated to reflect the
number of days during the month that Tenant occupies the Premises.
Additional rent means amounts determined under Section 19 of this
Lease and any other sums payable by Tenant to Landlord under this
Lease. Rent not paid when due shall bear interest at the rate of
one-and-one-half percent per month until paid. Landlord may at its
option impose a late charge of $.05 for each $1 of rent for rent
payments made more than 10 days late In lieu of interest for the
first month of delinquency, without waiving any other remedies
available for default. Failure to impose a late charge shall not be
a waiver of Landlord's rights hereunder.
3.1 LEASE CONSIDERATION.
Upon execution of the lease Tenant has paid the Base Rent for the
first full month of the lease term for which rent is payable and in
addition has paid the sum of $ N/A as lease consideration. Landlord
may apply the lease consideration to pay the cost of performing any
obligation which Tenant fails to perform within the time required by
this lease, but such application by Landlord shall not be the
exclusive remedy for Tenant's default. If the lease consideration Is
applied by Landlord, Tenant shall on demand pay the sum necessary to
replenish the
Page 1
<PAGE> 2
lease consideration to its original amount. To the extent not
applied by Landlord to cure defaults by Tenant, the lease
consideration shall be applied against the rent payable for the last
month of the term. The lease consideration shall not be refundable.
4.1 USE. Tenant shall use the Premises as business for GENERAL OFFICE USE and
for no other purpose without Landlord's written consent. In
connection with its use, Tenant shall at its expense promptly comply
and cause the Premises to comply with all applicable laws,
ordinances, rules and regulations of any public authority and shall
not annoy, obstruct, or interfere with the rights of other tenants
of the Building. Tenant shall create no nuisance nor allow any
objectionable fumes, noise, or vibrations to be emitted from the
Premises. Tenant shall not conduct any activities that will increase
Landlord's insurance rates for any portion of the Building or that
will in any manner degrade or damage the reputation of the Building.
4.2 EQUIPMENT.
Tenant shall install in the Premises only such office equipment as
is customary for general office use and shall not overload the
floors or electrical circuits of the Premises or Building or alter
the plumbing or wiring of the Premises or Building. Landlord must
approve in advance the location of and manner of installing any
wiring or electrical, heat generating or communication equipment or
exceptionally heavy articles. All telecommunications equipment,
conduit, cables and wiring, additional dedicated circuits and any
additional air conditioning required because of heat generating
equipment or special lighting installed by Tenant shall be installed
and operated at Tenant's expense. Landlord shall have no obligation
to permit the installation of equipment by any telecommunications
provider whose equipment is not then servicing the Building.
4.3 SIGNS. No signs, awnings, antennas, or other apparatus shall be painted on
or attached to the Building or anything placed on any glass or
woodwork of the Premises or positioned so as to be visible from
outside the Premises without Landlord's written approval as to
design, size, location, and color. All signs installed by Tenant
shall comply with Landlord's standards for signs and all applicable
codes and all signs and sign hardware shall be removed upon
termination of this lease with the sign location restored to its
former state unless Landlord elects to retain all or any portion
thereof.
5.1 UTILITIES AND SERVICES.
Landlord will furnish water and electricity to the Building at all
times and will furnish heat and air conditioning (if the Building is
air conditioned) during the normal Building hours as established by
Owner. Janitorial service will be provided in accordance with the
regular schedule of the Building, which schedule and service may
change from time to time. Tenant shall comply with all government
laws or regulations regarding the use or reduction of use of
utilities on the Premises. Interruption of services or utilities
shall not be deemed an eviction or disturbance of Tenant's use and
possession of the Premises, render Landlord liable to Tenant for
damages, or relieve Tenant from performance of Tenant's obligations
under this lease. Landlord shall take all reasonable steps to
correct any interruptions in service. Electrical service furnished
will be 110 volts unless different service already exists in the
Premises. Tenant shall provide its own surge protection for power
furnished to the Premises.
5.2 EXTRA USAGE.
If Tenant uses excessive amounts of utilities or services of any
kind because of operation outside of normal Building hours, high
demands from office machinery and equipment, nonstandard lighting,
or any other cause, Landlord may impose a reasonable charge for
supplying such extra utilities or services, which charge shall be
payable monthly by Tenant in conjunction with rent payments. In case
of dispute over any extra charge under this paragraph, Landlord
shall designate a qualified independent engineer whose decision
shall be conclusive on both parties. Landlord and Tenant shall each
pay one-half of the cost of such determination.
5.3 SECURITY.
Landlord may but shall have no obligation to provide security
service or to adopt security measures regarding the Premises, and
Tenant shall cooperate with all reasonable security measures adopted
by Landlord. Tenant may install a security system within the leased
Premises with Landlord's written consent which will not be
unreasonably withheld. Landlord will be provided with an access code
to any security system and shall not have any liability for
accidentally setting off Tenant's security system. Landlord may
modify the type or amount of security measures or services provided
to the Building or the Premises at any time.
6.1 MAINTENANCE AND REPAIR.
Landlord shall have no liability for failure to perform required
maintenance and repair unless written notice of such maintenance or
repair is given by Tenant and Landlord fails to commence efforts to
remedy the problem in a reasonable time and manner. Landlord shall
have the right to erect scaffolding and other apparatus necessary
for the purpose of making repairs, and Landlord shall have no
liability for interference with Tenant's use because of repairs and
installations. Tenant shall have no claim against Landlord for any
interruption or reduction of services or interference with Tenant's
occupancy, and no such interruption or reduction shall be construed
as a constructive or other eviction of Tenant. Repair of damage
caused by negligent or intentional acts or breach of this lease by
Tenant, its employees or invitees shall be at Tenant's expense.
6.2 ALTERATIONS.
Tenant shall not make any alterations, additions, or improvements to
the Premises, change the color of the interior, or install any wall
or floor covering without Landlord's prior written consent which may
be withheld in Landlord's sole discretion. Any such improvements,
alterations, wiring, cables or conduit installed by Tenant shall at
once become part of the Premises and belong to Landlord except for
removable machinery and unattached movable trade fixtures. Landlord
may at its option require that Tenant remove any improvements,
alterations, wiring, cables or conduit installed by or for Tenant
and restore the Premises to the original condition upon termination
of this lease. Landlord shall have the right to approve the
contractor used by Tenant for any work in the Premises, and to post
notices of nonresponsibility in connection with work being performed
by Tenant in the Premises. Work by Tenant shall comply with all laws
then applicable to the Premises.
Page 2
<PAGE> 3
7.1 INDEMNITY.
Tenant shall not allow any liens to attach to the Building or
Tenant's interest in the Premises as a result of its activities.
Tenant shall indemnify and defend Landlord and its managing agents
from any claim, liability, damage, or loss occurring on the
Premises, arising out of any activity by Tenant, its agents, or
invitees or resulting from Tenant's failure to comply with any term
of this lease. Neither Landlord nor its managing agent shall have
any liability to Tenant because of loss or damage to Tenant's
property or for death or bodily injury caused by the acts or
omissions of other Tenants of the Building, or by third parties
(including criminal acts).
7.2 INSURANCE.
Tenant shall carry liability insurance with limits of not less than
ONE Million Dollars ($ 1,000,000) combined single limit bodily
injury and property damage which insurance shall have an endorsement
naming Landlord and Landlord's managing agent, if any, as an
additional insured, cover the liability insured under paragraph 7.1
of this lease and be in form and with companies reasonably
acceptable to Owner. Prior to occupancy, Tenant shall furnish a
certificate evidencing such insurance which shall state that the
coverage shall not be cancelled or materially changed without 10
days advance notice to Landlord and Landlord's managing agent, if
any. A renewal certificate shall be furnished at least 10 days prior
to expiration of any policy.
8.1 FIRE OR CASUALTY.
"Major Damage" means damage by fire or other casualty to the
Building or the Premises which causes the Premises or any
substantial portion of the Building to be unusable, or which will
cost more than 25 percent of the pre-damage value of the Building to
repair, or which is not covered by insurance. In case of Major
Damage, Landlord may elect to terminate this lease by notice in
writing to the Tenant within 30 days after such date. If this lease
is not terminated following Major Damage, or if damage occurs which
is not Major Damage, Landlord shall promptly restore the Premises to
the condition existing just prior to the damage. Tenant shall
promptly restore all damage to tenant improvements or alterations
installed by Tenant or pay the cost of such restoration to Landlord
if Landlord elects to do the restoration of such improvements. Rent
shall be reduced from the date of damage until the date restoration
work being performed by Landlord is substantially complete, with the
reduction to be in proportion to the area of the Premises not
useable by Tenant.
8.2 WAIVER OF SUBROGATION.
Tenant shall be responsible for insuring its personal property and
trade fixtures located on the Premises and any alterations or tenant
improvements it has made to the Premises. Neither Landlord, its
managing agent nor Tenant shall be liable to the other for any loss
or damage caused by water damage, sprinkler leakage, or any of the
risks that are or could be covered by a special all risk property
insurance policy, or for any business interruption, and there shall
be no subrogated claim by one party's insurance carrier against the
other party arising out of any such loss. This waiver is binding
only if it does not invalidate the insurance coverage of either
party hereto.
9.1 EMINENT DOMAIN.
If a condemning authority takes title by eminent domain or by
agreement in lieu thereof to the entire Building or a portion
sufficient to render the Premises unsuitable for Tenant's use, then
either party may elect to terminate this lease effective on the date
that possession is taken by the condemning authority. Rent shall be
reduced for the remainder of the term in an amount proportionate to
the reduction in area of the Premises caused by the taking. All
condemnation proceeds shall belong to Landlord, and Tenant shall
have no claim against Landlord or the condemnation award because of
the taking.
10.1 ASSIGNMENT AND SUBLETTING.
This lease shall bind and inure to the benefit of the parties, their
respective heirs, successors, and assigns, provided that Tenant
shall not assign its interest under this lease or sublet all or any
portion of the Premises without first obtaining Landlord's consent
in writing. This provision shall apply to all transfers by operation
of law including but not limited to mergers and changes in control
of Tenant. No assignment shall relieve Tenant of its obligation to
pay rent or perform other obligations required by this lease, and no
consent to one assignment or subletting shall be a consent to any
further assignment or subletting. Landlord shall not unreasonably
withhold its consent to any assignment or subletting provided the
effective rental paid by the subtenant or assignee is not less than
the current scheduled rental rate of the Building for comparable
space and the proposed Tenant is compatible with Landlord's normal
standards for the Building. If Tenant proposes a subletting or
assignment to which Landlord is required to consent under this
paragraph, Landlord shall have the option of terminating this lease
and dealing directly with the proposed subtenant or assignee, or any
third party. If an assignment or subletting is permitted, any cash
profit, or the net value of any other consideration received by
Tenant as a result of such transaction shall be paid to Landlord
promptly following its receipt by Tenant. Tenant shall pay any costs
incurred by Landlord in connection with a request for assignment or
subletting, including reasonable attorneys' fees.
11.1 DEFAULT.
Any of the following shall constitute a default by Tenant under this
lease:
(a) Tenant's failure to pay rent or any other charge under this
lease within 10 days after it is due, or failure to comply with any
other term or condition within 20 days following written notice from
Landlord specifying the noncompliance. If such noncompliance cannot
be cured within the 20-day period, this provision shall be satisfied
if Tenant commences correction within such period and thereafter
proceeds in good, faith and with reasonable diligence to effect
compliance as soon as possible. Time is of the essence of this
lease.
(b) Tenant's insolvency, business failure or assignment for the
benefit of its creditors. Tenant's commencement of proceedings under
any provision of any bankruptcy or insolvency law or failure to
obtain dismissal of any petition filed against it under such laws
within the time required to answer; or the appointment of a receiver
for all or any portion of Tenant's properties or financial records.
(c) Assignment or subletting by Tenant In violation of paragraph
10.1.
(d) Vacation or abandonment of the Premises without the written
consent of Landlord or failure to occupy the Premises within 20 days
after notice from Landlord tendering possession.
11.2 REMEDIES FOR DEFAULT.
In case of default as described in paragraph 11.1 Landlord shall
have the right to the following remedies which are intended to be
cumulative and in addition to any other remedies provided under
applicable law:
(a) Landlord may at its option terminate the lease by notice to
Tenant. With or without termination, Landlord may retake possession
of the Premises and may use or relet the Premises without accepting
a surrender or waiving the right to damages. Following such retaking
of possession, efforts by Landlord to relet the Premises shall be
sufficient if Landlord follows its usual procedures for finding
tenants for the space at rates not less than the current rates for
other comparable space in the Building. If Landlord has other vacant
space in the Building, prospective tenants may be placed in such
other space without prejudice to Landlord's claim to damages or loss
of rentals from Tenant.
(b) Landlord may recover all damages caused by Tenant's default
which shall include an amount equal to rentals lost because of the
default, lease commissions paid for this lease, and the unamortized
cost of any tenant improvements installed by Landlord to meet
Tenant's
Page 3
<PAGE> 4
special requirements. Landlord may sue periodically to recover
damages as they occur throughout the lease term, and no action for
accrued damages shall bar a later action for damages subsequently
accruing. Landlord may elect in any one action to recover accrued
damages plus damages attributable to the remaining term of the
lease. Such damages shall be measured by the difference between the
rent under this lease and the reasonable rental value of the
Premises for the remainder of the term, discounted to the time of
judgement at the prevailing interest rate on judgements.
(c) Landlord may make any payment or perform any obligation which
Tenant has failed to perform, in which case Landlord shall be
entitled to recover from Tenant upon demand all amounts so expended,
plus interest from the date of the expenditure at the rate of
one-and-one-half percent per month. Any such payment or performance
by Landlord shall not waive Tenant's default.
12.1 SURRENDER.
On expiration or early termination of this lease Tenant shall
deliver all keys to Landlord and surrender the Premises vacuumed,
swept, and free of debris and in the same condition as at the
commencement of the term subject only to reasonable wear from
ordinary use. Tenant shall remove all of its furnishings and trade
fixtures that remain its property and repair all damage resulting
from such removal. Failure to remove shall be an abandonment of the
property, and Landlord may dispose of it in any manner without
liability. If Tenant fails to vacate the Premises when required,
including failure to remove all its personal property, Landlord may
elect either: (i) to treat Tenant as a tenant from month to month,
subject to the provisions of this lease except that rent shall be
one-and-one-half times the total rent being charged when the lease
term expired, and any option or other rights regarding extension of
the term or expansion of the Premises shall no longer apply; or (ii)
to eject Tenant from the Premises and recover damages caused by
wrongful holdover.
13.1 REGULATIONS.
Landlord shall have the right but shall not be obligated to make,
revise and enforce regulations or policies consistent with this
lease for the purpose of promoting safety, health (including moving,
use of common areas and prohibition of smoking), order, economy,
cleanliness, and good service to all tenants of the Building. All
such regulations and policies shall be complied with as if part of
this lease.
14.1 ACCESS.
During times other than normal Building hours Tenant's officers and
employees or those having business with Tenant may be required to
identify themselves or show passes in order to gain access to the
Building. Landlord shall have no liability for permitting or
refusing to permit access by anyone. Landlord may regulate access to
any Building elevators outside of normal Building hours. Landlord
shall have the right to enter upon the Premises at any time by
passkey or otherwise to determine Tenant's compliance with this
lease, to perform necessary services, maintenance and repairs or
alterations to the Building or the Premises, or to show the Premises
to any prospective tenant or purchasers. Except in case of emergency
such entry shall be at such times and in such manner as to minimize
interference with the reasonable business use of the Premises by
Tenant.
14.2 FURNITURE AND BULKY ARTICLES.
Tenant shall move furniture and bulky articles in and out of the
Building or make independent use of the elevators only at times
approved by Landlord following at least 24 hours written notice to
Landlord of the intended move. Landlord will not unreasonably
withhold its consent under this paragraph.
15.1 NOTICES.
Notices between the parties relating to this lease shall be in
writing, effective when delivered, or if mailed, effective on the
second day following mailing, postage prepaid, to the address for
the party stated in this lease or to such other address as either
party may specify by notice to the other. Notice to Tenant may
always be delivered to the Premises. Rent shall be payable to
Landlord at the same address and in the same manner, but shall be
considered paid only when received.
16.1 SUBORDINATION AND ATTORNMENT.
This lease shall be subject to and subordinate to any mortgages,
deeds of trust, or land sale contracts (here after collectively
referred to as encumbrances) now existing against the Building. At
Landlord's option this lease shall be subject and subordinate to any
future encumbrance hereafter placed against the Building (including
the underlying land or any modifications of existing encumbrances,
and Tenant shall execute such documents as may reasonably be
requested by Landlord or the holder of the encumbrance to evidence
this subordination. If any encumbrance is foreclosed, then if the
purchaser at foreclosure sale gives to Tenant a written agreement to
recognize Tenant's lease, Tenant shall attorn to such purchaser and
this Lease shall continue.
16.2 TRANSFER OF BUILDING.
If the Building is sold or otherwise transferred by Landlord or any
successor, Tenant shall attorn to the purchaser or transferee and
recognize it as the lessor under this lease, and, provided the
purchaser or transferee assumes all obligations hereunder, the
transferor shall have no further liability hereunder.
16.3 ESTOPPELS.
Either party will within 10 days after notice from the other
execute, acknowledge and deliver to the other party a certificate
certifying whether or not this lease has been modified and is in
full force and effect; whether there are any modifications or
alleged breaches by the other party; the dates to which rent has
been paid in advance, and the amount of any security deposit or
prepaid rent; and any other facts that may reasonably be requested.
Failure to deliver the certificate within the specified time shall
be conclusive upon the party of whom the certificate was requested
that the lease is in full force and effect and has not been modified
except as may be represented by the party requesting the
certificate. If requested by the holder of any encumbrance, or any
ground lessor, Tenant will agree to give such holder or lessor
notice of and an opportunity to cure any default by Landlord under
this lease.
17.1 ATTORNEYS' FEES.
In any litigation arising out of this lease, the prevailing party
shall be entitled to recover attorneys' fees at trial and on any
appeal. If Landlord incurs attorneys' fees because of a default by
Tenant, Tenant shall pay all such fees whether or not litigation is
filed.
18.1 QUIET ENJOYMENT.
Landlord warrants that so long as Tenant complies with all terms of
this lease it shall be entitled to peaceable and undisturbed
possession of the Premises free from any eviction or disturbance by
Landlord. Neither Landlord nor its managing agent shall have any
liability to Tenant for loss or damages arising out of the acts,
including criminal acts, of other tenants of the Building or third
parties, nor any liability for any reason which exceeds the value of
its interest in the Building.
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<PAGE> 5
19.1 ADDITIONAL RENT-TAX ADJUSTMENT.
Whenever for any July 1 - June 30 tax year the real property taxes
levied against the Building and its underlying land exceed those
levied for the N/A - N/A tax year, then the monthly rental for the
next succeeding calendar year shall be increased by one-twelfth of
such tax increase times Tenant's Proportionate Share. "Real property
taxes" as used herein means all taxes and assessments of any public
authority against the Building and the land on which it is located,
the cost of contesting any tax and any form of fee or charge imposed
on Landlord as a direct consequence of owning or leasing the
Premises, including but not limited to rent taxes, gross receipt
taxes, leasing taxes, or any fee or charge wholly or partially in
lieu of or in substitution for ad valorem real property taxes or
assessments, whether now existing or hereafter enacted. If any
portion of the Building is occupied by a tax-exempt tenant so that
the Building has a partial tax exemption under ORS 307.112 or a
similar statute, then real property taxes shall mean taxes computed
as if such partial exemption did not exist. If a separate assessment
or identifiable tax increase arises because of improvements to the
Premises, then Tenant shall pay 100 percent of such increase.
19.2 ADDITIONAL RENT-COST-OF-LIVING ADJUSTMENT.
On each anniversary date of this lease, the Landlord shall adjust
the base rental in the same percentage as the increase, if any, in
the Consumer Price Index published by the United States Department
of Labor, Bureau of Labor Statistics. The change shall be computed
by comparing the schedule entitled "U.S. City Average, All Items,
All Urban Consumers, 1982 - 84 = 100" for the latest available month
preceding the month in which the lease term commenced with the same
figure for the same month in the years for which the adjustment is
computed. All comparisons shall be made using index figures derived
from the same base period and in no event shall this provision
operate to decrease the monthly rental for the Premises below the
initial stated monthly rental, plus property tax adjustments and
operating expense adjustments as provided in this Lease. If the
index cited above is revised or discontinued during the term of this
Lease then the index that is designated by the Portland Metropolitan
Association of Building Owners and Managers to replace it shall be
used.
19.3 OPERATING EXPENSE ADJUSTMENT.
Tenant shall pay as additional rent Tenant's Proportionate Share of
the amount by which operating expenses for the Building increase
over those experienced by Landlord during the calendar year N/A
(base year). Effective January 1 of each year Landlord shall
estimate the amount by which operating expenses are expected to
increase, if any, over those incurred in the base year. Monthly
rental for that year shall be increased by one-twelfth of Tenant's
share of the estimated increase. Following the end of each calendar
year, Landlord shall compute the actual increase in operating
expenses and bill Tenant for any deficiency or credit Tenant with
any excess collected. As used herein "operating expenses" shall mean
all costs of operating and maintaining the Building as determined by
standard real estate accounting practice, including, but not limited
to: all water and sewer charges; the cost of natural gas and
electricity provided to the Building; janitorial and cleaning
supplies and services; administration costs and management fees;
superintendent fees; security services, if any; insurance premiums;
licenses, permits for the operation and maintenance of the Building
and all of its component elements and mechanical systems; the annual
amortized capital improvement cost (amortized over such a period as
Landlord may select but not shorter than the period allowed under
the Internal Revenue Code and at a current market interest rate) for
any capital improvements to the Building required by any
governmental authority or those which have a reasonable probability
of improving the operating efficiency of the Building.
19.4 DISPUTES.
If Tenant disputes any computation of additional rent or rent
adjustment under paragraphs 19.1 through 19.3 of this lease, it
shall give notice to Landlord not later than one year after the
notice from Landlord describing the computation in question, but in
any event not later than 30 days after expiration or earlier
termination of this lease. If Tenant fails to give such a notice,
the computation by Landlord shall be binding and conclusive between
the parties for the period in question. If Tenant gives a timely
notice, the dispute shall be resolved by an independent certified
public accountant selected by Landlord whose decision shall be
conclusive between the parties. Each party shall pay one-half of the
fee for making such determination except that if the adjustment in
favor of Tenant does not exceed ten percent of the escalation
amounts for the year in question, Tenant shall pay (i) the entire
cost of any such third-party determination; and (ii) Landlord's
out-of-pocket costs and reasonable expenses for personnel time in
responding to the audit. Nothing herein shall reduce Tenant's
obligations to make all payments as required by this lease.
20.1 COMPLETE AGREEMENT; NO IMPLIED COVENANTS.
This lease and the attached Exhibits and Schedules if any,
constitute the entire agreement of the parties and supersede all
prior written and oral agreements and representations and there are
no implied covenants or other agreements between the parties except
as expressly set forth in this Lease. Neither Landlord nor Tenant is
relying on any representations other than those expressly set forth
herein.
20.2 SPACE LEASED AS IS.
Unless otherwise stated in this Lease, the Premises are leased AS IS
in the condition now existing with no alterations or other work to
be performed by Landlord.
20.3 CAPTIONS.
The titles to the paragraphs of this lease are descriptive only and
are not intended to change or influence the meaning of any paragraph
or to be part of this lease.
20.4 NONWAIVER.
Failure by Landlord to promptly enforce any regulation, remedy or
right of any kind under this Lease shall not constitute a waiver of
the same and such right or remedy may be asserted at any time after
Landlord becomes entitled to the benefit thereof notwithstanding
delay in enforcement.
20.5 EXHIBITS.
The following Exhibits are attached hereto and incorporated as a
part of this lease:
Page 5
<PAGE> 6
STANDARD LEASE ADDENDUM A.) LEGAL DESCRIPTION
B.) PREMISES PLAN C.) RULES & REGULATIONS
Page 6
<PAGE> 7
IN WITNESS WHEREOF, the duly authorized representatives of the parties have
executed this lease as of the day and year first written above.
CITY CENTER RETAIL TRUST
LANDLORD: CITY CENTER RETAIL TRUST By: /s/
C/O MORGAN PARK PROPERTIES ---------------------------
Title: Vice President
------------------------
Address for notices:
720 SW WASHINGTON, STE. 330 By:
- ---------------------------- ---------------------------
PORTLAND, OREGON 97205 Title:
- ---------------------------- ------------------------
WEBTRENDS CORPORATION
TENANT: WEBTRENDS CORPORATION By: /s/
---------------------------
W. GLEN BOYD
PRESIDENT
Address for notices:
621 SW MORRISON, STE. 1300 By: /s/
- ---------------------------- ---------------------------
PORTLAND, OREGON 97205 ELI SHAPIRA
Title: CEO
------------------------
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<PAGE> 8
STANDARD ADDENDUM TO OFFICE LEASE
Landlord: CITY CENTER RETAIL TRUST
Tenant: Webtrends Corporation
Date: September 15, 1998
THIS ADDENDUM ("Addendum") is made contemporaneously with and is a part
of that certain Office Lease dated September 15, 1998, between the above-named
Landlord and the above-named Tenant for the Premises commonly known as Suit 525
of the American Bank Building, 621 S.W. Morrison, Portland, Oregon. The defined,
capitalized terms used and Section numbers in the Lease shall have the same
meanings when used in this Addendum. In the event of any inconsistency between
the provisions of this Addendum and the provisions of the Lease, the provisions
of this Addendum shall govern the rights of the parties.
21.1 LANDLORD'S CONSENT. In no event shall Tenant have the right to
terminate this Lease, and in no event shall Landlord be liable for monetary
damages, based upon a claim that consent has been unreasonably withheld or
conditioned or otherwise arising from the withholding or conditioning of
consent.
22.1 AMERICANS WITH DISABILITIES ACT ("A.D.A"). Tenant acknowledges that
(a) compliance of the Premises with the A.D.A. depends upon the uses of the
Premises, the location of each use within the Premises, alterations which Tenant
makes to the Premises, and changes to these factors over time, and (b) Tenant
may have obligations under the A.D.A. as an employer which may differ from its
obligations as the operator of the Premises. Tenant shall make only such uses of
the Premises as comply with the A.D.A. and shall comply and cause the Premises
to comply with the A.D.A. Tenant agrees that, in connection with any
installation of alterations and improvements by Tenant, Tenant shall comply with
all requirements of the A.D.A. relating thereto including, but not limited to,
any requirements to improve or modify other portions or aspects of the Premises
or the Building in connection with or as a result of the alterations or
improvements contemplated by Tenant, all at the expense of Tenant.
23.1 ATTORNEY FEES. In the event of any litigation between Landlord and
Tenant with regard to this Lease, including litigation or proceedings in
Bankruptcy Court whether or not regarding issues which are unique to bankruptcy
law, the prevailing party shall be entitled to recover, in addition to all other
sums and relief, its reasonable costs and attorney fees incurred at and in
preparation for such litigation or proceedings, including arbitration, trial,
appeal and review.
24.1 LIMITATION ON LANDLORD LIABILITY. Landlord shall not be liable for
injury or damage to persons, business, or the merchandise or other property of
Tenant, Tenant's employees, 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, or 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. Landlord shall
not be liable for any damages arising from any act or neglect of any other
tenant of Landlord. Notwithstanding Landlord's negligence or breach of this
Lease, Landlord shall under no circumstances be liable for injury to Tenant's
business or any loss of income or profit therefrom. Tenant further agrees that,
in the event of any actual or alleged failure, breach or default hereunder by
Landlord, Tenant's sole and exclusive remedy shall be against the Landlord's
interest in the Building. Tenant agrees that the obligations of the Landlord
under this Lease do not constitute personal obligations of the Landlord and
Tenant shall not seek recourse against Landlord or any of its personal assets
for satisfaction of any liability with respect to this Lease. For purposes of
this Section 24.1, the term "Landlord" means and includes the Landlord named
below and any successor landlord, the agents and property managers of such
lessors, and the owners, employees, and agents of the foregoing.
-1-
<PAGE> 9
Landlord: CITY CENTER RETAIL TRUST
By: /s/
--------------------------------------
Its: Vice President
-------------------------------------
Tenant: Webtrends Corporation
By: /s/
--------------------------------------
W. Glen Boyd
Its: President
-------------------------------------
By: /s/
--------------------------------------
Eli Shapira
Its: CEO
-------------------------------------
-2-
<PAGE> 10
EXHIBIT "A"
LEGAL DESCRIPTION
AMERICAN BANK BUILDING
A portion of Block 178, CITY OF PORTLAND, in the City of Portland, County of
Multnomah and State of Oregon, described as follows:
Beginning at the Southwesterly corner of Block 178, CITY OF PORTLAND, County of
Multnomah and State of Oregon, according to the recorded plat thereof, at the
intersection of the East line of Seventh Street (now SW Broadway) with the North
line of SW Morrison Street and running thence Easterly with said North line of
SW Morrison Street, 200 feet to the Southeasterly corner of said block; thence
Northerly with the West line of SW 6th Street, 75 feet; thence Westerly and
parallel with the North line of said SW Morrison Street, 70.15 feet, more or
less; thence Southerly and parallel with the West line of SW 6th Street, 5 feet;
thence Westerly and parallel with the said SW Morrison Street, 70 feet; thence
Northerly and parallel with the East line of Seventh Street, (now SW Broadway) 5
feet; thence Westerly and parallel with the North line of SW Morrison Street,
59.85 feet, more or less, to the East line of Seventh Street (now SW Broadway);
thence South along the East line of Seventh Street (now SW Broadway) 75 feet to
the place of beginning.
<PAGE> 11
EXHIBIT B
[diagram]
<PAGE> 12
EXHIBIT "C"
Rules and Regulations
1. Lessee will deposit all garbage in the receptacles the Lessor provides for
garbage and will not leave or accumulate any boxes, packing material, or other
trash of any kind on the premises or common areas.
2. Lessee shall not display any merchandise outside the premises at any time
without the prior written consent of the Lessor.
3. Lessee shall not erect or install any signs or advertising material or
devices in or about the Premises without the previous approval of the Lessor.
Lessee shall not place upon or install in windows or other openings or exterior
sides of doors or walls of the Premises or any part of the Premises visible from
the exterior of the Premises any signs, symbols, drapes or other materials
without prior written consent of Lessor.
4. Lessee shall ensure that no animals are kept in or about the Premises and
that the Premises are not used for sleeping quarters.
5. Lessee shall not bring upon the Premises any machinery, equipment, or article
or thing that by reason of its weight, size or use might damage the Premises and
that it will not at any time overload the floors of the Premises.
6. All deliveries shall be made to the loading entrance provided and during such
periods as shall be designated by Lessor. Lessee shall not interfere with
access.
7. No auction, quitting business, bankruptcy, fire, or similar sale shall be
conducted on the premises without the prior approval of the Lessor.
8. Use of Service Elevator. The Landlord shall designate appropriate entrances
and a "service" elevator for deliveries or other movement to or from the
Premises of equipment, materials, supplies, furniture or other property, and
Lessee shall not use any other entrances or elevators for such purposes. The
service elevator shall be available for use by all tenants in the building,
subject to such reasonable scheduling as Landlord in its discretion shall deem
appropriate.
9. Any directory provided by the Lessor for the Building will be for display of
the business name and location of Lessees and Lessor reserves the right to
exclude any other names.
10. Lessee shall not place any new or additional locks on any doors of the
Premises or re-key any existing locks without the consent of the Lessor.
11. Lessor reserves the right to exclude or expel from the common areas any
person who, in the judgement of the Lessor, is intoxicated, under the influence
of drugs, or who shall in any manner violate any of the rules and regulations.
12. Lessee shall not do or permit to be done within the Premises anything which
would unreasonably annoy or interfere with the rights of other Lessees of the
Building.
13. Lessee shall not permit it's employees or invitees to loiter in or about the
common areas, or to obstruct any of the parking, truck maneuvering, or other
common areas, or to place, empty, or throw any rubbish, litter, trash or
material of any nature upon any common areas.
14. No storage of materials, equipment, or property of any kind is permitted
outside the Premises (except in designated locations with Lessor's consent) and
any such property may be removed by Lessor
at Lessee's risk and expense.
15. Lessee shall not make or permit any use of the Premises which may be
dangerous to life, limb or property, or any noise, odor or vibrations to emit
from the Premises which are objectionable to Landlord or other occupants of the
Building; or to create, maintain, or permit a nuisance or any violation of any
regulation of any governmental agency thereon.
<PAGE> 13
16. Lessee shall not commit or permit to be committed any waste, damage or
injury to the Premises or other common areas adjoining the Building and shall
promptly repair the same at it's expense.
17. Lessee shall not at any time display a "For Rent" sign upon the Premises.
18. Lessee shall be responsible for keeping a copy of the Lease and Lessor's
current rules and regulations upon the Premises.
19. Lessee shall not waste electricity or water and agrees to cooperate fully
with Lessor to assure the most effective and economical use of utilities
services as may be provided to the Building by Lessor.
20. Lessee shall keep Lessor advised of the current telephone numbers of
Lessee's employees who may be contacted in an emergency; i.e. fire, break-in,
vandalism, etc. If Lessor shall deem it necessary to respond to such emergency
in Lessees behalf, Lessee shall pay all costs incurred for services ordered by
Lessor to secure or otherwise protect the Premises and the contents thereof,
including premium charge for any time spent by Lessor's employees in responding
to such an emergency.
21. Bicycles are not allowed in the Building under any circumstances.
22. All common areas, including the restrooms, and all storage areas are
non-smoking areas.
23. Building codes and keys in the possession of Tenant and Tenant's employees
are not to be given to non-tenants for any reason.
<PAGE> 1
EXHIBIT 10.6
Standard Form of OFFICE BUILDING LEASE Developed by PORTLAND METROPOLITAN
ASSOCIATION OF BUILDING OWNERS AND MANAGERS
OFFICE LEASE
This lease, made and entered into at Portland, Oregon, this 22ND day of MAY 1997
by and between
LANDLORD: PIONEER SQUARE ASSOCIATES, L.L.C.,
A DELAWARE LIMITED LIABILITY COMPANY
and
TENANT: e.g. SOFTWARE, INC.
Landlord hereby leases to Tenant the following: Suite 1300
AS MORE FULLY DESCRIBED ON Exhibit "B"
(the Premises)
in THE AMERICAN BANK BUILDING (the Building)
621 SW MORRISON STREET
at PORTLAND Oregon, containing approximately 10,690 USEABLE
square feet as shown on the attached floor plan, calculated using a load factor
of 0 percent.
Tenant's Proportion Share for purposes of Section 19 shall be 7.42%.
This lease is for a term commencing OCTOBER 1, 1997 and continuing through
SEPT 30, 2003 at a
Monthly Base Rental as follows:
YEAR 1: $14.50 PER SQ. FT. YEAR 5: $16.50 PER SQ. FT.
YEAR 2: $15.00 PER SQ. FT. YEAR 6: $17.00 PER SQ. FT.
YEAR 3: $15.50 PER SQ. FT.
YEAR 4: $16.00 PER SQ. FT.
Rent is payable in advance on the FIRST day of each month commencing OCTOBER 1,
1997.
Landlord and Tenant covenant and agree as follows:
1.1 Delivery of Possession.
Should Landlord be unable to deliver possession of the Premises on the
date fixed for the commencement of the term, commencement will be
deferred and Tenant shall owe no rent until notice from Landlord
tendering possession to Tenant. If possession is not so tendered within
90 days following commencement of the term, then Tenant may elect to
cancel this lease by notice to Landlord within 10 days following
expiration of the 90-day period. Landlord shall have no liability to
Tenant for delay in delivering possession, nor shall such delay extend
the term of this lease in any manner unless the parties execute a
written extension agreement.
2.1 Rent Payment.
Tenant shall pay the Base Rent for the Premises and any additional rent
provided herein without deduction or offset. Rent for any partial month
during the lease term shall be prorated to reflect the number of days
during the month that Tenant occupies the Premises. Additional
-1-
<PAGE> 2
rent means amounts determined under Section 19 of this Lease and any
other sums payable by Tenant to Landlord under this Lease. Rent not paid
when due shall bear interest at the rate of one-and-one-half percent per
month until paid. Landlord may at its option impose a late charge of
$.05 for each $1 of rent for rent payments made more than 10 days late
in lieu of interest for the first month of delinquency, without waiving
any other remedies available for default. Failure to impose a late
charge shall not be a waiver of Landlord's rights hereunder.
3.1 Lease Consideration.
Upon execution of the lease Tenant has paid the Base Rent for the first
full month of the lease term for which rent is payable and in addition
has paid the sum of $ N/A as lease consideration. Landlord may apply the
lease consideration to pay the cost of performing any obligation which
Tenant fails to perform within the time required by this lease, but such
application by Landlord shall not be the exclusive remedy for Tenant's
default. If the lease consideration is applied by Landlord, Tenant shall
on demand pay the sum necessary to replenish the lease consideration to
its original amount. To the extent not applied by Landlord to cure
defaults by Tenant, the lease consideration shall be applied against the
rent payable for the last month of the term. The lease consideration
shall not be refundable.
4.1 Use.
Tenant shall use the Premises as business for GENERAL OFFICE USE and for
no other purpose without Landlord's written consent. In connection with
its use, Tenant shall at its expense promptly comply and cause the
Premises to comply with all applicable laws, ordinances, rules and
regulations of any public authority and shall not annoy, obstruct, or
interfere with the rights of other tenants of the Building. Tenant shall
create no nuisance nor allow any objectionable fumes, noise, or
vibrations to be emitted from the Premises. Tenant shall not conduct any
activities that will increase Landlord's insurance rates for any portion
of the Building or that will in any manner degrade or damage the
reputation of the Building.
4.2 Equipment.
Tenant shall install in the Premises only such office equipment as is
customary for general office use and shall not overload the floors or
electrical circuits of the Premises or Building or alter the plumbing or
wiring of the Premises or Building. Landlord must approve in advance the
location of and manner of installing any wiring or electrical, heat
generating or communication equipment or exceptionally heavy articles.
All telecommunications equipment, conduit, cables and wiring, additional
dedicated circuits and any additional air conditioning required because
of heat generating equipment or special lighting installed by Tenant
shall be installed and operated at Tenant's expense. Landlord shall have
no obligation to permit the installation of equipment by any
telecommunications provider whose equipment is not then servicing the
Building.
4.3 Signs.
No signs, awnings, antennas, or other apparatus shall be painted on or
attached to the Building or anything placed on any glass or woodwork of
the Premises or positioned so as to be visible from outside the Premises
without Landlord's written approval as to design, size, location, and
color. All signs installed by Tenant shall comply with Landlord's
standards for signs and all applicable codes and all signs and sign
hardware shall be removed upon termination of this lease with the sign
location restored to its former state unless Landlord elects to retain
all or any portion thereof.
5.1 Utilities and Services.
Landlord will furnish water and electricity to the Building at all times
and will furnish heat and air conditioning (if the Building is air
conditioned) during the normal Building hours as established by Owner.
Janitorial service will be provided in accordance with the regular
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schedule of the Building, which schedule and service may change from
time to time. Tenant shall comply with all government laws or
regulations regarding the use or reduction of use of utilities on the
Premises. Interruption of services or utilities shall not be deemed an
eviction or disturbance of Tenant's use and possession of the Premises,
render Landlord liable to Tenant for damages, or relieve Tenant from
performance of Tenant's obligations under this lease. Landlord shall
take all reasonable steps to correct any interruptions in service.
Electrical service furnished will be 110 volts unless different service
already exists in the Premises. Tenant shall provide its own surge
protection for power furnished to the Premises.
5.2 Extra Usage.
If Tenant uses excessive amounts of utilities or services of any kind
because of operation outside of normal Building hours, high demands from
office machinery and equipment, nonstandard lighting, or any other
cause. Landlord may impose a reasonable charge for supplying such extra
utilities or services, which charge shall be payable monthly by Tenant
in conjunction with rent payments. In case of dispute over any extra
charge under this paragraph, Landlord shall designate a qualified
independent engineer whose decision shall be conclusive on both parties.
Landlord and Tenant shall each pay one-half of the cost of such
determination.
5.3 Security.
Landlord may but shall have no obligation to provide security service or
to adopt security measures regarding the Premises, and Tenant shall
cooperate with all reasonable security measures adopted by Landlord.
Tenant may install a security system within the leased Premises with
Landlord's written consent which will not be unreasonably withheld.
Landlord will be provided with an access code to any security system and
shall not have any liability for accidentally setting off Tenant's
security system. Landlord may modify the type or amount of security
measures or services provided to the Building or the Premises at any
time.
6.1 Maintenance and Repair.
Landlord shall have no liability for failure to perform required
maintenance and repair unless written notice of such maintenance or
repair is given by Tenant and Landlord fails to commence efforts to
remedy the problem in a reasonable time and manner. Landlord shall have
the right to erect scaffolding and other apparatus necessary for the
purpose of making repairs, and Landlord shall have no liability for
interference with Tenant's use because of repairs and installations.
Tenant shall have no claim against Landlord for any interruption or
reduction of services or interference with Tenant's occupancy, and no
such interruption or reduction shall be construed as a constructive or
other eviction of Tenant. Repair of damage caused by negligent or
intentional acts or breach of this lease by Tenant, its employees or
invitees shall be at Tenant's expense.
6.2 Alterations.
Tenant shall not make any alterations, additions, or improvements to the
Premises, change the color of the interior, or install any wall or floor
covering without Landlord's prior written consent which may be withheld
in Landlord's sole discretion. Any such improvements, alterations,
wiring, cables or conduit installed by Tenant shall at once become part
of the Premises and belong to Landlord except for removable machinery
and unattached movable trade fixtures. Landlord may at its option
require that Tenant remove any improvements, alterations, wiring, cables
or conduit installed by or for Tenant and restore the Premises to the
original condition upon termination of this lease. Landlord shall have
the right to approve the contractor used by Tenant for any work in the
Premises, and to post notices of nonresponsibility in connection with
work being performed by Tenant in the Premises. Work by Tenant shall
comply with all laws then applicable to the Premises.
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7.1 Indemnity.
Tenant shall not allow any liens to attach to the Building or Tenant's
interest in the Premises as a result of its activities. Tenant shall
indemnify and defend Landlord and its managing agents from any claim,
liability, damage, or loss occurring on the Premises, arising out of any
activity by Tenant, its agents, or invitees or resulting from Tenant's
failure to comply with any term of this lease. Neither Landlord nor its
managing agent shall have any liability to Tenant because of loss or
damage to Tenant's property or for death or bodily injury caused by the
acts or omissions of other Tenants of the Building, or by third parties
(including criminal acts).
7.2 Insurance.
Tenant shall carry liability insurance with limits of not less than one
Million Dollars ($1,000,000) combined single limit bodily injury and
property damage which insurance shall have an endorsement naming
Landlord and Landlord's managing agent, if any, as an additional
insured, cover the liability insured under paragraph 7.1 of this lease
and be in form and with companies reasonably acceptable to Owner. Prior
to occupancy, Tenant shall furnish a certificate evidencing such
insurance which shall state that the coverage shall not be cancelled or
materially changed without 10 days advance notice to Landlord and
Landlord's managing agent, if any. A renewal certificate shall be
furnished at least 10 days prior to expiration of any policy.
8.1 Fire or Casualty.
"Major Damage" means damage by fire or other casualty to the Building or
the Premises which causes the Premises or any substantial portion of the
Building to be unusable, or which will cost more than 25 percent of the
pre-damage value of the Building to repair, or which is not covered by
insurance. In case of Major Damage, Landlord may elect to terminate this
lease by notice in writing to the Tenant within 30 days after such date.
If this lease is not terminated following Major Damage, or if damage
occurs which is not Major Damage, Landlord shall promptly restore the
Premises to the condition existing just prior to the damage. Tenant
shall promptly restore all damage to tenant improvements or alterations
installed by Tenant or pay the cost of such restoration to Landlord if
Landlord elects to do the restoration of such improvements. Rent shall
be reduced from the date of damage until the date restoration work being
performed by Landlord is substantially complete, with the reduction to
be in proportion to the area of the Premises not useable by Tenant.
8.2 Waiver of Subrogation.
Tenant shall be responsible for insuring its personal property and trade
fixtures located on the Premises and any alterations or tenant
improvements it has made to the Premises. Neither Landlord, its managing
agent nor Tenant shall be liable to the other for any loss or damage
caused by water damage, sprinkler leakage, or any of the risks that are
or could be covered by a special all risk property insurance policy, or
for any business interruption, and there shall be no subrogated claim by
one party's insurance carrier against the other party arising out of any
such loss. This waiver is binding only if it does not invalidate the
insurance coverage of either party hereto.
9.1 Eminent Domain.
If a condemning authority takes title by eminent domain or by agreement
in lieu thereof to the entire Building or a portion sufficient to render
the Premises unsuitable for Tenant's use, then either party may elect to
terminate this lease effective on the date that possession is taken by
the condemning authority. Rent shall be reduced for the remainder of the
term in an amount proportionate to the reduction in area of the Premises
caused by the taking. All condemnation proceeds shall belong to
Landlord, and Tenant shall have no claim against Landlord or the
condemnation award because of the taking.
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10.1 Assignment and Subletting.
This lease shall bind and inure to the benefit of the parties, their
respective heirs, successors, and assigns, provided that Tenant shall
not assign its interest under this lease or sublet all or any portion of
the Premises without first obtaining Landlord's consent in writing. This
provision shall apply to all transfers by operation of law including but
not limited to mergers and changes in control of Tenant. No assignment
shall relieve Tenant of its obligation to pay rent or perform other
obligations required by this lease, and no consent to one assignment or
subletting shall be a consent to any further assignment or subletting.
Landlord shall not unreasonably withhold its consent to any assignment
or subletting provided the proposed Tenant is compatible with Landlord's
normal standards for the Building. If Tenant proposes a subletting or
assignment to which Landlord is required to consent under this
paragraph, Landlord shall have the option of terminating this lease and
dealing directly with the proposed subtenant or assignee, or any third
party. If an assignment or subletting is permitted, any cash profit, or
the net value of any other consideration received by Tenant as a result
of such transaction shall be split 50/50 between Tenant & Landlord
promptly following its receipt by Tenant. Tenant shall pay any costs
incurred by Landlord in connection with a request for assignment or
subletting, including reasonable attorneys fees. Landlord's consent
shall not be unreasonably withheld, conditioned, or delayed.
11.1 Default.
Any of the following shall constitute a default by Tenant under this
lease: (a) Tenant's failure to pay rent or any other charge under this
lease within 10 days after it is due, or failure to comply with any
other term or condition within 20 days following written notice from
Landlord specifying the noncompliance. If such noncompliance cannot be
cured within the 20-day period, this provision shall be satisfied if
Tenant commences correction within such period and thereafter proceeds
in good faith and with reasonable diligence to effect compliance as soon
as possible. Time is of the essence of this lease. (b) Tenant's
insolvency, business failure or assignment for the benefit of its
creditors. Tenant's commencement of proceedings under any provision of
any bankruptcy or insolvency law or failure to obtain dismissal of any
petition filed against it under such laws within the time required to
answer; or the appointment of a receiver for all or any portion of
Tenant's properties or financial records. (c) Assignment or subletting
by Tenant in violation of paragraph 10.1. (d) Vacation or abandonment of
the Premises without the written consent of Landlord or failure to
occupy the Premises within 20 days after notice from Landlord tendering
possession.
11.2 Remedies for Default.
In case of default as described in paragraph 11.1 Landlord shall have
the right to the following remedies which are intended to be cumulative
and in addition to any other remedies provided under applicable law: (a)
Landlord may at its option terminate the lease by notice to Tenant. With
or without termination, Landlord may retake possession of the Premises
and may use or relet the Premises without accepting a surrender or
waiving the right to damages. Following such retaking of possession,
efforts by Landlord to relet the Premises shall be sufficient if
Landlord follows its usual procedures for finding tenants for the space
at rates not less than the current rates for other comparable space in
the Building. If Landlord has other vacant space in the Building,
prospective tenants may be placed in such other space without prejudice
to Landlord's claim to damages or loss of rentals from Tenant. (b)
Landlord may recover all damages caused by Tenant's default which shall
include an amount equal to rentals lost because of the default, lease
commissions paid for this lease, and the unamortized cost of any tenant
improvements installed by Landlord to meet Tenant's special
requirements. Landlord may sue periodically to recover damages as they
occur
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throughout the lease term, and no action for accrued damages shall
bar a later action for damages subsequently accruing. Landlord may elect
in any one action to recover accrued damages plus damages attributable
to the remaining term of the lease. Such damages shall be measured by
the difference between the rent under this lease and the reasonable
rental value of the Premises for the remainder of the term, discounted
to the time of judgement at the prevailing interest rate on judgements.
(c) Landlord may make any payment or perform any obligation which Tenant
has failed to perform, in which case Landlord shall be entitled to
recover from Tenant upon demand all amounts so expended, plus interest
from the date of the expenditure at the rate of one-and-one-half percent
per month. Any such payment or performance by Landlord shall not waive
Tenant's default.
12.1 Surrender.
On expiration or early termination of this lease Tenant shall deliver
all keys to Landlord and surrender the Premises vacuumed, swept, and
free of debris and in the same condition as at the commencement of the
term subject only to reasonable wear from ordinary use. Tenant shall
remove all of its furnishings and trade fixtures that remain its
property and repair all damage resulting from such removal. Failure to
remove shall be an abandonment of the property, and Landlord may dispose
of it in any manner without liability. If Tenant fails to vacate the
Premises when required, including failure to remove all its personal
property, Landlord may elect either: (i) to treat Tenant as a tenant
from month to month, subject to the provisions of this lease except that
rent shall be one-and-one-half times the total rent charged when the
lease term expired, and any option or other rights regarding extension
of the term or expansion of the Premises shall no longer apply; or (ii)
to eject Tenant from the Premises and recover damages caused by wrongful
holdover.
13.1 Regulations.
Landlord shall have the right but shall not be obligated to make, revise
and enforce regulations or policies consistent with this lease for the
purpose of promoting safety, health (including moving, use of common
areas and prohibition of smoking), order, economy, cleanliness, and good
service to all tenants of the Building. All such regulations and
policies shall be complied with as if part of this lease.
14.1 Access.
During times other than normal Building hours Tenant's officers and
employees or those having business with Tenant may be required to
identify themselves or show passes in order to gain access to the
Building. Landlord shall have no liability for permitting or refusing to
permit access by anyone. Landlord may regulate access to any Building
elevators outside of normal Building hours. Landlord shall have the
right to enter upon the Premises at any time by passkey or otherwise to
determine Tenant's compliance with this lease, to perform necessary
services, maintenance and repairs or alterations to the Building or the
Premises, or to show the Premises to any prospective tenant or
purchasers. Except in case of emergency such entry shall be at such
times and in such manner as to minimize interference with the reasonable
business use of the Premises by Tenant.
14.2 Furniture and Bulky Articles.
Tenant shall move furniture and bulky articles in and out of the
Building or make independent use of the elevators only at times approved
by Landlord following at least 24 hours written notice to Landlord of
the intended move. Landlord will not unreasonably withhold its consent
under this paragraph.
15.1 Notices.
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Notices between the parties relating to this lease shall be in writing,
effective when delivered, or if mailed, effective on the second day
following mailing, postage prepaid, to the address for the party stated
in this lease or to such other address as either party may specify by
notice to the other. Notice to Tenant may always be delivered to the
Premises. Rent shall be payable to Landlord at the same address and in
the same manner, but shall be considered paid only when received.
16.1 Subordination and Attornment.
This lease shall be subject to and subordinate to any mortgages, deeds
of trust, or land sale contracts (hereafter collectively referred to as
encumbrances) now existing against the Building. At Landlord's option
this lease shall be subject and subordinate to any future encumbrance
hereafter placed against the Building (including the underlying land) or
any modifications of existing encumbrances, and Tenant shall execute
such documents as may reasonably be requested by Landlord or the holder
of the encumbrance to evidence this subordination. If any encumbrance is
foreclosed, then if the purchaser at foreclosure sale gives to Tenant a
written agreement to recognize Tenant's lease, Tenant shall attorn to
such purchaser and this Lease shall continue.
16.2 Transfer of Building.
If the Building is sold or otherwise transferred by Landlord or any
successor, Tenant shall attorn to the purchaser or transferee and
recognize it as the lessor under this lease, and, provided the purchaser
or transferee assumes all obligations hereunder, the transferor shall
have no further liability hereunder.
16.3 Estoppels.
Either party will within 10 days after notice from the other execute,
acknowledge and deliver to the other party a certificate certifying
whether or not this lease has been modified and is in full force and
effect; whether there are any modifications or alleged breaches by the
other party; the dates to which rent has been paid in advance, and the
amount of any security deposit or prepaid rent; and any other facts that
may reasonably be requested. Failure to deliver the certificate within
the specified time shall be conclusive upon the party of whom the
certificate was requested that the lease is in full force and effect and
has not been modified except as may be represented by the party
requesting the certificate. If requested by the holder of any
encumbrance, or any ground lessor, Tenant will agree to give such holder
or lessor notice of and an opportunity to cure any default by Landlord
under this lease.
17.1 Attorneys' Fees.
In any litigation arising out of this lease, the prevailing party shall
be entitled to recover attorneys' fees at trial and on any appeal. If
Landlord incurs attorneys' fees because of a default by Tenant, Tenant
shall pay all such fees whether or not litigation is filed.
18.1 Quiet Enjoyment.
Landlord warrants that so long as Tenant complies with all terms of this
lease it shall be entitled to peaceable and undisturbed possession of
the Premises free from any eviction or disturbance by Landlord. Neither
Landlord nor its managing agent shall have any liability to Tenant for
loss or damages arising out of the acts, including criminal acts, of
other tenants of the Building or third parties, nor any liability for
any reason which exceeds the value of its interest in the Building.
19.1 Additional Rent-Tax Adjustment.
Whenever for any July 1 - June 30 tax year the real property taxes
levied against the Building and its underlying land exceed those levied
for the 1997-1998 tax year, then the monthly rental for the next
succeeding calendar year shall be increased by one-twelfth of such tax
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increase times Tenant's Proportionate Share. "Real property taxes" as
used herein means all taxes and assessments of any public authority
against the Building and the land on which it is located, the cost of
contesting any tax and any form of fee or charge imposed on Landlord as
a direct consequence of owning or leasing the Premises, including but
not limited to rent taxes, gross receipt taxes, leasing taxes, or any
fee or charge wholly or partially in lieu of or in substitution for ad
valorem real property taxes or assessments, whether now existing or
hereafter enacted. If any portion of the Building is occupied by a
tax-exempt tenant so that the Building has a partial tax exemption under
ORS 307.112 or a similar statute, then real property taxes shall mean
taxes computed as if such partial exemption did not exist. If a separate
assessment or identifiable tax increase arises because of improvements
to the Premises, then Tenant shall pay 100 percent of such increase.
19.3 Operating Expense Adjustment.
Tenant shall pay as additional rent Tenant's Proportionate Share of the
amount by which operating expenses for the Building increase over those
experienced by Landlord during the calendar year 1997 (base year).
Effective January 1 of each year Landlord shall estimate the amount by
which operating expenses are expected to increase, if any, over those
incurred in the base year. Monthly rental for that year shall be
increased by one-twelfth of Tenant's share of the estimated increase.
Following the end of each calendar year, Landlord shall compute the
actual increase in operating expenses and bill Tenant for any deficiency
or credit Tenant with any excess collected. As used herein "operating
expenses" shall mean all costs of operating and maintaining the Building
as determined by standard real estate accounting practice, including,
but not limited to: all water and sewer charges; the cost of natural gas
and electricity provided to the Building; janitorial and cleaning
supplies and services; administration costs and management fees;
superintendent fees; security services, if any; insurance premiums;
licenses, permits for the operation and maintenance of the Building and
all of its component elements and mechanical systems; the annual
amortized capital improvement cost (amortized over such a period as
Landlord may select but not shorter than the period allowed under the
Internal Revenue Code and at a current market interest rate) for any
capital improvements to the Building required by any governmental
authority or those which have a reasonable probability of improving the
operating efficiency of the Building.
19.4 Disputes.
If Tenant disputes any computation of additional rent or rent adjustment
under paragraphs 19.1 through 19.3 of this lease, it shall give notice
to Landlord not later than one year after the notice from Landlord
describing the computation in question, but in any event not later than
30 days after expiration or earlier termination of this lease. If Tenant
fails to give such a notice, the computation by Landlord shall be
binding and conclusive between the parties for the period in question.
If Tenant gives a timely notice, the dispute shall be resolved by an
independent certified public accountant selected by Landlord whose
decision shall be conclusive between the parties. Each party shall pay
one-half of the fee for making such determination except that if the
adjustment in favor of Tenant does not exceed ten percent of the
escalation amounts for the year in question, Tenant shall pay (i) the
entire cost of any such third-party determination; and (ii) Landlord's
out-of-pocket costs and reasonable expenses for personnel time in
responding to the audit. Nothing herein shall reduce Tenant's
obligations to make all payments as required by this lease.
20.1 Complete Agreement; No Implied Covenants.
This lease and the attached Exhibits and Schedules if any, constitute
the entire agreement of the parties and supersede all prior written and
oral agreements and representations and there are no implied covenants
or other agreements between the parties except as expressly set forth in
this Lease. Neither Landlord nor Tenant is relying on any
representations other than those expressly set forth herein.
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20.2 Space Leased AS IS.
Unless otherwise stated in this Lease, the Premises are leased AS IS in
the condition now existing with no alterations or other work to be
performed by Landlord.
20.3 Captions.
The titles to the paragraphs of this lease are descriptive only and are
not intended to change or influence the meaning of any paragraph or to
be part of this lease.
20.4 Nonwaiver.
Failure by Landlord to promptly enforce any regulation, remedy or right
of any kind under this Lease shall not constitute a waiver of the same
and such right or remedy may be asserted at any time after Landlord
becomes entitled to the benefit thereof notwithstanding delay in
enforcement.
20.5 Exhibits.
The following Exhibits are attached hereto and incorporated as a part of
this lease:
EXHIBIT A (LEGAL DESCRIPTION), EXHIBIT B (PREMISES PLAN), AND
EXHIBIT C (RULES AND REGULATIONS)
SEE ATTACHED ADDITIONAL PROVISIONS
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IN WITNESS WHEREOF, the duly authorized representatives of the parties
have executed this lease as of the day and year first written above.
<TABLE>
<S> <C>
LANDLORD: By: /s/
PIONEER SQUARE ASSOCIATES, L.L.C., ----------------------------
A DELAWARE LIMITED LIABILITY COMPANY RICHARD WOLFEN, PRESIDENT
--------------------------------
Address for notices: ROCK ASSET MANAGEMENT
--------------------------------
720 S.W. Washington St., Suite 330
PORTLAND, OREGON 97205 MANAGER
--------------------------------
TENANT: By: /s/
e.g. SOFTWARE ----------------------------
W. GLENN BOYD, PRESIDENT
Address for notices: --------------------------------
4321 N.E. Couch St. By: /s/
Portland, Oregon 97213 -----------------------------
ELI SHAPIRA, CTO
Federal I.D. # 931123283 --------------------------------
Home Phone: 238-1293
</TABLE>
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STANDARD ADDENDUM TO OFFICE LEASE
Landlord: PIONEER SQUARE ASSOCIATES, LLC
Tenant: e.g. Software, Inc.
Date: June 4, 1997
THIS ADDENDUM ("Addendum") is made contemporaneously with and is part of
that certain Office Lease dated May 9, 1997, between the above-named Landlord
and the above-named Tenant for the Premises commonly known as Suite 1300 of the
American Bank Building, 621 SW Morrison Street, Portland, Oregon. The defined,
capitalized terms used and Section numbers in the Lease shall have the same
meanings when used in this Addendum. In the event of any inconsistency between
the provisions of this Addendum and the provisions of the Lease, the provisions
of this Addendum shall govern the rights of the parties.
21.1 TENANT IMPROVEMENTS. Except as set forth in this Section 21.1, the
Premises are leased in their present condition "AS IS" and Landlord has no duty
to improve the same. All tenant improvements to be made by Landlord to the
Premises have been mutually agreed upon by Landlord and Tenant and are described
in the plans and specifications (the "Plans") attached hereto as Exhibit B and
B-1 (the "Tenant Improvements"). Landlord shall construct the Tenant
Improvements in the manner set forth below:
(a) COMPLETION OF IMPROVEMENTS. Landlord shall construct the
Tenant Improvements substantially in accordance with the Plans. Landlord shall
have the right to make minor modifications to the Tenant improvements during the
course of construction to accommodate actual site conditions or to comply with
governmental requirements.
(b) DELIVERY OF POSSESSION TO TENANT. Landlord shall deliver
possession of the Premises to Tenant after Landlord has substantially completed
the Tenant Improvements. The Tenant Improvements shall be deemed substantially
completed on the date that Landlord delivers to Tenant (a) a certificate of the
general contractor that the Tenant Improvements have been substantially
completed, and (b) a certificate of occupancy for the Premises which contains no
conditions which prevent occupancy of the Premises. Upon substantial completion,
the Premises shall be deemed tendered and delivered to Tenant. Tenant
acknowledges that certain items (commonly referred to as "punchlist items") may
remain to be performed or completed following substantial completion. Landlord
will promptly perform all punchlist work. Tenant and its agents shall not delay
or interfere with the completion of punchlist items. Upon request, Tenant shall
confirm, in writing, that Landlord has completed the Tenant Improvements (or has
completed the Tenant
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Improvements except for specific punchlist items). Tenant shall notify Landlord
in writing of any items that Tenant deems incomplete in order for the Premises
to be acceptable to Tenant within ten (10) days following substantial
completion. Tenant shall be deemed to have accepted the Premises and approved
construction of the Tenant Improvements except only for items included in any
such notice.
(c) COMMENCEMENT DATE. The commencement date of the term of this
Lease and the date upon which rent shall commence to accrue shall be the
earliest of (i) October 1, 1997, (ii) the date upon which Tenant occupies all or
a part of the Premises for the conduct of its business, or (iii) the date upon
which Landlord delivers possession of the Premises in accordance with 21.1(b),
or (iv) the date Landlord would have delivered possession absent Tenant Delays
(defined below). In the event that the Tenant Improvements or any portion
thereof have not been completed by the commencement date, this Lease shall not
be invalid, but rather Landlord shall complete the Tenant Improvements as soon
thereafter as is possible and Landlord shall not be liable to Tenant for damages
in any respect whatsoever.
(d) TENANT DELAYS. All dates by which Landlord is to complete the
Tenant Improvements and/or to deliver possession of the Premises to Tenant shall
be extended by the number of days of delay occasioned by (a) acts, events, or
conditions beyond the reasonable control of Landlord (including, by way of
example, adverse weather, labor disturbances, shortages of materials, and/or
delays in governmental inspections or permit issuances), and/or (b) acts or
omissions of Tenant or its agents, including requests for changes to the Plans
("Tenant Delays"). Landlord shall be deemed to have completed each of its
obligations on the date the same would have been completed absent Tenant Delays.
Tenant shall reimburse Landlord within thirty (30) days of request for all cost
increases and other expenses caused by Tenant Delays.
(e) CHANGES. Landlord shall have no obligation to make changes in
the Plans requested by Tenant. In the event Landlord agrees to any requested
change, then (a) any additional costs resulting from the change shall be paid by
Tenant to Landlord upon Landlord's approval of the change, and (b) any delays in
substantial completion of the Tenant Improvements as a result of the change
shall be deemed Tenant Delays.
22.1 RIGHT OF FIRST REFUSAL. The "Expansion Space" is the leasable area
of the 14th floor of the Building. Subject to the preexisting right of Opton
Galton Rosenthal, P.C. (existing tenant suite 1410) to extend their lease, at
any time during the initial term of this Lease that Landlord receives a fully
executed letter of intent to lease the Expansion Space or any portion of it to a
prospective third party, Landlord shall communicate to Tenant, in writing, the
financial consideration and other financial terms of such letter of intent.
Landlord's communication shall constitute an offer to Tenant to lease the
Expansion Space or applicable portion thereof on the terms set forth in such
communication and otherwise on the terms set forth in Lease. Tenant specifically
acknowledges that a third party may be willing to lease the Expansion Space for
a term which is longer than the unexpired balance of the
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initial term of this Lease, or as part of a larger space. Therefore, Landlord
may offer the Expansion Space or the applicable portion thereof to Tenant on
terms which require Tenant (a) to extend the balance of the term of this Lease
(at a rent acceptable to Landlord) to coincide with the length of the term being
considered with respect to the third party and/or, (b) to lease the entirety of
the larger space.
Tenant shall have until 5:00 p.m. on the Tenth (10th) working day
following receipt of Landlord's communication to agree in writing to lease the
Expansion Space on the terms offered by Landlord, and shall have five (5) days
following receipt of a lease or addendum prepared by Landlord to execute a lease
or an addendum hereto with Landlord for the space offered by Landlord's
communication, on the terms set forth in this Lease and in Landlord's
communication (it being acknowledged that Landlord's communication shall set
forth, in addition to other matters, the condition in which the offered space is
offered, the amount of any tenant improvement allowance, the amount of any
security deposit or additional security deposit required with respect to offered
space, and such other matters as Landlord may include). Should Tenant fail to
execute such a lease or addendum, or otherwise indicate rejection of such
communication, Landlord may negotiate with the intended third party and execute
a lease with such third party on any terms negotiated, whether similar or
dissimilar to those originally communicated to Tenant, so long as Landlord's
communication to Tenant was made in good faith. If a lease with the third party
is signed, this shall terminate Tenant's rights hereunder as to the Expansion
Space. If a lease with the third party is not signed, the Expansion Space shall
again be subject to this right of First Refusal, but only as to letters of
intent containing financial terms materially less favorable to Landlord than any
proposal which Tenant has previously failed to accept under this Section.
As a condition to Landlord accepting a lease or addendum with Tenant
under this Section, Landlord shall have the right to review then current
financial statements of Tenant. If Landlord is not satisfied, in its discretion,
with the financial condition of Tenant, as demonstrated by such financial
statements, then Landlord may proceed to negotiate with the third party on the
same terms as if Tenant had rejected Landlord's communication.
All communications and notices under this Section shall be hand
delivered during business hours to Landlord at its offices at 720 S.W.
Washington Street, Suite 330, Portland, OR 97205, and to Tenant at the Premises.
The rights of Tenant under this Section are not assignable and shall
terminate upon any assignment, sublease or event of default hereunder by Tenant,
or any termination of this Lease or of Tenant's right of possession hereunder;
provided, however, in the event Tenant shall have exercised an expansion right
pursuant to this Section and Landlord subsequently terminates this Lease or
Tenant's right of possession hereunder for default, the damages to which
Landlord shall be entitled shall include damages with respect to the leasing of
the Expansion Space.
-3-
<PAGE> 14
At such time as Tenant rejects a communication by Landlord or otherwise
has no rights (or less rights) with respect to Expansion Space or any portion
thereof, Tenant shall execute and deliver to Landlord a certificate setting
forth the status of the remaining rights, if any, which Tenant enjoys with
respect to the Expansion Space, the compliance of Landlord with the process set
forth in this Section, and such other matters as Landlord may recently request.
23.1 LANDLORD'S CONSENT. In no event shall Tenant have the right to
terminate this Lease, and in no event shall Landlord be liable for monetary
damages, based upon a claim that consent has been unreasonably withheld or
conditioned or otherwise arising from the withholding or conditioning of
consent.
24.1 AMERICANS WITH DISABILITIES ACT ("A.D.A."). Tenant acknowledges
that (a) compliance of the Premises with the A.D.A. depends upon the uses of the
Premises, the location of each use within the Premises, alterations which Tenant
makes to the Premises, and changes to these factors over time, and (b) Tenant
may have obligations under the A.D.A. as an employer which may differ from its
obligations as the operator of the Premises. Tenant shall make only such uses of
the Premises as comply with the A.D.A. Tenant agrees that in connection with any
installation of alterations and improvements by Tenant, Tenant shall comply with
all requirements of the A.D.A. relating thereto including, but not limited to,
any requirements to improve or modify other portions or aspects of the Premises
in connection with or as a result of the alterations or improvements
contemplated by Tenant, all at the expense of Tenant.
25.1 ATTORNEY FEES. In the event of any litigation between Landlord and
Tenant with regard to this Lease, including litigation or proceedings in
Bankruptcy Court whether or not regarding issues which are unique to bankruptcy
law, the prevailing party shall be entitled to recover, in addition to all other
sums and relief, its reasonable costs and attorney fees incurred at and in
preparation for such litigation or proceedings, including arbitration, trial,
appeal and review.
26.1 LIMITATION ON LANDLORD LIABILITY. Landlord shall not be liable for
injury or damage to the person, merchandise, or other property of Tenant,
Tenant's employees, 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, or 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. Landlord shall
not be liable for any damages arising from any act or neglect of any other
tenant of Landlord. Notwithstanding Landlord's negligence or breach of this
Lease, Landlord shall under no circumstances be liable for injury to Tenant's
business or for any loss of income or profit therefrom. Tenant further agrees
that, in the event of any actual or
-4-
<PAGE> 15
alleged failure, breach or default hereunder by Landlord, Tenant's sole and
exclusive remedy shall be against the Landlord's interest in the Building.
Tenant agrees that the obligations of Landlord under this Lease do not
constitute personal obligations of the Landlord and Tenant shall not seek
recourse against Landlord or any of its personal assets for satisfaction of any
liability with respect to this Lease. For purposes of this Section, the term
"Landlord" means and includes the Landlord named below and any successor
landlord, the agents and property managers of such lessors, and the owners,
employees, and agents of the foregoing.
26.2 LANDLORD INDEMNIFICATION. Subject to the provisions of Section 26.1
above and the other provisions of the Lease and this Addendum which limit the
liability of Landlord hereunder, Landlord agrees to indemnify and to defend
Tenant from any claim, liability, damage, or loss to the extent the same arises
out of the negligence of Landlord or its agents.
27.1 EARLY EXPIRATION. Tenant shall have the right to cause the term of
this Lease to expire on that date which is the first day of the 37th full
calendar month following the Commencement Date (herein the "Revised Expiration
Date"), upon and subject to the following provisions.
(a) This right shall be exercised, if at all, by written notice (the
"Expiration Notice") given by Tenant to Landlord no later than one hundred
eighty (180) days prior to the Revised Expiration Date. Such Expiration Notice
shall be valid only if (i) it is given within the time specified above, (ii)
prior to the giving of such notice, Tenant shall not have assigned its interest
hereunder or sublet all or any portion of the Premises for a term that would
extend beyond the Revised Expiration Date, (iii) Tenant shall not be in default
and no act, event, condition, or omission has occurred which, alone or together
with notice and/or the passage of time, would constitute a default under the
terms of this Lease, and (iv) such Expiration Notice is accompanied by the
payment required by paragraph (b) below.
(b) The Expiration Notice shall be deemed given and received only if
accompanied by payment, by cashier's check, of an amount equal to one month of
rent (i.e., $14,253.33). In the event rent hereunder shall increase, then the
amount of the payment shall increase proportionately. The parties agree that
such payment is to be paid to compensate Landlord for economic loss which
Landlord would suffer by reason of the early expiration of this Lease and that
the amount of such compensation has been negotiated by the parties and is agreed
to be reasonable. Tenant understands that Landlord does not typically grant
early expiration rights and that Landlord would be unwilling to grant such a
right in this Lease absent this agreement to be reasonably compensated.
(c) Upon the giving of the Expiration Notice and the making of the
payment required above, the expiration date of the term of this Lease shall be
and become the Revised Expiration Date as perfectly as if such Revised
Expiration Date had been the expiration date originally set forth in this Lease.
Until such Revised Expiration Date, this Lease shall continue in full force and
effect (except as specified in paragraph (d) below), without abatement of rent
or other diminishment of the obligations of Tenant hereunder. The
-5-
<PAGE> 16
expiration of the Lease upon the Revised Expiration Date shall not terminate any
previously accrued liabilities or obligations of Tenant, all of which shall
survive such expiration.
(d) The giving of an Expiration Notice shall constitute the irrevocable
waiver by Tenant of any right to exercise any option to renew or to extend this
Lease and the waiver of any right of first refusal, first opportunity, or other
right to lease or to negotiate for the lease of additional space.
(e) In the event Tenant exercises any right to renew or extend the term
of this Lease or to Lease any additional space to be added to the Premises, then
the exercise of any such right shall automatically amend the provisions of this
Section (e) to reset the Revised Expiration Date to be that date which is the
first day of the 37th month following the first day of the renewal or extension
term or the first day upon which Tenant accepts rent paying occupancy of the
additional space, as the case may be, and the amount of the payment required to
be made at the time of the giving of the Exercise Notice shall be equal to two
times the monthly rent payable for the last month preceding the Revised
Expiration Date.
(f) Upon request following the giving of an Expiration Notice, either
party shall execute an amendment to this Lease setting forth the revision of the
expiration date; provided, the failure of the parties to execute any such
amendment shall not affect their respective rights hereunder. At any time within
ten days of written request, Tenant shall execute and deliver a statement
indicating whether or not an Expiration Notice has been given and such matters
with respect to any Expiration Notice which has been given as Landlord may
request.
28.1 HEATING, VENTILATION AND AIR CONDITIONING. Landlord shall make
heating and air conditioning under Paragraph 5.1 available to Tenant after hours
for an additional charge of $40.00 per hour.
-6-
<PAGE> 17
<TABLE>
<S> <C>
Landlord: PIONEER SQUARE ASSOCIATES, LLC, a
Delaware limited liability company
By: ROCK ASSET MANAGEMENT, a
California, corporation,
Manager
By: /s/
-----------------------------
Richard Wolfen, President
Date: 6/4/97
Tenant: e.g. Software, Inc.
By: /s/
-----------------------------
W. Glenn Boyd, President
Date: 6/4/97
By: /s/
-----------------------------
Eli Shapira, CTO
Date: 6/4/97
</TABLE>
-7-
<PAGE> 18
EXHIBIT "A"
LEGAL DESCRIPTION
AMERICAN BANK BUILDING
A portion of Block 178, CITY OF PORTLAND, in the City of Portland, County of
Multnomah and State of Oregon, described as follows:
Beginning at the Southwesterly corner of Block 178, CITY OF PORTLAND, County of
Multnomah and State of Oregon, according to the recorded plat thereof, at the
intersection of the East line of Seventh Street (now SW Broadway) with the North
line of SW Morrison Street and running thence Easterly with said North line of
SW Morrison Street, 200 feet to the Southeasterly corner of said block; thence
Northerly with the West line of SW 6th Street, 75 feet; thence Westerly and
parallel with the North line of said S.W. Morrison Street, 70.15 feet, more or
less; thence Southerly and parallel with the West line of SW 6th Street, 5 feet;
thence Westerly and parallel with the said SW Morrison Street, 70 feet; thence
Northerly and parallel with the East line of Seventh Street, (now SW Broadway) 5
feet; thence Westerly and parallel with the North line of SW Morrison Street,
59.85 feet, more or less, to the East line of Seventh Street (now SW Broadway);
thence South along the East line of Seventh Street (now SW Broadway) 75 feet to
the place of beginning.
<PAGE> 19
EXHIBIT "B"
AMERICAN BANK BUILDING
THIRTEENTH FLOOR
(NOT TO SCALE)
[DIAGRAM]
<PAGE> 20
EXHIBIT B-1
LANDLORD IMPROVEMENTS
Landlord shall provide the following improvements to Suite 1300, the American
Bank Building using building standard finishes:
1. Carpet and pad;
2. Paint throughout;
3. Extension of Tenant cabling from Suite 1025 to Suite 650 during
Tenant's temporary occupancy of Suite 650;
4. Cabling of Suite 1300 per the specification contained in the
letter of Christensen Electric to Mark Ierulli dated May 13,
1997. Landlord shall not be required to use Christensen Electric
to accomplish cabling work; and,
5. Landlord shall either provide existing tenant's (Bricker,
Zakovics & Querin, P.C.) workstations and reception counter or
may build similar workstations and reception counter using
melamine and plastic laminate instead of wood finishes at
Landlord's option.
No other improvements are contemplated.
<PAGE> 21
EXHIBIT "C"
Rules and Regulations
1. Lessee will deposit all garbage in the receptacles the Lessor provides for
garbage and will not leave or accumulate any boxes, packing material, or other
trash of any kind on the premises or common areas.
2. Lessee shall not display any merchandise outside the premises at any time
without the prior written consent of the Lessor.
3. Lessee shall not erect or install any signs or advertising material or
devices in or about the Premises without the previous approval of the Lessor.
Lessee shall not place upon or install in windows or other openings or exterior
sides of doors or walls of the Premises or any part of the Premises visible from
the exterior of the Premises any signs, symbols, drapes or other materials
without prior written consent of Lessor.
4. Lessee shall ensure that no animals are kept in or about the Premises and
that the Premises are not used for sleeping quarters.
5. Lessee shall not bring upon the Premises any machinery, equipment, or article
or thing that by reason of it's weight, size or use might damage the Premises
and that it will not at any time overload the floors of the Premises.
6. All deliveries shall be made to the loading entrance provided and during such
periods as shall be designated by Lessor. Lessee shall not interfere with
access.
7. No auction, quitting business, bankruptcy, fire, or similar sale shall be
conducted on the premises without the prior approval of the Lessor.
8. Use of Service Elevator. The Landlord shall designate appropriate entrances
and a "service" elevator for deliveries or other movement to or from the
Premises of equipment, materials, supplies, furniture or other property, and
Lessee shall not use any other entrances or elevators for such purposes. The
service elevator shall be available for use by all tenants in the building,
subject to such reasonable scheduling as Landlord in its discretion shall deem
appropriate.
9. Any directory provided by the Lessor for the Building will be for display of
the business name and location of Lessees and Lessor reserves the right to
exclude any other names.
10. Lessee shall not place any new or additional locks on any doors of the
Premises or re-key any existing locks without the consent of the Lessor.
11. Lessor reserves the right to exclude or expel from the common areas any
person who, in the judgement of the Lessor, is intoxicated, under the influence
of drugs, or who shall in any manner violate any of the rules and regulations.
12. Lessee shall not do or permit to be done within the Premises anything which
would unreasonably annoy or interfere with the rights of other Lessees of the
Building.
13. Lessee shall not permit it's employees or invitees to loiter in or about the
common areas, or to obstruct any of the parking, truck maneuvering, or other
common areas, or to place, empty, or throw any rubbish, litter, trash or
material of any nature upon any common areas.
<PAGE> 22
14. No storage of materials, equipment, or property of any kind is permitted
outside the Premises (except in designated locations with Lessor's consent) and
any such property may be removed by Lessor at Lessee's risk and expense.
15. Lessee shall not make or permit any use of the Premises which may be
dangerous to life, limb or property, or any noise, odor or vibrations to emit
from the Premises which are objectionable to Landlord or other occupants of the
Building; or to create, maintain, or permit a nuisance or any violation of any
regulation of any governmental agency thereon.
16. Lessee shall not commit or permit to be committed any waste, damage or
injury to the Premises or other common areas adjoining the Building and shall
promptly repair the same at it's expense.
17. Lessee shall not at any time display a "For Rent" sign upon the Premises.
18. Lessee shall be responsible for keeping a copy of the Lease and Lessor's
current rules and regulations upon the Premises.
19. Lessee shall not waste electricity or water and agrees to cooperate fully
with Lessor to assure the most effective and economical use of utilities
services as may be provided to the Building by Lessor.
20. Lessee shall keep Lessor advised of the current telephone numbers of
Lessee's employees who may be contacted in an emergency; i.e. fire, break-in,
vandalism, etc. If Lessor shall deem it necessary to respond to such emergency
in Lessees behalf, Lessee shall pay all costs incurred for services ordered by
Lessor to secure or otherwise protect the Premises and the contents thereof,
including premium charge for any time spent by Lessor's employees in responding
to such an emergency.
21. Bicycles are not allowed in the Building under any circumstances.
22. All common areas, including the restrooms, and all storage areas are
non-smoking areas.
<PAGE> 23
FIRST AMENDMENT TO LEASE
THIS FIRST AMENDMENT TO LEASE is made this 8th day of September, 1998 by
and between CITY CENTER RETAIL TRUST, a Maryland real estate investment trust
("Landlord"), and WEBTRENDS CORPORATION, a corporation, formerly known as e.g.
Software, Inc. ("Tenant").
RECITALS
A. Landlord and Tenant are parties to that certain Lease dated May 22,
1997 which was executed June 4, 1997 ("Lease"). Pursuant to the Lease, Landlord
is leasing to Tenant and Tenant is leasing from Landlord Suite 1300 of the
American Bank Building in Portland, Oregon ("Premises").
B. Tenant has proposed an assignment of its interest in the Lease to a
third party. Under Section 10.1 of the Lease, Landlord has the right to
terminate the Lease as a result of such proposed assignment. Understanding that
Landlord holds such a termination right, Tenant has requested a modification to
the Lease to advance the expiration date of the term of the Lease. Landlord is
willing to agree to such a request, on the terms and conditions set forth
herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are acknowledged by each of the parties, it is agreed as
follows.
1. Assignment Proposal. Tenant hereby withdraws its request for consent
to the proposed assignment of its interest in the Lease. Tenant acknowledges
that Landlord has responded to the previous request for consent by Tenant in a
manner which is and was reasonable and that Landlord has fulfilled all of its
obligations with respect to the request for consent to the proposed assignment.
Tenant further agrees and acknowledges that, in connection with this Amendment
to the Lease, Landlord has acted, in all respects, in accordance with its
obligations under the Lease and any obligations otherwise imposed by law.
2. Early Expiration. Landlord and Tenant hereby agree that the term of
the Lease shall expire on January 31, 1999 ("Revised Expiration Date"), rather
than on the originally scheduled expiration date of the term. Upon the Revised
Expiration Date, the term of the Lease shall expire as perfectly as if the
Revised Expiration Date had been the expiration date originally set forth in the
Lease. Until the Revised Expiration Date, the Lease shall continue in full force
and effect.
3. Payment. As consideration for the substitution of the Revised
Expiration Date for the originally scheduled expiration date of the term, Tenant
shall pay to Landlord, no later than September 30, 1998 the sum of $20,547.66;
this figure consists of $20,043.75 representing 45 days of Monthly Base Rent at
the rate of $15 per square foot per year, and $503.91 representing an estimate
of 45 days of additional rent for real property taxes and
<PAGE> 24
operating expenses at the estimated rate applicable during the first quarter of
1999. In the event the payment required by this Section 3 is not timely made,
Landlord shall have the right, at its election, (a) to treat the same as a
failure of a condition to the revision of the expiration date, in which event
the originally scheduled expiration date of the term shall remain in effect and
the term of the Lease shall continue until the originally scheduled expiration
date, or (b) to treat the same as any other failure to pay rent under the Lease.
4. Inspection. On or prior to the Revised Expiration Date, the Tenant
shall vacate the Premises, removing all of the property of Tenant from the
Premises and leaving the Premises in the condition required by the Lease.
Following such vacation of the Premises, Landlord shall inspect the Premises (in
the company of a representative of Tenant, if Tenant so requests) to determine
whether Tenant has complied with its obligations under the Lease. Neither the
vacation of the Premises nor the occurrence of the Revised Expiration Date shall
relieve Tenant of its obligations with regard to the condition of the Premises.
Any property of Tenant left in the Premises shall be deemed abandoned and
Landlord shall have the right to remove and to dispose of the same, as Tenant's
cost.
5. Survival. The indemnity and attorneys' fees provisions of the Lease,
together with all of the obligations and liabilities of Tenant arising or
accruing under the Lease prior to the Revised Expiration Date and vacation of
the space by Tenant, shall survive the expiration of the term of the Lease.
6. Time. Time is of the essence with respect to the Lease, including
with respect to the provisions of this Amendment. Tenant acknowledges that
Landlord intends to make arrangements for re-letting all or a portion of the
Premises to a different lessee, and that timing is of great importance. In the
event Tenant holds over in the Premises beyond the Revised Expiration Date, such
holding over shall constitute a tenancy at sufferance only terminable by
Landlord upon 72 hours written notice. During any such holdover tenancy, the
monthly rental hereunder shall be increased to $30 per square foot per year,
prorated on a daily basis. In addition, Tenant shall be liable for all damages
caused to Landlord by reason of such failure to vacate.
7. Access. Tenant agrees to allow Landlord and its agents access to the
Premises prior to the Revised Expiration Date for purposes of showing the
Premises to prospective lessees and/or planning the remodeling of the Premises
for succeeding lessees, so long as such activities of Landlord do not
unreasonably interfere with the use of the Premises by Tenant.
8. Accounting Matters. Landlord holds a security deposit in the sum of
$4,901.16 from Tenant. Following the inspection referenced above and the
determination of any liabilities then known to be owed from Tenant to Landlord,
an accounting of the security deposit shall be rendered and any excess amount
promptly refunded to Tenant. Landlord shall, following each of 1998 and 1999,
perform its customary reconciliation of additional rent payments for property
taxes and operating expenses for the year then ended and any adjustment payment
shall be made between the parties following such reconciliation. Such
<PAGE> 25
reconciliation shall include the 45-day estimated additional rent amount paid by
Tenant pursuant to Section 3 above.
9. Waiver. Tenant agrees and acknowledges that Landlord has performed
all of its obligations under and with respect to the Lease and that Tenant has
no right to claim any offset against amounts payable under the Lease. Tenant
hereby waives and releases all claims, known or unknown, previously accrued or
arising against Landlord or any of its agents with respect to the Lease and/or
the Premises.
10. Attorneys' Fees. In the event of litigation with respect to the
Lease, the prevailing party shall be entitled to recover, in addition to all
other costs and expenses, its reasonable attorneys' fees incurred at and in
preparation for arbitration, trial, appeal and review. This provision shall
apply to litigation and proceedings in bankruptcy court, including litigation or
proceedings involving issues unique to bankruptcy law.
11. Notice as to Liability. In accordance with the Declaration of Trust
of Landlord, notice is hereby given that all persons dealing with Landlord shall
look solely to the assets of Landlord for the enforcement of any claim against
Landlord, as neither the trustees, officers, nor shareholders of Landlord assume
any personal liability for obligations entered into by or on behalf of Landlord.
Tenant acknowledges and agrees that the foregoing provision is hereby
incorporated into the Lease for all purposes.
12. Effect of Amendment. This Amendment shall be effective only when
executed and delivered by each of the parties hereto. Submission of this
Amendment for review does not constitute an offer by Landlord to Tenant. This
document may not be relied upon, nor may any claim for reliance or estoppel be
made based upon this document, unless and until this document is fully executed
and delivered by each party. Upon such full execution and delivery, this
Amendment shall amend the Lease and shall become a part of the Lease. Except as
expressly amended hereby, the Lease remains in full force and effect and the
same is hereby ratified and confirmed.
IN WITNESS WHEREOF, this Amendment has been executed as of the date
first above written.
Landlord: CITY CENTER RETAIL TRUST,
a Maryland real estate investment trust
By: /s/
------------------------------------
Its: Senior Vice President
Tenant: WEBTRENDS CORPORATION, a
corporation
By: /s/
------------------------------------
Its: President
<PAGE> 1
EXHIBIT 10.7
PROMISSORY NOTE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Principal Loan Date Maturity Loan No Call Collateral Account Officer Initials
$750,000.00 12-19-1997 04-30-1999 19 365 9476051478 12619
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
- ------------------------------------------------------------------------------------------------------
Borrower: Webtrends Corporation Lender: U. S. BANK NATIONAL ASSOCIATION
621 SW Morrison Ste 1300 CORPORATE BANKING DIVISION
Portland, OR 97205 PL-7 OREGON COMMERCIAL LOAN SERVICING
556 S. W. OAK
PORTLAND, OR 97204
======================================================================================================
Principal Amount: $750,000.00 Initial Rate: 8.750% Date of Note: December 19, 1997
</TABLE>
PROMISE TO PAY. Webtrends Corporation ("Borrower") promises to pay to U. S. BANK
NATIONAL ASSOCIATION ("Lender"), or order, in lawful money of the United States
of America, the principal amount of Seven Hundred Fifty Thousand & 00/100
Dollars ($750,000.00) or so much as may be outstanding, together with interest
on the unpaid outstanding principal balance of each advance. Interest shall be
calculated from the date of each advance until repayment of each advance.
PAYMENT. Borrower will pay this loan in one payment of all outstanding principal
plus all accrued unpaid interest on April 30, 1999. In addition, Borrower will
pay regular monthly payments of accrued unpaid interest beginning February 5,
1998, and all subsequent interest payments are due on the same day of each month
after that. The annual interest rate for this Note is computed on a 365/360
basis; that is, by applying the ratio of the annual interest rate over a year of
360 days, multiplied by the outstanding principal balance, multiplied by the
actual number of days the principal balance is outstanding. Borrower will pay
Lender at Lender's address shown above or at such other place as Lender may
designate in writing. Unless otherwise agreed or required by applicable law,
payments will be applied first to accrued unpaid interest, then to principal,
and any remaining amount to any unpaid collection costs and late charges.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from
time to time based on changes in an index which is the Lender's Prime Rate. This
is the rate of interest which Lender from time to time establishes as its Prime
Rate and is not, for example, the lowest rate of interest which Lender collects
from any borrower or class of borrowers (the "Index"). The interest rate shall
be adjusted without notice effective on the day Lender's prime rate changes.
Lender will tell Borrower the current index rate upon Borrower's request.
Borrower understands that Lender may make loans based on other rates as well.
The interest rate change will not occur more often than each Day. The index
currently is 8.500% per annum. The interest rate to be applied to the unpaid
principal balance of this Note will be of a rate of 0.250 percentage points over
the index, resulting in an initial rate of 8.750% per annum.
PREPAYMENT. Borrower may pay without penalty all or a portion of the amount owed
earlier than it is due. Early payments will not, unless agreed to by Lender in
writing, relieve Borrower of Borrower's obligation to continue to make payments
of accrued unpaid interest. Rather, they will reduce the principal balance due.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform when
due any other term, obligation, covenant, or condition contained in this Note or
any agreement related to this Note, or in any other agreement or loan Borrower
has with Lender. (c) Any representation or statement made or furnished to Lender
by Borrower or on Borrower's behalf is false or misleading in any material
respect either now or at the time made or furnished. (d) Borrower becomes
insolvent, a receiver is appointed for any part of Borrower's property, Borrower
makes an assignment for the benefit of creditors, or any proceeding is commenced
either by Borrower or against Borrower under any bankruptcy or insolvency laws.
(e) Any creditor tries to take any of Borrower's property on or in which Lender
has a lien or security interest. This includes a garnishment of any of
Borrower's accounts with Lender. (f) Any guarantor dies or any of the other
events described in this default section occurs with respect to any guarantor of
this Note. (g) A material adverse change occurs in Borrower's financial
condition, or Lender believes the prospect of payment or performance of the
indebtedness is impaired. (h) Lender in good faith deems itself insecure.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance an this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Upon default, including failure
to pay upon
PAGE 1
<PAGE> 2
PROMISSORY NOTE
(continued)
final maturity, Lender, at its option, may also, if permitted under applicable
law, increase the variable interest rate on this Note to 5.250 percentage points
over the Index. The interest rate will not exceed the maximum rate permitted by
applicable law. Lender may hire or pay someone else to help collect this Note if
Borrower does not pay. Borrower also will pay Lender that amount. This includes,
subject to any limits under applicable law, Lender's attorneys' fees and
Lender's legal expenses whether or not there is a lawsuit, including attorneys'
fees and legal expenses for bankruptcy proceedings (including efforts to modify
or vacate any automatic stay or injunction), appeals, and any anticipated
post-judgment collection services. If not prohibited by applicable law, Borrower
also will pay any court costs, in addition to all other sums provided by law.
This Note has been delivered to Lender and accepted by Lender in the State of
Oregon. If there is a lawsuit, Borrower agrees upon Lender's request to submit
to the jurisdiction of the courts of Multnomah County, the State of Oregon.
Subject to the provisions on arbitration, this Note shall be governed by and
construed in accordance with the laws of the State of Oregon.
RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA and Keogh accounts,
and all trust accounts for which the grant of a security interest would be
prohibited by law. Borrower authorizes Lender, to the extent permitted by
applicable law, to charge or setoff all sums owing on this Note against any and
all such accounts.
LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under
this Note, as well as directions for payment from Borrower's accounts, may be
requested orally or in writing by Borrower or by an authorized person. Lender
may, but need not, require that all oral requests be confirmed in writing.
Borrower agrees to be liable for all sums either: (a) advanced in accordance
with the instructions of an authorized person or (b) credited to any of
Borrower's accounts with Lender, regardless of the fact that persons other than
those authorized to borrow have authority to draw against the accounts. The
unpaid principal balance owing on this Note at any time may be evidenced by
endorsements on this Note or by Lender's internal records, including daily
computer print-outs. Lender will have no obligation to advance funds under this
Note if: (a) Borrower or any guarantor is in default under the terms of this
Note or any agreement that Borrower or any guarantor has with Lender, including
any agreement made in connection with the signing of this Note; (b) Borrower or
any guarantor ceases doing business or is insolvent; (c) any guarantor seeks,
claims or otherwise attempts to limit, modify or revoke such guarantor's
guarantee of this Note or any other loan with Lender; (d) Borrower has applied
funds provided pursuant to this Note for purposes other than those authorized by
Lender; or (e) Lender in good faith deems itself insecure under this Note or any
other agreement between Lender and Borrower.
ARBITRATION. Lender and Borrower agree that all disputes, claims and
controversies between them, whether individual, joint, or class in nature,
arising from this Note or otherwise, including without limitation, contract and
tort disputes, shall be arbitrated pursuant to the Rules of the American
Arbitration Association, upon request of either party. No act to take or dispose
of any collateral securing this Note shall constitute a waiver of this
arbitration agreement or be prohibited by this arbitration agreement. This
includes, without limitation, obtaining injunctive relief or a temporary
restraining order; foreclosing by notice and sale under any deed of trust or
mortgage; obtaining a writ of attachment or imposition of a receiver; or
exercising any rights relating to personal property, including taking or
disposing of such property with or without judicial process pursuant to Article
9 of the Uniform Commercial Code. Any disputes, claims, or controversies
concerning the lawfulness or reasonableness of any act, or exercise of any
right, concerning any collateral securing this Note, including any claim to
rescind, reform, or otherwise modify any agreement relating to the collateral
securing this Note, shall also be arbitrated, provided however that no
arbitrator shall have the right or the power to enjoin or restrain any act of
any party. Judgment upon any award rendered by any arbitrator may be entered in
any court having jurisdiction. Nothing in this Note shall preclude any party
from seeking equitable relief from a court of competent jurisdiction. The
statute of limitations, estoppel, waiver, laches, and similar doctrines which
would otherwise be applicable in an action brought by a party shall be
applicable in any arbitration proceeding, and the commencement of an arbitration
proceeding shall be deemed the commencement of an action for these purposes. The
Federal Arbitration Act shall apply to the construction, interpretation, and
enforcement of this arbitration provision.
LATE CHARGE. If a payment is 19 days or more past due, Borrower will be charged
a late charge of 5% of the delinquent payment.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Borrower and any other person who
signs, guarantees or endorses this Note, to the extent allowed by law, waive
presentment, demand for payment, protest and notice of dishonor. Upon any change
in the terms of this Note, and unless otherwise expressly stated in writing, no
party who signs this Note, whether as maker, guarantor, accommodation maker or
endorser, shall be released from liability. All such parties agree that Lender
may renew or extend (repeatedly and or any length of time) this loan, or release
any party or guarantor or collateral; or impair, fail to realize upon or perfect
Lender's security interest in
PAGE 2
<PAGE> 3
PROMISSORY NOTE
(continued)
the collateral; and take any other action deemed necessary by Lender without the
consent of or notice to anyone. All such parties also agree that Lender may
modify this loan without the consent of or notice to anyone other than the party
with whom the modification is made.
UNDER OREGON LAW MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY US (LENDER)
AFTER OCTOBER 3,1989 CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT
FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY THE BORROWER'S
RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY US TO BE
ENFORCEABLE.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THIS NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE.
BORROWER:
Webtrends Corporation
By: /s/ By: /s/
------------------------------ --------------------------------
W. Glen Boyd, President Eli Shapira, Chief Tech Officer
LENDER:
U. S. BANK NATIONAL ASSOCIATION
By: /s/
------------------------------
Authorized Officer
PAGE 3
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
Name Country of Incorporation
- ---- ------------------------
<S> <C>
WebTrends FSC Inc. Barbados
</TABLE>
<PAGE> 1
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
WebTrends Corporation:
The audits referred to in our report dated January 11, 1999, except for note 10
which is as of January 19, 1999, included the related financial statement
schedule as of and for each of the years in the three year period ended
December 31, 1998, included in the Registration Statement. This financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial statement schedule
based on our audits. In our opinion, such financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the Prospectus.
/s/ KPMG Peat Marwick LLP
Portland, Oregon
January 29, 1999
